Although IT portfolio management has been a best practice for some time now, many companies are still getting returns from IT investments that are below their potential. New studies show that a measurable premium can be gained by implementing a set of interlocking business practices and processes, collectively called “IT savvy.”
When the weather is hot, 7-Eleven Japan’s stores in Tokyo have plenty of bento boxes —Japan’s cold boxed meals of rice, pickles and other foodstuffs — while on cold days there are lots of hot noodles for sale. The stores’ operators always seem to have plenty of what their customers want; in fact, they order and receive fresh food deliveries three times a day. It is no coincidence that the company is the nation’s most profitable retailer. Its 2004 gross margins topped 30% — six times its 1977 gross margins. 7-Eleven Japan Co. Ltd. is — to put it simply — very savvy about using IT. At least twice a week, every one of its 10,000-plus mostly franchised stores gets a visit from a 7- Eleven Japan “counselor.” The counselor works with the store manager or franchisee to improve the business, often by using data from the store’s information systems to manage and order more effectively.1 By matching local practices and preferences to IT investments, the store can continually introduce and succeed with new product lines. The typical store adds 70% new items for sale each year, a higher rate than that of any other retailer in Japan, which helped double its average stores’ daily sales from 1977 to 2004. The store managers regularly receive graphical data showing recent sales, weather conditions and product range information, so they always know just how many bento boxes to order. 7-Eleven Japan makes effective IT investments and manages an IT portfolio that constantly matches its business strategy. But the company’s well-managed IT investments are only part of the story behind its 20-year track record of industry-leading financial returns. The convenience-store giant blends its IT investments with a range of assertive IT practices and capabilities —everything from the counselors’ visits that increase the store operators’ IT skills to the “transparency” of an information infrastructure that links 70,000 computers in stores, at headquarters and at supplier sites. A primary objective of this article is to show that IT investments alone, even using the much-heralded IT portfolio approach, cannot by themselves ensure that all key business goals are met. Our research shows that a measurable bottom line premium for every IT dollar invested is achieved by companies with a mutually reinforcing set of practices and capabilities that we call IT savvy.