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IT Budgets For 2004

IT Budgets For 2004

Budgets for all companies will be scrutinized during the fourth quarter. Executives are concerned about their economic state as a result of war and federal tax breaks. Luckily, as opposed to the manufacturing sector, the entertainment industry has not (and most likely will not) take too much of a hit to profits due to the political state of the world. Furthermore, the current breaks on taxes for businesses can plausibly be considered a source for allocation to previously hindered budgets.

Is this the time to resume spending on IT, a budget that has been swept under the carpet since Sept. 11, 2001? Aside from spending on security, budgets for technology-related research and development have been neglected. 2004 is the year entertainment companies can once again expand budget planning from the focus on talent, new content, security, and customer resource management to IT planning that can help induce growth and competitive advantage in the marketplace. In short, it's finally okay to spend.

Generating the Technology Plan

IT expenditures can be a solution to a particular problem, such as a need for higher security due to an increase in hacking (as we saw in 2002 and 2003). IT expenditures can also be used (and in 2004 most likely will be used) to handle global business issues that may be part of a company's overall business strategy. Once critical business problems are identified, one can begin work on generating a plan that outlines current technology and reveals information on future IT investing. A clear process is necessary for planning any IT budget. In adult entertainment, we should consider three basic steps:

Step 1. Make a list of what's currently being used. Assess the current number of server machines vs. client machines and make a list of each software application being used. If you do not have servers and are running on a few computers, you should count the number of computers in use and which applications you are using on each computer to run your business. Next, determine what software is being used the most on each machine. This will help determine your current critical technologies. The most common assessment resulting from this step is that most of a company's activities are done on only 10 or 20 percent of its applications, but with costs spent evenly across all apps.

Step 2. Categorize and score the relevance of each of your applications. Then you will be able rank your existing applications to find out which are more important for business survival. Some criteria to consider for ranking are: costs of development and maintenance; effect on productivity; and, of course, direct effect on gross revenue. In this business some applications exist out of a "show-off" factor, meaning they were purchased mostly because they were new or fashionable, not because they serve a purpose in the business process.

Step 3. Create alignment with your overall IT strategy. You should have a long-term strategy for your business and its desired scope and future. Keeping this strategy in mind, you can decide which of the applications you just ranked to invest more money in, leave alone, or eliminate from your systems. Keep in mind that your technology people may be attached to certain software that you should eliminate, and may come up with myriad excuses to keep it.

Aligning IT Strategy with Overall Business Strategy

With any budgeted year, the primary goal is to maximize the return on money spent, and in doing so, meet the major strategic issues of the business. The difficulty arises in situations where a particular aspect of the business requires more attention based on its current year's success - such as customer personalization - yet needs more attention within the scope of the overall business strategy, which may include increasing operational costs. In order to effectively align IT strategy with overall business strategy, you need to consider the goals and moves of the other units in the organization, such as marketing and production. Keeping a global scope in mind while budget planning will help you decide what to do in Step 3 above, which in turn will help reduce the costs of maintaining and managing unused applications; increase your stance with existing application providers to finagle lower licensing and maintenance costs; open the doors for investment in specific applications that have direct, positive impact on revenue and productivity; and reveal a lifecycle plan for technology from implementation to eventual elimination.

The "What" and "Where to" of Spending

Adult entertainment can directly benefit from four major categories of spending in 2004: business process management, customer service, marketing automation, and content evolution. The main challenges in this industry are acquiring and retaining customers, marketing and promoting new products and services, improving site and process efficiencies, enhancing the cost effectiveness of any system, and enhancing cost and lead-time effectiveness of content production, management, and distribution.

Business Process Management (BPM)

Business Process Management appears to be a good investment. With BPM, companies can automatically manage the everyday processes of operations. BPM solutions can aid in extracting customer information while adding new customer transactions and information to a database.

BPM solutions can also help automatically manage straight-through transactions, such as billing. There are several BPM solution providers, but an important characteristic of an appropriate solution is that it must have high scalability with respect to mission-critical data and customer transactions. In alignment with this characteristic, the solution should have support for integration so as not to leave the company backed into a corner with its existing applications. Detailed integration may require costly programming and the use of complicated adapters. Such concerns should be openly communicated to the BPM vendors' sales staff prior to hearing their pitch.

As an alternative to BPM, and depending on your particular needs, you may want to consider decision-support tools such as Business Intelligence Software. Business Intelligence Software is best used if your processes are already automated or very well orchestrated (without much executive intervention). Business Intelligence Tools will put various information into an analytical process in order to provide an output that will help executives make better informed decisions on company direction and spending. Companies can use this knowledge to adjust business processes to minimize risk, and quickly act on new opportunities.

If you feel you need a bit of both Business Intelligence Software and Business Process Management, you may consider using Business Performance Management technology. Business Intelligence Software is usually deployed to support individual business units, however Business Performance Management software can help companies develop particular strategies and subsequently measure how well individual tactics are supporting said strategies. The need for Business Performance Management depends on your current ability to align decisions and investments with the overall company vision.

Cognos Inc. and Hyperion Solutions Corp. offer business performance management solutions. Cognos offers a more complete solution via its planning application called Adaytum. Rob Ashe, COO and president of Cognos, declared that the recent addition to the solution package "is a key milestone in driving our Adaytum integration efforts ... our R&D teams have been working diligently on several strategic and tactical fronts to deliver these critical integrations. We're on a great pace to achieve our integration goals and solidify our leadership in both business intelligence and enterprise planning" (Cognos.com). The Cognos solution maintains corporate vision by addressing and conveying a common purpose throughout the organization.

Hyperion's software offers business planning and modeling in a collaborative fashion, and can measure performance and analyze results. Hyperion's solution brags a high ease of use and a low independence on experts. "Businesses can quickly and easily deploy any of Hyperion's business performance management solutions out of the box. Or, they can leverage Hyperion's Business Intelligence Platform to customize and extend these applications to meet the organization's specific needs. These applications leverage Hyperion's Business Intelligence Platform to integrate data from multiple sources, provide insightful analysis and drive an integrated financial and performance management process that aligns individual goals with corporate objectives" (Hyperion.com).

With the current state of Business Performance Management Software and Business Intelligence Software, which is seemingly morphing into Business Performance Management software as time goes on, it's still best to combine these solutions with a strong plan or solution for Business Process Management.

Customer Service

In the past, customer service has been neglected for the notion that the customer will not address her/his difficulties for a fear of losing anonymity. As pornography becomes more mainstream, we've seen this not to be the case. Customers will complain about the type of content, the length of content, and any technical difficulties they may endure. For adult entertainment companies, focus on customers is extremely important, especially with an ongoing and ever-increasing level of competition. Maintaining a competitive edge requires that a company be able to address customer needs and wants, and maintain customer loyalty, as well as predict future needs and wants with respect to additional products and services. In a competitive market such as this one, customer service issues make for better strategy than just cutting expenses and improving site and operations efficiency.

Customers today have many options. They can visit a simple Website, download MPEGs and AVIs, visit online sex shows and strippers in real time, call a hotline on the telephone, visit a physical store, or order through a direct mail order service or online venue. These are just a few of the popular methods in which adult entertainment is purchased. Whatever the customer's approach is to purchasing, there is a demand for a wide range of methods to interact with the content providers, including phone, snail mail, FAQ pages, chat support, and e-mail. Unfortunately, due to a previous lack of demand in the pioneer days, adult entertainment organizations have been hesitant to adopt technology that will meet such customer expectations. Customer service solutions attempt to manage every interaction that the company has with customers, including maintaining contact information, customer order status, and customer buying patterns for marketing automation. Customer anonymity still holds importance, as well as a consideration for customer time and patience, thus Web self-service is also important for content providers in order to strengthen relationships with customers.

Many consumers expect online self-service solutions such as FAQ pages or automated chat responses that allow them to access information and support on their own time as opposed to when the customer service representative or Webmaster has time to respond.

Consumers also expect personalized applications that let them change personal information or membership plans, check the status of orders, or investigate other products and services. Aside from having more satisfied customers, automated customer service solutions can help a company reduce the amount of necessary Webmaster or customer relations activity which requires human intervention.

Marketing Automation

Since the market is so saturated, competing products and services are just one click away for your customers. Adult entertainment companies don't have the luxury of waiting to analyze the buying patterns of customers, nor can they wait to assess the effectiveness of a given marketing campaign. Marketing analysis has to happen in real time with a focus on customer behavior and site traversal patterns, and with individual response to multiple ad campaigns. Most adult companies carry large amounts of data in the forms of product information, customer information, sales information, and click-through information. Marketing automation software can help house this data in one place and perform a variety of analyses to help executives make informed decisions on marketing campaigns and where and who to target.

Content Evolution

In order to compete in a saturated industry, especially during times of rapid technological growth and innovation, companies must adapt their products accordingly. Analogous to the movements from film to VHS, and from VHS to DVD, the demand for physical product sales is being diminished by the rise of and demand for e-products. This is in part due to improved technology in video and audio streaming, the reduction in manufacturing and warehousing costs, and the ascending trend of customer impatience; the "I want it now" attitude, which in turn fuels P2P file-sharing and bootlegging.

Vince Scalabrino, an analyst at SWI Labs, states, "We've been seeing over and over again with our clients that it is becoming ever more critical for entertainment companies to focus their efforts and spending on online distribution ... we've seen an enormous rise in customers with broadband and high-speed Internet ability and an enormous rise in demand for immediate online distribution of their music and movie purchases." He further adds that, "Unfortunately, it is easier and faster for most consumers to download their purchases illegally than it is to wait for delivery of a CD or DVD product. It is extremely important for entertainment companies to focus a large amount of attention towards their online distribution capabilities and technologies over the next three to five years in order to adjust to this trend" (SWILabs.com).

Beware of the Influences

When it comes to IT spending, there are significant social and vendor pressures, both inside and outside of the company, which can adversely affect budget allocation. Executives must look at their decisions objectively in accordance with overall business strategy, and make sure they are not swayed by such influences. Beware the following:

* IT staff trying to convince you of particular upgrades and expenditures simply because they're "fashionable" or because they make your staff feel "important." Such expenditures may not have any impact on profitability or business strategy, except to negatively affect cash-flow.

* Vendors attempting to sell unnecessary new products or upgrades. Such purchases may conflict with your best interests.

* Difficulty in integration. It may be more work than you bargained for to bring new software and upgrades into your existing systems and infrastructure. Make sure you're not swamped with excessive and expensive training time and product configuration and setup.

* Dependency on experts. Once you've implemented your new IT plan and strategy for 2004, you don't want to be in a position where you have to hire expensive experts or be dependent on maintaining specific employees in order to keep the system running (or worse) if something malfunctions. o

Anand Bhatt is CTO of SWI Labs, a technical consulting and research group, and is an executive at Sonic Wave International Entertainment. His name is also recognizable from his mainstream music career. Anand can be reached at sonicwave@apexmail.com.

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