Technology solutions

By Ari Nuncio

When it comes to technology, “innovative thinking and creativity will be a must for executives in 1999,” says Oscar Morales, director of the Monterrey-based consultant group Avraham Goldratt Institute. “The speed of change is increasing exponentially.”

Despite rough economic prospects, technology is continuing to play a dominant role in the Mexican economy. Policymakers in business and government will sit down to a veritable banquet of technology issues in 1999. There's the millennium bug, chronic power shortages, under-utilization of available technologies (such as the Internet and electronic mail), a lack of capital for new investment, and competitive pressures that make qualitative advances in technology more necessary than ever.

But as financing dries up, spending on technology is one of the first budgets to suffer. “In Mexico,” says Morales, “labor is cheaper than technology, if quality is not an issue. Since the uncertainty of the markets will increase, labor can be adjusted accordingly. Poor technology investments, though, once made are not easy to recover without a loss.”

Aggravating the uncertainty, when the peso loses value, especially to the degree it has recently, the price of foreign technology immediately shoots up.

Still, technology investments will keep growing “regardless of the difficulty in obtaining financing,” Morales says, because “not doing so could mean losing market share.” In the American Chamber of Commerce/Mexico strategies survey, 85 percent of businesses polled reported “incorporating new technology to confront increased competition.” Though keeping company systems up to speed can imply daunting amounts of spending, the long-term savings are immense. The time and paper saved by something as simple as e-mail is both monumental and unavoidable.

PRIORITIES RECONSIDERED

When billionaire investor Ricardo Salinas Pliego announced cutbacks last September in the diverse companies he heads, his local telephone service provider Unefon axed plans to install the business software application Systems, Applications and Products in Data Processing (SAP). The Unefon unit was intended to serve as the pilot for a comprehensive SAP system throughout Salinas Pliego's firms. Following a period of cautious evaluation, though, management decided to reactivate the SAP plans for retail unit Elektra, which company officials say represents the most important segment of planned technology investment for the year.

“The programmed installation of SAP for Unefon was postponed, and the work we had done was shifted over to Elektra,” says Elektra system planner Miguel Alonso Sánchez. “You could say it was a creative way for Unefon's information technology investment to be rescued for Elektra given the present financial climate.”

Though the bulk of Elektra's spending goes toward opening new stores, training personnel and technology are the next two spending priorities, in that order. “SAP is absolutely critical to our overall technology program; in fact it's the most important of our technology goals for both 1998 and 1999,” Sánchez says. That's why management found a way to keep the program alive for 1999, he adds.

SAP is already in use by a number of Mexico's largest firms, including Petróleos Mexicanos (Pemex), Transportación Marítima Mexicana, Alfa and Femsa.

The American Chamber of Commerce/Mexico also sought flexible alternatives to keep its technology program moving forward after management slashed its 1999 technology budget in half in the face of a difficult year.

“We got imaginative,” says Director of Operations Mariana Prado. “We purchased some of our needs with money from 1998's budget, we streamlined the training program so each department would send one person who would then teach the rest of their area, and we only postponed projects that weren't essential to our new technology platform.”

American Chamber of Commerce/Mexico spent over half-a-million dollars in 1998 to develop a database system that overcomes the year 2000 dilemma and links the business organization's wide-ranging departments and different branches into an integrated database. “Fortunately most of the system was developed and will be installed this year (1998),” says Prado. “That cost around 12.5 percent of our annual revenue, but it is leveraging our efficiency, boosting internal productivity, and above all serving our members at a much improved level, which will translate into an expanded membership and higher revenues. In that way we expect the investment to pay for itself over the next few years.”

Another Mexican firm investing in a technological overhaul is consulting firm Deloitte & Touche: Galaz, Gómez, Morfín, Chavero and Yamazaki.

The company slated US$2.5 million to install SAP in its national and regional offices starting in 1998, first driven by the need to bring its offices in compliance with the millennium bug and later seeking to implement a cutting-edge system to provide better service to its clients. Most of the SAP platform is now in place, but Deloitte & Touche Director Javier Labrador says the firm is prepared to move ahead full-speed in 1999 and finish the installation without any spending cuts. “We decided that getting this project on-line would be one of our top priorities for the coming year,” he says.

OVERHAUL TREND

Despite next year's uncertain financial picture, technology experts expect more re-engineering—especially in the service and manufacturing sectors. Enterprise-wide technology revamps make up one of the main thrusts of the re-engineering trend, a management movement calling for an in-depth rethinking of business strategy.

Generally, companies have two reasons to initiate a re-engineering process. One has been dubbed “market push”: Market competition forces operational changes. The second is “market pull”: Companies, anticipating promising new markets, maneuver in a timely, competitive manner to stake out their share.

Few Mexican companies have had the resources to go through a complete re-engineering, except for such heavyweights as steel giant Altos Hornos de México, top industrial firm Vitro's Flat Glass Division, textile leader Grupo Covarra, and entertainment king Grupo ECE. In most cases, the focus was on automating three areas: production planning and programming, order entry processes, and financial planning.

Looking ahead, several factors point to a generalized slowdown, worldwide, in technology purchases. Ricardo Zermeño, director of electronic strategy for technology consultants IDC-Select, predicts a significant slackening in Mexico's 1998 technology sales and more of the same for 1999. Annualized growth in PC sales is hovering at about 3.5 percent versus 15 percent in previous years.

A few companies have already invested heavily in technology and now are reaping the rewards. The rest face a hard reality: It takes money to make money. Technological progress costs money now, but leads to long-term efficiency and savings that help any company better weather financial down turns—something firms that operate in Mexico are well used to by now.