Total Cost of Competition

Are there short cuts to competitive advantage?

In a time of constricting budgets, strategic advantage can be particularly difficult to achieve. Being aware of these constraints, software solution providers and system integrators are being careful to package their software and services in ways that ostensibly provide fast, affordable paths to implementation.

We recently asked Intelligent Enterprise (IE) Reader Advisory Board member Richard J. Rzasa, vice chairman of TD Waterhouse Group Inc., for his views about creating an optimal balance between competitiveness and low total cost of ownership (TCO).

IE: The eternal "build vs. buy" decision is particularly relevant in a time of constrained budgets. How do you determine the balancing point between TCO and competitive advantage at your organizations?

Rzasa: I use two guidelines when making a build vs. buy decision. First, is there a commodity service involved, such as a general ledger application; and second, do I have a core competency in building that service? I will "buy" the commodity applications but "build" applications where I have a competency, such as for tdwaterhouse.com

Another governing factor is the degree to which the "build" team needs a good understanding of our business model and customers. In general, the third-party providers try for a one-size-fits-all approach, which may not translate into the realities of my business need.

IE: What about the methodologies and "templates" offered by system integrators? Do they really lead to competitive advantage?

Rzasa: In the end, they are all the same; every one of them is based on one of the several life cycle methodologies. They tend to differ on the format of the content. I have worked with Big 5 and other specialized providers, each with a methodology; none were adopted after the project was completed. I prefer to evaluate these providers on their track record and experience in implementing the solution.

IE: Hype aside, what is the proper role of open-source software in lowering the TCO of strategic IT solutions?

Rzasa: I think there will be a trade-off between the "free" software license vs. the additional expenditure of money, resources, and opportunity cost for retraining staff. I'm not sure at this point that there will be a significantly lower TCO. However, open-source software certainly plays a role in the evaluation process and should be included, as its presence can have an influence on the flexibility of the vendor-sponsored products.

IE: Do you think the Web services model will lower the overall cost of developing and maintaining strategic IT systems?

Rzasa: Too early to tell. We currently have a couple of Web services-type applications in production. But I think the reality will be that it is overhyped and will probably have a limited role in strategic IT solutions. I keep thinking of the ASP promises that were unfulfilled.

IE: By the way, how would you define "strategic IT system" in your organization?

Rzasa: Any technology initiative that is required to achieve a strategic objective in the overall corporate strategy. For me, "strategic" systems are those that contribute to shareholder, customer, and associate (employee) satisfaction and support the brand. Kind of broad, but it does put it into a context that illustrates how we think about our business.

— Justin Kestelyn

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