How To Beat The Soft Economy

Early last year, while most of the world was still marveling at new economy dot coms and the related explosion in Web services, executives at integration company Inforte noticed the start of a disturbing trend. The 8-year-old company, using a system it created to track and predict business opportunities, realized that client spending on B2C applications, such as e-commerce and Web solutions, was starting to whither. Even worse, the pipeline for future engagements was anything but clean.

The Chicago-based company quickly put measures into place to make up for what it believed was going to be a slowdown. That meant increasing its sales force by 20 percent, fine-tuning processes and pricing models to reflect a tighter market, focusing on a few key verticals and putting more high-level executives on sales calls. On the cost side, the company tightened discretionary budgets to make up for the reduced revenue projections and pulled back recruitment efforts, and nonessential travel and activities.

Last year, Inforte's actions might have seemed excessive. Today, they are simply smart. While most of the company's rivals ended 2000 with sinking revenue and layoffs, Inforte remained profitable. Its 2000 revenue, for example, grew 112 percent to $63.8 million. By early April, the company was one of only a handful of tech companies that managed to meet expectations for the first quarter of 2001, with earnings of just less than $1 million.

"What we did sounds fairly obvious, but there are virtually no companies that really carried out those things well," says Inforte CEO Phil Bligh. "The data was there; you just had to be looking for it. You have to take the approach that at any time something could happen to damage your business."

Like the overall economy, the outlook for IT services remains unclear, with some industry watchers saying we've already seen the bottom of the slide and others predicting the slowdown will last at least a few more quarters.

Even Cisco Systems CEO John Chambers, a man who has created more shareholder value than virtually any other high-tech CEO, admits he has little insight into the next few quarters. Speaking at the company's annual partner summit earlier this month, Chambers said that while the long-term outlook is still strong, near-term visibility is so poor that he's not discounting the possibility of Cisco seeing negative growth during the next few quarters. With such a murky outlook for a company with the size and market share of Cisco, it's no surprise solution providers are feeling uneasiness and trepidation too.

"Everyone's got a question mark in that third and fourth quarter about what's really going to happen," says Pete Fernandez, senior vice president of strategy and marketing of Austin, Texas-based integrator Concero. "I've heard that from investors, analysts and product vendors as well. It's a wait-and-see attitude."

Solution providers such as Inforte and Concero are more determined than ever to reap and keep financial gains during these challenging times. They're taking a variety of steps to tighten operations, reduce overhead expenses and increase top-line growth.

Following are eight essential tips from various channel executives about how to change your business models to survive in a slow economy.

Use Resources Wisely

Jim Ludlow, co-founder and CEO of Imirage, a Web integration company in Allentown, Pa., suggests making your resources work for you.

"If there is economic downtime, we'll use it productively," Ludlow says. "We're looking at a potential plan not to do any layoffs or cost reductions, but to try to unlock value from our organization, perhaps developing new software applications to weather out the storm and keep people productive."

Imirage's current successful strategy will carry the company through the future, Ludlow says.

"We build our business around a profit model, not a revenue growth model or anything else. We're working to generate profit and then reinvest it into the business. The cause is to never really get ahead of ourselves. We've been smart with how we use our money and never extended ourselves, so we're basically debt-free."

While Ludlow wants to take advantage of opportunities in the marketplace to grow business,including wireless solutions,he'd rather stay conservative and "have a clear line of sight with profit in mind."

Redefine Sales Strategies

Like many other Web integrators struggling to face a weakened economy, Concero recently announced

layoffs (130 employees were affected), senior-level pay cuts and the elimination of excess office space to cut its overhead.

But Concero CEO Tim Webb thinks the more subtle changes made by his company during the past six months will have a longer-term impact. Concero changed the way it reaches out to clients, restructuring its entire selling and marketing activities around larger enterprise customers and a select number of industries, as well as focusing on preintegrated solutions.

"It's a more targeted set of solution offerings that address specific industries, clients and even particular situations," Webb says. "It's a much more tailored selling process that addresses the pain points they are likely to be spending money on today."

For example, in the media and entertainment industry--a key vertical for Concero--the focus has shifted away from simply trying to grow clients' Internet businesses. Instead, Concero provides those companies with what it calls Content Chain solutions across a number of different properties,from traditional publishing to Web services and even interactive television. Webb says those kind of solutions help clients cut costs associated with producing and delivering content by as much as 50 percent, while also helping drive revenue.

Make the Most of Your Staff

Sysinct, the e-business solutions unit of Ikon Office Supplies, has taken a number of steps to strengthen

itself financially, including decreasing discretionary spending and getting closer to key vendor partners such as IBM. But more important, the company re-engineered portions of its business to better use its staff and their areas of expertise, says Rocco Polino, vice president of sales and marketing.

For example, the company has tried to increase employee utilization rates by embracing an operational model that lets them work remotely and more efficiently. "We are in 16 cities in the United States and Canada, and our former business model was very geographically focused, so a team in Toronto only worked in Toronto," Polino says. "It was very restrictive."

Now, Sysinct conducts weekly resource- planning calls to monitor existing engagements and keep track of players sitting on the bench at any given time. "Today, the technology allows folks to be in Toronto and still work on a project in the Carolinas," Polino says.

Sell CRM Solutions

If you're a solution provider feeling the effects of a weakened economy, you no doubt want to hold onto

all the customers you have and increase the income generated by your relationships with them. Well, the same is true for your clients. And for many of them, customer relationship management (CRM) solutions are the answer.

According to a recent survey by the Data Warehousing Institute, the number of operational CRM systems in corporate America is vastly outnumbered by those in the planning stages (only 7 percent of executives surveyed said they have a mature CRM system in place). And The Gartner Group estimates CRM spending will grow to more than $76 billion by 2005.

"By and large, customers say their top priority is to either acquire or retain customers," says Joe Edwards, vice president of consulting services for global integrator Atos Origin North America, which recently created a distinct CRM practice and forged an alliance with Siebel Systems. "They are counting very heavily on their front-office operations to be able to do that, and they mention CRM over and over again."

Use Your A-Team For Customers

When you make a living selling your company as an expert

source of technology solutions and information, you'd better back it up with solid work and real results. Translation: Don't throw a team of inexperienced staffers at your customers' problems because it'll only come back to haunt you in the end.

P.J. (Rob) Mol, executive vice president of Atos Origin North America, calls it the "schoolbus mentality" in which clients hire an integrator thinking they're paying for a team of experts, only to find a busload of young college grads once the contracts are signed. "Clients pay a premium for services, so they should get a lot in return," Mol says. "That's why we go for the guys with gray hair and scars on their backs."

Mol says Atos Origin never fell into that trap because when it first entered the North American market, it was a small, unknown entity going up against the likes of the Big Five, CSC and IBM Global Services. "So, we really couldn't afford to have clients saying anything negative about us," he says.

Live And Breathe ROI

IT spending may not be dead, but it's a far cry from the "spend now, ask questions later" mentality that

prevailed during last year's Internet boom.

Today, corporations want to know their investments in IT solutions will bring them a concrete return. Integrators that can successfully sell and deliver that ROI will be in the best position.

For example, on a recent engagement with to a credit life insurance company, Edgewater Technology went up against another integrator that pitched the idea of an expensive portal where the company could stand on its own and get people to come for information and credit life insurance products. "The company's management looked at that,after paying big bucks for the evaluation,and said, 'Can we really see 80 percent of the U.S. population organizing their entire life around our credit life insurance?'" says Dave Clancey, Edgewater's co-founder and CTO. "It just wasn't reality."

Focus On What You Can Control

Shankar Iyer, president and CEO of Silverline Technologies, believes in three aspects of business

development: new customers, existing customers and internal costs. In tough times, companies should focus on the two they have some control over,managing costs and existing

customers.

"One of these you have no control over, one you have some control over and one you have much control over," Iyer says. "In slow times, you have to arrive at a business plan that allows you to prepare for such a slowdown."

With a low-cost delivery model that leverages work done around the globe, including low-cost development centers in India, Iyer says he is positioned to pick up work from cost-conscious customers that need comprehensive help at a reduced price. "We're

continuing to accelerate the work that we are doing offshore. In these times, we're definitely keeping a closer watch on costs," he says.

Revamp Your Approach

Steve Raymund, CEO and chairman of Tech Data, says economic downturns

require a much different set of strategies than do robust periods of growth. For one, you need to spend more time with big customers during soft times to make sure they don't feel neglected, as they often do in fast-growth periods when organizations generally look ahead to gaining new clients.

What's tough to accomplish during so much uncertainty, he adds, is aligning SG&A costs with anticipated sales volumes. That's because the ability to predict what will happen in the market,often called "visibility",is so limited at this time. Raymund says the U.S. market has hit bottom, but adds that's not the case in Europe. While Europe struggles to regain its footing, Raymund says his company is cutting back on temporary workers and taking other steps to improve profitability.

Senior executive editor T.C. Doyle contributed to this article.