Information technology (IT) spending in the food, beverage, and consumer products industry is increasing, driven in large part by e-business and new opportunities to reach consumers through the Internet, according to two new surveys conducted by the Grocery Manufacturers of America (GMA).
Companies surveyed as part of GMA’s 2000 Information Technology Spending Study, conducted annually by Computer Sciences Corporation, allocated an average of almost 1.5 percent of annual revenues to IT initiatives in 1999, an increase from 1.41 percent in 1998. While medium-to-large companies outspent smaller companies significantly (1.73 vs.1.19 percent), the report predicts the gap will narrow over the next three to five years, as small-to-medium companies spend more on enterprise resource planning packages to facilitate new e-commerce solutions.
The increase in IT spending was echoed in a separate GMA study, also conducted by CSC, which examined for the first time IT executives’ perspectives and predictions on the biggest business phenomenon to face companies in decades – e-business. All respondents to the 2000 GMA E-Business Survey reported they believe the Internet will “fundamentally affect their business models and strategies.” Most companies (60 percent) indicated they have developed an e-business strategy, yet nearly half of respondents reported that their e-business strategy was a “work in progress.”
While opportunities in e-business appear infinite, challenges in determining just how much to invest in e-business are real. Survey respondents said the biggest barrier to e-business investment is “fuzzy ROI,” with 67 percent saying the most significant risk in embracing e-business is an unclear return on the investments necessary to develop the requisite capabilities. While e-business budgets are currently small (approximately .57 percent of sales), all respondents reported plans to boost e-business budgets – ranging from an 11- to 50-percent increase in current spending levels – in the next three to five years.
Building and strengthening corporate brands and better understanding consumers were cited by a majority of the larger companies responding to the survey as major incentives for investing in e-business. Other e-business motivators included: increased efficiency with trading partners (71 percent); increased internal efficiency (67 percent); defending market share (57 percent); and lower procurement costs (52 percent).
“As e-business becomes more deeply integrated into the fabric of this industry, the role of IT within our organizations is becoming increasingly vital,” said Rick Bentz, Hershey Foods Corporation, and Chairman of GMA’s Information Systems Committee. “These two surveys helped us better grasp what factors are motivating companies to invest in technology, especially in the emerging e-business arena.”
Other key highlights from the e-business survey include:
-Security issues, top management commitment, channel conflict, and lack of employees with appropriate skills rank among the top e-business investment barriers cited by respondents. -E-business decision-making is largely centered in corporate and IS management. -The highest level of e-business activity is in the IS department, followed by marketing. -E-business leaders are beginning to infuse their sites with more sophisticated features, such as enabling consumers to purchase products for delivery to their homes; tying the site to their mass media campaign; gathering market feedback.
A report on the survey findings outlines several recommendations for GMA members as they move forward in their e-business initiatives, among them:
-Develop a dynamic and agile strategy for deploying e-business practices. -Use both financial and strategic criteria to evaluate investments in e-business. -Integrate the “e-channel” into consumer brand and product development. -Develop a clear consumer direct strategy. -Build a solid technology infrastructure as the foundation for e-business.
“The consumer packaged goods industry has been, and will continue to be, deeply affected by the Internet, especially in light of technology’s ability to open up direct pathways into consumers’ homes and offices,” said Chuck Troyer, partner in CSC’s Consulting Group. “The key for manufacturers is to decide how to apply e-business principles, not only to boost their reach into – and understanding of – the consumer community, but also to increase transactional efficiency and grow healthy and profitable relationships with their established trade customers.”
CSC collected data for the GMA E-Business Survey in the fourth quarter of 1999 from 42 GMA member companies.
GMA is the world’s largest association of food, beverage and consumer product companies. With U.S. sales of more than $460 billion, GMA members employ more than 2.5 million workers in all 50 states. The organization applies legal, scientific and political expertise from its member companies to vital food, nutrition and public policy issues affecting the industry. Led by a board of 42 Chief Executive Officers, GMA speaks for food and consumer product manufacturers at the state, federal and international levels on legislative and regulatory issues. The association also leads efforts to increase productivity, efficiency and growth in the food, beverage and consumer products industry.