Measuring the Business Impact of Technology

Performance

A Global Perspective – 2013

Survey Conducted by

Sponsored By

The following study, commissioned by Compuware Corporation, was designed and conducted to measure and define the business impact of technology performance failures. Contrary to most end-user surveys investigating technology performance and the subsequent business impact, this study:

During the months of February and March 2013, this comprehensive study solicited feedback from 304 corporate executives and senior management personnel in global companies. These business leaders were asked to quantify the impact of any internal “technology failure” their companies experienced — defined as “directly affecting either operations or information flow.”

This report reflects the responses of executives in four primary industry sectors around the world:

Methodology

Directed its focus on questioning actual Line of Business (LoB) owners

Targeted traditional business activities (i.e., manufacturing or “brick and mortar” retailing),

specifically excluding e-commerce applications and activities (i.e., web performance or online banking)

Objectively measured tangible business impacts (i.e., the actual value of lost sales or the actual cost of lost production) as opposed to

the more typical subjective IT impacts (i.e., how many people were involved in fixing problems or how many users were affected)

1. Retail2. Manufacturing3. Financial4. Healthcare/Pharmaceutical

The following global regions are represented in this report: United States, Europe (U.K., France, Germany, Netherlands), ASEAN (Taiwan, Indonesia) and Australia (see appendix for sampling information).

U.S. LoB

IT

n=180n=147n=33

(Indonesia, Taiwan)

n=77n=63n=14

(U.K., France, Ger-many, Netherlands)

Europe Lob

IT

n=21n=17n=4

ASEANLoB

IT

n=26n=23n=3

AustraliaLoB

IT

1 | #techfail

This survey focused largely on the insights garnered from LoB executives, but in order to better inform and round out responses, it solicited answers from a number of IT executives as well. Of 304 business leaders surveyed, 59 percent were at the vice president level or higher. Nearly half the executives were members of companies with annual revenue exceeding $5 billion, and a third citing revenue greater than $10 billion.

Study Participants

What is your title? What is the annual revenue of your company globally?

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Owner/Partner

2%Director,

10%

Senior V.P/V.P.,

40%

Corporate Executive

Level (CEO, CFO, COO, CMO),

17%

Division Senior Management,

31%

$250m - $499.9m

8%

Less than $250m

3%

$10+ billion 33%

$1-$4.9 billion25%

$500m - $999.9m

15%

$5-$9.9 billion16%

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We were unable to meet an important deadline due to the server downtime. Our client was not pleased and was obligated to go with a competitor’s offering at the time.CIO – Manufacturing

Customers were not happy with the inability to get to our agents and we noticed less use of our products in the marketplace.VP of IT – Banking/Finance

Technology failures have negative effects on resources and time, as well as internal costs. Failures were primarily associated with lost productivity, but also with decreased sales and revenue, and an inability to meet service level agreements. Outside costs were driven mostly by the need to set up temporary systems or manual processes to correct the failure.

Direct Hit Absorbed by Operations, Products, and Sales and MarketingThe largest cost to businesses following a technology failure was reported at the “operational” level. Within operations, sales were impacted most, with executives reporting lost sales and order fulfillment errors. In addition, a large number of executives indicated technology failures impacted products by causing significant downtime. However, the most costly result of a technology performance issue, while only being reported by six percent of executives, was a product recall.

Ultimately, when considering any type of technology failure, the average short-term financial impact of an isolated technology performance issue was $10.8 million.

The Long-term FalloutIn addition to the calculable and trackable short-term costs associated with technology performance failure, surveyed executives indicated substantial long-term impacts to the financial health of their companies. For instance, 45 percent of the respondents experienced a loss in market share or brand equity as the result of a technology performance issue.

Additionally, 75 percent of executives say the same major failure has happened more than once.

The Role of Technology in Business Performance and ProductivityIncreasing the speed of manufacturing and development to deliver products or services to end users faster, while ensuring quality, were identified as the top priorities driving technology investments. Routine technology issues — those occurring at least a few times every week to every day — represented the biggest threat to these investments. Despite being proactively addressed, three-quarters of executives said the frequencyof failures is remaining the same or increasing.

Follow-up Action RequiredRegardless of the area affected or type of failure, 90 percent of executives stated that additional investment in IT was required to resolve the issue. Among the most frequent actions taken were purchasing/upgrading new software or hardware, increasing IT staffing or hiring an external consulting firm. Despite efforts to resolve the issue, one in five companies felt it necessary to communicate the failure to their customers.

Executive Summary:The Impact of Failed Technology Performance

$10.8 MILLION.4 | #techfail

ULTIMATELY, WHEN CONSIDERING ANY TYPE OF TECHNOLOGY FAILURE, THE AVERAGE SHORT-TERM FINANCIAL IMPACT OF AN ISOLATED TECHNOLOGY PERFORMANCE ISSUE WAS

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Customer discounts were offered but we lost market share anyway.Executive Corporate Mgmt. — Manufacturing

Due to regulatory requirements, we had to start production over again and revalidate manufactured products.CFO — Healthcare/Pharma

Detailed Results

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Increasing the speed of manufacturing and production, or getting products and services to market faster, is the top priority driving investments in technology, according to survey respondents.

The Top 3 Priorities Driving Technology Investments

When breaking out the respondents according to LoB and IT responsibilities, it is clear that IT and the LoB have different concepts of what should be driving technology investments. The LoB feels production speed is most important, whereas IT believes that ensuring product and service quality is the top priority.

What are the top three goals that drive your company’s investment in technology?

1. Increase speed of manufacturing and production

2. Increase speed to market/to the consumer

3. Ensure product/service quality

Rank

1

2

3

LoB IT

Increase speed of manufacturing and production

Ensure product/service quality

Increase speed to market/to the consumer

Increase speed of manufacturing and production

Increase speed to market/to the consumer

Ensure product/service quality

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Which of the following areas in your company would you classify as “critically dependent” on technology operating efficiently (i.e., when supporting technology is not working properly, it results in a total stop to processes or functioning of this area)?

LoB corporate executives say the top five areas of their companies that they consider most “critically dependent” on technology operating efficiently are: customer service, finance, sales and marketing, distribution and supply chain.

While IT and LoB executives are in agreement with regard to the most “critically dependent” areas, operational aspects such as supply chain, manufacturing and shipping/receiving are considered more critically dependent on technology by IT executives.

Manufacturing

Perceived “Technology-critical” Areas

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Total

LoB

IT

Shipping/receiving

Reliance on Technology for Supplier RelationshipsWith increasing speed as a top priority driving technology investments, the chart below emphasizes the reliance on technology in the supplier relationship. As noted previously, executives see customer service as the area most critically dependent upon technology.

To what degree does your business depend on technology (data and communication) with suppliers for:(Percentages demonstrate how “high” there is reliance on technology in this area.)

67%

38%

36%

27%

26%

Manufacturing and production

Customer service

Transportation and distribution

R&D

Raw materials and parts

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[A] critical system used to service customers went down resulting in customer dissatisfaction and inability to do business. SVP Corporate Mgmt. — Banking/Finance

Almost half (48 percent) of executives say that technology issues happen at least a few times every week to every day. Only 3 percentsay rarely to never. LoB and IT executives are in alignment on the frequency of technology performance issues.

The Frequency of Technology Issues

Would you say that the frequency of technology failures impacting your area is:

How often does your company experience information technology issues that affect performance or productivity in your area (excluding website failures)?

SAY THAT THE FREQUENCY OF THESE TECHNOLOGY FAILURES IS STAYING THE SAME OR INCREASING.75%

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Few times each year

21%

Few times each month

28%

Every day — Few times each week

48%

Rarely to never/don’t know

3%

Staying the same49%

Decreasing25%

Increasing 26%

We have countless internal systems. Sometimes they go off line. They can typically get the systems back on line quickly. I do not know how they are addressing the issues in the long run.VP of Credit — Banking/Finance

The company has between 20 and 25 separate software vendors at any given time. A number of them have frequent unscheduled downtime, resulting in problems. Our company contacts [them] but response times have been very slow.VP Corporate Mgmt. — Healthcare/Pharma

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Over half of corporate executives (52 percent) surveyed stated that they have experienced a significant technology failure within the past few months, with 79 percent reporting at least one in the past year.

How many times has this same failure occurred prior?

How long ago did this happen?

When Technology Fails

MORE THAN 80 PERCENT SAID THIS IDENTICAL FAILURE HAPPENED BEFORE, WITH HALF REPORTING IT OCCURRED AT LEAST ONE TO TWO TIMES PRIOR.

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1-3 years ago 15%

4+ years ago 5%

In thepast year

28%

Within the past few months26%

Within the past few weeks25%

6+ times12%

3-5 times20%

1-2 times49% 0 times

14%

Don’t know5%

Our ERP system has had numerous failures and our people can no longer do a manual workaround. This affects our manufacturing and ordering based on forecasts that are no longer available.SVP Corporate Mgmt. — Manufacturing

[Our] Outlook email system goes down for hours at a time. Almost 100 percent of internal and external business transactions completed rely on Outlook.VP of Production — Banking/Finance

The more frequent failures are a result of server communication breakdowns, which are typically a result of overtaxing a system that is no longer adequate to support our needs. A reboot usually fixes it temporarily. SVP Corporate Mgmt. — Banking/Finance

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”“Executives agree that customer service is the area hardest hit by technology performance issues. Staff productivity was a distant second.

Who Suffers From Tech Performance Issues?

[Our] main computer system (Patient Care Service) went down for almost 24 hours. Manual processes were put into action, but patient safety is at risk and routine work becomes error prone and slow.Senior Manager of IT – Healthcare/Pharma

What area(s) of your business did it negatively impact? (Check all that apply.)

Customer service

Sales

Customer traffic

Production time

Competitive ability

Security

Shipping/receiving

Market share

Brand awareness

Safety

Product launch timing

Transportation

Marketing strategies

Don’t know

69%

41%

34%

34%

32%

26%

18%

16%

13%

13%

13%

10%

10%

10%

2%

2%

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Staff time/resources

Other

What’s Causing the Failures?Half attribute the problem to software/hardware issues, while about 15 percent classify the cause as an unforeseen security threat. One in five say the problem has been the fault of a utility power issue.

Inability for the server to connect to the correct webpages within the company. That was human error.Senior Manager, Marketing – Healthcare/Pharma

There was a fault in the system that should have been identified and patched that caused a major disruption in inventory management, stocking locations and ability to identify and locate inventory.VP Corporate Mgmt. — Healthcare/Pharma

What were the primary reasons forthe technology failure? (Check all that apply.)

51%

22%

16%

11%

10%

16%

Provider failure (software/hardware)

Utility failure

Unforeseen security threat

User error

Weather/environment

Don’t know

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As a result of the technology failure, 90 percent of executives say their companies took some type of action.

How Do Companies Respond?

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Sentcommunication to

customers regardingthe issue

When asked what they did, 40 percent of LoB owners indicated that new software or hardware was purchased or upgraded; 56 percent of IT executives said the same.

There was also a discrepancy in training as a response. Compared to responses from IT executives, 30 percent more LoB executives asserted that staff technology training was increased, while 50 percent more said that there was an increase in IT staffing.

Following this technology failure, what has your company done? (Check all that apply.)

Total

LoB

IT

From the beginning of the failure, respondents stated that the average time required to return to normal is 21 days.

LoB and IT differ in their perceptions of when business is truly back to normal. IT executives said things are back to normal within 11 days on average, while LoB executives say it takes an average of 24 days.

TO GET BACK TO NORMAL AFTER A FAILURE21 DA

YS

How long did it take to getback to normal operations?

LoB Executives

IT Executives

24 Days

11 Days

Back to Normal

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Documenting the Impact

Does your company collect and quantify the impact of technology failures?

”“We use virtual desktops to access our emails, files, online meetings, etc. The virtual desktop crashed and thousands of employees were unable to work. Senior Manager of Marketing — Banking/Finance

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Thirty-three percent of corporate executives say they “always” collect and quantify the impact of technology failures, while 42 percent answered “sometimes,” and more than one in four say “rarely to never” or simply “don’t know.”

Never5%

Rarely13%

Always33%

Don’t Know 8%

Sometimes41%

Quantifying the CostMore than 70 percent of executives reported that lost productivity is the primary cost, followed by 49 percent answering lost sales revenue and an inability to meet service level agreements. In terms of outside costs incurred, setting up temporary systems or manual processes tops the list.

This was a system failure to communicate data to a bolt-on specially developed for our industry. The data exchange failed and the bolt-on failed.SVP Corporate Mgmt. — Manufacturing

What cost aspects are typically quantified? (Check all that apply.)

Lost productivity

Lost sales revenue

Not meeting service level agreements

Temporary systemsor manual processes

Additional staffing required

Wasted product

71%

49%

46%

44%

40%

23%

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Total Short-term Costof Technology Performance IssuesIn terms of the short-term costs associated with operations, sales and marketing for a single major technology issue, LoB and IT executives were in agreement that it costs their companies significantly: $10.8 million, on average.

When considering only those who indicated impact in that area, the average cost of a product recall jumps to $3.2 million, product waste increases to $0.8 million, and sales and marketing impact rises to $13 million.

Nearly three-quarters (72 percent) of executives agree that the technology failure directly impacted sales and marketing. Of product-related costs, 7 percent of executives surveyed indicate their companies were forced to do a product recall, while 9 percent had to discard or waste product.

ON AVERAGE, $10.8 MILLION IN SHORT-TERM COSTS FOR A SINGLE INCIDENT.

Product waste 9.2% (n=28)

7.0% (n=21)

72.0% (n=219)

Product recall

Sales and marketing

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Impact to Sales and MarketingLooking deeper into sales and marketing costs, lost sales and delayed or incorrect order fulfillment were the areas impacted the hardest. Across all respondents, the average sales and marketing losses translated to $10.5 million. While both groups saw a significant amount of lost or delayed sales, IT executives were often not aware of pricing errors or customer returns.

LoB and IT executives differed in their perceptions of impact to sales and marketing, with 82 percent of LoB executives saying that sales and marketing was negatively impacted, compared to only 72 percent of IT executives.

What was the impact to sales/marketing as a result of this technology failure? (Check all that apply.)

TRANSLATED TO $10.5 MILLION.AVERAGE SALES AND MARKETING LOSSES

Total

LoB

IT

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We lost sales ... had the entire IT team working on a solution. Senior Manager of IT — Retail

The site was shut down and clients were directed to use their phone apps where applicable. Clients or corporations who didn’t want to send payments via phone had a negative reaction to the amount of time it took to get the site back up and running. SVP of Sales — Banking/Finance

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The Long-term Cost ImpactWhile the short-term costs were easier for executives to quantify, they indicated additional long-term impacts that their companies incur due to technology performance issues. The most common areas of impact are loss of market share and brand equity, which shows that technology issues are noticed by their customers.

What have been the long-term impacts of the technology failure? (Check all that apply.)

Customer information was lost and it was necessary to gather the information again, which is a painful process that causes customer attrition. VP of IT — Banking/Finance

[We] had to send out a mass communication apology. VP of Finance — Manufacturing

24%

21%

15%

9%

9%

8%

7%

7%

5%

4%

3%

Loss of market share

Loss of brand equity

Re-organization

Increased warranty issues

Pricing increase on products/services

Government issues

Environmental issues/costs

Legal issues/costs

Don’t know

Decreased/downgraded stock

Closed locations/job loss

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Reorganization

Appendix

TOTAL

TOTAL

Banking/Insurance

Retail

Australia Europe ASEAN

Healthcare/Pharma

Manufacturing

Other

(UK, France, Germany,Netherlands)

United States(Indonesia,

Taiwan)

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n=25

n=76

n=42

n=32

n=5

n=180

n=4

n=8

n=8

n=5

n=1

n=26

n=15

n=28

n=7

n=24

n=3

n=77

n=1

n=9

n=2

n=9

n=0

n=21

n=45

n=121

n=59

n=70

n=9

n=304

The study was based on data collected via an online survey among senior corporate executive personnel who were directly responsible for revenue-producing decisions as well as influential in technology investments for their companies (i.e., VPs of marketing, sales, business units, product lines, manufacturing, etc.).

To participate in the survey, respondents had to meet the following criteria: - Industry classification as one of retail, manufacturing, banking/financial services or healthcare/pharmaceutical - Employment of more than 1,000 globally - A position of “Senior Management” or higher (Owner/Partner, C-level, Senior VP, VP, Director or Senior Management)

The following reflects all participants who completed the study, both LoB as well as IT executives. All participants outside the U.S. were provided online surveys in the respective native language of the respondent.

Compuware Corporation, the technology performance company, makes technology make a difference by providing software, experts and best practices to ensure technology works well and delivers value. Compuware solutions make the world’s most important technologies perform at their best for leading organizations worldwide, including 46 of the top 50 Fortune 500 companies and 12 of the top 20 most visited U.S. websites. Learn more at: compuware.com.

Intellitrends has been providing fact-based information and actionable recommendations to corporations and governmental institutions for 24 years. Intellitrends is a leading international marketing research and marketing strategy organization committed to working closely with clients to achieve continuous competitive advantage through decision-focused, quality-driven market research and strategic marketing programs. Learn more at: intellitrend.com.

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