Automated SMEs

Published in the May 2008 print edition of Computerworld Philippines

While large organizations often tend to be the first-movers in adopting IT, local small-to- medium-sized enterprises (SMEs) refuse to be left behind as they now take small but concrete steps towards automation.

Although their use of IT vary in scale relative to their core businesses, four IT heads present at Computerworld Philippines' 5th CIO Roundtable for the year discuss how their businesses have grown over the years with the help of information technology.

The participants were Marino Adriano Encarnacion, chief information officer of Ayala Automotive Group; Edgar Javeniar, IT manager of Dunham-Bush Philippines Inc.; Jan Alvin Pabellon, vice president for business development at IT Group Inc.; and June Tucay, IT manager of Holy Cow! Animation.

During the two-hour roundtable discussion sponsored by Acer Philippines Incorporated, Encarnacion shares that his company’s use of IT is largely business driven. For his part, Javeniar discloses that IT plays a big role in his company—especially in facilitating communications—since most of their suppliers are based in Singapore.

“Since our business is based on knowledge work, using IT as a tool for collaboration and communication is really very important to us,” says Pabellon. “Our people should always be online, they should always have access to their e-mail.”

Holy Cow’s! Tucay says that IT is used in about 90% of his company’s operations. “Actually, in animation, the only manual process left is drawing, because after the drawings are made, these are scanned, digitized, painted and animated in the computer so IT basically makes the process faster and helps us produce better special effects.”

Excerpts of the discussion follow:

CWP: What kind of role does IT play in your company? Is IT regarded as an important growth enabler?

Javeniar: IT plays a big role in our business especially because, for one, our suppliers are from Singapore, so constant communication about the items, price, etc. is necessary. Communication between our branches is very important. Our CEO had to regularly travel to our branches in Cebu or Davao, but when I made the system online he clearly saw the difference and did not realize that it could be done. Actually, justifying the value of IT to top management was really a problem when I joined the company; they would say “we survived for many years without this, why do we have to buy this now?” But I stood by my objectives because I believe that the time will come when they would realize the value of these investments to the company.

CWP: Do they see it now?

Javeniar: Now they are realizing the benefits of IT. Our CEO, for one, used to travel to Singapore every other week just to sign documents so I told him that, once I have the system online, he need not spend on airfare and hotel accommodations anymore, so he began seeing the value of these investments. Another thing is with e-mails; when I joined the company we only had one server, e-mails are redundant, and the bosses would complain that their mailboxes are always full so they could not receive other incoming mails. You see, around 42 employees in our office currently have access to the Internet so when they arrive in the morning all of them would go online, that's why I have subscribed to three DSL providers all on load balancing to ensure we remain connected even if one of them goes down. I noticed, however, that there really tends to be overload because in the morning they would go online all at the same time, so our vice president would often complain that his Internet connection is too slow. That's why I purchased a dedicated Exchange Server, this is online by night so that mails could come in and, in the morning, these could be retrieved through the local area network already. This way I am able to prove to the management that investments in IT are really necessary.

Pabellon: Since we are an IT company, our business obviously revolves around IT but we use IT heavily in marketing. We do a lot of demand-generation since it's very expensive to approach companies one by one to market your services, so we do a lot of IT-enabled marketing like search engine marketing. You see, we're seeing a trend nowadays where, unlike before when companies would usually contact a vendor who would, in turn, call a reseller to get in touch with the client, a lot of companies now search for information online so the playing field is somehow leveled; if you are visible online, you get a good chance at getting clients who “google” search for these services. We also do a lot of e-mail marketing; we use a system which sends out personalized e-mail introducing our company and things like that, so we have a database and we do customer profiling where we segment them by industry and by size, etc. We also use IT for project management so we have a system where we track the utilization of our people—what projects are assigned to them, the scope of their work, the duration of the project, etc. Since our business is based on knowledge work, using IT as a tool for collaboration and communication is really very important to us. Our people should always be online, they should always have access to their e-mail, data should be archived in a system that makes it easy to search for it, and that information should be kept so knowledge and technology transfer is easy should there be employee turnover.

Encarnacion: We are in the dealership management business, we sell cars, we service them and we take care of the parts and inventory so basically our use of IT is largely business-driven. IT provides the support to do business, that’s how it works; it cannot be IT going there first, we have to follow the business; that has always been my philosophy since IT is not the core of our business. But IT does serve a critical role in making our business operation as efficient as possible. The other side of technology—the car itself— is not our area, that's the area of Honda Motors Japan and Isuzu Motor Corporation. When the car comes to us, the technology is already there so our emphasis would be on the efficiency in delivering the service. What differentiates us from the other dealership companies is that we try to harness the strength of our group and integrate. First within the company itself—for example, with Honda, we have five dealerships in Metro Manila and another five in the provinces; we interconnected them in such a way that we have one centralized virtual inventory. Inventories are separate but at one glance, virtually, we can see the total inventory as a whole so that can really minimize the inventory cost—this is not only for parts sales but also for vehicles. So when a particular model is not in your dealership, you can always can check the whole inventory and make that reservation, of course with the consent of the other branch. In effect, IT does play a critical support role. We are also using an ERP system and this makes it easier for us to translate our operational information into financial information making it easy to access our financial reports.

However, it’s a different story with Isuzu. We also considered using SAP to serve as somewhat a synergy of the two companies' systems but we decided to forego this for now because its operations are not big enough to support that kind of cost. Although it’s always at the back of our minds, eventually when we get to that critical level we can make that investment already. So I treat the two companies differently because they have different needs, but even if they have different needs I still try to find out what can be used by both companies so that I save on IT cost as well.

Tucay: I would say we use IT, in one way or another, in about 90% of our operations. Actually, in animation, the only manual process left is drawing, because after the drawings are made, these are scanned, digitized, painted and animated in the computer so IT basically makes the process faster and helps us produce better special effects. There is pressure on us, however, to always be updated with the latest technologies related to animation because, as the capabilities of the machines get better, so will the demands of clients. For example when the HD (high-definition) standard came out, advertising agencies wanted output in HD and that is really processor-heavy so we had to keep our computers updated, make sure they are fast enough, etc. Sometimes there are machines that we only get to use for one project, when the next project comes out, the demand is higher or by the time this project is done, something new comes out so our machines somewhat seem obsolete for the process already so we have to upgrade again.

CWP: So what happens to your old machines?

Tucay: We usually keep them temporarily until the next projects and determine whether the machines can still handle any of the new projects that come in. If the machines really cannot handle any of the new projects anymore then we would have to purchase new ones and cascade the old machines to other departments like, accounting. We also rely heavily on the Internet because we do most of our marketing and negotiations online. Most of our clients are from other countries so we only get to see our clients in person during the actual contract signing. We also use the Internet to send and receive the files for the projects through FTP (file transfer protocol) so IT really does play a big role in our business.

CWP: Please describe your company’s IT infrastructure. What benefits has the company derived from such an infrastructure?

Tucay: We are just a small company so we basically have 40 workstations and three servers—we have one server dedicated to the US Animation software because it is a client server application so we need to have a separate server for that. Then we have a file server, and one more which serves as our active directory server. We also rely heavily on open source; our servers run on open source because it's cheaper. We would like to use open source in all our workstations as well but 3D and flash animation do not have open source versions yet so we use Windows for those. We do use Linux for our workstations that run US Animation. Maya (animation software from Autodesk), on the other hand, has a Linux version but most of our artists learned and studied Maya in Windows so there is a resistance to studying the Linux version. Storage is also a big thing for us because you can probably imagine how much data we are dealing with, given that we work with images, audio, animation, etc. which all take up huge storage space. In terms of benefits derived from our infrastructure, our heavy use of open source has, of course, led to savings and, although there is a long learning curve, we do get optimum performance, especially with the US Animation application. In terms of server, it's the same, we use open source for our firewalls because it is easier to customize.

Encarnacion: Like I mentioned earlier, we have a centralized system and our dealership systems are interconnected with each other. One other thing I wasn’t able to mention though is, in terms of service operation, we are also able to view the service history of our customers abroad within our group. Then, of course, we have the basic e-mail and Internet.

CWP: Do you have separate systems for Isuzu and Honda?

Encarnacion: In terms of dealer management system, yes they are separate and also since we are talking about two different principals, we don’t want them complaining about that so it has to be separate; although we do share some resources but application- wise they are separate. To give you an example, we use on HR (human resource) but we use separate databases for that so we share the same resource but we manage them differently because each company has its own general manager and they have their own, different needs. We are considering centralizing other functions or other departments as well; for example, we are starting to look at purchasing and whether it will help if they are interconnected.

Javeniar: Dunham-Bush International is actually the main carrier of a holding company, Guido Group of Companies, composed of five member firms, D.B. International Sales & Services Inc. (DBI), Globaltronics, Team Asia Corporation, US Asia-Pacific Minerals Inc., and Tang City Restaurant. I am the IT manager of all five companies so any IT purchase or investment decision for their systems goes through me. During my first year in the company, I saw that, although every branch had Internet connection through DSL (digital subscriber line), the lack of online communication was a big challenge so the first thing I put in place was a Sonic Firewall in our head office and a load balancer for the DSL connection so that we remain online even when one of our DSL providers goes down. All in all, I have 82 workstations, 27 laptops, 55 laptop workstations—most of which are IBM including five of my servers, although my NAS (network-attached storage) server is from Dell. We also use AutoCAD for our designs and I actually opted for a three-year subscription rather than having to renew yearly, that way I no longer have to keep reminding myself to renew licenses every year.

In our affiliate companies, especially with Tang City, although its head office in Mandaluyong is already online and connected to our head office, not all its branches are online yet. That's actually why I purchased a NAS server because I want all files from the users to be saved directly to the server and not on their desktops, which I would then backup before the day ends. This way, even when an employee leaves, it will not be difficult for us to retrieve particular files. This is also why our employees are restricted from saving MP3 files at the office because that would take much of our storage.

Pabellon: We of course try to eat our own dog food so whatever we provide to our clients, we also use internally. Although we're relatively small, we maintain several servers, most of which are all on open source. What do not run on open source are the workstations—which are laptops, so everyone uses a laptop because we all have to be mobile. Our servers run on open source because we have the resources to manage them anyway; complaints about open source usually revolve around maintenance but it’s actually not that hard to manage anymore and, like I said, we have the resources internally. We also make use of a lot of applications for collaboration and all of them are Web-based.

CWP: Is security an issue, given that most of your employees are mobile?

Pabellon: Security is not really much of a concern; it's probably more of network access. The nice thing about open source is that there are very mature security tools so you have a lot of tools to manage access, to ensure compliance, to ensure security—intrusion detection, intrusion prevention, load balancing, etc.

CWP: How will your IT infrastructure evolve over the next two years? What kind of solutions do you think your company will invest on in the future?

Pabellon: We are actually getting a little bit bigger so we are now starting to invest on main brands in terms of hardware. Unlike before, when we generally used clone servers and white boxes, now we have IBM, HP, and Sun servers. And truth is, these ones are indeed more reliable, somehow they last longer—probably because they have more rigorous QA (quality assurance) or testing processes, I don't know; but we realized we would probably start standardizing on more reliable hardware. In terms of our infrastructure, we will be investing on storage because we are now dealing with a lot of data and information, especially now when data is already multimedia, so the next thing that we are looking at is expanding our storage for backup, etc. In terms of applications, basically we are looking for ways to integrate these different systems together and make sure the data is highly available and can be shared by other applications.

Javeniar: I believe our hardware is already okay; we just have to optimize utilization. We would most likely be focusing more on the software applications and licensing for the next two years.

Encarnacion: Structure-wise, there will not be much changes except for the usual replacement cycle of computers. What we would like to focus on in the next year or two would be about two things: one is our ERP (enterprise resource planning) system because it's time to replace or upgrade but I don't want to just upgrade it for the sake of upgrading. I would like to go through the process once again—reviewing everything, starting from the business requirements, looking at the value chain and the important processes; identify what are being addressed right now and what are not, and look at how we can address these in the next upgrade. By doing that, we would also like to maximize our existing investments because I think we have a lot of tools and resources already that are not yet maximized. Sometimes what happens is these tools are there, the problem is users sometimes do not know how to use or optimize what are available so I would like to emphasize training and the necessity of using these investments appropriately. And since we are distributed, we would also like our users to communicate with each other and share best practices among themselves.

Tucay: I believe the changes in our infrastructure in the next two years would be more on upgrades of our existing equipment in order for us to meet the ever growing requirements of our clients. What we may need to invest on in the future is our storage infrastructure because, since what we have right now is plain data storage, I am looking at a storage system that would also address disaster recovery as well as minimizing redundant backups.

For the next two years, we would also continue using our open source servers because we are better able to maximize our hardware in terms of utilization. One other area that I am looking at is our CRM (customer relationship management). Most of our clients are abroad along with some local advertising agencies, what happens is we have one folder with our client list and, when we have to contact them, we have to locate their contact information manually. I am therefore looking at having a centralized database and a collaboration software for project management so that management and marketing people can access a centralized set of data, thereby reducing delays and errors. I would also like to increase our bandwidth since the requirements of clients are rising. Right now, what we have is just a DSL connection, which is slow in terms of FTP (file transfer protocol), so I believe faster bandwidth would help us be more productive.

Pabellon: Within the next few years, I think one of the things that we’re investing on— and I think we’re going to see similar adoption among SMEs—is virtualization. The trend among SMEs is resource optimization and doing more with less, so with virtualization, you can maximize your server and you also have application virtualization; so it's basically utilizing what you have to the maximum extent possible.

CWP: From which channels (retail, systems integrators, etc.) do you acquire your hardware and software products? How competent have these channels been in providing the kind of services or products you need? What are your criteria for choosing an IT service provider?

Javeniar: One big thing for me is competence—their ability to meet our requirements and good service, of course. It is also important for me to be able to communicate with them easily.

Encarnacion: Basically one criteria is their capability to address our requirements, of course you will not go to someone who has no prior experience in doing this. Product quality is, of course, also important; next is support, they should be able to provide the company with support even after the sale is made. And, of course, all things into consideration, the cost would still be a major factor in choosing a provider. Also, Ayala has this CIO Forum (composed of CIOs of the Ayala Corporation member companies) and lately, we try to share resources and one thing we do together is supplier relationship; for example, what we do is we bundle our requirements, although we still purchase individually. For example, if we are just talking about PCs, we pretty much standardize on the specifications already.

So that’s what we do, we share resources but we basically still have our own purchasing department; so I still course everything through the purchasing department. Even with SAP consulting, we grouped together—AyalaPort, Globe, Manila Water, and Ayala Land—so that we evaluate our requirements and have a “mother agreement.” The same goes for Microsoft, we talk to them as a group also, in terms of pricing. Going back to the criteria, capability is not just a minimum requirement because, sometimes a product can be very superior but there is a product less superior that could already address our requirements, so I need a provider who can tell me that.

Tucay: In our industry, it is somewhat difficult for us to get branded equipment in terms of workstations because, first, the branded ones usually cannot provide the high-end workstations that would cater to our requirements so we usually go for clones. For example, in 3D animation, the minimum requirement for the video card is like that of Nvidia Quadro and no brand offers a workstation with that kind of video card so we have to go for clones. When we had our Flash (animation) department, that's when I was able to buy branded machines because the application does not have very particular requirements. So, in terms of the criteria in looking for a provider, one is support— someone who could provide support within 24 hours, should I ever have problems. Second, the capability to provide the exact solution that would best fit me is very important. Another criterion is the flexibility of their payment terms, because there are some who require cash on delivery or they give you 30 days, I have a provider who usually gives me 60 days and that is very important.

Pabellon: I believe I'm on the other side of the fence with regard to this question, so I guess I’ll just share “tips” on how to deal with service providers like us. Sometimes, what happens with the big suppliers/ service providers is when you are a big company or a big corporation, you normally get good relationships with them—you get better support, better attention, you get the better account manager. So if you are a small SME, it pays to, like what Ayala is doing, band and course your requirements together so you could negotiate better as a group. Also, sometimes it is difficult to buy IT solutions or products because they are often too complex—they sometimes hide behind layers where you have to go through an account manager, a POC (proof of concept), a demo, and normally the big vendors hide behind a lot of marketing gobbledygook—big words that SMEs don't really understand. The nice thing about the alternative vendors out there is they are more upfront. Since they can't compete in terms of marketing with the big vendors, what they do is they are very open with information; like for open source, the reason it works—besides being free, because sometimes open source can be expensive too—is that the barrier to adoption is very low so you can actually try it on your own for very little cost. And the nice thing about open source and these other small vendors is, as they get more adoption, a lot of people are checking it out and if you see a vibrant adoption, you're pretty sure that it's of good quality. So the question then becomes—can you integrate it yourself? A lot of these vendors, like us, who partner with open source companies or the open source companies themselves, they make it easy for you to download it on your own so the power is shifted from the supplier to the user, enabling you to compare solutions apple-to-apple and lowering the barrier to entry. All of them, big or small vendors, usually work through a reseller so, at the end of the day, your relationship is really with the reseller and not with the big guy, so the issue of being big is negated and the question becomes: can your reseller provide the level of support that you need? Now, because you have information through the Internet or say you installed it yourself, you have better bargaining power. From a relationship standpoint, look for a vendor or supplier who can understand your business requirements. Nowadays, a lot of these guys focus on the technical aspect, either they are going for the product with the most margin as a sales person, or they are pushing a product that their principal is pushing—without really understanding why, or just because this is cool or this is the latest, they sell them to you even when they don't really fit your business needs. So, look for someone who is willing to sit down with you and understand how this could save you cost or how it could increase your sales—basically how it would serve your business.

CWP: Lastly, what challenges does your company face when it comes to IT implementation and use?

Tucay: One of the challenges is usually resistance from management, once they see the price there would automatically be resistance. What I think of, every time I design (requirements) for the company, is that, if I leave the company one day, they will not have difficulties in managing the existing infrastructure. But since they always want what costs less, there sometimes are trade-offs like when you go for open source, it may be cheaper but it's not that easy to maintain such that if you hire new graduates, they may not be able do it knowledge-wise. So you would have to hire someone with better experience and knowledge, which of course means a bigger salary so you have to work around those trade-offs. One other challenge that I see in our line of business is resistance, this time among the users. Say, although we know our 3D department will be more productive using Linux, our users do not want to have to learn a new technology and they feel like their creativity is stifled, and also since having to learn a new operating system may be too time-consuming, you just stick with the system that they work better with and try to optimize productivity.

Javeniar: With me, what happens is every decision about IT has to come from me. The management usually waits for me to tell them what I want to implement then they would just approve it. Even talking to suppliers is part of my job; so what our purchasing manager and I would do is, I talk to the supplier to tell them what we need then, when all the specifications are okay, that's the time our purchasing manager talks to them to discuss the price, ask for a little discount, etc.

Encarnacion: There are several challenges, the most basic probably being implementing IT effectively at the lowest cost possible. Every IT project should be attached to benefits and, sometimes, even if the benefits are there but if it's not within a certain level of cost, you cannot implement it. To give you an example, the IP-VPN is a blessing to us because it’s a cheaper way of interconnecting your branches compared to leased lines but I had to wait for the time when the cost is just right for our budget before I was able to centralize and distribute the technology across the network. Fast turn-over of IT staff is, I think, a challenge for all of us here. For example, employees well-versed in SAP are often pirated, so we have to hire somebody with no SAP knowledge because it will be too expensive for us to hire someone with SAP knowledge. I’ll hire somebody with a potential and train the guy for sometime so he works for me for a good while until he realizes that he is worth more—but that is basically the cycle and you can only do so much about that. Another challenge is how to instill IT literacy among end users because, in every IT project, the IT literacy of the end-user is critical so you need to orient them properly about the benefits of this IT project and how it would affect them.

Pabellon: Internally, in our organization, we are all IT people so we have no problems and are all often excited when it comes to implementing something—even our top management is IT-savvy. Cost, probably, is one thing that is common between vendors or suppliers and end-users because you all have to deal with management costs, talent cost, IT investment cost, managing operations. One challenge I have observed among SMEs, though, is sometimes top management has different expectations from the IT manager or the IT service provider. That's why it is important that top management be involved in not only the approval of IT projects but also in the planning, development, and implementation stages—because it's difficult when you do not know what they want and need exactly and you try your best to align the IT projects to the business but when things fail, all the blame is on you. So they have to be involved right form the beginning, they should tell you their expectations, their objectives, what they want to accomplish, their targets, etc.

Another issue that SMEs face is when the necessary information is not available to them. If you are a big company, it is the vendor who comes to you and spends time to really explain their products and services to you; but it's not that way for the SMEs. Another challenge is that sometimes projects are not business-driven—they don't assign specific metrics or a business objective for an IT project. IT people cannot really expect the management to understand the technical stuff so what you can do is learn about the business and find out how IT can be used to demonstrate measurable contribution to the business.