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IT success: Do you know your ABCs?

Prioritizing IT investments by the ABCs.

I love the ABCs. And no, I'm not stuck in some kind of Sesame Street time warp; I use the ABCs not only to help me manage and improve IT but also to help the business make better decisions. Let me show you what I mean.

Product ABCs. My all-time favorite ABC is product analysis. "A" products are those that generate 80% of the sales. "B" products generate the next 15%, and "C" products the final 5%. (I also calculate the ABC based on profit.) The real fun begins when we learn the percentage of products that are As (and the number that are Bs and Cs). A couple of years ago, a retailer brought me in to "fix" a poorly performing IT department. My first task was to conduct a product ABC analysis. For this company, only 3% of more than 40,000 products were As -- that is, 3% of products generated 80% of sales. In addition, of the more than 8,000 products this retailer had introduced in the previous two years, only two (that's numeral two, not 2%) could be counted in the A group. In general, it takes as much IT to support a C product as it does to support an A product, so we were able to simplify (and then "fix") IT by streamlining the product selection, introduction and management processes.

Customer ABCs. I'm also a big fan of the customer ABC. Which customers (and how many) account for 80% of our sales? How can we treat these customers better? What can we do to convert B customers into A customers? What investment should we make in C customers? I recently used the customer ABC with a specialty publisher. The process revealed that the company had implemented some very complex logistics rules for its customers (for example, consolidating orders based on time or dollar value). These complex logistics rules required the publisher to highly customize its systems, which led to poor performance, reliability problems and steep upgrade costs. After we completed the customer ABC, we learned that only the C customers used the complex logistics rules and then used this result to simplify the logistics rules (and improve IT service levels).

System ABCs. Finally we have the system ABC. Here I work closely with line-of-business managers to assess the company impact if various systems are unavailable. To what extent and for how long will it affect the business if we lose the call center system? Can our agents take orders manually until we recover the system? How long can we receive and process orders without it? What if we lose our financial system? Depending on the impact, we assign the systems an A, B or C category. These system ABCs help me define service-level agreements, required response times, and business continuity and disaster recovery plans. My rule of thumb is that in the event of the worst case, I need to recover A systems within a few hours and B systems within a few days. For C systems, I wait until someone calls and asks about the problem before starting the clock. The most extreme example of this was a system that was down for six weeks before anyone noticed and called the help desk.

Just like everything else in IT, knowing your ABCs depends on having a solid relationship with the business (it really does take a village to make IT valuable). Together with such a relationship, applying the ABCs can deliver powerful business and IT benefits.

Niel Nickolaisen is CIO and vice president of strategic planning at Headwaters Inc. in South Jordan, Utah. Write to him at

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