Study: The True Cost of Poor Technology Performance


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Compuware surveyed 304 LoB owners and IT executives to find out how IT failures were impacting their businesses. Their answers, highlighted in this report, reveal the brand damage, customer dissatisfaction, and financial waste that results from just a single tech performance issue. Among other findings, the report uncovered a significant disconnect between LoB and IT regarding the importance of technology to business processes. (Note: e-commerce was excluded from the study to focus on operational technology issues.)

Published in: Technology, Business

Study: The True Cost of Poor Technology Performance

  1. 1. Measuring the BusinessImpact of TechnologyPerformanceA Global Perspective – 2013Survey Conducted bySponsored By
  2. 2. The following study, commissioned by Compuware Corporation, was designed and conducted to measure and define the businessimpact of technology performance failures. Contrary to most end-user surveys investigating technology performance and thesubsequent business impact, this study:During the months of February and March 2013, this comprehensive study solicited feedback from 304 corporate executivesand 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:MethodologyDirected its focus on questioning actual Line of Business (LoB) ownersTargeted 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 tothe 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/PharmaceuticalThe following global regions are represented in thisreport: United States, Europe (U.K., France, Germany,Netherlands), ASEAN (Taiwan, Indonesia) and Australia(see appendix for sampling information).U.S.LoBITn=180n=147n=33(Indonesia,Taiwan)n=77n=63n=14(U.K., France, Ger-many, Netherlands)EuropeLobITn=21n=17n=4ASEANLoBITn=26n=23n=3AustraliaLoBIT1 | #techfail
  3. 3. This survey focused largely on the insights garnered from LoB executives, but in order to better inform and round out responses, it solicitedanswers from a number of IT executives as well. Of 304 business leaders surveyed, 59 percent were at the vice president level or higher. Nearlyhalf the executives were members of companies with annual revenue exceeding $5 billion, and a third citing revenue greater than $10 billion.Study ParticipantsWhat is your title?What is the annual revenueof your company globally?2 | #techfailOwner/Partner2%Director,10%SeniorV.P/V.P.,40%CorporateExecutiveLevel (CEO, CFO,COO, CMO),17%Division SeniorManagement,31%$250m -$499.9m8%Less than$250m3%$10+ billion33%$1-$4.9 billion25%$500m -$999.9m15%$5-$9.9 billion16%
  4. 4. 3 | #techfailWe were unable to meet an important deadline due tothe server downtime. Our client was not pleased and wasobligated to go with a competitor’s offering at the time.CIO – ManufacturingCustomers were not happy with the inability toget to our agents and we noticed less use of ourproducts in the marketplace.VP of IT – Banking/Finance
  5. 5. Technology failures have negative effects on resources and time, as wellas internal costs. Failures were primarily associated with lost productivity,but also with decreased sales and revenue, and an inability to meetservice level agreements. Outside costs were driven mostly by the need toset up temporary systems or manual processes to correct the failure.Direct Hit Absorbed by Operations, Products, and Salesand MarketingThe largest cost to businesses following a technology failure was reportedat the “operational” level. Within operations, sales were impactedmost, with executives reporting lost sales and order fulfillment errors.In addition, a large number of executives indicated technology failuresimpacted products by causing significant downtime. However, the mostcostly result of a technology performance issue, while only being reportedby six percent of executives, was a product recall.Ultimately, when considering any type of technology failure, the averageshort-term financial impact of an isolated technology performance issuewas $10.8 million.The Long-term FalloutIn addition to the calculable and trackable short-term costs associatedwith technology performance failure, surveyed executives indicatedsubstantial long-term impacts to the financial health of their companies.For instance, 45 percent of the respondents experienced a loss in marketshare or brand equity as the result of a technology performance issue.Additionally, 75 percent of executives say the same major failure hashappened more than once.The Role of Technology in Business Performance andProductivityIncreasing the speed of manufacturing and development to deliverproducts or services to end users faster, while ensuring quality, wereidentified as the top priorities driving technology investments. Routinetechnology issues — those occurring at least a few times every week toevery day — represented the biggest threat to these investments. Despitebeing 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 executivesstated that additional investment in IT was required to resolve the issue.Among the most frequent actions taken were purchasing/upgradingnew software or hardware, increasing IT staffing or hiring an externalconsulting firm. Despite efforts to resolve the issue, one in five companiesfelt it necessary to communicate the failure to their customers.Executive Summary:The Impact of Failed Technology Performance$10.8 MILLION.4 | #techfailULTIMATELY, WHEN CONSIDERING ANY TYPE OF TECHNOLOGY FAILURE,THE AVERAGE SHORT-TERM FINANCIAL IMPACT OF AN ISOLATEDTECHNOLOGY PERFORMANCE ISSUE WAS
  6. 6. 5 | #techfailCustomer discounts were offered but we lostmarket share anyway.Executive Corporate Mgmt. — ManufacturingDue to regulatory requirements, we had tostart production over again and revalidatemanufactured products.CFO — Healthcare/Pharma
  7. 7. Detailed Results6 | #techfail
  8. 8. Increasing the speed of manufacturing and production, or getting products and services to marketfaster, is the top priority driving investments in technology, according to survey respondents.The Top 3 Priorities Driving Technology InvestmentsWhen breaking out the respondents according to LoB and IT responsibilities, it is clear that IT and the LoB have different concepts of whatshould be driving technology investments. The LoB feels production speed is most important, whereas IT believes that ensuring product andservice 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 production2. Increase speed to market/to the consumer3. Ensure product/service qualityRank123LoB ITIncrease speed ofmanufacturing and productionEnsure product/service qualityIncrease speed to market/to theconsumerIncrease speed of manufacturingand productionIncrease speed to market/to theconsumerEnsure product/service quality7 | #techfail
  9. 9. 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 workingproperly, it results in a total stop to processes or functioning of this area)?LoB corporate executives say the top fiveareas of their companies that they considermost “critically dependent” on technologyoperating efficiently are: customer service,finance, sales and marketing, distributionand supply chain.While IT and LoB executives are inagreement with regard to the most “criticallydependent” areas, operational aspects suchas supply chain, manufacturing and shipping/receiving are considered more criticallydependent on technology by IT executives.ManufacturingPerceived “Technology-critical” Areas8 | #techfailTotalLoBITShipping/receiving
  10. 10. Reliance on Technology for Supplier RelationshipsWith increasing speed as a top priority driving technology investments, the chart below emphasizes the reliance on technology in thesupplier 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 productionCustomer serviceTransportation and distributionR&DRaw materials and parts9 | #techfail[A] critical system used to service customers went down resultingin customer dissatisfaction and inability to do business.SVP Corporate Mgmt. — Banking/Finance
  11. 11. 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 IssuesWould you say that the frequencyof technology failures impactingyour area is:How often does your company experienceinformation technology issues that affectperformance or productivity in your area(excluding website failures)?SAY THAT THE FREQUENCY OF THESE TECHNOLOGYFAILURES IS STAYING THE SAME OR INCREASING.75%10 | #techfailFew timeseach year21%Few timeseach month28%Every day — Fewtimes each week48%Rarely to never/don’t know3%Staying thesame49%Decreasing25%Increasing26%
  12. 12. We have countless internal systems. Sometimes they go off line.They can typically get the systems back on line quickly. I do notknow how they are addressing the issues in the long run.VP of Credit — Banking/FinanceThe company has between 20 and 25 separate softwarevendors at any given time. A number of them have frequentunscheduled downtime, resulting in problems. Our companycontacts [them] but response times have been very slow.VP Corporate Mgmt. — Healthcare/Pharma11 | #techfail
  13. 13. Over half of corporate executives (52 percent) surveyed stated that they have experienced a significanttechnology failure within the past few months, with 79 percent reporting at least one in the past year.How many times has this samefailure occurred prior?How long ago did this happen?When Technology FailsMORE THAN 80 PERCENTSAID THIS IDENTICAL FAILURE HAPPENED BEFORE, WITH HALFREPORTING IT OCCURRED AT LEAST ONE TO TWO TIMES PRIOR.12 | #techfail1-3 years ago15%4+ years ago5%In thepast year28%Within thepast fewmonths26%Within thepast fewweeks25%6+ times12%3-5 times20%1-2 times49% 0 times14%Don’t know5%
  14. 14. Our ERP system has had numerous failures and ourpeople can no longer do a manual workaround.This affects our manufacturing and ordering basedon forecasts that are no longer available.SVP Corporate Mgmt. — Manufacturing[Our] Outlook email system goes down for hoursat a time. Almost 100 percent of internal andexternal business transactions completed rely onOutlook.VP of Production — Banking/FinanceThe more frequent failures are a result ofserver communication breakdowns, which aretypically a result of overtaxing a system thatis no longer adequate to support our needs. Areboot usually fixes it temporarily.SVP Corporate Mgmt. — Banking/Finance13 | #techfail
  15. 15. ”“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 (PatientCare Service) went down for almost 24hours. Manual processes were put intoaction, but patient safety is at risk androutine work becomes error prone andslow.Senior Manager of IT – Healthcare/PharmaWhat area(s) of your business did it negatively impact?(Check all that apply.)Customer serviceSalesCustomer trafficProduction timeCompetitive abilitySecurityShipping/receivingMarket shareBrand awarenessSafetyProduct launch timingTransportationMarketing strategiesDon’t know69%41%34%34%32%26%18%16%13%13%13%10%10%10%2%2%14 | #techfailStaff time/resourcesOther
  16. 16. 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 connectto the correct webpages within thecompany. That was human error.Senior Manager, Marketing – Healthcare/PharmaThere was a fault in the system that should have beenidentified and patched that caused a major disruptionin inventory management, stocking locations andability to identify and locate inventory.VP Corporate Mgmt. — Healthcare/PharmaWhat were the primary reasons forthe technology failure? (Check all that apply.)51%22%16%11%10%16%Provider failure (software/hardware)Utility failureUnforeseen security threatUser errorWeather/environmentDon’t know15 | #techfail
  17. 17. As a result of the technology failure, 90 percent of executives say their companies took some type of action.How Do Companies Respond?16 | #techfailSentcommunication tocustomers regardingthe issueWhen asked what they did,40 percent of LoB ownersindicated that new softwareor hardware was purchasedor upgraded; 56 percentof IT executives said thesame.There was also adiscrepancy in trainingas a response. Comparedto responses from ITexecutives, 30 percentmore LoB executivesasserted that stafftechnology training wasincreased, while 50 percentmore said that there was anincrease in IT staffing.Following this technology failure, what hasyour company done? (Check all that apply.)TotalLoBIT
  18. 18. 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 businessis truly back to normal. IT executives said things areback to normal within 11 days on average, while LoBexecutives say it takes an average of 24 days.TO GET BACK TO NORMALAFTER A FAILURE21DAYSHow long did it take to getback to normal operations?LoB ExecutivesIT Executives24 Days11 DaysBack to Normal17 | #techfail
  19. 19. Documenting the ImpactDoes your company collect and quantifythe impact of technology failures?”“We use virtual desktops to accessour emails, files, online meetings,etc. The virtual desktop crashedand thousands of employees wereunable to work.Senior Manager of Marketing — Banking/Finance18 | #techfailThirty-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’tKnow8%Sometimes41%
  20. 20. Quantifying the CostMore than 70 percent of executivesreported that lost productivity is theprimary cost, followed by 49 percentanswering lost sales revenue andan inability to meet service levelagreements.In terms of outside costs incurred,setting up temporary systems ormanual processes tops the list.This was a system failure to communicate datato a bolt-on specially developed for our industry.The data exchange failed and the bolt-on failed.SVP Corporate Mgmt. — ManufacturingWhat cost aspects are typically quantified?(Check all that apply.)Lost productivityLost sales revenueNot meeting service level agreementsTemporary systemsor manual processesAdditional staffing requiredWasted product71%49%46%44%40%23%19 | #techfail
  21. 21. Total Short-term Costof Technology Performance IssuesIn terms of the short-term costsassociated with operations, sales andmarketing for a single major technologyissue, LoB and IT executives were inagreement that it costs their companiessignificantly: $10.8 million, on average.When considering only those whoindicated impact in that area, theaverage cost of a product recall jumps to$3.2 million, product waste increases to$0.8 million, and sales and marketingimpact rises to $13 million.Nearly three-quarters (72 percent) ofexecutives agree that the technologyfailure directly impacted sales andmarketing. Of product-related costs, 7percent of executives surveyed indicatetheir companies were forced to do aproduct recall, while 9 percent had todiscard or waste product.ON AVERAGE, $10.8 MILLIONIN SHORT-TERM COSTSFOR A SINGLE INCIDENT.Product waste 9.2% (n=28)7.0% (n=21)72.0% (n=219)Product recallSales and marketing20 | #techfail
  22. 22. Impact to Sales and MarketingLooking deeper into sales andmarketing costs, lost salesand delayed or incorrect orderfulfillment were the areasimpacted the hardest. Acrossall respondents, the averagesales and marketing lossestranslated to $10.5 million.While both groups saw asignificant amount of lost ordelayed sales, IT executiveswere often not aware of pricingerrors or customer returns.LoB and IT executives differedin their perceptions of impactto sales and marketing, with82 percent of LoB executivessaying that sales and marketingwas negatively impacted,compared to only 72 percent ofIT executives.What was the impact to sales/marketing asa result of this technology failure?(Check all that apply.)TRANSLATED TO $10.5 MILLION.AVERAGE SALES AND MARKETING LOSSESTotalLoBIT21 | #techfail
  23. 23. We lost sales ... had the entire IT team working on a solution.Senior Manager of IT — RetailThe site was shut down and clients were directed to use theirphone apps where applicable. Clients or corporations who didn’twant to send payments via phone had a negative reaction tothe amount of time it took to get the site back up and running.SVP of Sales — Banking/Finance22 | #techfail
  24. 24. The Long-term Cost ImpactWhile the short-term costs were easier forexecutives to quantify, they indicated additionallong-term impacts that their companies incur due totechnology performance issues. The most commonareas of impact are loss of market share and brandequity, which shows that technology issues arenoticed by their customers.What have been the long-term impacts ofthe technology failure?(Check all that apply.)Customer information was lostand it was necessary to gatherthe information again, which isa painful process that causescustomer attrition.VP of IT — Banking/Finance[We] had to send out a masscommunication apology.VP of Finance — Manufacturing24%21%15%9%9%8%7%7%5%4%3%Loss of market shareLoss of brand equityRe-organizationIncreased warranty issuesPricing increase on products/servicesGovernment issuesEnvironmental issues/costsLegal issues/costsDon’t knowDecreased/downgraded stockClosed locations/job loss23 | #techfailReorganization
  25. 25. AppendixTOTALTOTALBanking/InsuranceRetailAustralia Europe ASEANHealthcare/PharmaManufacturingOther(UK, France, Germany,Netherlands)United States(Indonesia,Taiwan)24 | #techfailn=25n=76n=42n=32n=5n=180n=4n=8n=8n=5n=1n=26n=15n=28n=7n=24n=3n=77n=1n=9n=2n=9n=0n=21n=45n=121n=59n=70n=9n=304The study was based on data collected via an online survey among senior corporate executive personnel who were directly responsible for revenue-producingdecisions 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 inthe respective native language of the respondent.
  26. 26. Compuware Corporation, the technology performance company, makes technology makea difference by providing software, experts and best practices to ensure technologyworks well and delivers value. Compuware solutions make the world’s most importanttechnologies perform at their best for leading organizations worldwide, including 46 ofthe top 50 Fortune 500 companies and 12 of the top 20 most visited U.S. websites.Learn more at: has been providing fact-based information and actionable recommendationsto corporations and governmental institutions for 24 years. Intellitrends is a leadinginternational marketing research and marketing strategy organization committed toworking closely with clients to achieve continuous competitive advantage throughdecision-focused, quality-driven market research and strategic marketing programs.Learn more at: | #techfail
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