Investing in IT: information technology is key to Mexican productivity.

It's almost axiomatic--information technology (IT) equals higher productivity.

And it's true, if the proper qualifiers are added. You can't become more productive just by throwing more money into your IT budget, but the returns can be truly spectacular if you do your homework and apply it judiciously to your business.

Until recently, there's been a serious lag in both the development and application of IT in Mexico. Much of the blame can be placed on the severity of the 1994-95 financial crisis, when credit for just about any reason, let alone high-risk software development, virtually dried up. Many businesses are only now starting to recover from that shock.

Now, lots of businesses are entering the Computer Age. The Secretariat of the Economy reports that of the US$5.8 billion that companies invested in IT last year (about 1 percent of GDP), more than one-fifth--US$1.2 billion--came from small businesses.

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For these newcomers, operating on a catch-up basis, the potential return on investment (ROI) from investing in the basics--computer hardware and software, and network services--is astronomical.

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Supporting the notion of a high correlation between IT investment and growth is a study commissioned by the Secretariat of the Economy. Prepared in late 2003 by two consultants, Laura Sall-strom and Robert Damuth, it says that every additional 10 percent invested in IT in Mexico results in almost 1 percent of additional growth in Gross National Product (GNP).

Carl Rianhard, president of Open Tec--a Mexican multi-service IT company that rents computer systems, provides IT consulting services, and offers e-learning--sees the potential returns for entry-level investments as almost beyond calculating.

"A lot of companies don't have a website," he said. "That's just counter-intuitive, because the ROI is very, very high. A website costs hardly anything to do, costs hardly anything to host, and you can do a self-made website in a couple of days. All that stuff is very, very cheap."

A self-made website may not have the impact of one designed professionally, but it ensures that anyone who gets your business card has instant computer access to a basic presentation of your products and services and an easy way to get in touch with you.

Get Close To Customers

Another low-cost, high-return investment is customer relationship management (CRM) software. This tool allows a firm to track and analyze customer purchases and identify new marketing possibilities. The user can create made-to-measure special offers to customers based on their purchasing history.

Put another way, CRM enables you to get closer to your customers, improve service, and build loyalty.

Not long ago only large companies could afford a CRM program, but today they are available off the shelf for about US$1,000.

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"It's almost like building a website--you can do it on your own," said Rianhard.

"The one we offer is called GoldMine and the name says it all. The reason it's called GoldMine is that you mine your contacts ... Can you imagine having a business where you don't remember when you are supposed to call somebody back? The return on investment on that is also very high."

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There can be little doubt that computerizing sales and administration improves accuracy and contributes to transparency--as a barrier to pilfering and human error. But not everything needs to be done at once.

"At the other end of the spectrum is investing in a whole administrative system, accounting system, maybe that's not such a fast return on investment," Rianhard said. "Maybe that goes out two, three, four years ... For some companies a two, three, four-year payback isn't good enough ... So you put that on the back burner."

Software Development

Things don't look so good on the software development side. The Mexican government realizes that the industry here lags far behind developed nations and, what's more worrisome, behind Asian economies like India and Singapore. To address this, in 2003 it announced a 10-year incentive program called Prosoft.

Prosoft is a joint program with input from the private sector, universities and the government. It has set itself three goals to be achieved by 2013:

1. To be producing US$5 billion worth of Mexican software per year.

2. To quadruple IT investment to 4.3 percent of GNP, the average for the Organization for Economic Cooperation and Development (OECD).

3. To establish Mexico as Latin America's leading software producer. (It is currently ranked third in the region, behind Chile and Brazil.)

"There are several examples of good Mexican software, but you can name them on one hand, or maybe two hands," said Rianhard, who thinks Prosoft is a step in the right direction.

But, he added, "In order to have an industry you have to have a lot more players. So, is Mexico really going to be able to develop software? That is going to have to be seen in the next two or three years."

A discovery parallel to IT investment that's gradually being made in Mexico is that human resources--the people who make your business hum--are much more than red ink on the ledger, and just could be a firm's most valuable asset.

Once a company accepts the notion that its employees are assets, it is but a short step to realizing that these intelligent resources can become even more valuable through training.

Traditionally, training has taken the form of courses, presentations, seminars, and related activities. Some companies have embraced it so enthusiastically that the investment has spun out of control.

"Sometimes companies do not realize how much they spend on training," said Rianhard. "It can become a black hole because most of the time, people don't measure their return on investment in training. It's not something that's given much follow-up."

Just In Time

That brings us to another marvel of the Information Age--the concept of just-in-time production (JIT). This practice began back in the 1970s. It enables a manufacturer to eliminate inventories, because what is needed for today's production arrives today on a just-in-time basis. Just-in-time material flows have matured to the point where firms must adopt it just to keep up with the competition.

In recent years, JIT has evolved in a new direction. Its new incarnation is called just-in-time learning, and it can be applied to any kind of business. Better still, it comes with something new for in-house training--measurable results.

Gartner, a leading provider of research and analysis on the IT industry, based in Stamford, Connecticut, defines JIT e-learning as taking place "when a person sees that he or she needs more information to finish a particular task. The person accesses the information, or mini-course, runs it and then proceeds with the task at hand."

These courses, Gartner says, must be short but highly instructional.

The e-learning system includes a database and an on-line portal that allow the user to measure results and control all the learning that's taking place in the company.

"So now I can say, I am spending a million dollars, the same amount I spent last year, but at least I know where it's going, to whom it's going," says Rianhard. "It used to be with classroom training, all you really measured was attendance. Can you imagine that?"

This ability to predict and measure results--to quantify educational value--is opening the door to a vast new market. Companies can now promise--and deliver--concrete results.

Education, Education, Education

And learning need not be confined to company affairs. In a nation like Mexico--which scores low by world education standards--a company can use e-learning to help its employees make up for the shortcomings of the public education system.

"One of the very interesting things is ... companies complaining about the education system," says Rianhard. "A lot of them are taking matters into their own hands, where instead of complaining ... they just start doing a lot of the educating themselves."

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Even with a relatively high cost per student, e-learning can provide a respectable ROI, but so far the biggest companies still reap the biggest returns. That's because it costs almost as much to design a course for 10 people as it does for 1,000.

With a sales force of 1,000, the unit cost of a US$10,000 course would be US$10 per salesman, but for a sales force of 20 ... well, you see the difference. However, even an investment of US$500 per salesman for the right course could still yield an attractive ROI.

At this point, most e-learning courses are still provided on a customized basis for corporate clients, but Rianhard thinks this will change over the next two or three years.

It gets better. Not only does a learning management system (LMS) make it possible to streamline and measure the way employees learn, installing the system transforms the entire exercise from an expense into a company asset.

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Portal To The World

To get on board, a company must invest in a learning portal--a learning environment created to guide learners through their course work, test them, and evaluate them. At OpenTec, this basic start-up package could run to US$20,000, depending on the cost of integrating the portal software with the in-house system.

The main cost of operating the portal is related to rental for the software and services. It varies widely with the company size (the number of learners) and the number of courses the company wants to create. For a company with 10,000 employees, running a portal could cost several hundred thousand dollars, though a company can also rent the entire solution on an outsourcing basis.

Then it must create, or have created, the curriculum materials. This cost is determined by the number and complexity of courses to be run on the system, but the initial budget is often around US$50,000. Most companies start with their most important courses and add to their library over time.

Finally, there is a maintenance cost--funds for tweaking the curriculum to update it and incorporate the latest learning techniques, which might include videos, chat forums, simulation games, web conferences, and the human element--an advisor or mentor who in some cases had a previous role on staff as an instructor.

Also available are consulting services, whereby a company can hire outsiders to do things like auditing the plan and calculating ROI (which can turn positive in as little as six months), and studying the feasibility of program expansion.

Once these resources are in place, they constitute a capital investment. The user has a valuable software resource integrated into his system, and the course materials can be used over and over again for many years. The savings are self-evident.

The user may still want to bring in presentations from the outside and add new insights, but he is constructing a core of learning materials that is available to staff on a just-in-time basis, and that stays in place.

This is what Educate-Global does.

Silicon Valley Concept

Educate-Global is a division of OpenTec, the company Rianhard, a Stanford-educated engineer, has been running since 1999.

"What I decided to do when I came back to Mexico seven years ago was to invest in OpenTec," he said. "We were in the computer rental business. The hardware business as you know is a terrible business. Competition there is just ferocious ... so after we made the investment in OpenTec I had to figure out what OpenTec was going to do. Hardware was not a long-term strategy."

"So, what I decided to do, and this is before Mexico was talking about higher value-added jobs, I said, Mexico ought to have some jobs like California has, like software," he said. "Since OpenTec at the time was renting computers to training departments, using computers in courses, I said why don't we complement it and help others."

"Imagine all those clients we have (more than 20) using Mexican software. That's pretty good. Actually, I'm very proud of this. We took a California Silicon Valley concept and recreated it here in Mexico."

The company currently does about US$4 million worth of business a year, and projects US$6 million in sales for this year. It is excited about the growth prospects for e-learning, where the worldwide market has been doubling every year.

Still, future growth won't be a cake-walk since, like every high-growth sector, it spawns lots of competition. A study by Gartner estimates there are about 2,000 companies offering some sort of e-learning package, including industry giants like IBM, Oracle and Microsoft.

This translates into a major commitment to research and development--and innovative management.

"We have to be very fast and nimble on our feet," said Rianhard. "With all these huge corporate consolidations going on ... the market for e-learning might be in the hands of a few very big players. We're trying to make sure we are one of the important players."

The way to compete, he believes, is by making sure to have and maintain a world-class product.

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"We're also in an era of alliances," he said. "We don't have to do everything ourselves, we just have to make sure we know who to do it with."

OpenTec is currently exploring an alliance with a leading web conferencing systems firm. A growing part of e-learning involves web conferencing for companies that are spread out geographically. It's a much cheaper option than satellite conferences.

Human Profiles

OpenTec is also developing an application that provides a human profile of each learner. In the past, this has been taboo in many companies, but the idea is to help companies match the talents and strengths of staff members with the firm's needs, a strategy that should benefit both company and employees.

In Rianhard's words, "Companies do a lot of measurements regarding their inventory, their cash flow, their accounting, but they don't do much measuring regarding their people. We're in a globalized world and subjects you may not want to talk about we have to bring to the table and do something about them. So human profiling is something we have been adding over the last few months."

One of the technical challenges is integration--getting different systems to talk to one another. OpenTec is working with Microsoft to integrate an application called Biztalk, which is software which does what it says--that is, it allows different systems to communicate with one another.

The sales strategy has to be flexible, too, because not every client wants to buy the whole package. Some clients ask only for the course content, while others are interested in learning how to prepare the courses themselves, so that they can operate independently once the first few learning programs are in place.

Educate-Global has also developed off-the-shelf sales courses, but hasn't been marketing them aggressively.

Small Businesses

"To get to the PyMEs (small and medium-sized businesses), you need a different sales model," said Rianhard. "The market is definitely there for somebody that can put together the off-the-shelf content in a practical way. That's not what we're focused on."

Still, he sees it as an exciting niche. Several universities offer courses on an e-learning basis, but, he says, these tend to be full-length credit courses, not focused on specific needs. The best courses, he believes, are short and deal with specific themes rather than the textbook approach offered by most universities.

"Why can't you give the PyMEs four basic sales courses?" said Rianhard. "Everybody needs that, a few basic accounting courses, a few courses on how to run a family business, maybe a course on how to negotiate, so they don't keep saying yes when they mean no."

"That's not a huge library of academic university content. It's practical, day-to-day, common sense stuff," he added. "We want to do it. We just need to have some time."

RELATED ARTICLE: A Mexican Software Success Story

DynaWare steps into a profitable niche

DynaWare has found a niche in the intensely competitive business of providing Mexican companies with Enterprise Resource Planning (ERP) software and services.

ERP is the software used to match resources to production. It has been growing, evolving and becoming more sophisticated ever since IBM pioneered the concept with punch-cards back in 1963.

One of the company's main selling points for its version of ERP is its ability to get the system up and running far faster than its competitors.

"Typically, a project is delayed, results are unpredictable, and it takes more than two years to complete (installation)," said company CEO Rafael Funes, an industrial and systems engineer trained at Monterrey Tech. "DynaWare requires 14 to 26 weeks to install, and the average is 18 weeks."

It can save money too, because the company uses just two consultants to install the system instead of the customary five.

Funes said that in the past his firm--a Mexico City-based Information Technology (IT) company with 80 employees--has faced some "malinchismo." Malinchismo is the tendency of some Mexican customers to favor foreign products over home-grown ones--but that is fast becoming history.

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One reason is the quality of the product and the quick installation, but there's another, equally important selling point: because DynaWare is based in Mexico, it can assure clients of complete implementation services and after-sale support.

"We convince companies they will get much better local support and things go pretty well," said Funes.

A La Mexicana

Another point in DynaWare's favor is that the system has been designed and adapted to the specific needs of Mexican enterprises over its 10-year history and each product is further customized to the client's special needs.

Customers choose from among three levels of sophistication in the ERP programs, which DynaWare calls Empresarial, 2B and Online.

DynaWare Empresarial is the full-service package, with functions ranging from manufacturing to accounting to finance and other administrative operations. Its target market is mid-size to large companies in manufacturing, distribution, and services.

The DynaWare Online package contains the same operational features, but because it is hosted by IBM and accessed via Internet, the client doesn't have to invest in a platform--an operating system, servers and related items.

A system for smaller businesses goes by the name of DynaWare 2B. It sports a substantially lower price by eliminating some of the functions that only larger companies require.

To use an ERP system, the customer starts with a sales forecast and the system helps the user adapt it to available production capacity and production decisions.

In the DynaWare system, the forecast projects 52 weeks into the future, but it is adjusted every week as new variables and market changes appear on the horizon. The system takes into account planned levels of inventory.

A financial component of the program indicates what funds will be needed to buy the materials to fulfill the production goal.

ERP systems in the United States have a human resource component, but Funes said this is seldom needed in Mexico, where labor laws are different and it is not as easy to manage layoffs and firings.

Plans For Expansion

DynaWare is poised to start exporting its products, focusing on Spanish-language regions--such as Chile and Spain--in the third quarter of this year. The company views all of Latin America as a potential market, in addition to Mexican-run companies in U.S. states such as Texas and California.

Funes describes Mexico as a "bittersweet" marketplace for IT.

"On one hand, the opportunity is immense. On the other hand, the lack of an entrepreneurial attitude and vision from business owners makes it difficult for most IT vendors," he said.

"Vendors also have to accept their share of the blame since many projects have been unsuccessful due to a lack of commitment, quality orientation, and knowledge."

He said things are improving, both in terms of business commitment to IT and product quality. "I expect to see substantial growth for the next few years," he said.

As for DynaWare, there's an excellent case for optimism.

Funes said annual sales are running at about 40 million pesos a year, but they ballooned by 59 percent in 2004. And in the first quarter of 2005, they rose by a whopping 190 percent.

--Ken Emmond

RELATED ARTICLE: Grupo Orsa Finds Gold

Training and outsourcing programs show growth

Grupo Orsa is experiencing growing demand in each of its four interrelated information technology divisions, though training and outsourcing are the most exciting areas.

"The business of training has changed substantially in the last few years," said Marcos Garcia Flores, Grupo Orsa's general director.

"Clients are demanding more concrete results for their investment in this area. Not only do they want their personnel to know more, they want evidence of better performance."

As a result, said Garcia--an industrial engineer and MBA graduate from ITAM--it's imperative to work closely with customers in all aspects of consulting and services.

To respond to this demand for quality service, Grupo Orsa's Espacios en Red division uses training systems from IBM and Microsoft, as well as the one offered by OpenTec.

Its programs, offered throughout the republic in 70 training centers, focus on IT training, quality systems, administrative processes, attitude management and improvement of quality of life through the workplace.

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The company also provides evaluation services to its clients to assure quality performance in customer service, document creation using computer tools, training the trainer services, public bidding strategies and human resources systems. It even offers a day care service during training periods.

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The three other divisions are called DCI Consulting (which works in human resources), IT Consulting (which helps clients streamline their IT operations) and Alteria Consultores, which specializes in corporate processes.

Grupo Orsa's outsourcing operation is growing because, says Garcia, "Increasingly, customers are finding they must focus on their core business, and they're delegating other tasks to third parties."

Grupo Orsa lends qualified personnel to companies for limited periods of time for specific projects. Often the jobs are turnkey projects such as administration of data bases or systems management.

Additionally, Grupo Orsa helps companies with analysis and redesign of processes, and general consulting.

Small Businesses Up Next

Because the projects tend to be big-ticket items, Garcia says most of its clients are large companies or government agencies. The company counts Nestle, Pemex, Santander, Bimbo and the State of Mexico government among its clients.

Still, Garcia is conscious that many small businesses have similar requirements, and this provides a market niche for someone to fill.

"It's necessary to create a business model that addresses the needs of small businesses, perhaps with packaged products that do not require a large investment of time by consulting specialists," he said.

At the same time, Garcia recognizes that it is increasingly urgent that small businesses invest more resources in information technology, not only to become more competitive but just to maintain their place in the marketplace.

Grupo Orsa has been in operation for 10 years, and last year its revenues were around 40 million pesos.

--Ken Emmond

RELATED ARTICLE: Trading Expenses For Assets

Calculating the true costs of e-learning

Calculating return on investment (ROI) for e-learning isn't as easy as it might seem.

Many of the costs of traditional live training don't even appear on the training budget. They're buried in other accounting categories. The result is that, when comparing costs and benefits of e-learning versus live training, there's an apples-and-oranges trap.

"A lot of companies don't realize how much they spend on training because many of the budget items are not training items," said Carl Rianhard, who runs Educate-Global, a division of OpenTec. "The first thing (in calculating ROI) is knowing what you spend today ... but many clients don't even know that."

There's a gamut of expenses, some of which get lost when calculating training costs: instructors, training facilities, equipment rentals, maybe even satellite systems. There's travel and entertainment--the cost of bringing people to one location.

One other item seldom finds its way into most calculations--opportunity cost. If the sales people are in Cancun for a week's training, the company pays their salary even though they're not on the road selling.

The next question is about productivity: how much do they learn?

"Sometimes the instructor thinks his or her job is to go and give a talk," said Rianhard. "That's not really training; that's talking. Training is when somebody's learning something. Many of these classroom-based events don't even have a testing mechanism."

So, the first advantage of e-learning is not even on the chart for live training: e-learning is measured. The company can find out what its staff members have learned.

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The second advantage--and the second apples-to-oranges trap--is that most of the costs of e-learning can be capitalized.

In the case of live training, every dollar goes to an expense item.

As Rianhard says, "You pay the instructor today, and it's gone. Tomorrow, it's going to cost you that plus inflation. E-learning is taking that budget and creating an asset out of it, for 10, 20 years."

Some companies go beyond training employees and put their e-learning investment to work to train users and suppliers.

Calculating Costs

Well, what are the costs of e-learning?

The first capital item is creation of an e-learning portal, which in the case of Educate-Global can cost about US$20,000. The portal is designed to make sure learning takes place. Students are registered, courses are delivered, tests are administered and results recorded, there are diagnostic functions and discussion forums, and documents related to the courses are available.

You might have a web conference, which is much more cost-effective than a satellite conference. There is an application that allows students to take notes.

Some costs do find their way onto the expense sheet. Each student has access to a mentor, who might be a staff instructor retrained to fill the new role. One major expense is operating the web portal, and the company might hire a consultant to calculate ROI and help it decide how it can make the e-learning asset even more valuable.

The second major capital outlay is creating course content.

To do this, Rianhard says, "We sit down with the client and they give us a list of all the courses they give today. We ask for the top 10, 20, 30 courses. They tell us what their priorities are ... Then we start counseling them on where they can convert these into online content." Additional courses can be added over time as budget becomes available.

Like any other capital asset, the system needs maintenance, though this is the smallest item. Courses must be updated to reflect changes within the company and new teaching technologies, but course basics stay the same and can be reused for many years.

"You can tweak it, but most of it is going to be good five years from now," said Rianhard. "And so you put it on your balance sheet and don't expense it every year."

E-learning is best suited to short, stable, focused topics, but--with conferencing and other new tools--its potential is growing.

"I'm not saying you're not going to do live training; of course you are," said Rianhard. "You're just going to do it less often. One of the main purposes of online training is that the people who need the training should have access to it whenever they need it."

--Ken Emmond

Ken Emmond (kemmond00@yahoo.com) is a journalist and economist who has lived and worked in Mexico since 1995.