September 22, 1997

INFORMATIONWEEK 500 IT In The Spotlight CIOs must pinch pennies but also keep pace with rapid change and new demands By Bob Violino hat a time to be a chief information officer at a technology-intensive company! On the one hand, CIOs are overseeing one of the biggest technological fix-up jobs in history-the year 2000 date-field problem-and are being pressured by senior management like never before to get the most out of their organizations' IT dollars. On the other, they're at the helm of high-profile and potentially career-boostin g business opportunities such as the Internet and intranets. Chief technology executives at the nation's largest corporate users of IT-the InformationWeek 500-are experiencing both the agony and the ecstasy of guiding their organizations' technology efforts in the midst of breathtaking change. The multimillion-dollar, sometimes billion-dollar, budgets these organizations devote to IT help maintain corporate infrastructures. But they also plunge companies into new and sometimes risky ventures. This year's IW 500, our ninth annual ranking, once again draws from the data gathering and analysis of Computer Intelligence, a research firm in La Jolla, Calif. The rankings are based on detailed surveys of IT executives that determine the amount, type, and use of hardware, software, networks, and telecommunications equipment and services by companies ( see story , p. 48). Through detailed reporting and analysis, the report also investigates a broad array of bu siness sectors, examining the IT problems, solutions, and opportunities unique to those industries. Among the major technology activities across the 500 companies and 20 industries profiled, we found: A continuing push into cyberspace that's opening up business opportunities such as electronic commerce and the further expansion of intranets; The adoption of new client devices, including network computers, and the ongoing boom in portable computing; The fierce search for skilled personnel for all types of technology jobs; Frantic efforts to bring millions of lines of computer code up to date before year 2000 problems begin-which could happen as early as January 1999. Companies in the IW 500 have on average more to spend on IT this year than last, according to a survey of technology executives at the IW 500 companies, conducted for InformationWeek over the last three months by New Futures World Marketing, a market research firm in Palo Alto, Calif. The avera ge worldwide IT budget for 1997 is about $231 million, up nearly 8% from 1996 spending of $214 million. CIOs will need every dollar they can get. In addition to maintaining infrastructures and starting up technology ventures, they are in the throes of massive year 2000 conversion efforts that are draining resources from other efforts. Many have millions of lines of software code that need to be updated before problems start. A year ago, a sizable number of companies in the IW 500 hadn't even begun to seriously address the year 2000 problem. But with the date change now only 28 months away, most are moving aggressively to convert code. "There's a lot of pressure to fix this," says Gene Trudell, general manager of computer services at U.S. Steel Group, who oversees IT for holding company USX Corp. in Pittsburgh. "I've had to make presentations to the board of directors about our projects. They understand that this is significant and that we have to get it fixed." Year 2000 Compliance The InformationWeek survey asked companies to estimate what percentage of their software code is year 2000 compliant; answers ranged from less than 5% to more than 90%. Though the figures provide an overview of the scope of the year 2000 problem in terms of percentage of code, they don't take into consideration how important the noncompliant code is to the organizations-or when that software will be fixed or replaced. Nor do the figures take into account the fact that many companies will rely on numerous other organizations to be compliant as well. "In these days of electronic commerce, we need to be sure our trading partners, vendors, service providers, information providers, and customers-all the companies we do business with-are compliant," says Patrick Zilvitis, VP of corporate IT at Gillette Co., the consumer-products maker in Boston. He says Gillette has begun asking for compliance documents from software vendors and business partners, and other companies are asking Gillette for the same. Gillette has had a program in place for years to buy only software that is year 2000 compliant whenever it replaces systems. Eighteen months ago, the company also began an awareness campaign that includes a detailed assessment of what needs to be fixed and how much it will cost. Gillette estimates that 80% of its code is now year 2000 compliant. Nonetheless, Zilvitis says much work remains. Beyond legacy mainframe code, Gillette has to inventory and update noncompliant system software in PCs, LANs, and "anything with embedded logic, such as the PBXs that run the switchboards," he says. Zilvitis keeps a "scoresheet" to show senior management that the problem is being addressed worldwide. Net Benefits Work on the year 2000 problem hasn't slowed companies in their quest to find new ways to benefit from the Internet and related technologies. Companies are spending a significant amount of dollars on World Wide Web-based initiatives, including the development of corporatewide intranets that are revoluti onizing internal and external communications. In fact, the average Internet and intranet spending by the IW 500 as a whole this year is about 6% of total IT budgets. That's more than double the percentage spent on these technologies last year. Not surprisingly, companies in the IT industry itself lead the way, devoting an average of 14% of their technology budgets to online initiatives. But companies from other industries, including some with huge IT budgets, are becoming big-time Web users. Federal Express Corp., for example, reports that 35% of its 1997 IT budget of $720 million is going to online initiatives. Similarly Big Six accounting firm KPMG Peat Marwick spends 30% of its $600 million IT budget on the Internet and intranets. Virtual Marketplace Companies aren't limiting their activities to creating Web sites, either. According to the IW survey, roughly a third of the 302 companies that responded sell products via their Web sites, although very few were able or willing to est imate annual Web-generated revenue. Slightly more than half the companies say they use the Internet to procure supplies and materials. More CIOs are warming to the idea of electronic commerce, especially with efforts under way to bolster Internet security with stronger firewalls and encryption. But some IT executives, particularly those in service businesses, say hurdles remain before E-commerce can become a significant part of their business. "It's very difficult to sell services over the Web because you don't have this tangible product you can just put in the mail and charge someone for," says Douglas Greenleaf, CIO at accounting firm Deloitte & Touche. Deloitte & Touche is conducting pilot programs to determine the best way to sell services such as consulting over the Web. "We've got to provide information on the Web that entices an individual looking at it to call us for more information," Greenleaf explains. Other CIOs are making the necessary upgrades to their infrastructure to suppo rt Web-based applications. "We're all facing increasing costs and difficulty in creating more flexible infrastructures to deal with what lies ahead," particularly the growing reliance on intranets, says Jim Kinney, VP and CIO at Kraft Foods Inc., a subsidiary of Philip Morris Cos. in New York. "It's a daunting challenge." Kinney cites an enterprisewide effort under way at Philip Morris to adopt the Microsoft Exchange groupware and intranet platform. "It's a major task," he says, "because many of our desktops can't support that environment yet." Help Wanted One of the biggest concerns among top IT executives at the IW 500 is the seemingly endless shortage of people skilled in technology. It's made worse by year 2000 projects that are pulling both dollars and workers from other IT efforts such as application development and network maintenance. "Demand for people is far exceeding supply," says Trudell of USX. As a result, salaries for IT jobs are escalating dramatically. "Programmer sa laries in particular are getting very high, because of things like year 2000 and big client-server projects," Trudell says. "We're having a hard time keeping up." And keeping people. Trudell says many of his IT workers are leaving for new jobs: "As soon as you get people up to speed on technologies, they move elsewhere" to pursue higher pay. CIOs also face the difficult task of managing increasingly complex, distributed, and mobile computing resources. At many companies, particularly professional and financial services firms that provide consulting at client sites, the majority of PC users now have portable devices. "We have 85% of our people on portables," says Deloitte & Touche's Greenleaf. "How do you effectively get information in and out of a computing environment in which 20,000 out of 22,000 people have portable computers?" To give Deloitte's consultants and other employees who are part of the mobile work force quicker access to corporate data, the firm plans to boost the bandwidth of its wide area networks, including a significant increase in T1 lines. Outsourcing Takes A Bite Other companies, such as chemicals giant DuPont & Co. and transportation company Ryder System Inc. are increasingly turning to outsourcing service providers to help maintain growing IT infrastructures. Over-all spending on these outsourcing vendors is inching up: This year's IW 500 survey shows that companies are devoting on average nearly 15% of their IT budgets to outsourced services, up from less than 13% last year. But even with outside help, CIOs at the nation's largest IT user organizations have their hands full. Many are being asked to contribute to the financial success of their businesses like never before, either through infrastructure improvements or revenue-generating IT projects such as data mining-even something as obvious as selling goods and services over the Internet. "We're trying to create the business advantage all companies are looking for," says Kraft Foods' Kinne y. "What it comes down to is that we can't just focus on process improvements and reengineering and cost reduction. We've got to be building systems that actually make a difference in the marketplace or give us insights on customers or consumers. That's where the real breakthroughs will occur." "Our business is absolutely dependent on IT," adds Zilvitis of Gillette. "We can't take inventories, take orders, or manufacture products without computers being in the loop. We have a growing clientele that requires constant uptime for our systems. Keeping us a seven-day-a-week, 24-hour-a-day operation is at the top of my list of challenges." See related story " InformationWeek 500: Growing Pains " or return to the IW 500 Menu for more stories and related charts View the IT Budgeting Chart in PDF format Back to the IW500 Menu Send Us Your Feedback Top of the Page

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