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News In Review

April 27, 1998

Elf Atochem
Do-It-Ourselves ROI

By Bob Violino

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ROI In The Real World

T o help measure the true business value of IT projects and prepare financial plans in terms of its CEO's demands, chemicals producer Elf Atochem North America Inc. uses a new model developed not by economists, but by CIOs.

Called the Value Measurement Model, the scheme was created by a working group of the Society for Information Management (SIM), a trade group for IS executives. The plan, completed last fall, provides a framework for something the IT community has been talking about for years: better alignment of IT investments and business value measures and processes.

The SIM model lets IT managers convey the payback on a particular investment to senior managers in their value measurement of choice. In the case of Elf Atochem and, indeed, many chemical companies, the measurement of choice is return on capital employed (ROCE). Similar to retu rn on investment, ROCE also takes into account how much capital a company spends on a project.

Elf Atochem, the $2 billion U.S. unit of French chemical company Elf Aquitaine, uses the SIM model in combination with other ROCE measures for all of its major IT projects, says Rene DeGeorge, manager of PC projects at Elf Atochem in Philadelphia and head of the SIM working group that developed the new metric. "All of our project proposals must include information at the outset about what business processes will be affected-not in terms of Mips and bandwidth, but in things like on-time delivery and logistics."

The SIM model can also be applied to any type of business and can be tailored to different types of projects and investments. "For this type of model to be valid, it must work across industries," says DeGeorge.

Already, Elf Atochem has used the SIM model to draw up infrastructure plans and expected returns on a companywide intranet. Expected benefits from the intranet include reduc ed printing and labor costs, and more timely and accurate distribution of information such as emergency procedures, annual reports, and human resources data, DeGeorge says. The intranet should also reduce cycle times for a long list of activities, including scheduling, direct-deposit notification, and travel arrangements. It should also give users easy access to enterprise applications, legacy databases, and groupware.

The initial development cost of the intranet was about $800,000, according to Gwen Blake, Elf Atochem's director of technology planning and the intranet project's manager. That cost covers Web browsers, servers, and connections, but not ongoing costs such as training, maintenance, and support, Blake adds. Though she declines to provide an expected rate of return for the project, Blake says the company estimates savings for just the first four months of operation at $250,000 to $400,000.

The cost and savings estimates were provided by managers from every Elf Atochem department that specified an intranet application. These included public relations, human resources, and IS. But DeGeorge quickly adds that financial returns are "only one aspect" of value. "Customer satisfaction is just as important," she says.

The intranet project was evaluated at different stages by Elf Atochem CIO Robert Rubin, and by the company's chief operating officer, chief financial officer, and CEO. Final approval came last spring, and the intranet rollout began last October. Currently, about 2,000 of the company's 3,200 U.S. employees have access to the intranet, with the remainder scheduled to be added by year's end.

Next, Elf Atochem will apply the SIM model to other IT initiatives, including an E-mail upgrade, purchasing systems, and electronic commerce.

CIO Rubin is a strong believer in metrics--"To paraphrase Lord Kelvin, you cannot understand something unless you can measure it," Rubin likes to say--and he views the SIM model as a mechanism for getting at the business value of a project. "It's useful for getting people on the same wavelength and as a recipe for how we think about a project."

"I will ask people `Why should we do this? What's the business value of it? If it were your money, would you invest in this?'" Rubin adds. "All those questions are embedded in the formal model. It's a checklist to make sure you've covered everything so you can make solid business decisions."


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