InformationWeek
Defining The Business Value Of Technology
September 27, 1999
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IT Excellence
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"We take customers into consideration in all of our IT decisions," says Diego Saenz, VP and CIO at Wackenhut Corp. in Palm Beach Gardens, Fla., a $1.8 billion provider of security and staffing services for business and government clients. "Customer service and relationships are extremely high priorities."
Wackenhut factors customer needs into the design of its major IT implementations. "We try to look at things from the customer's perspective and work backward," Saenz says. For example, Wackenhut's ERP system is extended to the locations of some of its business customers so those companies can access necessary data.
Customer satisfaction is so important that it has become a major measuring stick in determining the value of IT investments. Eighty-one percent of IT executives cite improvements in customer satisfaction and repeat business when asked to list key metrics used to measure or define IT's business benefits. That's up from 61% last year. Other metrics include financial gains attributable to IT processes or product upgrades, the ability to differentiate products and services from those of competitors because of IT initiatives, informal payback scenarios, and formal return-on-investment measurements.
Indeed, businesses are putting a lot more effort into measuring the payback they get from IT investments. Every category of measuring return garnered more responses than in last year's survey. Only 1% of IT leaders say they're not measuring returns at all, compared with 8% last year.
As the senior IT executive at Olsten, Harding doesn't just receive pressure to show return on IT investment--he applies it. "When I sit in meetings with senior business line managers, I say to them, 'You've got to use these systems to get any benefits you can.'"
Harding concedes ROI metrics can fail to capture all the benefits of technology. At times, he says, his company requires nothing more than the experience of its executives to decide that it needs to push ahead with a technology project. "We just did a complete replacement of our systems," he says, "and the major driver was the business instincts of our senior managers that we needed to have [the upgrade] to grow."
It also includes money for Y2K work, and as the year comes to a close, it's clear that Y2K-renovation programs are winding down at many InformationWeek 500 companies. Although Y2K conversion and testing remain a business priority, the percentage of executives who included it on their priority list declined from 94% in 1998--when it was the No. 1 business priority--to 72% this year, dropping to 10th place.
Just below E-business on the list of business priorities are improving customer service and understanding and meeting the needs of external customers. Many InformationWeek 500 companies are aggressively putting in place Web initiatives, data warehouses, and customer-relationship management systems to know and serve their customers better (see story, "Customer At The Core").
Eastman Chemical Co., a $4.5 billion chemicals producer in Kingsport, Tenn., is moving in the same direction. The company is upgrading from SAP's R/2 system to a Web-enabled R/3 setup, and it's linking the ERP applications more closely to major customers. "By adding new functionality like extended supply chain and advanced planning and optimization modules, we're improving our points of contact with customers and providing them with better information," says Eastman Chemical CIO Robert Dorsey.
"There's definitely heavy pressure to show what benefits we're getting from our systems, to show that our investments in technology are worthwhile," says Jim Harding, CIO at Olsten Corp. in Melville, N.Y., a $4.6 billion provider of temporary employee services. Business managers, Harding says, are zeroing in on the issue from every angle: What's the cost impact? What's the customer impact? What's the competitive impact?
Companies are spending a higher percentage of revenue on IT expenditures this year than last, a clear indication of the strategic value senior executives place on technology. According to the InformationWeek 500 qualifying survey, IT budgets on average this year account for 3.6% of company revenue, up from 3.4% in 1998. That includes capital and operating expenses for infrastructure, applications, and the Internet, along with sales, recruitment, services, outsourcing, and training costs.
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