September 27, 1999
http://www.informationweek.com/754/intro.htm
IT Excellence
The influence of E-commerce is putting IT departments at the head of the business table
By Bob Violino
The companies included in the InformationWeek 500, our 11th-annual ranking, made the list based on an extensive survey of IT usage and business processes that was fielded in May and June (see story on methodology).
E-business was rated the top business, organizational, and technology priority of IT managers at InformationWeek 500 companies for the next year, which comes as little surprise given the frenzied efforts of many companies to establish electronic supply chains and develop Web ventures.
A resounding 97% of 250 IT executives at InformationWeek 500 companies queried in a follow-up survey in July said E-business was one of the key business priorities their IT departments would implement or support in the next 12 months. E-commerce applications and intranet or enterprise portals were at the top of the list of key strategic technology priorities. On average, InformationWeek 500 companies now draw 21% of their total revenue from E-business transactions.
IT leaders say the Web is proving to be an efficient way to market their companies' products and services. "It's a new distribution channel for us, and the time to market has been very fast," says Robert Reeder, VP of information and communication services at Alaska Airlines Inc., a $1.9 billion airline in Seattle, which was among the first airlines in the world to sell tickets on the Web.
How is the E-business phenomenon being played out? Like a growing number of companies, Snap-on Inc. in Kenosha, Wis., a $1.8 billion manufacturer and distributor of hand tools, automobile diagnostic equipment, and shop equipment such as hydraulic lifts, has created an online catalog of its products. It's preparing a service to let customers and dealers order products online, and it's getting into online equipment auctions.
That's not all. Alan Biland, VP and CIO, says Snap-on is also providing a Web site to assist peopleand companies in setting up auto dealerships, a service that Snap-on is providing on an outsourcing basis to automakers such as Ford and Honda. "If someone is thinking of starting a new dealership, they'll be able to log on to the Web and get everything they need," Biland says.
More businesses use intranets and enterprise portals for agreater number of applications, including human resources, training, customer service and management, decision support, marketing and sales-force automation, workflow, and enterprise resource planning.
Alaska Airlines' intranet has become an indispensable tool for getting up-to-the-minute information to employees and helping them do their jobs better. "It's central to everything we do with our employees," Reeder says. "We have a diverse workforce that's spread out over the West Coast, and our pilots can be all over the world." The system provides an easy way to get applications and information to those people, including up-to-date data for flight crews.
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").
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.
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.
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.
"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?
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.'"
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.
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.
As companies wrap up Y2K work, they're redirecting funds to a variety of other projects. Nearly half of IT executives say the majority of the money will go toward E-business applications. Others, though far fewer, say funds will go toward ERP, general business funds, CRM, building custom applications, and data mining.
Metropolitan Life Insurance Co. in New York is using some of its freed-up Y2K money for new application development, for E-commerce initiatives, and to prepare for its changeover to a publicly traded company. But Mike Ehrenzweig, VP of IT services, policy, and planning at the $27.1 billion insurer, says that even companies that have completed testing of computer code aren't really finished. Met Life completed testing by the end of June; it's now making sure plans are in place in case its business partners aren't ready, and to handle logistical problems or delays that may occur. "We got our act together; now our partners have to," says Ehrenzweig. "We want to be ready for any and all eventualities. We're not ready to relax--and we won't, at least through the first quarter of next year."
While IT executives view E-business as a huge opportunity, they say it's an equally big challenge.
Managers also cite a number of challenges related to the ongoing shortage of skilled IT workers: retaining staff, increasing staff productivity, attracting new employees, and training. Even companies that are among the most innovative implementors of IT are struggling to find and keep talented people.
"That's been a very difficult issue, made even worse in recent years by the year 2000 problem," says Saenz of Wackenhut. He says his company has managed to keep its IT staff turnover at 5% or less. It did that by forming a strong partnership with senior executives in the human-resources department, instituting a bonus program that regularly rewards IT staffers for reaching milestones on projects, and creating a positive working environment.
"If people are happy doing what they're doing, they won't look for another job," Saenz says. "We keep people informed and get together every month to tell everyone about presentations we've made to the board of directors about IT, and to let them know what's going on with the company." It works both ways. Saenz also updates the board on efforts to keep IT staff turnover low, an indication, he says, of how important the issue is to the company's leaders and shareholders.
As the competition for talented technology professionals rises, many InformationWeek 500 companies are boosting efforts to lure people with the skills they need--and retain them once they hire them. Three-quarters are using the Internet as a tool for collecting resumés, up sharply from 57% last year; and about half are offering equity in their companies, up from 37% in 1998. In addition, more businesses are offering flexible hours, career opportunities, extensive training, signing bonuses, work-at-home programs, and online training or distance learning.
As if rising to the demands of E-business while struggling to find and keep staff weren't enough, there's a long list of other challenges cited by InformationWeek 500 companies. Staying innovative is one, sometimes made harder by budget limitations that keep IT departments from launching new projects. IT managers say they're also challenged by having to move traditional business processes to the Internet, a lack of IT savvy among senior business managers, and, to a lesser extent, mergers and acquisitions and unforeseen changes in market demand.
Nine of 10 IT managers say early adoption of new technologies is important in determining the financial payoff of a typical enterprise application at their company.
Who are the sources of innovative ideas and practices at InformationWeek 500 companies? Nearly half of survey respondents say the most effective ideas for process improvements come from IS management. That's up considerably from last year's survey, when 30% of respondents credited themselves for driving innovation. Other key sources of improvements and new ideas include business line managers and IT or business project leaders.
Beyond individual contributions, a large majority of IT leaders at InformationWeek 500 companies say corporate culture plays a significant role in developing IT solutions. At companies where corporate culture spawns IT innovation, the reasons behind it are that employee input is welcomed and knowledge sharing is encouraged.
"We're going from a utility model with fixed pricing and a fixed customer base to a competitive industry," says Suprinski. "So the culture issue is critical. We're going to be investing dollars in IT that probably wouldn't have been invested" if the market had remained regulated.
Many of Consumers' new projects will come from a technology strategy group the utility formed. Suprinski says the group creates a "bridge" between the IT department and business units "and helps us to find the best ways to use new, emerging technologies and even older technologies that haven't been used as efficiently as possible."
IT departments continue to form closer partnerships with other parts of the business. IT leaders at InformationWeek 500 companies say their organizations are playing a greater role in their companies' strategic planning--and more than ever, they're considering business objectives when making decisions about technology investments.
Top business executives are paying close attention. "A CEO in any business today has to be keenly aware of how important technology is in shaping the company's future," says Robert Rodin, president and CEO at Marshall Industries, the No. 1 company in this year's InformationWeek 500 ranking. "IT is part of the boardroom strategy. We must be committed to making sure IT continues to develop not just the basic information plumbing at the company, but the new features and projects that will help improve the business."
Among the InformationWeek 500, there are 499 other CEOs who would agree.
enior IT executives will come to remember 1999 as the year that began with lots of worry over an issue abbreviated Y2K and ended with attention to all business opportunities beginning with the letter "E." Technology chiefs at InformationWeek 500 companies--businesses identified as the most innovative users of technology--have been pulled in two directions much of the year. To their delight, many are finally wrapping up Y2K programs after years of overseeing them. They're also being called on to guide their companies into E-business, an effort that includes forming closer relationships with customers.
A growing number of companies provide customer service or sell products or services to other companies on the Web, according to the initial qualifying survey completed by InformationWeek 500 companies. There was also a dramatic increase in companies' purchases on the Web for a wide variety of IT products.
The move puts Snap-on in the interesting position of featuring competitive auto-shop tools on its site. "In the spirit of building customer relations and gaining a larger share of the market, you have to think out of the box these days," Biland says. "It may not be just your products that customers want."
"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."
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.
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."
On average, businesses had completed revisions and testing of 91% of the computer code that needed to be fixed by spring, up sharply from last year's 67%. Many have since completed their work. Last year, companies devoted an average 10% of their IT budgets to Y2K work; this year it's down to 7%.
In fact, managers put implementing E-business strategies at the top of the list of organizational challenges facing IT management teams this year. Other organizational challenges include keeping up with the pace of change, providing adequate support to end users, managing growth, integrating with business departments, negotiating favorable purchase and support agreements, and managing relationships with multiple vendors.
Alaska Airlines finds itself short of IT people, but that's at least partly because the airline is, by its own admission, "particular" about who it hires. "We need people who aren't just interested in and knowledgeable about technology, but who know how to solve problems specific to the airline industry," Reeder says. "Not everyone wants to do that." The company is ramping up training programs to help develop skills from within the organization, while focusing on retaining the employees it has.
And there are risks. However, while IT managers acknowledge the risks inherent in trying new technologies or processes, many of the InformationWeek 500 companies are ready to take on more risk in an effort to meet or exceed business goals. More than 60% say their organizations are more likely to take risks with new technology investments in the coming 12 months, while only 9% say they'll be more conservative. Of those IT managers who say their companies are more likely to take risks, three-quarters cite increased competitiveness as a reason.
"Culture is a very important aspect of innovation," says Jim Suprinski, general manager of information services and technology at Consumers Energy Co., a utility in Jackson, Mich. Consumers, like many other utilities, is preparing for the more competitive environment that a deregulated utilities marketplace will bring. Whereas the emphasis in the past was on using IT to support existing services and hold down costs, the emphasis is increasingly on using technology, such as Web services, to expand its business.
Other cultural elements that managers say help foster innovation include diversity, groupware and other collaborative tools, the use of strategic IT service providers, global resources, and financial incentives for adopted ideas.
This Week's Issue
Technology Whitepapers
- Mobile BI: Actionable Intelligence for the Agile Enterprise
- Creating the Enterprise-Class Tablet Environment - by Yankee Group
- How To Regain IT Control In An Increasingly Mobile World - by BlackBerry
- Red Alert: Why Tablet Security Matters - by BlackBerry
- New Visual and Wizard-Driven Paradigms for Exploring Data and Developing Analytic Workflows
