InformationWeek
Defining The Business Value Of Technology
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Sept. 11, 2000 |
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IT Looks To Its Own Expertise
The experts have an edge when it comes to deploying technology
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ost technology vendors today are faced with a harsh irony: profits are getting squeezed, even as demand for their products and services is on the rise--even though they're the very underwriters of the business transformation that's sweeping the economy. For instance, IBM's gross margins on hardware sales fell 7.6% in 1999 from 1998 levels, while gross margins at Sun Microsystems fell 19% in 1999 before rebounding last year. Meanwhile, average selling prices for desktop PCs fell 7.7% in 1999, compared with the year before, according to PC Data.The reasons behind this are varied--increased competition, lower barriers to entry, the commoditization of hardware--but vendor response has been uniform. During the past year, several IT products and services vendors have embarked on programs designed to internalize the technology and skills they sell to customers. The objective is to use technology innovation to boost profits by streamlining sales, marketing, and customer-support efforts by using what they know best: their own technology.
Beyond gaining efficiencies, many IT vendors have come to realize their own deployments can provide a big marketing advantage--or disadvantage--depending on how well their systems work. "We have to be able to prove our own capabilities through our own online presence," says Rick Thompson, director of marketing for IBM's personal systems group.
With that in mind, and also with an eye to shoring up its profit-challenged PC business, IBM's personal systems group last year embarked on a major effort to bolster its Internet E-commerce capabilities. The goal: to build a Web site on which customers can customize any personal systems group product. IBM also hopes to reduce operating costs by increasing direct Web sales.
To make it all happen, IBM has had to rebuild many of its databases from the ground up because they were originally constructed to serve up product information, not commerce capabilities. When the division brought its first E-commerce site online last year, for instance, it was unable to offer special pricing promotions because all the databases had a single, fixed price field for each product. "That was fine when we only sold to resellers," says Thompson, who concedes that he didn't anticipate such challenges. "Some of these things seem basic to a marketing person like me, but this wasn't anywhere near as simple as I thought it would be."
But given the strategic urgency of the effort, IBM has devoted what Thompson calls "all means necessary" to keep the program on track. Its databases have been decentralized, and specialized E-commerce servers have been dropped into IBM sites in Atlanta, New York, Raleigh, N.C., and Toronto. IBM.com now features some of the most advanced E-commerce tools on the Web. Its Call Me Now feature, for example, lets users click a button to receive live telephone support, usually within a minute of the mouse click.
Thompson says that feature is critical to closing sales because many consumers remain wary about buying on the Web. Of all IBM sales in which the customer's first point of contact is online, only 15% are completed on the Web. The rest are closed offline, mostly on the telephone. And while IBM looks to boost the percentage of online sales, Thompson says it won't risk alienating customers to do so. "If customers want to call us on the phone, we want them to be able to do that as effortlessly as possible. We're not going to be heavy-handed about this."
Whether on the Web or via telephone, IBM's efforts to build a direct-sales infrastructure are paying off. Although the personal systems group continues to lose money, there appears to be hope. In the first quarter of 2000, the company's direct sales equaled its total direct sales for all of 1999. And second-quarter direct sales were double those numbers. Further, the average number of mouse clicks needed to buy a product on IBM.com has dropped from 13 to three in the last six months. "We're being extremely aggressive about this, and we'll keep raising the bar," Thompson says.
Of course, major IT vendors must be able to efficiently serve not just individual consumers, but also large companies. For that reason, Sun has focused much of its recent online development efforts on enhancing its business-to-business E-commerce capabilities. Business customers can order goods and services directly from Sun through its Sun.com site, but Terry Keeley, the company's chief Internet officer, says that's just the beginning. Sun is creating portals through which business customers can receive customized information, support, and product selections. "Individual workers will be able to buy whatever they are pre-authorized to buy, based on the product type and their credit limit, which can be quite large in some cases," Keeley says. Naturally, the portals are hosted on Sun servers.
Beyond improving customer access, Sun is also focused on creating a more-efficient supply chain. It recently deployed secure-server technology that lets suppliers safely and privately transact business with Sun electronically, while forgoing the cost of building expensive virtual private networks. "The money they save can be put back into their businesses, so they love it," Keeley says.
Again, the motivation for all this is to improve customer service, increase supply-chain efficiency, and cut costs in an increasingly competitive business environment. "All of these dot-comming activities we're engaged in have allowed us to cut our price/performance ratio by 25%," Keeley says.
The narrowing profit margins that have IT vendors looking to deploy cost-cutting technologies also drive consolidation in the industry. The fact is, as profits get squeezed, fewer vendors can survive as independent entities. Because of this, more than a few IT executives at large technology vendors have, of late, been called upon to integrate the operations of newly acquired companies.
Tony Graffeo, senior VP for global information systems at Computer Associates, says such projects are part of IT's job description. "IT departments are best suited to drive these sorts of things because of their cross-functional nature--we control many of the touch points with the rest of the company," he says. Following CA's acquisition of Sterling Software earlier this year, Graffeo and his team were faced with integrating IT systems across 85 offices worldwide and creating systems to let Sterling employees keep abreast of the merger and how it would affect them. "When an acquisition is announced, the affected people wanted to know right away what's going on, whether its about their benefits packages, 401(k)s, or other things that could have an impact on them," Graffeo says. "We created extranets, used blast E-mails, and whatever else we needed to quickly establish two-way communication."
Managerial-level, face-to-face meetings established communication across new and existing offices. Shortly after the Sterling deal was disclosed, Graffeo hit the road with a "SWAT team" made up of managers from different divisions within CA and visited five cities in five days. "The IT guys handled it best because they're used to being road warriors," he says.
But employees at an acquired company aren't the only ones that can be affected by a merger. Existing staffers can also face big changes in their work lives. For instance, Graffeo notes that CA--which has spent more than $7.5 billion on acquisitions in the past two years--often adopts some of the practices and technology employed by the takeover target. "We take a best-practices approach; we're not just going to go in and trash a company's systems if what they're using is superior to what we've been doing," Graffeo says. The one exception: E-mail. "We are standardized on Microsoft Exchange and we'll keep it that way," he says.
While IT vendors face many of the same business pressures that drive their customers to adopt cutting-edge technology, companies such as IBM and Sun may have an advantage over their customers when it comes to building information systems. IBM's personal systems group often has access to state-of-the-art systems not yet generally available. Beyond that, the IBM unit seldom has to turn to outside help when technical glitches arise, since virtually all of its systems run on IBM hardware. "We can solve just about everything internally," Thompson says.
At Sun, IT staffers take things a step further, actually contributing to the design and development of the products they end up using. "It's a little different from the traditional IT role," says Keeley, who notes that IT staffers helped build Sun's iPlanet E-commerce technology.
IT officials at other vendors say using the Internet to support customers is the only way they can keep up with the Internet-driven growth of the '90s. At Cisco Systems, more than 80% of customer-service queries are resolved over the Web without manual intervention. That, says Cisco CIO Peter Solvik, is the only way the company can ensure it's not strangled by its own growth. "We're growing as fast as any company our size has ever grown, and that can create a crisis in customer care," Solvik says. Even though Cisco has grown by 50% in the past year, demands on its technical support team have risen only 20%, thanks to its online help site.
That's all the more impressive, given that Cisco has rebuilt virtually its entire Internet infrastructure over the past year. The key to doing that without disrupting operations was a switch to smaller servers that can be scaled horizontally.
The fact that Cisco is an IT vendor as well as user gives its IT staffers an advantage. "We saw the Internet coming a lot earlier than most companies," Solvik says, noting that Cisco got an early start building applications designed to improve customer service, cut costs, and reduce turnaround times. "We knew this was not going to be about putting up a vanity Web site."
Illustration by Jeffrey Fisher
Photograph by Giorgio Palmisano
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