Sept. 11, 2000

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The Business Of E-Biz

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Many of the technologically innovative InformationWeek 500 companies sponsor industry-specific electronic marketplaces, especially those that procure supplies. A few invest in dot-coms. Eastman Chemicals Co., the $4.59 billion chemical maker in Kingsport, Tenn., has equity in a half-dozen Net ventures, including ShipChem.com, a Web-based logistics service provider for the chemicals industry launched in February. "These strategic investments provide a periscope into emerging technologies, practices, and competitive forces," says Eastman CEO Earnest Deavenport.

Bechtel Group Inc., the $12.6 billion engineering, construction, and project-management company in San Francisco, maintains a stake in seven diverse Internet ventures, including iAsiaWorks, a pan-Asian-Pacific Internet service provider; myHomeKey.com, an Internet portal that lets homeowners schedule home repairs and maintenance services; and Cephren, an online project-management service on whose board Bechtel holds a seat. Bechtel is also a customer of Cephren, using the startup's online collaborative services for the construction industry. "We give guidance in the development of Cephren products," says John Jahraus, Bechtel's principal VP and manager for systems infrastructure. "If it's successful, we not only get a good product, but a good return on our investment."

The influence of the Internet forces IT managers to think like entrepreneurs. About a third of InformationWeek 500 companies have IT departments that sell services to other companies. Noel Williams, CIO of HCA-The Healthcare Co., the $16.66 billion Nashville, Tenn., hospital chain, says all business initiatives are conceived, designed, and deployed with an Internet component. "The majority of initiatives are undertaken with the belief that the finished product could potentially be sold in the open market," Williams says.

Such a strategy is what executives at Ernst & Young LLP in New York had in mind when the $12.5 billion Big Five accounting firm transformed its IT operations this past year from a traditional in-house data-processing department into a business unit capable of servicing clients inside and outside the company. Over the years, Ernst & Young could easily determine the cost of hardware and software but never had a handle on less tangible items such as the value of a systems analyst's time designing an application for the tax department. "It made it difficult for the business units to know what decisions to make on an IT investment," says Ruth Harenchar, director of IT account management services.

To place a value on its IT staff, Ernst & Young implemented a time-tracking system its accountants, auditors, and consultants use to bill external clients. Knowing the total value of IT will be crucial as the firm contemplates moving some of its services online, Harenchar says. "As we move into the realm of online tax advice," she says, "we had to tell our tax department how much it will cost to run the technology so they know how much to charge a customer."

A percentage point behind E-business on the list of key business priorities for InformationWeek 500 companies is understanding and meeting customers' needs, closely followed by improving customer service and organizing customer data. The synergy between E-business and serving the customer is top of mind. "Every meeting with suppliers or customers contains a discussion about [using] the Internet," says James Hopper, CIO of Applied Industrial Technologies Inc., a $1.7 billion industrial equipment distributor in Cleveland.

Electronic links between suppliers and customers are changing the way businesses interact, and can present a challenge as companies try to keep up with the rapid pace of technology. Kelly Services Inc., the $2.27 billion temporary staffing company in Troy, Mich., is developing electronic value chains with its customers to identify their staffing needs earlier. "In the past, we would begin automation and process definition when an order was received from a customer," says Tommi White, executive VP and chief administration and technology officer. Today's supply-chain technologies let Kelly Services proactively identify staffing needs from within their customers' IT systems. "This means exposing business processes, technologies, and corporate cultures that previously were hidden within each organization," White says. "The changes in technology and process definition, while challenging, are simple compared with the cultural change that occurs when business processes within our own organization, our customers', and our suppliers' are changed on such a wholesale basis."

Still, eight of 10 InformationWeek 500 executives surveyed say such E-business apps give their companies a competitive edge, improve customer satisfaction and feedback, and let them learn more about their customers.

Arrow Electronics Inc., a $9.3 billion distributor of electronic components in Melville, N.Y., developed an electronic supply-chain application, known as e-compass, that lets customers learn more about themselves. Customers electronically feed their manufacturing resource planning data into e-compass, which analyzes inventory levels and forecasts needs for electronic components. The system can automatically adjust shipments to meet needs. The benefit to Arrow customers: greater efficiencies and cost savings. The benefit to Arrow: less excess inventory in the pipeline. "It's important that we be involved in every position along the supply chain," says Lauren Holmes, VP of global systems development. "The days where Arrow is seen purely as a fulfillment organization are over."

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Illustration by Brian Cronin

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