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9/8/2006
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In Depth: How The InformationWeek 500 Cracks Businesses' Toughest Problems

It's not the frothy dot-com days. But new technologies and opportunities for change have made IT fun again.

Business technology is fun again.

By imaginatively mixing and matching emerging and mainstream technologies, this year's InformationWeek 500 companies have a superior understanding of their operations and know how to connect with employees, suppliers, and customers to drive profits. Contrast that can-do approach to a few years ago, when even the most resourceful companies focused on the basics, establishing enterprise systems and developing Web infrastructures that are the platform for today's IT offerings.

InformationWeek 500 companies are getting big results from IT, even if most projects aren't on the scale of those at the beginning of the decade. All but 5% of the InformationWeek 500 do that by employing Web services and business intelligence software. Nine of 10 use wireless e-mail. More than 80% deploy voice-over-IP apps, provide employees with Wi-Fi connectivity, and are developing service-oriented architectures. Open source is taking root among the InformationWeek 500, with 82% using Linux tools or apps and 77% using commercial open source software.

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Globalization plays a more crucial role among the companies on our list this year. Nearly three-quarters employ workers abroad, and more than 60% contract offshore outsourcers and buy from non-U.S. suppliers--all increases from a year ago. Though they're willing to take risks, IT teams also face intense accountability: 94% of the 500 rely on metrics such as Balanced Scorecard, Information Technology Infrastructure Library, Six Sigma, and ISO 9000 to benchmark performance and productivity and optimize processes.

Real ChangeThey accomplish all this while spending proportionally less revenue on IT than they did at the beginning of the millennium. This year, the typical InformationWeek 500 company spent $304 million on IT, or 3.2% of revenue, down from $484 million, or 3.9% of revenue, in 2001. That's a 37% decline in dollars spent in five years as outlays to create enterprise and Web systems have been replaced with targeted investments.

There's unrelenting pressure on IT to cut costs. Lucent Technologies, No. 49 on the InformationWeek 500 list, points to a 36% reduction in server support costs by consolidating servers. The $9.4 billion telecom equipment maker, which is preparing for a merger with Alcatel by year's end, is eliminating 800 servers worldwide and cutting its server farms from more than a dozen to five. Virtualization technology from VMware, in which one x86 server can be partitioned to run a number of applications, is at the center of Lucent's consolidation effort. Servers that once used 10% to 15% of their capacity now run at levels topping 25%. Two of the data centers consist of eight boxes that host 151 virtual machines, running 33 core business apps supported by disk-based mirroring of critical business data.

The Big Squeeze

Virtualization is an example of how companies are squeezing every line item--spending less on server hardware, system administrators, and software licenses. The typical InformationWeek 500 company spends 43% less on hardware purchases, a third less on labor, and 38% less on apps, including software licenses, than it did five years ago.

Lucent calculates it will save $100 million over several years from server consolidation, but it also will be more responsive to changing business needs. It used to take up to three months to order, install, and configure a new server. "We deliver applications faster to business users and literally provide environments to developers within minutes to hours versus months," CIO Elizabeth Hackenson says.

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