Calpine Corp. took a problem and turned it into an opportunity. Last year, the electricity and thermal-energy provider moved from an ATM and frame relay network to a VPN, which cut costs by 75%. But there was a hitch: The VPN didn't meet all of Calpine's business needs, and the encryption used to secure the network added bandwidth overhead that reduced the performance of applications and left users frustrated.

How did Calpine respond? "The natural human tendency is not to want to admit to making a mistake," says senior VP and CIO Dennis Fishback. But the company's IT department has a culture that encourages second-guessing in the name of continuous improvement--understanding that last year's technology may not be the best answer today.

Addressing the shortcomings of the VPN opened the creative floodgates of Fishback's team, which decided to use bandwidth-compression and -optimization technology from Peribit Networks Inc. The technology proved effective in reducing WAN traffic using a combination of caching and compression. To enhance performance between remote sites and data centers, Calpine used split tunneling to remove public-network requests from its VPN links. And by enabling intelligent quality-of-service controls, network access was ensured for important applications. Overall, the changes improved the network's security while boosting performance by 250%. The network upgrades paid for themselves in less than six months and have an expected eleven-fold return on investment, validating the company's No. 5 ranking among the InformationWeek 500, our annual survey that measures business innovation powered by technology.

It's that kind of change-embracing culture that prevails among the upper tier of the InformationWeek 500--those companies in the top 100. IT executives in these highly ranked companies have worked to improve processes, increase efficiencies, align even more closely with business goals, reach out to customers, measure IT effectiveness, build top-notch tech teams, and embrace innovation.

Reflecting the mood of many of his peers, Keith Glennan, VP and chief technology officer at defense contractor Northrop Grumman Corp., which ranked 14th, says: "We're at a point in the market cycle where business is pretty good, but we know that won't persist forever. We've put our efforts into optimizing business and transforming systems now, while we have the bandwidth, so we don't have to take draconian actions in the future."

Effective strategies don't always involve spending more money. Average IT spending among the InformationWeek 500, at $293 million, is at its lowest level in five years. As a percentage of revenue, the average IT budget was 3% for the top 100 and 2.8% for the next 400 companies on our list. And while 56% of the InformationWeek 500 say they'll spend more on IT this year than last, a quarter of the top 100 are looking to reduce IT spending this year. This reflects strides some companies have made to cut costs through efficiency so they can spend money on new projects even though they're working with smaller budgets.

"Our top priorities are projects that will increase revenue, but there also are things that you have to do," says Suzanne Gordon, executive VP of IT and CIO at software vendor SAS Institute Inc., which ranked 16th. Gordon is spending half her budget on new projects and half on must-do infrastructure maintenance, and she's cutting costs to skew that percentage even more toward innovation. Something as simple as automating phone-bill analysis can generate huge savings, she says. By collecting phone bills into a data warehouse and applying its own analytics, SAS generates reports that show inefficiencies in phone-plan usage and overcharges. One bill had a $40,000 overcharge that, without the system, would have gone unnoticed. In recurring costs alone, the company expects to save at least $600,000 annually. It's now taking the same approach to attack storage costs across business units.

Telecommunications company SBC Communications Inc., which ranked 18th, is redefining itself in the face of increased competition from cable and satellite service providers and a deregulated market. "Things are changing quickly and drastically," says CIO Andy Geisse. One small, personal sign of that: Geisse says his own daughter doesn't know what it means to order a wireline phone.

Geisse's team laid the groundwork for transformation by streamlining networking costs, improving customer self-service features on the Web, and increasing sales efficiencies through customer segmentation and analysis. Doing so has led to a shift in how IT dollars get allocated, from 90% of the budget being used to sustain IT in 1998 (leaving 10% for enhancing IT) to 62% sustaining and 38% enhancing this year. "In this-size organization, a 1% shift means we move $35 million from sustaining to enhancing," Geisse says.

That shift allowed SBC to pour resources into Project Lightspeed, a $4 billion initiative to convert its network to IP and deploy nearly 40,000 miles of fiber to bring 25 Mbps of bandwidth to more than 18 million homes. The project will improve SBC's ability to provide integrated wireless, broadband, video, and voice services, which the company plans to begin rolling out to customers later this year.

	SPENDING OVERVIEW InformationWeek 500 dollars spent on IT (in millions)   2001 2002 2003 2004 2005 Average company revenue $12,471 $9,427 $9,652 $9,087 $9,776 Average dollars spent on IT $484 $320 $353 $334 $293 Average IT budget as a % of revenue 3.88% 3.39% 3.66% 3.68% 3.00% Note: Additional information from previous InformationWeek 500 surveys. Data: InformationWeek Research survey of InformationWeek 500 executives

Sabre Holdings, the international travel-reservations company ranked 74th on the InformationWeek 500, is saving money and meeting the needs of its customers through a gradual conversion from an IBM mainframe environment to Linux-based open-source systems. The move has sliced up to 70% off support and operations costs and 50% off development costs, says Bob Offut, Sabre's senior VP and chief architect. The company is migrating away from EDI-based messaging and toward XML and Web services. "We see pressure that [our customers] want more flexibility in terms of products and services," Offut says.

Two key strategies among the top 100 companies this year are consolidation and standardization. "Today our direction is clear: centralizing systems to reap advantages from our size," says Carl Wilson, executive VP and CIO of 56th-ranked Marriott International Inc., which owns nearly 2,800 hotel franchises and residence clubs. The plan is to provide any owner of a Marriott property with access to a single source of technology, so that the customer experience will be consistent, yet personalized, at any Marriott location.

Toward that end, David Ruby, Marriott's senior VP of information resources shared services, converted the company's frame relay WAN to a VPN, facilitating broad access at lower network costs. For Howard Melnik, senior VP of information resources application services, it meant consolidating two enterprise-resource-planning systems into a shared-service center for all accounting operations across franchises. But success in the hospitality industry isn't just about consolidation and cost cutting. Marriott also invested in a "virtual concierge" to help guests plan trips and in paperless checkouts for business travelers, allowing bills to be uploaded electronically into expense reports.