Living With Risk: Why Early Adoption Of VoIP May Be Worth The Trouble

After EDS failed, IBM's implementation of communications systems is going smoothly, Dow Chemical CIO says.

For EDS, it was a fiasco costing the outsourcing and integration company more than a quarter of a billion dollars. But for customer Dow Chemical Co., the failure by EDS to deploy a companywide voice-over-IP communications system was the price paid for taking a chance on leading-edge technology--something Dow hasn't lost its taste for. "We knew we were taking a risk," says David Kepler, Dow's CIO and corporate VP of shared services. "But we knew the technology would become available [during duration of the contract], and we wanted to get a leap on that."

When Dow agreed in December 2000 to a seven-year, $1.4 billion deal for EDS to create a combined voice, data, and video network to link more than 50,000 Dow employees in 63 countries, few companies have ever tried deploying such a large VoIP network. Last summer, EDS quit the project, paying Dow an undisclosed amount of money. At the time, EDS said it lost $229 million on the project just in the first six months of last year.

In August, Dow tapped IBM for the project, signing a seven-year, $1.1 billion contract. IBM began working on the project about five months after EDS resigned. Today, the project is on track, Kepler says.

While Dow is about two years behind its original plan in getting the voice-over-IP network fully deployed, Kepler says the company remains ahead of most others in employing the technology, which he sees benefiting the company and reducing communications costs. "We're still ahead of the game by taking risks," he says. "In the end, it hasn't disrupted the business process."

Dow likes to adopt new technology that has the potential to scale because of the eventual savings it can foster, Kepler says. For instance, he says, Dow began exploring SAP enterprise-resource-planning systems in the late 1980s and implemented the software vendor's financial and transportation systems in the mid-1990s, well before most other companies did. "We've lived with that investment for 10 years," he says. "As an early adopter, you run into scaling problems, but we have the competency to handle it and move forward."

Indeed, early investments in technologies such as SAP offered and the infrastructure that supports them has allowed companies like Dow to become more nimble and shift their spending and staffing priorities away from that infrastructure and toward application management, software, and other areas, according to the consulting firm The Hackett Group, which designated Dow a world-class IT organization. Hackett, which maintains a database of thousands of companies' practices, defines world class as an organization in the top quartile of its database in terms of efficiency (cost and productivity) and effectiveness (quality and business value).

Overall, Hackett found that world-class IT companies on average spend 18% less than their typical peers and operate with 36% fewer IT staffers. They also bring in projects on time and under budget more than 30% more often. In addition, world-class operations deliver business benefit by dramatically increasing the automation of a wide array of routine business transactions, providing operational efficiency, and freeing up staff time throughout the organization to focus on more value-added activities. Kepler says Dow had similar metrics.

Outsourcing networking functions to IBM, for instance, frees Dow IT staffers to address matters that are key to the production of plastics and chemicals, the company's core business. "From an IT point of view, everything runs on wire, and [activities] closer to the wire don't differentiate you in the market," Kepler says, noting that those processes can be outsourced. "People who hang onto the whole process spend a tremendous amount of time doing things others can do more effectively."

The contract with IBM extends to other infrastructure-management services, such as LAN, E-mail, and application support. IBM is taking a different approach than EDS to building the VoIP system, including using elements of IBM's Tivoli network-management products. The system will be run from IBM data centers in Boulder, Colo., as well as Brazil, Singapore, and the Netherlands.

"As an early adopter, we know our investment will last a long time," Kepler says. "We'll reap our investment over that longer period."

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