Measure Up, Or Move Out - InformationWeek
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9/17/2004
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Measure Up, Or Move Out

IT efficiency, corporate-accountability practices, and new business strategies distinguish the most innovative companies.

During the last year, Cigna Corp. changed the way its IT group operates. It morphed from an inefficient, decentralized operation with dispersed resources that were costly and underutilized into a centralized unit that maximizes the return on every piece of technology and human capital.

Last year, the health-care and benefits company launched a virtualization program, which replaced the practice of purchasing dedicated servers and using multiple development, testing, and production environments with shared resources using virtualized servers. So far, Cigna has eliminated a quarter of its 3,000 servers that were once operating at only 10% to 15% capacity, saving as much as $15 million in support costs. Now all of the company's business units follow the same architectural standards and project-management methodology and use the same hardware and software so they can reuse components and intellectual capital. And because all the operations are centralized, a team of executives works together to evaluate and prioritize business-technology projects.

"The way this manifests itself to our customers is that we're able to bring technology to the market more quickly and efficiently, and projects will cost less than a few years ago," says Andrea Anania, Cigna's executive VP and CIO.

ROI Techniques, bar chart

That's what put Cigna, at No. 37, high on the 2004 InformationWeek 500 list. For 16 years, our annual list has highlighted leading U.S. business-technology innovators. This year, the top 100 companies are distinguished by crisp and efficient strategies that cut costs and optimize productivity. These businesses have raised the bar on corporate governance and made a science out of measuring return on investment and the value of business-technology projects. They're embracing the hottest technologies and developing business strategies that list their IT departments as revenue generators in their annual reports.

Corporate accountability is one of the key differentiators that emerged from InformationWeek Research's survey of core areas of operation, including IT budgets, technology deployment, business strategies, and staffing practices at the organizations on this year's InformationWeek 500 list.

A full 99% of all InformationWeek 500 sites say they analyze the return on their technology investments, and 88% conduct performance assessments on existing business and technology processes. It's clear that this year's top 100 companies have made an art form of due diligence, changing their organizational structures and cultures to ensure that the right technology projects are funded and that the investments deliver promised returns.

Evaluation Ownership, bar chart

Pharmaceutical company Wyeth, No. 62 on the list, continues to refine its four-tier evaluation process that applies a numeric value to IT projects at the start of each year; those with the highest value get the cash. The company looks at governmental compliance, strategic alignment (which determines whether the business strategy can't be accomplished without the technology), financial cost-benefit analysis, and adherence to overall business-systems strategy before it gives the green light.

That's in sharp contrast to a few years ago, when Wyeth's IT department simply went along with the technology demands of individual business units. "Demand for IT was too high, and the company couldn't afford all of it, so we forced them to see that they needed a rational evaluation approach," says Bruce Fadem, VP and CIO at Wyeth. "Our business leadership now takes active accountability for evaluating business initiatives and the final determination across the organization," Fadem says. That also means that projects are done faster and more efficiently, as the company stays focused on a few high-value initiatives.

Calpine Corp., an electricity and thermal-energy provider that placed No. 30 this year, takes ROI seriously. Under its new Competitive Advantage Solutions program, the IS department demands a minimum ROI of eight times the expenditure on projects. Calpine senior VP and CIO Dennis Fishback got the results he wanted on the nine initiatives launched last year, including a WAN-optimization project that implemented new data-compression technology and converted the network from ATM frame relay to a VPN. The project improved network performance and increased reliability, while immediately cutting costs by 75%.

In other measures of Calpine's success, this year's IT projects led to a 62% increase in staff productivity and a 37% reduction in costs. "This is a way of challenging ourselves," Fishback says. "If it works, we should get a competitive advantage right out of the gate."

Corporate Strategy, pie chart

The 100 top companies in this year's InformationWeek 500 also distinguish themselves in how they handle performance metrics and standards. The majority, 60%, say they depend on internal and external parties to create and execute performance metrics, compared with only 30% of the remaining 400 companies. Just over 40% of those 400 challengers rely on internal assessment alone, versus 14% of the leaders.

The top 100 consistently take a more formal approach to ensure that their technology investments are sound. Eighty-three percent of the leading companies use a balanced-scorecard approach to performance metrics, 55% use the Six Sigma methodology, and 48% use the International Standard Organization's 9000x. Of the remaining 400 companies, just over half use balanced scorecard, 29% Six Sigma, and 31% ISO 9000x.

Tim Buckley, managing director of IT at financial-services firm Vanguard Group, knows that using performance metrics can make a big difference in the bottom line. After learning that as much as 30% of Vanguard's software spending was for testing, Buckley launched a software-quality initiative using a mix of approaches, including the Six Sigma methodology. "Think of the money you spend patching software that you could spend somewhere else," he says. "If you increase software quality, you can use the testing money for quality additions." Executing that initiative let Vanguard's IT department increase productivity and enhance products and services, even while taking a smaller percentage of the company's overall budget.

Vanguard is in good company: Many of those on the InformationWeek 500 report dealing with slightly smaller budgets, but they're making the most of the dollars they spend. The average IT budget is $334 million, compared with $353 million last year. Yet as a percentage of company revenue, IT is getting a slightly bigger piece of the pie at 3.68%, versus 3.66% in 2003.

InformationWeek 500 companies also continued cutting costs and simplifying business operations during the last 12 months. While last year that was the primary focus, this year more businesses also made generating new revenue opportunities a priority.

SPECIAL MENTION
Top performers in key survey areas
Company Revenue in millions Highest-ranking IT executive Title Industry
Technology Strategy
JM Family Enterprises Inc.
$7,800
Ken Yerves Sr. VP & CIO Automotive
Electronic Arts Inc.
$2,482
Marc West Sr. VP & CIO Media & Entertainment
Micron Technology Inc.
$3,091
Ed Mahoney VP of IS Electronics
Cadence Design Systems Inc.
$1,119
Daniel Salisbury VP of IT Electronics
E.&J. Gallo Winery
--
Kent Kushar VP & CIO Consumer Goods
Business Practices
Northern Trust Corp.
$2,090
Timothy J. Theriault Pres. of Worldwide Oper. & Tech. Banking & Financial Services
UPMC Health System
$4,000
Daniel S. Drawbaugh CIO Health Care & Medical
Carlson Companies Inc.
$19,800
Stephen S. Brown Sr. VP & CIO Hospitality & Travel
Electronic Arts Inc.
$2,482
Marc West Sr. VP & CIO Media & Entertainment
Emerson
$13,958
Stephen Hassell CIO Manufacturing
Business Optimization
ACS (Affiliated Computer Services Inc.)
$3,787
Mark King President & COO Information Technology
Carlson Companies Inc.
$19,800
Stephen S. Brown Sr. VP & CIO Hospitality & Travel
Avnet Inc.
$10,245
Ed Kamins CIO Distribution
Capital One Financial Corp.
$10,239
Gregor Bailar Exec. VP & CIO Banking & Financial Services
Texas Health Resources
$1,900
David S. Muntz Sr. VP of IS & CIO Health Care & Medical

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