COVER STORY: Timing is Everything

[From iSource Business, November 2001] After spending almost three years and hundreds of millions of dollars in IT investment, Visa U.S.A. is about to make serious use of its new global financial portal, Visa  Direct Exchange. Sara Garrison, who honchos Visa's IT department and directly managed the colossal effort, is, to say the least, psyched.

 

The opportunities for us are endless, she says.

 

Basically, Direct Exchange is a sophisticated payments infrastructure that allows Visa U.S.A. to provide IP (Internet Protocol)-based services to its 14,000 member financial institutions. Last summer the network services went online, followed shortly afterward by file transfer services with enhanced security features. Switching technology, such as messaging services, went live this summer. In practical terms, all this means that Direct Exchange is set to yield some pretty fancy business payment products in the near future, involving such applications as mobile commerce, smart cards, B2B e-commerce and person-to-person e-commerce.

 

Consider the average, run-of-the-mill corporate purchasing card, Garrison says. One conceivable product might lift the travel information captured in an enhanced smart card and load it directly into travel vouchers.

 

The possibilities for supply chain enablement are even more exciting, she says. For example, a company could trace inventory turnover of a particular product and attach that information to payments sent to a supplier.

 

We can offer enriched information services to our end users, she says. We can explore and embrace new payment types. The world is wide open to us.

 

Clearly, Garrison is enthusiastic about the possibilities. In fact, as you listen to her talk you can almost forget about the proverbial elephant standing smack-dab in the middle of the B2B industry - you know, those IT-intensive, new economy companies, particularly the B2B marketplaces, that loudly and flamboyantly failed in recent months. And the shareholder lawsuits over poor IT decisions. And the last 11 months of economic downturn-cum-recession that, according to popular economic theory has been caused by widespread cutbacks in corporate IT spending, which was precipitated by a massive overspending binge that started around 1997 and didn't let up until last year. As the nay-saying goes, besides a cute dog sock puppet, what do we really have to show for all of it? That elephant.

 

Big Bangs and Wimpy Fizzles

 

The reality is much more complicated than what mainstream media would have you believe. Yes, some firms did go too far with IT implementations, investing in unnecessary or just out-and-out wrong technologies for their particular business. They dreamt extravagantly and then crashed back to reality in spectacular fashion. It wasn't just the B2C models either. Remember the 10,000 public B2B exchanges that were supposed to be dominating the landscape by this point? Most never grew beyond the press release stage, and even many of those that did are now resting in peace.

 

But then there are those companies that didn't go far enough. These are the ones that have not put enough money into exploiting the efficiencies of transparent logistics and supply chain operations. Or the benefits of collaborative engineering and product design. Or the ways and means of pleasing a customer base.

 

There are, of course, those companies that did it just right.

 

Visa, for example, could well fall into this category. The financial services industry made huge investments in IT but got a lot of value for the money, says Jeremy Grigg, research director of business management for IT at Gartner Inc.

 

In reality, which companies managed IT investments wisely and which did not is hardly an easy question to answer. Even Garrison, secure in her belief that Visa's work and investment of the last three years is set to reap the association a substantial payback, agrees it's a tough one. I wouldn't call what happened over the last few years a spending binge. A more apt phrasing, she says, is that there have been some business models that just didn't prove to be successful - or make sense.

 

Make that a lot of business models. Unfortunately though, these failures, coupled with a gloomy economy, have turned IT investment into something of a boogey man, although the truth is that this attitude really has its roots grounded in the Y2K remediation frenzy. Fixing this problem was clearly a dire necessity. But, says Jeffrey Kaplan, a principal based in the Stamford, Conn. office of the global management consulting firm PRTM, everyone recognizes that people used Y2K to raise the bar on IT spending. A number of projects that were done under the Y2K umbrella were not Y2K-related. It was a convenient excuse, instead of justifying a project with a solid ROI [return on investment] case.

 

Post-Y2K companies then scrambled to catch up on both the routine and the strategic IT investments that had to be put off to meet the 2000 deadline. Next came the highflying NASDAQ era, and all caution was completely lost. Eighteen months ago, the CEO was calling his [chief technology officer] or [chief information officer] and asking, 'What can we do to be a player in the IT world?' says Rob Austin, a senior consultant for the Cutter Business Technology Council and Fellow and assistant professor at the Harvard Business School. The pressure was intense to produce something, anything, IT related.

 

In the current environment, he says, that feeling of urgency is gone and there is this sense that we can send the IT department back to the basement. Considering everything that has happened, he says, In some respects, this is perfectly reasonable.

 

On the other hand, he says, It's faulty logic to blame IT investment for current economic woes. I would advise a company that once had ambitious plans for e-business not to completely abandon them, at least not right off the bat.

 

Indeed, says Gartner's Grigg, maintaining a healthy level of strategic IT spending is still essential. If you don't continually refine your systems and processes, you will find your competitors duplicating your efforts, he says.

 

But which is it? Invest to keep your competitors at bay, or heed the call of current economic theory and rein in IT spending? And where and how will you draw the line between the two?

 

When pressed to answer these complex questions, iSource Business decided to punt. Better, we thought, to let a few C-level executives, who appear to have actually taken a judicious approach to IT investment, take center stage.

 

Game Over

 

When Andrea Klein, CEO of Rand Technology, first began seriously contemplating the idea of building a proprietary e-business system a few years ago, she panicked. I thought, 'Oh dear, we are late to the game,' she says.

 

Executives at Rand were envisioning the usual cast of functionalities. Internal e-procurement was important, but the system was also expected to give clients real-time access to their orders and pricing information. Additionally, Klein wanted to provide VIP clients with an industry database to track market trends and product availability worldwide.

 

All of this seemed easy enough, until Klein and her associates began poking around the market. We thought this would be a simple implementation of a commercial package. But, at the end of the day, we realized that the legacy systems we looked at were not fast enough and that, because our industry was so unique, we would have to build it in-house.

 

By this point, timing was a concern. We did a lot of interviewing with other CIOs and CEOs. We kept thinking everyone had a better mousetrap already. But her fears dissipated, she says, when she realized that no one else had the perfect system either. There isn't one, Klein concludes.

 

The system Rand eventually built is called BizNet. Among other capabilities, Klein says, it can historically track almost any market trend in the semiconductor industry. It also serves as an e-sourcing tool, providing product availability forecasting and demand planning. Let's say a company has been buying a D-ram from a particular memory family. Based on the information we have loaded into our system, we can track this commodity's availability worldwide from all the qualified suppliers and give the client some idea of the pricing, buying and sourcing cycles, as well as future trends.

 

The first stage of BizNet was released in the first quarter of this year. The second stage is set to roll out by the third quarter - a release that Klein says will be further honed and able to drill that much deeper.

 

Some may say that for a multinational conglomerate to release its first major e-business initiative only this year, is, well, pretty pathetic. In fact, Rand appears to fly in the face of consulting lore, which holds that the early adopters of technology tend to be industry leaders, and vice versa.

 

Klein emphatically disagrees. On the contrary, she says, I'm glad we waited because I think our timing was perfect. We watched all of our competitors buy crazy software that was unsuccessful and even disastrous. We watched and waited and learned from their mistakes. Six month later than originally scheduled, BizNet was released, and Klein is pleased by the further delay. It afforded us that much more time to fine tune and add value, she explains.

 

Thus far, Klein says customers have been happy with BizNet. At heart, this was a customer service initiative. Tech has gone on Uncle Toad's Wild Ride and our customers have been pretty depressed about it. In this respect, at least, BizNet has come out just in time.

 

Priority Alignment

 

In the late 1990s, like everyone else in the free world, Pioneer-Standard was seriously considering implementing a new enterprise resource planning system. It was the heyday of ERPs and many believed - and, in fact, still do - that these internally-oriented legacy packages were essential for companies wanting to remain competitive. But, discounting the prevailing conventional wisdom, Pioneer-Standard realized that some important customer service initiatives needed to be undertaken sooner, rather than later.

 

Dissenting issues, however, were the cost and the disruption of business operations: All in all, the pain was associated with implementation, says Jim Sage, CIO and senior vice president. So, we decided to take a step back and look at alternatives to the ERP.

 

Sage and his colleagues understood that a new ERP system was inevitable. However, they desperately wanted to avoid a rushed selection process and, what's worse, an implementation ordeal. They preferred a slow, methodical implementation a few years down the road, once their needs and requirements had been fully assessed. But what could they do in the meantime? Eventually, Sage and his colleagues decided to install newer, more contemporary technology on the front end of the older legacy system.

 

We built graphical interfaces that were basically customer service tools, Sage explains. We spent a lot of time with the customers asking what they wanted, and studying current business processes and credit management procedures to develop these interfaces.

 

The new tools allowed Pioneer-Standard to provide, via the Internet, advanced shipping notices, order status, credit information and product availability - all information that once resided in individual and disparate departments. Sales, customer service and procurement was now visible in one similar format. The common front end allowed us to aggregate all that data into one place, Sage says. That was phase one and it cost about one million dollars to implement. Not bad considering the software licenses and implementation costs of an ERP.

 

Phase two, which began last year, built links to establish direct access to the company's customers. Now they are able to self serve if they choose, Sage says. This stage has cost about half a million dollars, he adds.

 

Now Pioneer-Standard is replacing its legacy systems in a controlled and systematic way, just like it wanted to all along. Our most recent implementation was Oracle Financials. Next in line, he says, are the forecast and planning, inventory control, and procurement modules. The front-end customer service tools will go on the new ERP system. They are making the implementation as transparent as is possible.

 

Now most companies know better, but in the late 1990s, not too many firms realized the cost and pain that would accompany an enterprise-wide ERP implementation, Sage says. Lately though, he is noticing that more companies are starting to balk at this corporate rite of passage. Some are stepping back and saying, We can't afford this. We don't want to go through this disruption. We want alternatives.'

 

Spend to Save

 

These days, it's all about ROI. So, you're CIO and you want to implement a new application or software package? Better have the figures to back it up. The CEO, the board, the stockholders, heck even the temp worker filling in during the holiday season expects that much these days.

 

But sometimes when you intuitively know your business backward and forward, it's okay to take a leap of faith. At least it turned out all right for Bruce Blankfield, global director of strategic accounts at ITT Cannon, when he decided to install Invensys' customer relationship management (CRM) system throughout the organization. Tangible ROI just was not high on his list of priorities, although he did, as a matter of course, provide anticipated returns to the financial team. But the main goal, he says, was opportunities management. We needed to make sure we were identifying the right sales opportunities and that we understood them fully. We also wanted to make sure we always had enough sales prospects in the works.

 

In the past, this was not a problem. However, new trends and shifts in responsibilities in the global manufacturing process changed the sales dynamics enough for Blankfield to consider sinking some serious cash in a new application.

 

I realized that the key to our future growth was going to rest with the ability to capture new design whims on various platforms from original equipment manufacturers, he says.

 

In short, ITT Cannon realized its sales team had to be able to pursue these opportunities and share leads with one another. We needed our people to understand the timing, where the designs were coming from and who was engaged in the design.

 

Typically ITT Cannon can expect to compete for a design contract against at least five companies. It is a bidding process that can take three months, working back and forth with an original equipment manufacturer (OEM), providing prototypes, exchanging specs, all of which generally soak up engineering and other internal resources. If I haven't assessed my chances and end up pulling the company through a design process for a contract I never had a chance to win, well, that is a waste of resources.

 

Blankfield tells of the time ITT Cannon bid on a contract from a mobile phone manufacturer for a connector that would allow users to plug in accessories. The old model had such a component - designed by a competitor. Now the mobile company wanted to release a new model and went shopping for new suppliers. Unfortunately for ITT Cannon, they chose to stay with their old supplier after three months and many dollars invested by ITT to win the contract. The hole in our sales data was the strength of this competitor and the real intent of the OEM, which, he says, was basically to shake out a better price. In the end, they just didn't want to move on, he says. The real culprit, however, was the sales person, who didn't identify that outcome as a possible risk.

 

The new CRM application, he says, offers safeguards against this sort of event. When a salesperson identifies an opportunity, there are a series of filters the opportunity has to go through. They lead to conclusions as to the best way to pursue - or if to pursue - that particular sales lead.

 

Before, he says, the sales staff had the mental training to go through these steps, but there wasn't an automated process to make sure they did what we actually trained them to do. The bottom line, Blankfield says, is that this application is not about new sales opportunities. It's about our quality and our ability to capture them.

 

When IT Goes Bad

 

Unfortunately, it's hard to tell whether these examples of IT investment rationale are the norm or the exception. There was clearly an out-of-control element to IT implementation in the recent past. Much of it is easy to understand, at least in retrospect.

 

For one, customization got out of control, says Tom Mangan, partner and U.S. co-leader for Andersen's Enterprise Technology group. Companies got the worst of both worlds. They had off-the-shelf software that was customized to the point where they had to maintain a significant IT staff just to keep it operating.

 

Another area that tripped up a number of companies, Mangan says, was the rampant underestimation of infrastructure requirements. Most of the legacy systems being replaced were mainframe-based. Then we started moving into a multi-tier architecture, which meant everything changed underlying infrastructure, protocols on networks, servers, even the skills people needed to maintain these systems. All of this resulted in a serious underscoping of infrastructure requirements.

 

Then there are the applications themselves that have been misapplied or misunderstood. Customer relationship management is a classic example. Touted as the hot application these days, CRM's case for ROI can be frustratingly elusive.

 

There has been a lot of spending, even overspending, around the CRM space, as well as a lot of poor management, says Bill Hutchison, global director, technology industry, for Andersen Business Consulting.

 

Companies have been persuaded by software suppliers to spend money on this application, only to find that there wasn't a tangible change to their bottom line. Customer relationships were the same and there was no ROI.

 

Collaboration is another e-business initiative that has lured companies into opening their wallets fruitlessly, says Gartner's Grigg. The overzealous anticipation of very sophisticated intra-enterprise relationship models is one area where companies have just spent too much money for too little return.

 

And let's not even talk about all the pitfalls associated with wireless technology.

 

The real question now is, can companies avoid the mistakes of the past? Some have their doubts.

 

Progressive companies have gotten smarter, however the vast majority of companies continue to make the same mindless investment, throwing good money after bad, says PRTM's Kaplan.

 

The main problem, he says, is not so much the actual technology, but rather the business processes - or lack thereof. For large scale systems, such as ERPs and supply chain management, about 50 percent of the value comes from automation. The other half comes from changing the business process.

 

Invariably, what happens is that a company will implement a system without changing the accompanying business process. That, in a nutshell, Kaplan as well as other analysts interviewed for this article say, led to the downfall of many IT investments of recent years.

 

And to think that most companies view the implementation as the biggest hurdle to overcome.

 

 

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