Emerging Enterprise: Strategic IT

Technology Staff Editor
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What does a $70 million freight company that ships fresh and frozen seafood have in common with the small, privately owned video-game developer that created the Sony PlayStation hits Spyro the Dragon, Ratchet & Clank and Disruptor? Only this: Both regard the IT department as a strategic resource to drive new business, better serve customers and boost operational efficiency. Unfortunately, not every emerging enterprise shares that view. In a recent survey of 429 businesses-technology executives at small and midsize companies conducted by Network Computing and InformationWeek, only a third of respondents say IT plays a part in most critical business decisions. Another third say IT gets involved in business initiatives only after critical decisions are made. The remaining third admit they don't get even that far--they're seen primarily as a service provider that keeps network gear running, servers patched and executives' BlackBerrys alive. In a globally competitive environment, can smaller companies afford not to give their IT leadership a voice in business initiatives? Smart execs know the answer is no. "The owners aren't dumb--they know IT can contribute to the business," says John Walker, software development manager at H&M Bay, the Federalsburg, Md., company that coordinates independent truckers to pick up and deliver seafood. The system that directs driver pickups is "the glue between our customers and the trucking companies we use. Technology is the only way to improve business processes." At Insomniac Games, a working partnership between IT and business executives has had tangible results. Until recently, the PlayStation video-game developer with 160 employees--just four of them IT staffers--had artists twiddling their thumbs for a couple of hours to an entire day as their PCs rendered background scenes for video games. Because the process consumed all their PCs' CPU cycles, artists could do nothing but wait. "It was literally a case of starting a render and walking away," says IT director Steve Kirk. Because he is involved in the business' strategic direction and long-term projects, Kirk keeps a sharp eye on the horizon, anticipating the company's needs as gaming technology advances. He knew the company's rendering system couldn't handle projects designed for Sony's PlayStation 3, which is scheduled to debut this year. "We wouldn't have been able to make our deadlines," he says. Kirk boosted the artists' productivity up to eight times when he proposed and won approval from business leaders to construct a server farm for video-imaging rendering, to take the processing load off individual workstations. Now, instead of using their own workstations, the artists send scenes they've completed to the farm--essentially a large collection of blade servers--so they can immediately move on to their next scenes. The render farm so far has cost the Burbank, Calif.-based company $50,000. Kirk was able to sell the idea because of its potential business benefits. "We're developing larger environments--massive battlefields, for example--with exponentially more detail," says Kirk, who meets with the CEO and business departments regularly. The work they're doing now translates into a more appealing product and, the company hopes, more sales. Trapped! But too many IT departments in emerging enterprises, defined by Network Computing and InformationWeek as organizations with fewer than 5,000 employees, find themselves stuck in tactics mode: fighting fires and struggling to convince executives that IT isn't just the computing equivalent of the local car shop--a place they never think about until something breaks, and that always charges more than they want to pay. The good news is that almost half the respondents to our poll say they are working more closely with business management than they were a year ago. Yet only a quarter believe top management makes business goals and objectives clear to IT, indicating there's still a long way to go before business and IT truly align in emerging enterprises. The picture isn't necessarily brighter a few years down the road: Only 12 percent of the respondents say their IT organizations will have the greatest need for strategic planners in the next five to 10 years, with more respondents predicting their skill needs to be bread-and-butter IT functions, including IT operations (35 percent) and programming (19 percent). "You get caught in the trap of, 'The IT guy is the geek with the pocket protector,'" says Orin Owen, director of IT at G&T Conveyor, a $100 million manufacturer of airport baggage-handling systems headquartered in Tavares, Fla. Executives' perceptions of IT affect the relationship adversely, Owen says. "The business side hasn't recognized that IT can help them advance the business." At G&T, for instance, most of Owen's 10-person staff is dedicated to day-to-day operations, including helpdesk and network support, but Owen would like to get IT more involved in growing the business and opening new markets. To that end he's deploying tools to improve operations. "We automate as much as we can, including antivirus rollouts and software updates," he says. "As you stabilize and get a foundation in place, you can work more at the strategic level."

Misunderstood It's impossible to minimize the problem of business execs who don't "get" IT--who think the IT department's sole purpose is to keep the network up and running--and refuse to fund it appropriately. Thirty-five percent of survey respondents say they disagree with the statement that top management understands IT issues and challenges, a factor that often makes it difficult for them to understand IT's potential as well. And whether or not that potential is understood, 30 percent of respondents say they don't have sufficient budgets to achieve the goals laid out by top management. Alice Nesbitt, director of technology at Broad and Cassel, a law firm with offices in eight Florida cities, doesn't quibble with her company's basic belief that the firm should stay focused on law, not technology. But she does take issue with the idea that technology is just something that happens "back in the computer room." "Our goal is to align IT objectives with business objectives," she says. "We are talking about business processes, and the flow of business through the office can be facilitated by technology." Nesbitt bemoans the fact that practice groups at the firm meet regularly but don't always invite an IT person to their meetings. "They don't realize it would be of value to them because we could offer them a technology solution to the issues they face." The lack of communication is mutually detrimental, and IT shares the blame when promising projects fall flat. "We used to roll out an application without considering the impact on the user, and it was disastrous," Nesbitt admits. "There's marketing a product, training [for] a product, setting an environment for success. We can't just put technology out there, because it won't get used." Nesbitt points to the example of the company's document-management system, which helps attorneys and paralegals organize and find files. Nesbitt says the system has only about a 40 percent utilization rate. "People haven't taken the initiative to see how they can use this wonderful piece of software to help them work smarter, better, more efficiently," she says. The attorneys feel they can't spare the time to explore a new system, but taking the time would help them in the long run, she says. "It's an argument I haven't been able to win yet." Stand and Deliver IT organizations that don't have to spend time nurturing a culture shift in the way technology is perceived have a definite leg up on the competition. At Smith Drug, a 300-employee pharmaceuticals distribution company that serves independent pharmacists in 13 states, the 13-person IT staff has long been critical in growing the business. "The CEO came out of technology sales, so he knows what technology can do," says IT director Chuck Hudson. Hudson sits on the senior staff team and reports directly to the CEO. Business strategy is planned during the team's weekly meetings, so IT is closely aligned with what the billion-dollar business needs. The IT department recently deployed a new voice-based picking system that helps warehouse employees find products and fill orders faster. The system so boosted productivity, Hudson says, that even with a 30 percent increase in business, Smith Drug hasn't had to hire new warehouse employees. Hudson and his staff are revamping the company's Web-based ordering system to get a competitive edge by making it easier for pharmacists to place orders and check inventory levels. Back at H&M Bay, communication between IT and the business-management team is seriously encouraged, and Walker and other senior IT staff play the game for all it's worth, to everyone's advantage. The company's IT department, for example, plans to replace a paper-based delivery-verification system, known as proofs of delivery, with an electronic one. It's an initiative championed by both Walker and the CFO, because the paper PoDs are troublesome. "Dispatchers and customers could access PoDs electronically, which reduces a lot of time dealing with paper copies, digging stuff out of filing cabinets and so on," says software development manager Walker. "We can also send copies by fax or e-mail and eliminate postal costs." The company is also migrating to a new Web system to upgrade its accounting and dispatch application. Once the migration is complete, H&M Bay can use the system to launch new initiatives, such as a driver-incentive program to retain good trucking contractors, and a rebate program for repeat customers.

Transition Time It isn't easy to make the move from tactical to strategic, but it's possible. One way is to shift from a reactive stance so the IT staff isn't in a perpetual crisis-response mode. Insomniac Games' Kirk says it took about three years to stabilize IT operations enough to move beyond crisis management. "Database servers were unstable, mail systems were flaky and we were a bottleneck to production back then," he says. "That was unacceptable." He got the company to invest in tools to help streamline operations, including a ticketing system for the helpdesk and CA Unicenter for asset management and software delivery. "Asset management was a godsend," Kirk says. Before deploying the software, Kirk's staff would have to inventory a system manually if an employee requested more memory, for instance, to determine what was on the machine and what the system could support. Now, thanks to the automation, IT can do a quick lookup and place an order for RAM in 10 minutes. The automation also means the two people in the four-person IT department who focus on maintenance and support can each handle more users, which is essential to holding down IT costs as the company grows. Another step is to actively promote--dare we say "sell"?--the IT department to power players in the organization. To showcase IT as a strategic partner, Broad and Cassel's Nesbitt is recruiting technology advocates outside the IT department. "I always try to meet with the managing partner [at each office]," she says. "If they can't meet with me, I try to develop technology liaisons at each office so there's one person at the attorney level I can communicate with." Lawyers with a technological bent, who enjoy technology and can communicate its value to others, make ideal liaisons, she says. Another option is to get outside help for the basics so your staff can concentrate on the bigger issues and projects. Even though most survey respondents' IT staff size held steady or even increased last year, 54 percent say they're still understaffed. The majority have staffs of 10 or fewer people, and 27 percent have staffs of five or fewer. Given that, why devote resources to black holes such as the helpdesk, patching and basic operational management when you can outsource it? It may seem a no-brainer, yet our survey results show a lack of interest in handing over basic operational duties to a third party. Only 5 percent of respondents rely on external resources to handle helpdesk operations, 4 percent for IT security, 6 percent for network management, and 4 percent for e-mail administration. The main reason for not doing more, IT managers say, is that it takes too much time to get outsiders up to speed on internal processes. Additionally, more respondents (36 percent) are only somewhat satisfied with IT services organizations than very satisfied (13 percent) or satisfied (32 percent). It's unlikely, however, that IT leaders at emerging enterprises will be able to resist the lure of doing more outsourcing as their businesses grow but their IT staffs and budgets don't. Even now, these organizations often turn to professional services organizations and VARs (value-added resellers) for help with projects that require skill sets not available in the IT department. "If we need expertise we don't have, we'll bring someone in," says Michael Golden, IT manager at Unique Fabricating, an Auburn Hills, Mich.-based manufacturer of die-cut automotive supplies. His two-person IT department turned to a professional services company to set up a Citrix farm for approximately 30 users, for instance. Network management will always be a priority for IT (after all, if IT won't do it, who will?). But emerging enterprises that don't tap into the full potential of their IT departments are wasting resources that could be turned into cost savings, competitive advantage or improved productivity. Savvy business leaders must encourage communication between business managers and IT. And forward-thinking IT directors must find ways to demonstrate the business value that are often hidden under layers of technical arcana. Emerging enterprises will find that setting another place at the table means a bigger feast for all. Andrew Conry-Murray is Network Computing's business editor. Write to him at acmurray@nwc.com.

Drug Distributor No Dope in Using Tech As a teenager, Chuck Hudson worked as a delivery boy at his hometown pharmacy. Today, he's still making deliveries, but on a grander scale. As director of IT at Smith Drug, he runs the technology infrastructure that supports the distribution of pharmaceuticals and narcotics to more than 1,000 independent pharmacies in 13 states. A billion dollar Spartansburg, S.C., company that's been in the business half a century, Smith Drug has long embraced information technology as an integral element in its success. To that end, Hudson reports directly to the CEO and participates in weekly strategy sessions with business leaders. But like many businesses of a certain age, Smith Drug is saddled with a legacy IBM 390 mainframe. Three full-time programmers--of the company's 13-person IT staff--are dedicated to keeping the mainframe alive, and tweaking the critical business applications that run on it. "The system is 25 years old," says Hudson. "It's held together with duct tape and WD-40." To ease the load, Hudson has initiated a migration from the mainframe to a modern ERP system. Once that's complete, which is expected to happen by 2007, he'll be able to redeploy those employees to ERP support and to the helpdesk, and have them trained in Java and .Net. "We can continue to grow the business and look for efficiencies to keep costs down and profits up," Hudson says. While Smith Drug is upgrading its own infrastructure, it also must manage a variety of customer ordering systems that range from a cutting-edge Web portal to '70s-era terminals. It would be more efficient for Smith Drug if all its customers migrated to Internet-based ordering using its Web portal, but the company values customer service as much as high-tech streamlining. "We service some mom-and-pop stores that aren't as aggressive about technology as others," Hudson says. "We have customers who don't even have Internet access, but we want to accommodate them to keep them as customers." Unfortunately, the tech market isn't as accommodating to Hudson; there are some areas where it just hasn't caught up to business needs. To help prevent the sale of counterfeit drugs, for instance, states will mandate that distributors use pedigrees to document the movement of a drug from the manufacturer to the distributor to the pharmacy. Pedigrees can be paper or electronic, but each state will have different requirements for supporting the process. That means Smith Drug may have to comply with 13 different pedigree systems. Several companies offer to host electronic pedigrees, Hudson says, but without a single standard, these solutions will still require a lot of manual data entry. "It's going to be a nightmare," he says. RFID technology, which has the potential to streamline inventory management, is also plagued by a lack of standards. Smith Drug is testing RFID readers in its warehouses, but it's problematic because each manufacturer requires a different interface into the company's data-management applications. "All the different standards really put a burden on us," Hudson says. Then there's another issue that could keep Hudson awake nights--the intensifying pressure from chain pharmacies that stand to obliterate the local competitors, who are Smith Drug's customers. But, just as Smith Drug thrives through good customer service, Hudson believes the local pharmacies are doing the same. "Even though CVS and Eckerds go up on every corner, pharmacy students are opening up their own little businesses," he says. "They give good service--it's personal because the pharmacist gets to know you. I think they are doing OK." --Andrew Conry-Murray

How To Be a Player It's the classic chicken-or-egg dilemma: IT managers at emerging enterprises don't have the time or resources to concentrate on strategic uses of technology because they're bogged down by daily operations. But without the ability to prove they can do more than handle maintenance and support, they can't get additional time or resources to implement new strategies. And that's just one of the struggles IT managers face as they try to raise their departments' profiles. There are plenty more. So here are a few tips on how to elevate IT's status in your organization:
» Find tools to maximize time. When you're always putting out fires, you don't have time to think strategically. Using IT tools, such as desktop management or patch deployment, to automate time-intensive tasks can free up breathing room so you can develop business initiatives.
"Building a PC for an artist used to be an all-day job, between hardware setup and software install--now it's down to two or three hours," says Steve Kirk, IT director at Sony PlayStation video-game developer Insomniac Games. He recently spearheaded the implementation of tools to automate software deployment and manage assets, and also deployed a ticketing system to assist the helpdesk in tracking and resolving user issues. Thanks in part to these timesavers, Kirk has been able to divide his four-person IT department between tactical support and strategic planning.
» Advocate for IT. Leadership in IT must reach out to decision makers, to play up strategy and point out ways IT can help the business. You won't get a seat at the table if business executives don't know you're there.
"I get in people's faces," says Alice Nesbitt, director of technology at law firm Broad and Cassel, which has offices in seven Florida cities. "I travel around and talk to managing partners, knock on doors. I have staff do that as well." In addition to discussing forthcoming needs, Nesbitt helps the attorneys use the firm's existing technologies more productively. "The stronger message you send that technology is of value," she says, "the better things will be in your organization."
» Demonstrate cost savings. Non-IT executives tend to regard IT departments as cost centers. If you can launch projects that simplify business processes or offer demonstrable cost savings, other executives will take notice.
Michael Golden, IT manager at Unique Fabricating, an automotive supply manufacturer, launched a project that converts reports from the company's manufacturing system into plain text that can be entered into preprinted forms and PDFs. Now the reports--which were previously printed on high-volume dot-matrix printers--can be printed on less expensive laser printers or stored electronically. This cuts the company's paper use by 80 percent, Golden says, and saves on ink and printer maintenance.
» Demonstrate competitive advantage. Keeping the network alive and the servers humming are key IT tasks, but they won't grow the business. There's no better way to score an invitation to the executive table than to show how IT can help the business get the jump on competitors.
Chuck Hudson, director of IT at Smith Drug, a billion dollar pharmaceuticals distributor, is rolling out a Web-based ordering system for ease of use and security. Customers can order over the Internet using an encrypted authentication system to protect the transaction. The U.S. Drug Enforcement Agency requires these orders to be tracked and stored, a process that's simplified by the electronic system. Hudson says these new technologies give Smith Drug a competitive advantage.
» Anticipate needs. Your IT perspective may let you spot a problem brewing, or recognize an opportunity that business managers might not anticipate. By acting on it and meeting a business need, you raise IT's profile in the organization.
Insomniac Games' Kirk foresaw the need to build a server render farm to free up workstations, so Insomniac designers could devote more time to creating game environments. The previous rendering method--in which each artist drew one scene at a time on an individual workstation--was cumbersome, yet workable for the PlayStation 2 platform. But with Sony moving to PlayStation 3, which allows for richer graphics that would demand greater computational power, productivity would have ground to a halt. "We started it a year and a half ago, as we saw what the group would need," says Kirk, who notes the project was driven by the IT department. Thanks to the render farm, he says, the design team's productivity has increased eightfold. --Andrew Conry-Murray

Embrace Outsourcing The IT staff of emerging enterprises often find themselves with more work than they have the resources to handle, yet respondents to our survey say they hesitate to outsource even basic IT functions. Still, if IT managers and staff spend their time running from emergency to emergency, or doing just nuts-and-bolts work, they'll never grow into strategic organizational players. Outsourcing--whether it's basic IT operations or higher-level business processes--has its perils, but when the arrangement is planned and managed wisely, the rewards outweigh the risks. Outsourcers can take on functions that eat up IT time--perform desktop management, help implement best practices--and even offer new services, such as 24-hour network security monitoring and automatic patching. In turn, the internal IT staff can concentrate on core business functions and find new ways to streamline operations or grow the business. So consider outsourcing, with these tips in mind:
» Start small. Don't hand over multiple projects at once. Choose a single pain point and start there. Only after you've established a comfortable working relationship with the outsourcer and have one project well under way, should you venture into the next. » Find and qualify a service provider. You may get more personalized service, faster response and better customer management from local or regional service providers that specialize in the emerging enterprise market. But include one or two nationally branded outfits on your shortlist; just keep in mind you'll be competing with bigger clients who demand--and get--their top-tier personnel and attention. Often your hardware or software vendor, or an industry peer, can point you to specific channel partners that will deliver the level of service you need. » Set expectations in your contract. Determine what your minimum service standards will be. To set a baseline, assess the service levels being delivered by your own internal IT organization. You'll want your service provider to meet or improve on those. » Assign a project manager. You can't just send work out of the building and expect high-quality results. There must be a point person on your team to engage with the point person at the service provider, to address problems and keep processes running smoothly. Ongoing communication is critical. » Be cautious about offshoring. Sending work overseas can represent valuable cost savings, but even big companies find it difficult to manage IT outsourcing relationships across borders and cultures. Step into it wisely--resources to manage the relationship are even more critical here. Take extra care to protect intellectual property if you're outsourcing IT to areas of the world where respect for U.S. IP laws may be lax. » Keep an eye on compliance. You'll want to make sure your partner knows and conforms to whatever laws apply to your own industry but, in the end, it's up to your organization to ensure that your data and your customers' data is protected, and that all other regulations affecting your business are met. » Talk with your people. Often the idea of outsourcing raises concerns among employees. Your small business may think of itself as a family, and some members may feel threatened by outsiders. Explain the reasoning behind the decision and the benefits to be reaped from it.
--Jennifer Zaino

E-Poll Results
  1. Which best describes IT's role in your organization?
  2. Clear business goals?
  3. Is your IT department working closer to business management than it did a year ago?
  4. Which tasks take the most IT staff time?
  5. Does top management understand IT issues and challenges?
  6. Describe your IT deparment current staffing.


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