How IT Is Riding Out The Recession
Think small, quick, and impactful. That's the current mind-set of CIOs when it comes to IT spending and project planning amid the ongoing economic uncertainty.
CIOs aren't throwing Big Vision out the window, but they're under intense pressure to move up the priority list any work that can deliver returns quickly. For some companies, that means drastically cutting IT budgets, but that approach isn't universal--the companies we surveyed in November were exactly split, with a third cutting, a third maintaining, and a third increasing their IT spending.
More important is what gets done with the IT budgets companies have--only 16% of survey respondents say fewer new projects are coming through. Regardless of what's happening to the budget, demand for IT is up.
In this environment, the IT organization can't wait to be told what the company needs. CIOs and their leadership teams must work with business units to craft projects that make a noticeable difference to a company's cash flow by driving revenue and cutting costs. And they need to do it without abandoning the efforts that position them for eventual recovery. Tall order? This is the time when business technology teams' reputations are made or lost.
At the $10.5 billion-a-year insurer Unum, the long-term IT vision remains centered on a service-oriented architecture called Simply Unum that it launched a couple of years ago. But in recent months, as the company went through year-end planning, IT teams were created specifically to find quick-hit projects "that go beyond the strategic enterprise projects," says Jim Smith, Unum's VP of risk development and data warehouse.
Smith's team came up with about 10 such projects, including a new document management system to cut time-wasting manual processes in underwriting, such as printing out documents to scan them in. The company plans to deploy Microsoft's OneNote document management system by April.
In Unum's applications services group, a team of five people--likely to grow as large as 10 this year--had a similar mission and came up with an idea that delivered savings of more than $500,000 by optimizing mainframe batch processing and database access, for an investment of $150,000 in dedicated IT resources, says David McMahon, VP of applications management services. The savings are expected to pass $1 million in coming months. The big change, McMahon says, is going from "asking people in general" to look for such cost savings to making it a team's full-time job.
At Hologic, a $443 million-a-year medical equipment company that specializes in breast cancer diagnosis, CIO David Rudzinsky says now is the right time to push CRM. That's right, it's expanding an enterprise application project--and even spending on consultants, from Innoveer--to wring more value out of the Siebel CRM platform it uses. Rudzinsky sees CRM first as a tool to improve sales management and second to improve salespeople's productivity, and he has projects aimed at both goals.
Rudzinsky thinks CRM can help a company through a tight fiscal quarter by spotting problems like gaps in sales coverage. So he's rolling CRM out to more business units and adding business intelligence software to analyze the CRM data. His team is pushing Siebel CRM data to salespeople's BlackBerrys for tasks like searching customer buying patterns before a meeting. "Instead of putting this off because we're in uncertain times, we're trying to get this done now," Rudzinsky says. Hologic hasn't cut IT staff, but it has frozen hiring, prompting Hologic to lean more on its contractors and consultants.
Van Baltz knows that feeling as CTO of Station Casinos, which has 18 casinos, including 10 hotels, in Las Vegas catering mostly to the locals--people who've watched their home values fall faster than in almost any other place in the country. Baltz has had to cut staff by one-fourth this past year, down to 100 people. Quarterly revenue as of Sept. 30 was down 10% from the prior year.
But the IT team that remains is pushing quick-hit ideas to business units. Most recently, IT and marketing teamed up to replace a costly "scratch and win" promotion, which involved mailing scratch cards to members of its customer-loyalty program that they brought to the casino to redeem for prizes. Now it offers a "swipe-and-win" promotion, using people's loyalty cards. In eight weeks, the team delivered the project--which involved adopting existing marketing campaign software, changing kiosk coding animation, and testing--saving the company more $500,000 "every time we run that event," Baltz says.
This past year has made Baltz realize that the IT team needs to run faster, even as it's gotten smaller. He's even considering investing in software to improve IT's own operations--something many IT organizations shun in a downturn. He's considering buying a CA testing tool that could help speed up delivery by automating some processes developers have long done manually. It fits with a message Baltz gave at a recent all-IT team meeting: "Question everything."
Similar thinking has Hilton Hotels CIO Tim Harvey looking with increased urgency at software-as-a-service and cloud computing options for the company, which has more than 3,000 hotels in 70 countries. Harvey began seriously considering SaaS early in 2008 as the technology matured, and he's looking at all of Hilton's IT for opportunities to move resources to the Web. Working groups are just now setting up the first tests.
Harvey also will do more outsourcing this year, part of the flexible capacity he says CIOs should always be thinking about, but that's even more important today. Hilton maintains relationships with outsourcers that it can scale up and down. "You can't set that up overnight," Harvey says. "It's about preparation for this type of event." Hilton will send some of the development and implementation work for an upcoming property management software project offshore.
Hilton's continuing to add features to its reservation and customer relationship systems, such as letting Hilton Hotels and Resorts guests preorder upgrades such as snacks and newspapers that will be ready upon check-in. It's investing more in capabilities for online promotional deals and in its Chinese-language Web site.
The work on Hilton's Chinese site is an example of Harvey's team supporting the growth areas that may pay off in the short term, but more important, prepare the company for the eventual upturn. "You're going to have to continue to think you're going to come out of a tough economy, and when you do come out of it, you want to be stronger than when you went into it," he says.
Alaska Airlines has the same customer-centric focus as Hilton and Station, trying to wring more value from its CRM investment. It recently deployed Siebel Loyalty Management software from Oracle, replacing a mainframe-based system that ran the airline's Mileage Plan program. Alaska plans to make heavy use of the system's "triggered events" features to give customers information and options when delays happen, or to offer promotions based on customer profiles and travel history.
Stick With The Plan
Even as the focus shifts to IT strategies for quick ROI, companies can't chuck their long-term plans. Eli Lilly's pushing forward with two major strategic efforts: outsourcing some IT activities, including help desk, desktop, and mobile-device support; and enhancing its collaboration platform.
Lilly began planning the projects before the downturn, anticipating tough generic drug competition as patents expire in 2011 for several of its key products, including bipolar drug Zyprexa and diabetes medication Actos. Economic conditions "bring an added sense of urgency" to those projects, says Mike Meadows, Lilly's information officer for enterprise information systems.
Today, select parts of Lilly's IT infrastructure support is done by approximately 160 employees and 500 contractors, at a cost of about $100 million annually. By midyear, it expects to award a global contract to one or two major outsourcers--bidders include four major vendors. It will include desktop and mobile-device support for more than 30,000 employees.
The outsourcer also will support the existing Microsoft collaboration platform, replace its Lotus Notes e-mail with Exchange, and integrate e-mail, messaging, and voice communications using Microsoft unified communications software.
The 400-bed El Camino Hospital in Mountain View, Calif., is sticking with its IT plans, though CIO Greg Walton says it could slow down the pace, as the cost-cutting pressure reaches into sectors considered recession-resistant. Fifty-five percent of 54 hospital executives surveyed by Computer Sciences Corp. in November said they're deferring new IT projects that could increase efficiency, while 38% have postponed IT expansions that were under way.
Walton's biggest project--adopting Microsoft's unified intelligence system, Amalga, to connect silos of transactional data produced by applications from about 144 vendors--is pushing ahead. The Amalga platform will let El Camino build a scorecard that evaluates patient care in 12 major areas, including cardiovascular, surgery, and obstetrics. It's critical to El Camino's goal to rank in the top 5% of U.S. hospitals across several health care service categories within three years.
While the Amalga project is part of a long-term plan, it will allow "incremental return," Walton says, such as automating the workflow process for handling patient complaints. It also will let El Camino managers monitor relevant patient information from a dashboard so, for example, operating room managers can better track which patients are moving in and out of the OR, to maximize capacity.
The pressure is on IT to help companies cut costs, even more than it is to slash IT's own spending. A Forrester Research survey in October of 129 IT decision makers finds that 77% of them cited "reducing costs of business with IT" is somewhat or critically important, compared with 62% in 2007.
That's the thinking in the commonwealth of Pennsylvania, which like many state governments is feeling a pinch from lower tax revenue. "If people are out there wondering, 'Should I just hunker down and do nothing in IT because it costs money?' we're going to take the opposite approach," says Naomi Wyatt, secretary of administration. Pennsylvania is spending on virtualization, a restructured data center contract, and most important, a big rollout of Business Objects' business intelligence software.
Pennsylvania bought more than 30,000 licenses of a Business Objects suite to help state agencies make better budget decisions. For example, the state's tax auditors today keep data in dispersed spreadsheets and databases, so there's no clear view of the workload of each regional auditing office. If it had an integrated view, the state could take steps such as adding auditors to a busy office, letting it bring money in faster.
The project's goal is to give managers across functions that kind of insight for making decisions. "I've got nurses, corrections officers, accountants, and the concept really is the more people that can access the data in our huge system and provide analysis without it being complicated and without them even doing analysis, the better off we are," Wyatt says. The state started training managers recently, and "superusers" are up next.
Wyatt's also cutting, including delaying some legacy system upgrades, and she's starting to think about how SaaS might fit for some applications, including e-mail. Consolidation and virtualization have let Pennsylvania centralize IT more, moving from 13 mainframes to four. That consolidation saves energy costs and brings flexibility to computing workloads.
Those kinds of IT operational gains can be worth spending money on.
Merial, a joint venture between Merck and Sanofi-Aventis that makes animal pharmaceuticals such as Frontline tick and flea prevention products, recently deployed WAN accelerators from Silver Peak Systems to add oomph to an ongoing project to consolidate ERP platforms. Two years ago, the company decided to start consolidating its many ERP packages used globally onto Oracle 12 E-business suite. North America went live in November, and a number of other regions will go live over the next year, including France in the coming months and Brazil by early 2010.
Consolidating its ERP gave Merial the chance to move remote servers into central data centers. As the project unfolded, though, it raised bandwidth concerns for the remote office, says Mark Worrel, executive director of global infrastructure at Merial. The choice was between upgrading the bandwidth at remote sites, at about $60,000 more a month, versus buying WAN acceleration. It paid about $700,000 for seven or eight appliances from Silver Peak.
It's All About The Economy
Business technology leaders can't afford to get caught flat-footed by how fast this economy, and a company's health, could change. Think a transformational project is so vital it can't possibly get delayed? In our accompanying story on p. 30, renowned business adviser Ram Charan warns, "What criteria you were using in the fall of 2008 to call something transformational may have become irrelevant."
Ogihara America, a Michigan-based Tier 1 supplier of fenders, doors, and other parts to automakers, is living this reality, fighting through one of the sharpest drops in vehicle sales in decades. It's no time for half measures. "We've had to scale back drastically," Ogihara IT manager Dennis Henning says. The IT budget is about one-third what it was a few years ago, and the staff is down from nine to three. It shelved plans to migrate storage to a SAN and refresh servers, desktops, and networking gear, because of the cost and lack of staff to implement them.
Automation's one answer to dwindling staff: Henning started using Innovator, open source product life-cycle management software for which Ogihara pays an $84,000-a-year subscription to Aras for upgrades and support. Ogihara started using the service about two years ago to manage product development quality; today, it's using it to track design changes that had been tracked manually on spreadsheets by "a second level of the organization" that it no longer has. Henning's also considering replacing its 250 to 270 PCs with virtual desktop thin clients that access desktop software from the data center, leading to fewer repairs and lower support costs.
No matter what the company or industry--autos or airlines, hotels, casinos, or insurance--the pressure is on business technology leaders for results. In Forrester's survey, 67% cited "getting application projects done on time and on budget" as critically important, compared with just 29% in 2007. In this economy there's little room for error--or delays. Yet for tech leaders who deliver, their companies' prospects and their IT organizations' reputations are going to look a lot better heading into any upturn.