March 13, 2006 (Computerworld) There are no "IT projects" at Kaiser Permanente, says CIO Cliff Dodd.
Instead, he says, "some business projects have a significant IT component. And like any other project, they have to be rationalized with a business case; every [regional] CFO that could be impacted has to sign off."
"No IT projects" is something of a motto at the Oakland, Calif.-based health care giant. It is one of five principles instituted by Dodd four years ago, continually stressed in PowerPoint presentations and even on placards on the walls. And it's becoming a guiding philosophy in many other companies as well. One result of this is a demand for rigorous cost-justification of projects that used to be dismissed because they were considered too technical to explain or were assumed to be just a cost of doing business.
That puts the onus on CIOs to cost-justify initiatives whose returns may be difficult to quantify to nontechnical executives. "This is where a lot of IT departments have a problem," says Jim Carty, president of IS Value Corp., a consulting firm in Yardley, Pa. "They see a need but cannot get funding approved."
But it can be done. Here are three successful approaches.
Money Talks
While it may be obvious to an IT group that an upgrade is the smart move, business executives don't necessarily share that opinion -- often for good reason. "When I was working with Amex a few years ago, they were running certain parts of their operation on Intel 8088s," Carty says. "The [PCs] could still do what they needed them to do, so there was no reason to replace them."
If you believe that a piece of hardware, a network switch or a software package needs to be replaced, be prepared to prove it and remember that dollars talk. For example, when
Hatfield Quality Meats Inc. sought funding last year to update its Demantra Inc. demand-planning software, CIO Bob Hardner studied the newer release's features and translated them into persuasive business terms.
The proposed upgrade would cost only $20,000, but "we had to uncover net gains," Hardner says. The answer was clear: While the old version allowed forecasting only in weekly "buckets," the newer release could provide demand forecasts on a daily basis, he says.
Before proposing the upgrade to the chief financial officer, Hardner looked at the past year's deliveries and counted the times the lack of daily forecasts had cost the Hatfield, Pa.-based distributor an order. The tally easily justified the upgrade.
Riding Coattails
If the dollar return on a project remains elusive, another way to make your case is to find legitimate links to an initiative with high returns on investment.
"You say, 'To get the CRM done, we're going to need the network switches,'" says Jon Piot, president of consultancy Technisource Inc. in Little Rock, Ark. "You're just adding more cost to the project. It's like making plumbing changes in your house when you've got it all torn apart anyway for renovations."
This approach, which nicely complements the "no IT projects" mantra, is the one used by Harrah's Entertainment Inc. In 2004, the Las Vegas-based company, which already operated casino hotels in 13 states, purchased Caesars Entertainment Inc. for $9.4 billion. Harrah's is just now wrapping up the ambitious undertaking of folding Caesars' customer-loyalty operation into its own.
"As we've added Caesars, we've had to significantly scale that system," says David Richter, Harrah's vice president of infrastructure. "We folded in literally tens of millions of new customers." That entailed significant IT investment in nearly every area of infrastructure, including redundancy. "Previously, we were on a fail-over model," Richter says. "We shifted to a high-availability model with two data centers."
"In a major project like that, the cost of infrastructure - platforms, networks and so on - is included in the overall cost estimates," says Harrah's CIO Heath Daughtrey. "And because that project already has ROI projections, the [infrastructure cost] is already in terms the COO and CFO understand."
Risk and Business
Robert Simmons, CFO at ETrade Financial Corp.
While the naive might think highlighting risk will destroy the case for a project, the type and degree of risk can actually be a selling point. "If we're investing in a technology we understand perfectly, I'm willing to live with a lower predicted return than if it's a new, untested technology," Simmons says.
He is quick to note that ETrade's IT group understands risk. As an example, Simmons points to the company's move to open-source software, which began in 2002, early in the open-source movement.
ETrade CIO Greg Framke led the initiative after the company's board determined that better scalability was crucial if the company was to grow out of the dot-com malaise. "Greg came back with a Linux proposal and told us here was a chance to break the vendor stranglehold," Simmons says.
The risk was undeniable: ETrade would be very early with a broad-based Linux initiative. But Framke hit a home run by convincing the board that one component that would not be risked was the customer experience. Open-source might turn out to be a costly technological dead end, he says, but any pain would come in the form of worker hours and money, not angry customers.
That convinced board members that the scalability advantages of open-source outweighed the risks. Years later, it's clear that the gamble paid off. "We made two acquisitions in 2005, and they were enabled in no small part by open-source," says Simmons.
The pressure is on for CIOs to translate proposed initiatives into business terms. Moreover, the discipline required to do so can help them better understand and prioritize projects themselves.
Ulfelder is a freelance writer in Southboro, Mass. Contact him at steve@ulfelder.com.