Beyond Alignment

Meet the pioneers of extreme IT-business convergence. At these companies, it's hard to tell IT and business apart.

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Taking the Long View

Convergence pioneers do not develop and deploy IT as a solution to a particular problem. They design, build, integrate and operate technology for the long term. Essentially, their technology strategies boil down to first figuring out what is and what isn't going to change about their business, and then automating what isn't going to change, like financial processes.

The remaining business systems are built in-house as part of a highly flexible computing platform that can adapt to market demand for new products and services.

This IT-business convergence is clearly anything but the norm, according to McKinsey & Co.'s 2009 survey on IT strategy and spending. Of the 444 IT and business executives who responded, only 16% said they have put in place tightly coupled IT and business strategies, even though two-thirds of executives indicated that would be the ideal.

At Zappos, IT chief Brent Cromley says that he and others in IT "basically think of ourselves as [working in] an engineering shop. We have built almost all of our own systems, except we have an SAP financial system."

As for the main business platform, "we basically have an enterprise data warehouse where all of our data goes -- Web site traffic, marketing data, merchandising analytics," Cromley explains. This is the system that handles the new business as Zappos expands its product and service offerings.

For example, when Zappos expanded into selling luggage, it had to set up a special place at its distribution center to store the new items, since suitcases are much bigger than shoes. On the systems side, the company needed to reconfigure its main data warehouse to reflect that change.

Vanguard's Heller says that "everything about Vanguard is long-term, and we think of business technology the same way."

For example, ever since the company launched its first Web site in 1995, it has been keenly focused on Web and now Web 2.0 technologies, says Buckley, "because even back then it was very clear to us that this was the main way we would interact with clients. We took a big bet in 1995, and we have accelerated investment in it ever since." Live webcasts and chat, internal and external blogs, biometric security tools and the first financial fund application for the iPhone are just a few examples of Vanguard's IT investments.

"Everyone knows these things have to last and they have to scale," says Heller.

The business results are in the numbers. From 2001 to 2010, Vanguard has grown from $580 billion in assets to $1.4 trillion -- and technology has been a major driver of that growth, officials say.

Business results are similarly positive at other convergence pioneers. Southwest marked its 37th year of profitability in 2009. Zappos recorded gross merchandise sales of more than $1 billion in 2009 and was purchased by Amazon.com Inc. for $928 million. P&G's earnings per share were up 17% in 2009.

Looking ahead, Progressive's Voelker says business and IT will increasingly converge -- even at companies that struggle with alignment. The next generation of employees will make it so.

"Young people entering the workforce understand that technology is everywhere and involved in everything. They grew up on technology," he notes. "When I talk to new hires, I always give a canned speech about how IT is involved in every aspect of the business. The speech is a lot shorter now."

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Copyright © 2010 IDG Communications, Inc.

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