ROI: Make It Bigger, Better, Faster

Ask 10 IT leaders how they measure payback on their companies' technology investments, and you're likely to get back at least 10 different answers. But there's also a good chance you'll hear a common theme in all of their replies. Regardless of how they measure payback or the financial formulas they might apply, today's slumping economy has them under excruciating pressure to show bigger and better returns faster.

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Many are responding to the demand for a return on investment by homing in on one or two critical IT projects that directly support and add value to their companies' primary business goals. In other words, they're following the money.

"At the corporate level, our [revenue] strategy is to broadband- enable customers in the wireline business and get into long distance in the nine states we serve, so our IT prioritizations are subject to those two things," says Fran Dramis, CIO and chief e-commerce officer at BellSouth Corp. in Atlanta, a $28 billion telecommunications company serving nine states in the Southeast.

BellSouth measures the return on its technology projects strictly by the value they add to those business goals. A recent success story is its new broadband ordering system, which significantly cut the overall business operations budget by lowering per-subscriber ordering costs by more than 50%.

Dramis says a key first step to implementing this follow-the-money ROI approach was coming up with a "technology transformation road map." Drawn by business unit presidents, the road map identifies "leverageable" systems - defined as those that the businesses need to run and enhance their revenue-generating operations.

"Nonleverageable" systems, by contrast, are legacy systems earmarked for retirement.

Previously, decisions regarding technology investments had generally been pushed down to a level too low in the company to have a direct impact on strategic business goals, Dramis says.
"I'm turning the pyramid upside down," he says. Now, for example, investments in legacy or nonleverageable systems must be approved at the most senior management level by Dramis and two other group presidents. "What I'm trying to do is raise it up to a senior level so we can understand the business impact of our technologies," Dramis explains.

Get High-Level Approval

Delta Technology Inc., the IT arm of $16 billion Atlanta-based Delta Air Lines Inc., has also bumped up technology investment decisions to a higher level in the corporate chain.

"We have been carefully reviewing every project and every spend with approvals at the senior vice president level. Before, we delegated decisions to a lower level," says Curtis Robb, senior vice president and chief technology officer. "Finance is also much more actively involved in business cases that are developed [for IT projects]."

Delta is also focusing on its IT infrastructure, in which it has invested more than $1 billion in the past three years, according to Robb.

"Now, we're reviewing all projects we do in infrastructure to make sure they're absolutely necessary in terms of either lowering our operating costs or supporting new business functions going forward," Robb says.

Among the projects to take a back seat is an upgrade from Windows NT to Windows XP. Delta has also significantly tightened up accountability for the business payback of IT projects.

"Now when we start a project, we're booking the [promised] savings out of the beneficiary's budget," according to Robb. "You can't just say it's going to save you money. You actually get signed up for the savings."

One recent example is the IT group's investment in systems management tools, which, among other benefits, will enable the automatic electronic distribution of software and upgrades.

"The business case for the project literally shows a reduction in effort to manage desktops that equates to a specific head-count reduction in the operating budget," Robb explains. "Before, there were lots of promises [of cost savings and other benefits] but not as hard a look at ensuring that they actually occurred.

"Companies can get a little bit sloppy in how they account for the results of investments," Robb acknowledges. "We're certainly homing in on that and will make it a real checkpoint. We're not doing a project unless the beneficiary is signed up for the results."

"Our pace has quickened. We're looking for better return and faster implementations," says Charles Emery, CIO at Horizon Blue Cross Blue Shield of New Jersey in Newark, which serves 2.5 million people. "We're always under a microscope. Now it's even more intense."

Ditto for Cathie Kozik, CIO and senior vice president at Tellabs Inc., a $3.3 billion Naperville, Ill.-based communications equipment maker. "With the economy headed in the direction it is and particularly with the downturn in the telecom industry, we're under significant pressure," says Kozik. "There's certainly a renewed emphasis on 'Show me the dollars.' "

One sign of that pressure is a new and much more stringent process for proposing and gaining approval and money for IT projects.

"We have for the first time a formal analysis process where projects are compared. The other piece is we hold people accountable [for results]. In the past, we haven't gone back and done measurements after a project went live to see how much we did save or how much we didn't," Kozik says. In the past, she adds, "we went by the 'squeaky wheel' process - whoever screams the loudest gets the money."

Gain New Customers

At First Health Group Corp., a health care insurer in Downers Grove, Ill., business results from technology projects, notably systems integration projects, are measured mainly in terms of the company's ability to attract new customers and enter new niche markets.

"Every investment is designed to gain us opportunity," says Ron Boeving, vice president of information systems. "We don't do traditional ROI, but we do [analyze] return on opportunity." Moreover, since the health insurer is "a pure information company, every one of our products and services is underpinned by the IT infrastructure," Boeving notes.

First Health's business strategy is to steadily expand by acquiring other companies, which necessarily involves a lot of systems integration work. Boeving says the company has come up with a formula for measuring return on these integration projects based on how much they contribute to increasing customer service, which in turn, brings in new business.

"One of our main strategies is bringing world-class service to health care," he explains. "For us, that means when you talk to a customer service person, they will be able to answer all of your questions in one call."

Behind the scenes, what makes this possible is a system called OneSource that links 15 systems and databases and gives customer service representatives access to medical management, pharmacy, case management and any other customer information on file, all on a single computer screen.

"This integration is really part of our sales story," says Boeving. He also points out that potential corporate clients are given a tour of First Health's IT facility and a firsthand demonstration of its integrated IT capabilities and how they translate into fast and accurate customer service.

"We bring them in and show them how our infrastructure works, and it's very convincing," he says.

The proof is in the numbers: First Health, which invests 12% of its top-line revenue in IT annually and whose IT department comprises 10% of its total workforce, has grown from a $25 million company to a $700 million company in the past decade.

Now that's showing them the money.

Slow and Steady

As a financial services company, Tyco Capital in Livingston, N.J., knows all about reducing risk to ensure higher returns. That includes IT projects.

CIO Robert Plante's strategy involves dividing large IT projects into smaller pieces and measuring ROI in phases, rather than all at once at the end of what could have turned out to be a not-so-profitable venture.

"It's almost like plan, do, test, react," says Plante, who most recently applied the strategy to an implementation of a customer relationship management (CRM) system.

"With some of our e-commerce initiatives in particular, we're entering with new capabilities at a reduced scale to ensure that they are going to be successful. Then, we'll scale [future] investments based on how successful we were. What we're doing is not so much going in with guns blazing, but reducing scale to reduce risk and size out [IT] investments appropriately," he explains.

The CRM applications were installed over 18 months, with the next phase proceeding once previous phases showed positive ROI.

Moving forward at a measured pace helped on the change-management front, where one of the biggest challenges was bringing along users whose only experience was with the 15-year-old system the CRM applications replaced. Many had no experience on anything else, Plante says.
"Charging ahead too quickly" on any large-scale technology project is a pitfall to avoid, Plante says. "Having gone through a number of large-scale projects, it's not hard to leave folks behind, but when you do, it's death," he says.

— Julia King


Copyright © 2002 IDG Communications, Inc.

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