Tech Choices For Tough Times

With economic uncertainty looming, managers must choose technology investments carefully. Here are the projects that IT managers say are likely to avoid the budget ax.

Not every IT manager has been affected by the economic travails that have ravaged the dot-com world, but the threat of a full-blown recession has everyone looking carefully at technology investments these days.

At The Boeing Co., the IT department is watching the company's technology investments with extra care, meaning capital spending for new systems will be flat compared with last year's budget.

According to Christopher Kent, Boeing's vice president of computing and network operations, "We plan two-year operating budgets and project infrastructure refresh to five years out. But we are always aware of how one year or another might be affected by difficult economic times."

So far, Seattle-based Boeing has soared above the economic turbulence. But it's reacting to the same economic warning signs other companies are seeing.

Just last month, a poll of 64 senior IT executives published by Technology Business Research Inc. in Hampton, N.H., revealed that more than one-fourth expected their spending to drop by a whopping 26% this year. And Gartner Inc. in Stamford, Conn., issued a release claiming that CIOs were "coming to the front lines to defend their operations" in the face of a lackluster economy that may slow corporate investment in IT.

Laura Bengford, executive director of international IT at New York-based Fox Entertainment Group Inc.'s international film distribution unit, says, "Call it what you may—recession or whatever—there is definitely something going on."

Despite the dire predictions, many corporate IT departments haven't yet felt the economic pinch. And it may never come, in an economy where some sectors race forward while others tumble. But mindful of the uncertain economic climate, IT managers say they'll be placing their technology bets particularly carefully in the coming year, wagering on those that deliver revenue, cost savings or improved productivity.

Top and Bottom Lines

Connectivity is one area where IT should focus its investments, because it's the foundation for e-business revenue sources, according to Linda Rossetti, president of eMaven Inc., a market research firm in Boston. And most new business opportunities will be Internet-based, she says.

That's the way Boeing sees it. The company will add to its network infrastructure this year because it's seeking more revenue from IT-dependent business services, which are primarily driven by Internet opportunities, says Boeing CIO Scott Griffin. For example, in the Boeing Commercial Airline Group, services are bolstering revenue faster than any other business is. One service alone, the Web-based Boeing Parts Page, has generated $400 million in the past 12 months.

Technology that directly cuts costs is another favorite at the $58 billion aerospace giant, which sits at No. 10 on the Fortune 500. For example, Boeing prints more than 1 billion pieces of paper every year, making it one of the world's largest publishers. Griffin says one of his business goals is to bring that number down, "ideally to zero."

Part of the strategy to reach that target is to offer browser access to legacy systems, eliminating hundreds of daily printouts generated by the profusion of legacy systems. But Boeing is currently burdened with 18 active procurement systems in its back-end operations alone. The plan is to reduce that number to four or five in the next two to three years, according to Kristina Erickson, director of venture relations for the eBuy@Boeing group.

Erickson says she hopes to reduce burdensome paperwork by leveraging Boeing's Exostar aerospace exchange. Trading on the business-to-business marketplace began last September, and it's now handling 1,000 transactions per week.

The exchange has a long way to go before it takes a serious bite out of the 12 million transactions Boeing conducted with its suppliers last year, Erickson points out. Still, the potential savings are enormous, she says, so the investment will continue, even in a slowing economy.

Some companies say that during tough times, it's important to focus on core business operations and continually make them more efficient.

For Newark Electronics, a Chicago-based electronic components distributor, running its online catalog of 150,000 SKUs is vital for business expansion. This year, with its Internet infrastructure already in place, the $600 million division of Premier Farnell PLC in London has targeted catalog management to improve its ability to update and distribute its online information.

According to Tony Chien, vice president for e-commerce at Newark, by using Cardonet Supplier catalog software from Cardonet Inc. in Santa Clara, Calif., he's been able to eliminate a full-time Oracle developer position to manage the online catalog, while increasing the frequency of updates to the 1,500-page catalog from a few times each year to weekly. Those updates generate more business for online operations and justify the investments to upper management, Chien says.

Infrastructure: Invest to Save

According to Kent, Boeing thinks putting investments in its wireless infrastructure will save money over the long haul. In the not-too-distant future, he says, the typical white-collar Boeing employee will have a laptop with a wireless LAN card installed that will let him connect anywhere on the major Boeing campuses. This will save the company millions of dollars, because the project-driven enterprise moves tens of thousands of its workers from office to office every year. Wireless LANs address most of the costs associated with relocating workers inside the company.

Boeing isn't alone in focusing on its connectivity capabilities. "We invest in areas that will increase our revenues or decrease our costs," says John Boushy, CIO at Harrah's Entertainment Inc.

One key area the Las Vegas-based company will be improving is its network infrastructure. Boushy says he's tossing out aging frame-relay and T1 connectivity for an ATM wide-area network, which he says will save the company thousands of dollars each month in telecommunications charges.

At Fox Entertainment, where Bengford says IT investment "is scaling down to basic needs," the network is also the focal point. She highlights the introduction of new routers from Cisco Systems Inc. and the upgrading of Fox's Microsoft Exchange servers to support expansion of the global network.

Even at The Motley Fool Inc. in Alexandria, Va., which recently laid off 30% of its staff, network investments continue apace. According to Kevin D.E. Book, director of IT, the online financial services site has seen a steady rise in visitors. It has more than than doubled the number of site users from last year, topping 2.9 million in February. That kind of growth keeps pressure on IT to sustain high performance so users will continually return to the site.

Book says he'll be buying network file-caching servers this year from Akamai Technologies Inc. in Cambridge, Mass., to ensure a minimum response time for site visitors, bringing them to the site more often and keeping them there longer - which is considered critical to garnering the advertising dollars the site depends on for revenue.

Old-fashioned Productivity

Waving more earned or saved dollars in front of the chief financial officer will almost always win IT investments a positive response. However, making the argument for technology that improves inconsistently defined "worker productivity" often needs specific data to get approval.

Boeing uses an internal metric called lost workstation hours (LWH), which is essentially downtime caused by IT problems. Kent says that by reducing IT infrastructure outages last year, Boeing's LWH number dropped 20%. To improve on it some more, Boeing is considering a multiyear investment in storage-area networks to provide faster, easier, more reliable access to more than 150TB of data.

Kent says Boeing will also push Windows 2000 out to users during the next two years, and the company will acquire about 100,000 new PCs to run the operating system upgrade. He says he expects that with the more stable operating system, users will put fewer demands on the help desk.

Boushy says Harrah's believes investing in Microsoft Corp.'s new operating system will also be a boon to productivity. Harrah's skipped Windows 98 for company desktops but will begin Windows 2000 deployments this year, he says, adding that he anticipates that with the server management tools for Windows 2000, he'll require fewer administrators.

Boushy and Kent are both interested in improving user productivity with single sign-on security technology. But Kent, who's testing a pilot program now, says he doesn't think it will scale enough for his organization. Boushy says the technology is barely more than one year away from being real, "but the productivity and security advantages are too obvious to ignore."

Technology investments aren't recession-proof, but they can be recession-resistant. IT executives should not only focus on their traditional role of identifying technologies that will save the company money or improve productivity through automation, but they should also choose technologies that can help generate revenue.

"When the belt gets tight, you look at the must-haves and the nice-to-haves and choose the former," says Book.

Technology Criteria for Lean Times

Invest in technology projects that generate revenue. Boeing's Web-based Boeing Parts Page has generated $400 million for the company in the past year.

Speed deployment of technology that saves money. Harrah's expects its replacement of old WAN links with a new ATM network to reduce network costs by thousands of dollars each month.

Focus on technologies that improve productivity. Newark Electronics' new Web catalog management tool lets the company manage its online catalog with fewer staff while allowing more frequent updates to its 1,500-page catalog.


Copyright © 2001 IDG Communications, Inc.

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