VideoBut his evangelism has been even more pronounced ever since late last year, when Axa's headquarters in Paris called for a major initiative to retool groupwide technology management. A key to executing the plan, says Coste, is having a clear framework in which to categorize IT projects. Now, every euro spent on IT at Axa should achieve one of three goals: Generate revenue, reduce costs, or maintain and develop infrastructure.
To make this happen, Coste ensures that all proposals at Axa Asia Life undergo rigorous pre-investment analysis. "We spend as much time as possible doing feasibility studies," says Coste. "Taking the time upfront saves us money in the long run because once something moves beyond the design phase, it's often too late to pull back and stop spending."
Coste, who sits on Axa Asia Life's IT steering committee, explains that such rigor often involves making tough tradeoffs when allocating the annual IT budget. He recalls, for example, recently receiving a strong proposal from several offices in Asia which wanted to migrate their financial systems to one used in another part of the company. "We could demonstrate some significant efficiency gains in finance by having a more integrated system, but the major benefit — improving the quality of data — wasn't tangible enough to quantify."
What's more, in studying Axa Asia Life's entire portfolio of IT projects, other proposals were stronger, particularly those that would develop new marketing channels and products. "Now, whenever we look at an IT project, we always look for what it will mean for us in terms of business results," he says. "It's not rocket science, it's just best practice."
For the group, that best practice is already bearing fruit. Axa reckons it's saving $150 million a year now that over half of all IT spending has been centralized within the insurer's various regional headquarters. Encouraged by the success, the company wants to cut groupwide IT budgets by 30 percent by 2003. Coste, for one, has no doubt that the target will be met.
Some Art, Some Science
For most, figuring out what the targets are can be tricky.
Just ask Don Hughes. Hughes, CFO of Lands' End, is no pushover for glamorous, new technology. At the American catalog and online retailer, he requires all IT projects costing more than $25,000 to include a rigorous "concept and feasibility" study to determine whether they will produce an internal rate of return (IRR) of 12 percent, the minimum IRR the company allows for all major investments.
Hughes, however, is willing to make exceptions to the rule. A case in point: My Virtual Model, a pioneering onsite feature introduced to landsend.com in 1998, which lets shoppers draw a 3-D screen image of themselves and "try on" clothes and other merchandise.
"Certainly questions about metrics got asked (when we looked at the business case). But the answer was, 'We don't know what the return on our investment will be'," Hughes says. "We couldn't look out in the world and point to a peer to know what kind of lift it received in average order value or frequency of ordering or any other revenue-enhancement metric as a result of installing a similar tool. We had nowhere to turn."
So how does Hughes know whether to give projects like My Virtual Model the green light? "It's clearly part art and part science," asserts the 15-year Lands' End veteran, adding that over time he has steadily developed "a deeper understanding of what makes our business tick, and what our customers want".
Jeanne Ross at the MIT Sloan School of Management in Massachusetts is among the IT experts who laud Hughes and other CFOs like him who aren't over-reliant on IRR, net present value, or other traditional ROI measures that she finds can be too constraining. "I hate to put down CFOs, but more often than not, the ROI mindset comes from them," says the principal research scientist at the Center for Information Systems Research at Sloan. ROI, she explains, "can be too much of a good thing," encouraging companies to choose small, cost-cutting projects over large, visionary ones.
That's because ROI measures the former with more precision than the latter, which can involve a lot more assumptions when making forecasts. "In visionary projects, you need to separate the business case from the metrics," she says. And at some stage, a decision to make an investment comes down to what she calls "organizational intuition." Others — like Hughes — call it a gut feeling.
But no matter how strong his gut feeling might be about a project, Hughes says he still "likes to challenge assumptions regularly." So when he and the rest of the IT committee meet for half a day every month, they focus on "after-the-fact" analysis of all ongoing projects, "to make sure that we haven't signed up for a $1 million project that's actually going to cost us $2 million."
Hughes has good reason to be proud of his IT track record. Last year, online orders accounted for around $325 million of its $1.6 billion annual revenue, and the company claims that Web sales are currently growing three times faster than its catalog purchases. "If we were a pure hard ROI company, we would not be in the position we're in today," asserts Hughes.
Its thriving online business has certainly impressed another retailer — in May, Sears, Roebuck & Co., whose chain of department stores spans the United States, announced plans to buy Lands' End for $2 billion in cash. Under the deal, the two firms will operate separately, with the Lands' End catalog and Internet business remaining at its current headquarters in Wisconsin — under Hughes's watchful eye.
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