Sometimes a finance chief has to cut his losses. Just ask Ross Hughes, CFO of Australia-based BankWest. In the early 1990s, executives at the bank, which has assets of more than US$12 billion, went shopping for a core banking system. When they couldn't find an off-the-shelf package that met their requirements, they built their own. By the end of the decade, BankWest had developed a system it felt other banks might buy. Early signs were good: UK-based Halifax Bank of Scotland, which owns 56 percent of BankWest, snapped it up after a rigorous global tender process. Computing heavyweight IBM thought the system had prospects, too, and came on board in a joint venture to market the system in Asia. Hughes recalls: "We felt we'd created something exceptional."
But the banks in Asia didn't bite. So, earlier this year Hughes and his colleagues pulled the plug on plans for export success. The move also had implications for the company's IT activity at home. In June, BankWest announced it would merge its in-house IT division with CBSIS, the subsidiary that drove development of the core banking system. The creation of a single IT unit would save the company "a few million dollars" by cutting head count and duplication of effort. But more importantly, Hughes says, it would focus IT resources on work that supported the bank's own strategic agenda.
A retreat, certainly, but BankWest deserves kudos for attempting to transform IT from a cost center to a revenue generator. Besides, a data services and disaster recovery joint venture with the local subsidiary of U.S.-based Unisys is thriving, boasting clients from the government and mining sectors. But even if commercialization of their IT department is the last thing on most companies' minds, BankWest's soul-searching is not unique. The economic downturn, coupled with the dot-com burst, has prompted a backlash against IT, and turned the quest to pin down ROI into an industry in itself. Wherever they look for answers amid vendor talk of ROI calculators and consultants debate over the best measurement methodologies, companies want an answer to a universal question. As Hughes observes: "How do I know whether IT adds value to my organization?"
Prima Donna
The relationship between IT and the rest of the business has always been tetchy. Even technology vendors admit that something was amiss. "Before the dot-com bust, technology was pretty much a prima donna," observes Kuala Lumpur-based Rahul Patwardhan, president of the Asia Pacific and Europe operations of NIIT, the Indian outsourcing giant. "On one hand, this wasn't good. But if one does not invest in innovation, then someone else will," he says.
Sam Lo, group financial controller at Singapore-based ECnet, knows all about it. ECnet sells supply-chain solutions, an area full of promise — reflected in a client list that includes Matsushita, Philips, and Toshiba — but relegated to the back burner at many companies. As a result, Lo must rein in costs while ensuring the company doesn't impair its ability to react when market conditions improve. As a technology purveyor, continued investment in a cutting-edge platform is key, while building internal operational efficiencies.
This means Lo must work doubly hard at his forecasts. He admits that it's a challenge to make so many assumptions. "We look at the what-if scenarios, the implications if things don't work out as we expected," says Lo. "It's very hard to calculate absolute returns, especially when the investment is for internal use. It's easier to calculate the ROI on a platform offering services to customers," he says. It doesn't help that the goalposts are shifting. Three years ago ECnet bought financial systems from Microsoft Great Plains. While the implementation ran smoothly and the company can now produce group accounts in half the time, Lo reports that financial payback dates have been delayed, and plans to integrate this with front-end systems have been pushed back to 2003. That's not the only bad news. "We won't embark on the next round of upgrades until 2004," he reports.
Like many of his peers, Lo doesn't have much choice. Companies still recognize the need to innovate, but experts agree that there has been an undeniable refocusing of late. "Companies are taking a much more disciplined approach to IT-enabled investments — and having that responsibility at the top level," says Marianne Broadbent, Australia-based group vice-president of U.S. research outfit Gartner Group. Gartner reckons 20 percent of global corporate IT budgets were wasted in 2001 on technology that failed to achieve its objective — a loss totaling US$500 billion. Culprit behavior included unnecessary customization of software, poor central control of software licensing, and the failure of E-business projects.
Indeed, E-business projects — more speculative by nature — led many astray. For a time, many companies didn't seem concerned by the question of financial ROI — or at least by finding proof. Hard financial metrics flew out the window as companies became distracted by new priorities and metrics that would justify "must have" projects. In a survey by the Economist Intelligence Unit in 1999, "increase in customer satisfaction" was cited by 60 percent of respondents as a "very relevant" performance measure for E-business investments. This worthy but somewhat intangible aim beat more traditional concerns, such as reduced operating costs and increase in share price or business valuation.
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