VideoSmith adds that this more formal embrace of IT governance has required plenty of finance education. Business units that once had direct access to the IT group have been schooled in IRR, NPV, and other concepts so that all requests are not framed in a financial context. Having put the scorecard at the center of its IT efforts, APL doesn't plan to change course, even if the economy should boom. "We are doing fewer things better, as opposed to doing a lot of things but not doing them well," says Smith. "This back-to-basics approach is the future. I don't think this lesson will be forgotten for a long time."
Dow: A Focus On Vision
Dow Chemical Co.'s formula for global success is all about homogeneity. From Casablanca to the Louisiana bayous, the company's worldwide manufacturing empire relies mainly on the same software and hardware infrastructure, an approach that doesn't come cheap.
Paul Janicki, Dow's global finance director for information systems and E-business, says IT's job is to provide top-quartile performance at the best price so that the company can achieve its strategic objectives. "If it is in the company's strategic interest to install an IT service or application, it is our role to optimize it," he says. The cost of a standardized global infrastructure pays off in the way it facilitates the integration of newly acquired companies, he adds.
Quantifying a specific return for an IT project is a challenge, says Janicki, because many costs occur up front, while the benefits, in terms of strategic advantages, don't show up until later. "When we integrated Union Carbide, we got all the synergies the company envisioned, but the first people on the ground to make that possible were IT staffers. Without the systems and connections, nothing else happens," he says.
In that situation, Janicki says, it makes little sense to demand a specific ROI, although the company does conduct a formal analysis for all projects. But, if a deal is deemed worth doing, then the IT costs have to be absorbed as an inevitable part of the deal, even if the ROI is not positive.
To keep costs in line and projects on track, Dow works closely with a few key vendors. It signed a major outsourcing deal with EDS, for example, to create a global network dubbed DowNet. Dow meets with its vendors at least annually to review their performance and discuss technology and business strategy for the future. "The idea is to refine our IT strategy, as well as understand when things may be feasible," says Janicki. "Part of this is to see if we can't line up our longer-term strategy with theirs."
Janicki has a word of caution for companies seeking to outsource parts of their business. "One of the bigger mistakes companies make is to say, 'I don't understand something, so let me outsource it so I won't have to deal with it anymore,'" he says. "You never outsource something you don't understand. You make a bigger mistake because you don't know what you sent out the door."
The DowNet project with EDS has high-level milestones — for example, when the implementation is due to be completed in country no. 79 — as well as tactical milestones, such as whether the necessary servers have been installed on time. By using milestones and tracking projects closely, Dow can judge where EDS is relative to the goals of the project; in essence, it manages the manager.
Bucking the trend toward shorter-term paybacks, Dow's IT strategy will ultimately be measured by its long-term impact on the bottom line. For that reason, it's less important that projects pay off individually than that the overall IT plan supports the business efficiently. For Janicki, much of that comes down to risk management. "There is no absolute line to quantifying [IT project] risk. It comes down to how you mitigate or manage those risks," he says. "A riskier project with a good mitigation plan may be a better bet than a low-risk project that offers no alternative if it fails."
Dow's approach may be a luxury few other companies can afford, but some may find the company's long-term view refreshing. EDS certainly must.
IBT: Teamwork Triumphs
While it's difficult to deny the value of diligent ROI analysis, some companies are finding success not so much in how they run the numbers as in who runs the numbers.
At Boston-based Investors Bank & Trust (IBT), the finance and IT departments are working more closely than ever, thanks to a double dose of diligence. The IT department has a finance team embedded within its ranks, while CFO John Spinney relies on a former CPA with substantial IT awareness helping to analyze the company's IT investment strategy. This system of careful controls highlights how critical IT is to the bottom line at IBT (a subsidiary of Investors Financial Services Corp.), which provides global custody and multicurrency accounting services to people such as mutual fund managers.
While American President Lines (APL) has reined in IT spending, IBT is continuing to devote a hefty 20 percent of revenue to IT even as its overall revenues climb. The reason: as the company has grown, partly through the acquisition of the custody units of other large banks, information processing has served as the cornerstone of its services. The accuracy and security of its data is paramount, and Spinney says that IBT's competitive advantage hinges on its deployment of IT. Nonetheless, he adds, "if you don't control the tech budget from the financial perspective and let it get out of control, you are not going to meet your earnings estimates for the Street."
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