VideoAs the economy resists any sustained bout of good news, most discussions of information technology continue to center on how to get the biggest return for the least investment. As a result, the ROI business is booming, with consultants continuing to hawk various forms of guidance, from simple formulas to high-priced hand-holding, while purveyors of hardware, software, and associated gear tout ROI seals of approval from everyone this side of Consumer Reports.
Meanwhile, in the real world, companies are finding that one size does not fit all and that smart IT decisions require continual reevaluation and plenty of input from a range of executives and departments.
Not long ago, it seemed that every company would march in lockstep toward some rigorous and formulaic analysis of technology investment. But ROI has proved not so much an iron fist as a guiding hand. While it informs the decisions of the companies featured on the following pages, sometimes strongly, it's clear that ROI is just one facet of a new and more sophisticated discipline taking hold.
These companies may operate in industries far different from yours, but the problems they face — shrinking margins, pressures wrought by globalization, and fear of falling behind technologically — give their challenges and solutions broad relevance. Their approaches to ROI and IT management run from detailed scorecards to inventive reporting structures, but all avoid simplistic solutions. The CFO as penny-pinching autocrat? Don't try to force that stereotype on these companies. In each case, IT and finance have managed to find the sweet spot on the risk/reward continuum.
Sea Change
The past few years haven't been smooth sailing for the global shipping industry. Anticipating an increase in consumer demand, shipping companies added capacity, which drove down rates. When the economy went sour, so did demand forecasts.
Among the hardest hit was global giant Neptune Orient Lines (NOL) and its subsidiary, American President Lines (APL). Even though its volume rose by 6 percent, the lower rates meant revenue fell by 5 percent. As a result, the company reported a $330 million loss for 2002 — on the heels of a $56 million loss the year before — and its debt rose to $2.8 billion.
Early this year, NOL/APL's CEO stepped down and the company announced that it would cut 1,100 jobs over time. The company has made cost-cutting a priority, outsourcing some financial functions to Accenture and selling its profitable crude-oil transportation business, American Eagle Tankers.
One result, says NOL's CFO, Lim How Teck, is that the company is now "trying to change to a more asset-light business model." But at the same time, it's becoming more reliant on what's arguably the most IT-intensive facet of its business, APL Logistics, which contributed 18 percent of NOL's $4.6 billion in revenue in 2002.
Even before its push into logistics, APL had earned a reputation for technology innovation prior to being acquired by NOL in 1997. About 30 percent of APL's transactions are conducted online, more than any other shipping firm, the company says. The question is whether it can maintain that reputation as it moves from what Glynis Bryan, CFO of APL Logistics, describes as a focus on the top line two years ago to "more-focused growth with the emphasis on profitability — not just revenue for the sake of revenue — and with less emphasis on acquisitions."
Cindy Stoddard, who became Group CIO for NOL last year, takes an approach that seems tailor-made for the new reality. "We keep asking, 'What business problem are we trying to solve?'" she says. Sometimes, says Stoddard, expensive technology is not the answer. "We now question the level of automation that a particular problem needs," she says. "We've been scaling back because we don't need the bells and whistles that people thought were needed."
Navigating Via Scorecard
The company now charts its IT course by two stars: an insistence on short-term payback and a balanced-scorecard approach to project approval that brings an almost fanatical level of rigor to IT investment.
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"Longer-term strategic projects are not even being considered," says Josh Smith, who as IT controller reports to both Stoddard and to NOL's CFO. "Historically, we've had a few long-term projects under way. Now we're focused on only one, an automated pricing system intended to alleviate a very manual process."
The company's scorecard covers a lot of ground. For example, a recent project to automate the entry of data pertaining to shipments transferred through the company's Singapore hub looked at a wide range of potential benefits, including employee and customer satisfaction, two facets of IT projects that are notoriously difficult to assess. The scorecard assigned a weighted average to those and a range of other benefits and costs. But ultimately, the fact that the three components of its ROI analysis — internal rate of return, net present value, and payback — all scored 10 made the project a winner.
The scorecard requires weighted averages to be assigned to a long list of items, including strategic alignment, costs, benefits to the company and its customers, risks, and more. The assigning of those numbers, from -2 to 2, is handled by the project's IT champion and business champion working together. Once they've established the weighted-average scores, the project moves to IT controller Smith and Mark Miner, the project-governance head, for approval. It then goes to the governance committee, where the final decision is made.
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