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Plus, collaborative applications for knowledge management; Microsoft's acquisition of Great Plains Software is a killer-app deal.
CFO Staff, CFO Magazine
March 1, 2001
WHICH WAY TO TURN?
As the economy sputters, most companies seem ready to spend less on technology, but some may crank it up.
By Scott Leibs
Signs of an economic slowdown are prompting many companies to reevaluate IT budgets, but analysts caution that knee-jerk cost-cutting may be unwise. A December survey by Morgan Stanley Dean Witter & Co. found that IT budgets would increase by an average of 8.1 percent in 2001, compared with 12 percent last year. A survey released by Merrill Lynch in early January put the average increase at 5 percent, compared with 11 percent in 2000.
While a modest adjustment to rates of growth may not seem significant, a closer look at just where companies will and will not spend money indicates that 2001 may be a year in which decisions become more difficult than in years past. For example, despite the general mood of belt-tightening, a survey by AMR Research found that companies will continue to spend aggressively on E-business technologies. To fund those efforts, 29 percent plan to reduce their spending on forms of technology that don't connect to customers or suppliers. Morgan Stanley found that spending on database, marketplace, and E-business software will grow faster than overall IT budgets, while desktop and mainframe hardware and software will see only nominal growth, and consulting services will see an outright reduction in spending.
With spending levels very much an issue, CFOs are likely to budget plenty of time for IT. "The last time most CIOs saw their CFOs was the 199091 recession," quips Ken McGee, group vice president and research fellow at consulting firm Gartner Inc. "When times get tough, CFOs like to see big cuts in spending that show up fast on the income statement."
But with the phrase "soft landing" filling the void left by "dot- com," few, if any, companies are pushing for big cuts. And experts see more than one bright side to slower growth. Rob Austin, a professor at Harvard Business School and a fellow with the Cutter Technology Council, says that big companies in particular may find a silver lining. "Firms that responded to the rise of Internet start-ups with shock and dismay," he says, "can now relax and figure out how to get it right. They don't have to worry that their ROI horizons of two to five years put them at odds with the 'fast and nimble' dot-coms."
Gartner's McGee sees another advantage. "When the economy was booming, IT budgets increased so fast that most companies didn't do a good job managing those assets, or even cataloging them. Now that they have to look closely, they can figure out just what they've got."
What they haven't got they may decide to rent rather than buy. Martin Reynolds, also with Gartner, believes that many companies will shift expenses from capital budgets to service contracts. "Outsourcing and ASPs look more interesting now," he says. "Others may simply put off big projects until a later quarter." Morgan Stanley analyst Charles Phillips says his survey indicates that IT spending will indeed be "back-end loaded," with 14 percent saying they will spend cautiously in the first quarter, while another 12 percent scaled back their budgets even before the quarter began. Any improvement in the economy, he says, will prompt many firms to spend more heavily later in the year.
Some companies have no intention of waiting. General Electric chairman Jack Welch told CNBC in late January that "this is the moment to widen the gap" between GE and its competitors. "We are driving the hell out of IT spending," he said. "It's the lifeblood of the company."
Harvard's Austin agrees that "there are opportunities to reclaim space," whether it's a technology vendor going on a shopping spree or a company looking to follow GE's lead and outrun competitors. Most companies are likely to be cautious, at least for now. "But any signal that the economy is improving," says analyst McGee, "and these will be the shortest-lived cost cuts in history."
The slowdown may benefit large companies that felt pressure to keep up with dot-coms.
Light at the End of the Funnel
Despite its corporate intranet, its vast network of servers, and plenty of business intelligence tools, Ericsson Research Canada knew full well that there were lots of duplicate efforts among its 103,000 employees. One big reason, says Anders Hemre, the company's chief knowledge officer, is that the employees, like workers everywhere, tend to rely on personal networks for information, rather than on a central data repository. Despite advances in technology, often it's simply easier to ask the person in the next cube about a project, schedule, or what have you. Trouble is, what's efficient for one person at one moment is not necessarily what's best for the organization as a whole. No matter how bright the person next door may be, the explosion in information of all types guarantees that the shoulder-tapping method will often yield less than optimum results.
So last year, when Hemre was charged with improving the flow of internal information, he modeled his approach on a very simple structure: the lunch table. Believing that casual, give-and-take lunchtime conversations on current issues generate the most useful information, Hemre spent a year working with a consultant to organize extradepartmental "communities of practice" that would draw together people with similar business interests for loosely structured brainstorming and dialoguing sessions.
Then he added a technologic component. Organik, a searchable database organized around user-submitted questions and answers, provides a place for the groups to log insights that emerge from the meetings. "They go through face-to-face discussions about the issues first, then we take them to technology," says Hemre. Users can later query the database with natural-language questions and receive answers to similar questions. They can also find people Organik has identified as subject experts based on their previous responses.
The idea that electronically stored information should follow, rather than change, human interaction is one important development in the effort to help people cope with the oft-lamented "information overload" problem. "Too many people who do knowledge management create extra work as they add information" to the corporate storehouse, says John Seely Brown, chief scientist at Xerox Corp. and a leading expert on search technology. "Technology should be a by-product of what you're already doing."
While Ericsson's program is only in the pilot stage, Hemre says that "we [already] see a big difference between this and asking people to post their documents on a shared server, because this leads to better dialogue." He says the next step will be to integrate sources like an intranet and business intelligence tools into Organik, so that employees don't miss valuable information that resides elsewhere.
Companies have been steadily increasing their efforts to leverage all the information that exists within their walls, whether in databases, on the Web, or in employees' minds. Collaborative applications accounted for nearly 40 percent of knowledge management software revenues in 1999, according to IDC, outpacing sales of content management and data warehousing products. Often the technology is nothing fancy, but is deployed in new ways. During a recent series of Web-based meetings, for example, Agilent Corp. CFO Robert Walker made sure participants had the chance to "chat" online, just as they would have had they met in person. "That's where information gets exchanged," he says. Participants could type comments and questions to one another during the management presentation, the equivalent of "whispering in the back of the room," Walker says, and with management's blessing. Walker made it a point to observe the "fascinating side conversations" that took place, giving him insight into employees' reactions.
These approaches work, experts say, because they go beyond making data available--they make it relevant. That principle is guiding a number of technology developments. Search engine enhancer Outride, for instance, which spun out from Xerox's Palo Alto (Calif.) Research Center (PARC) last December, acts like a helpful librarian, refining and expanding searches based on a user's search history. The software "reads" text documents (anything from Web pages to news feeds to internal E-mails), summarizes and categorizes them, then delivers the most pertinent ones to the user. InXight, another PARC spinout, adds a visual component; its Hyberbolic Tree software allows word-weary users to turn text into maps, thus making Web sites more navigable and data easier to interpret.
Another product that emphasizes visual presentation is ClearForest. It reconfigures news feeds and other data into whirlpool-like arrangements in which color-coded arrows lead the reader from a main topic, such as a competitor, to a related topic, such as companies the competitor is acquiring, with one-sentence summaries for each topic. Dow Chemical Corp. and Eastman Kodak Co. turned to the software to help them sift through reams of patent documentation as they searched for technical experts for hire. Last year, Credit Suisse began to offer the product to its high-net-worth investors in Italy, and will soon bundle it with in-house research and roll it out to customers across Europe. "We see it as a competitive advantage," says David Chinn, marketing director for Creditsuisse.net. "Clients will be able to quickly search through news" and make better investment decisions.
Even those on the cutting edge, however, say that one key to information overload is to simply tune out some sources. Brown doesn't own a television, and chooses reading material based on the amount of time that has gone into preparing it--preferring books, for example, to daily newspapers. Walker is similarly choosy, and also delegates knowledge consumption. "You don't need to know everything that goes on in the organization," he says. "There needs to be a letting go and a trusting of co-workers." And, of course, a handy lunch table.
-- Alix Nyberg
SHOW OR TELL?
Transforming text-based information into some sort of visual representation can make Web sites easier to navigate, an important step in fighting information overload. Visualizations "help keep you located in a complex space, so you know where you've been and where you might want to go next," says Xerox researcher John Seely Brown. This is a driving principle behind products like InXight and Clearforest, as well as Room 102 (www.room102.com), an Internet search engine that presents results in a slideshow version of Web pages as well as text-only summaries.
Computer users may balk at that approach, however, because they think that graphical representations of data will take longer to download. But according to User Interface Engineering (UIE), a Bradford, Mass.-based company that researches "what people find frustrating about technology," perceptions of "fast" and "slow" are influenced far more by whether a user can complete a given task. A well- organized site that loads slowly due to heavy graphical content is often perceived as fast, while a quick-loading site that frustrates users with its poor navigation scheme is perceived as slow. UIE's director of instruction, Lori Landesman, says users often don't realize that their (mis)perceptions of slow versus fast are shaped by factors other than download times.
Graphics can help, but they aren't a cure-all. UIE has found that even Web sites that get the most positive responses, like amazon.com and cnn.com, satisfy users' missions only 42 percent of the time at best. Onsite search engines actually decrease the chances of a user finding desired information by half, usually because it's hard to anticipate what terms he or she will choose. One answer, ironically, is to use more text, in the form of links. Landesman says that descriptive links, versus cryptic words or phrases, greatly enhance a site's navigability. It's not that graphics don't help, she adds, but the key is to use them to present information, not simply to dress up a site. "What we find," she concludes, "is that people think a site is fun if they can find what they're looking for."
MERGERS & ACQUISITIONS
A Bridge to Fargo
As Microsoft's acquisition of Great Plains Software wends its way toward an anticipated April consummation, customers of the accounting software firm say they're confident the deal is for the best. Competitors say the same, but less enthusiastically.
The acquisition poses a double whammy for them: where once they merely had to compete with the country's largest midrange accounting software firm, now they must outwit the biggest software company in the world. Worse, they find themselves competing with a company that most had heretofore worked closely with, calibrating their applications to run flawlessly on Microsoft's systems software.
"Microsoft's stance as an independent software provider gets cloudy" as a result of this deal, says David M. Hood, CEO of AccPac International Inc. "It gives us pause. We've spent millions in development to support the Microsoft platforms, believing it was independent." Hood says that AccPac won't drop support for Microsoft platforms, simply because those products are "too pervasive to ignore." At the same time, however, he believes that "it would be suicide" for Microsoft to turn its back on the software firms it now competes with, because "we generate a lot of money for their systems software products."
The pervasiveness of Microsoft's systems software is precisely what makes the deal appealing to many customers. "We already use a combination of Microsoft and Great Plains products," explains Bob Cahill, CFO of Smarterkids.com, "so this deal strikes me as a great business decision." He hopes for even tighter integration between the products, and faster development of product enhancements. Great Plains CFO Tami Reller says
that's exactly the plan: "We see greater streamlining, better integration, and one less vendor for customers to have to deal with," she says.
At the time the deal was announced, Microsoft was no stranger to Great Plains's Fargo, N.Dak., headquarters. The companies have worked closely for years, and just two weeks before the acquisition was announced (on December 21), Microsoft named Great Plains the "Best Financial Solution" in its annual Industry Solution awards.
LET THE GAMES BEGIN
Hood admits that, despite the fact that "my jaw dropped when I heard about it," his firm had discussed the possibility of Microsoft buying Great Plains six months earlier. "We've competed successfully against them up until now," he says. "The fact that Microsoft owns them outright doesn't change the underlying Great Plains technology, which is what we really compete against."
René Stockner, executive vice president for worldwide operations at NavisionDamgaard, even sees a bright side. "This deal makes the midmarket very high-profile, which is good for everyone," he says. He adds that while he sees no reason why the current working relationship between his firm and Microsoft should change, "if Microsoft is out in the field actively selling Great Plains's software, that would pose an issue."
Another issue will be just which way Microsoft takes the technology. Many analysts believe the company is primarily interested in leveraging the Great Plains acquisition in order to bring accounting applications down to small companies via its bCentral subscription model, and will let Great Plains continue to serve the midmarket as it always has, through a vast network of value-added resellers (VARs) and other partners. Randy Keith, president of NavisionDamgaard's U.S. subsidiary, suggests that uncertainty about Microsoft's growth strategy will help Great Plains's competitors. "Given the constant challenges of securing and maintaining bilateral trust" between vendors and VARs, he says, "my guess is that Great Plains's partners are much more concerned about the future than our partners are."
But Smarterkids.com's Cahill wonders whether Microsoft's ambitions ultimately lie in the other direction. "Microsoft wants Great Plains because it's a killer app for SQL Server, which is aimed at the midmarket and above," he says. "They see this as a way to get into the high end against Oracle, SAP, and those other giants that get all the attention Great Plains doesn't."
Make that "didn't."