Print this article | Return to Article | Return to CFO.com
Now might be the time for some prudent IT investments. These offerings are worth a closer look.
Adam Lincoln, CFO Asia
December 1, 2001
For lots of companies, buoyant IT budgets are but memories. Many CFOs are now saddled with low returns on their investments. Yet for those in a position to invest, now might be the right time to play off the front foot. The question is, where best to channel resources in today's tough business climate?
There's no shortage of options. Speaking at CFO Asia's eCFO conference in Hong Kong in October, Su-Yen Wong, vice president of Mercer Management Consulting, observed: "If I had a dollar for every time somebody told me 'We have too many E-initiatives in our company,' I probably wouldn't be here today."
But focus CFOs must. As Richard Fennell, a partner at PricewaterhouseCoopers Consulting (PwC) in Hong Kong, points out: "CFOs, increasingly, are being asked to lead those initiatives. Like the CEO, the CFO holds one of the few positions with cross-organization purview." That places the finance chief in a daunting position. "A fairly rare breed of companies has solid business design and digitization of processes," Wong says.
Motorola, for one, is having a shot at just that. The communications and semiconductor giant's "e-Business, Everywhere" ethos runs the gamut of online endeavor — from a renminbi vendor payment system developed with the Bank of China to a ten-module E-learning course for staff accountants to complete at their own pace. Recently, the company also invested $2 million in an online travel and entertainment system. Shawn Bergemann, Motorola's director of corporate finance for Asia Pacific in Singapore, says the project has delivered to the tune of "seven times return on investment."
For a multibillion-dollar company, such savings are small fry. But they show what can be achieved. As PwC's Fennel observes: "To get [employee, supplier, and customer] buy-in early, you need to deliver something early. Maybe not complete, but demonstrable." Here are 10 technologies that should offer some real help getting through the tough times.
Only days after the September 11 terrorist attacks on New York and Washington, security arrangements in skyscrapers across Asia began to change. Most of the differences, however, were as low-tech as excluding tourists and insisting on ID badges. Hong Kong-based Cheung Kong Infrastructure, however, is taking security to new levels. It's been investing heavily in the latest ID gizmo — biometrics. After years of development, the latest biometric software enables a computer to confirm an individual's identity based on a stable physical trait, such as the face, fingerprint or iris. When a device like a webcam or fingerprint pad captures an image for measurement of the appropriate body part, a software algorithm converts it to a digital code.
Once the stuff of Hollywood movies, biometrics is now affordable enough for any large-scale security operation. In the wake of the September attacks, airport authorities in Australia and the U.K. launched pilot programs that will use biometrics to identify frequent flyers. The International Air Transport Association believes the software will save immigration officials and security personnel time that can better be used checking travelers who pose a more likely threat. Malaysian authorities are also investigating biometrics for screening passengers, and the Philippine government intends to use biometrics when it introduces machine-readable passports and visas in 2002.
The appeal of the technology is obvious. Joseph Atick, CEO of New Jersey-based Visionics, a specialist in face recognition technology, says that in the wake of the U.S. terrorist attacks he received about 100 calls a day from prospective customers — from as far afield as Thailand. Notes Atick, "There is nothing to remember, and nothing to leave home without." The International Biometrics Group says that industry revenues in 2001 will jump 13 percent from last year's total, to $524 million. To date, most large companies relegate biometrics to secure rooms and data centers, because employers are reluctant to say they don't trust their workers, says Bob Mannal, senior manager of KPMG's Information Risk Management practice. That view could be short-sighted. At its simplest, biometrics should make computer networks more secure — and cut the theft of information and capital assets. Beyond that, scientists believe the technology will ease consumer fears about purchasing over the Net. Japan's NEC has started fitting desktop PCs with fingerprint readers — a user simply cannot log on without fingerprint verification.
Trade Management Software
China's arduous accession to the World Trade Organization put the role of governments and cross-border trade in the spotlight. Indeed, according to the United Nations, companies spend $420 billion each year — or 7 percent of the cost of global trade — creating and chasing paperwork to satisfy governments around the world. The red tape puts many off the chase altogether. A 1999 report by U.S. consultancy Forrester found that 85 percent of companies surveyed could not fill some international orders because of the complexity of shipping goods across borders.
Now there is a more rational way of dealing with cross-border trade. Stephens, an American investment bank, predicts annual global spending in cross-border logistics technologies will reach $1 trillion by 2005. Some of that looks destined for the pockets of U.S. software developers like ClearCross, Vastera, and NextLinx. They sell trade management software that promises to lower the costs of compliance at every stage of a product's production, from design to final delivery. Web-based and constantly updated with new regulatory content, their products are a leap forward from earlier generations of stand-alone, PC-based trade management software.
Take Castrol, the U.K. oil company. A year ago it was using some 17 software programs to produce materials safety data sheets (MSDSs) and other trade documents to comply with regulations in the 132 countries to which it exports motor oil. Sitting on a single PC, these were little more than glorified databases. Staff had to key in regulatory information manually but had no way of pooling research. As a result, it took an average of half a day to create an MSDS from scratch. A year later, after a companywide decision to standardize on ClearCross's suite of application tools and global regulatory content, Castrol staff can complete the same task in about 15 minutes.
The application can also incorporate regulatory elements into product design. Chemists, for example, can run what-if scenarios to explore the consequences of adding a particular compound in terms of where it can be sold. This should translate into shorter product cycles and increased sales. Castrol's parent company, British Petroleum, is convinced, recently signing a $9 million deal with ClearCross to bring similar efficiencies to cross-border trading in the 150 countries where it operates.
Second Shot at Success
Many businesses that need desktop computers, servers and networking hubs and routers — especially businesses in Asia — already buy recycled rather than pay retail. But what else might be available secondhand — intranets? Online shopping carts? Advanced site searches?
The Website Recycling Company (WebReCo) in the United States offers the wares of defunct or cash-strapped E-tailers, portals, and content publishers; most of the sites come complete with domain name and software, as well as hardware. Users who don't want to pay list price for source code can browse each site and access detailed site evaluations and technical reviews, or they can shop a la carte.
Gabriel Fried, WebReCo's vice president of sales and client development, says the company has received "considerable interest" from Asian entrepreneurs looking for information on assets for sale, "but we have yet to consummate a transaction with an Asia-based buyer." He expects that to change as the company — still less than a year old — spreads its wings. "Eventually we will be looking for both Asian- and European-based sales representatives who are capable of bridging the distance and language barriers that currently exist," Fried says.
Web sites on the brink can also turn to Recognition Group, a New York advisory and investment firm that, among other things, helps E-businesses recycle their assets. Kaleil Isaza Tuzman, a Recognition Group managing partner, has seen a few ups and downs himself: He's the former CEO of govWorks, whose rise and fall was chronicled in the documentary film Startup.com.
While struggling to unload its intellectual property and proprietary hardware, govWorks hired a small firm that worked on restructurings. "But they had no exposure in the technology marketplace," says Tuzman, "so there were a lot of questions about how to market the assets." Valuing those assets raises some questions, too; before you buy, a little tire-kicking is in order.
Virtual Employee Testing
The severity of Asia's IT skills crisis and brain drain tends to depend on whom you ask. Whatever the prognosis, a solution may lie closer to home than harried IT recruiters think.
It is not unusual for companies to administer a battery of psychological tests to rate prospective employees. In theory, psychological testing enables companies to match the right applicant to the right job. It can also help employers steer clear of slackers and malcontents — or worse.
Less common is the practice of administering pre-employment examinations to current employees to identify untapped talent. Experts say that as the IT function grows in importance, a wide-angle lens becomes even more crucial. "The most common mistake employers make is to hire someone just on technical skills," notes Joy Hazucha, senior vice president with Personnel Decisions International, a U.S.-based human resources company that opened an office in Hong Kong last year. "These days, IT workers need more."
Even proponents admit this is at best an inexact science — and one that is time-consuming and costly. An emerging breed of technology tools present a happy middle ground, with a handful of U.S.-based companies launching virtual services aimed at measuring what people know.
New York-based Bookman Testing Services, for one, offers a skills assessment tool called TeckChek. The online service features more than 150 Web-enabled proficiency exams, including tests for Java, data modeling, and telecommunications support and service. Other web-based skill analyzers include U.S.-based SkillDrill's BrainBuzz and Kenexa's Prove It.
On the whole, these Internet-based assessment tools tend to be less expensive than traditional pre-employment testing methods. Depending on the vendor, the cyberexams may cost anywhere from $10 to $150 per applicant. Placement specialists say that the low costs make these virtual tests particularly useful for weeding out underqualified applicants early on in the hiring process.
The online and in-house approach worked for Riverside County in California. Last year, the HR department administered an online, pre-employment IT test to nontech staff such as clerks, typists, and office administrators. The exam, from ePredix, measured cognitive ability, vocational and mathematical skills, and verbal reasoning. Guided by test scores, Riverside — with additional training — was able to fill some 20 of 60 tech vacancies.
Storage Area Networks
What's in Store?
Computer storage, while it may be essential to business, raises about as much enthusiasm as a bout of spring cleaning. Yet storage accounts for 70 percent of IT capital budgets, according to Enterprise Storage Group, a U.S. consultancy. As businesses gather more data — some estimates show the amount doubling every nine months — that level of spending just can't be ignored. Nor can the fact most companies are woefully inefficient at using the storage they've paid for. Excess capacity abounds, but appropriate management tools do not. Often data is duplicated on multiple drives yet remains inaccessible to employees who need it.
Experts say that the only way to contain costs and manage all that data efficiently is to move the data away from the applications that create or use it, into a central repository accessible by many. Two approaches hold sway. Storage-area networks (SANs) do for data retrieval what conventional computer networks do for processing; they link disparate servers into a unified, sharable resource. Network-architected storage (NAS) deploys a specialized "appliance" that maintains a single file system across a wide range of computers. There are important differences between the two systems, but experts believe the two are complementary and will likely converge.
As storage moves to a networked environment, however, the task of managing it becomes more complex. Storage makers have been slow to drop their proprietary standards in the name of interoperability with different hardware and software systems. EMC, the market leader, has moved to fix that with a suite of software offerings called AutoIS. "The growing complexity of our customers' environments has imposed an artificial ceiling on their growth potential," admits James Hanley, EMC's managing director for greater China and the Philippines. "The goal of AutoIS is to remove this barrier over time by helping customers reduce complexity, lower management costs, and automate many labor-intensive and inefficient processes."
EMC now spends 75 percent of its R&D budget on software — one sign that storage is no longer simply about disk drives. Moreover, IBM has shown renewed interest in the market with its Shark technology, and Sun Microsystems has bolstered its storage software offerings through its acquisition of HighGround Systems. Taken together, those developments suggest that storage has become not only a critical strategic issue, but maybe even interesting.
Product Lifecycle Management
To Market, to Market
Companies that show capacity to deliver the right products to market faster than the competition command a premium on capital markets. Yet globalization and the Internet make devising a product strategy more complex than ever. Indeed, as the prolific inventor Thomas Edison once said, genius is 1 percent inspiration and 99 percent perspiration.
Recently, however, a new class of application has emerged to address the increasing pressure facing companies that need to identify, develop, and market winning products in Internet time. So-called product lifecycle management (PLM) systems marry advances in supply chain management with traditional R&D and marketing concerns. Offered by companies such as U.S.-based MS2 and BetaSphere, the software aims to lower the cost of developing new products, bring them to market faster, cut the cost of managing suppliers, and reduce project overruns, workarounds, and failures. One way it does this is by helping companies determine what customers want from a product, how much they're willing to pay, and what they'd change.
PLM products could have a significant impact on a company's balance sheet. According to Boston-based AMR Research, better PLM could create $106 billion in new operating margins for U.S. manufacturers alone. Adds Jack Maynard, research director for Boston-based Aberdeen Group: "Design review times can be decreased 50 to 80 percent, and errors can be reduced an order of magnitude."
May Tsoi, product marketing manager for U.S.-based Palm, is sold on the concept. She used BetaSphere's Web-based software to profile and recruit candidates for its Palm VII beta program. "Any beta program can 'get feedback,' " says Tsoi. "Our real challenge is to target exactly the right demographic for our market, so we have high confidence in the type of feedback we receive. The right participants absolutely determine the success of the process."
Tsoi says that by the time a product is ready for beta testing, usually it is too late to make drastic design changes. Feedback from beta testers helped Palm prioritize and determine which features would make the cut in the final product. "We were able to focus on the quality of the product instead of the details of managing customer feedback," Tsoi says.
Management Planning & Control
Zoom with a View
"The economic downturn and 9/11 are reminders to take budgeting seriously. Things come out of left field," says David Allcock, vice president of Comshare, maker of management planning and control (MPC) software. London-based Allcock, who has responsibility for Comshare's Asian markets, adds: "Finance people want to evolve their roles from scorekeeper to business partner. CFOs want their finance teams to be freed of data processing duties so they can concentrate on value-adding work." As such, they're looking beyond basic budgeting to financial reporting, information delivery, analysis, performance management, and planning — and they want something that combines them all together.
The goal is worthy: Devise a coordinated, faster system of top-down planning and budgeting that links the performance of business units to a company's strategic vision. But reengineering planning and budgeting is turning out to be a lot more difficult, time-consuming, and expensive than many companies ever imagined, requiring sweeping changes throughout an organization. "Training for the software can be short, but convincing people to change their processes can be another matter," Allcock observes.
On cue, a wave of new and improved software, from the likes of Hyperion, Comshare, Adaytum, Systems Union, and SAS Institute — as well as the major enterprise resource planning (ERP) vendors with their add-on modules — is turning corporate budgeting and planning on its head. This Web-based software can support thousands of users across many geographic locations and has become a collaborative tool for sophisticated analysis and planning — and importantly, one that non-beancounters can understand. Indeed, budgeting and planning packages no longer work in isolation and are often linked with an ERP system. Many of these applications use OLAP (online analytical processing) technologies to access complex databases designed to help companies monitor, report, analyze, and react to developments in their business in a timely manner.
Indeed, the benefit of Web-based products is that, with one application being shared throughout a company, both installation and maintenance are relatively fast and easy. Allcock says the "typical" Comshare MPC system costs about $40,000 for software licenses, with consulting and implementation costs as much again (the company employs third-party systems integrators such as COL in Hong Kong). That seems to appeal to users: Allcock says MPC has enjoyed the fastest uptake of any product in Comshare's history.
The Binding Bits
Over the past decade, software designers have spent a good deal of time developing Web-based applications that automate just about every aspect of the buyer-seller relationship. But the creation of the agreements that bind those relationships — contracts — has largely been ignored.
The result? Producing and storing legal documents remains as big a pain in the neck as it was 30 years ago. The paper trail of tears may soon be coming to an end, however. Over the past year or so, startups such as DiCarta, I-Many, MyContracts, Webango, and TradeAccess have launched browser-based applications that automate the creation and management of legal documents. In addition, financial software heavyweights such as Oracle, SAP, and i2 Technologies have also come out with contract automation systems.
While a number of these applications automate specific parts of legal document creation, others manage the entire contract lifecycle — from proposal and negotiation, through analysis, approval and execution, to management and renewal. Some contract management programs go even further, tracking terms and conditions, as well as the relative profitability of different agreements. A few applications even prompt users through contract-negotiation steps and automatically issue checks to customers and suppliers when contracts go into effect. Some contract automation programs monitor revenue-scheduling practices and enforce compliance with generally accepted accounting principles.
This digitizing of corporate contracts makes a lot of sense in a digital economy. Increasing corporate reliance on outsourcers, application service providers, and electronic marketplaces has put a premium on the handling of contracts. In addition, commercial documents have become more complex, as companies attempt to cram rebates, chargebacks, and refunds into service agreements.
Yet surveys show that 99 percent of companies still don't have electronic or automated contract management systems in place. While many companies use spreadsheets to track agreements, few have the technology to extract and compare the content of thousands of contracts. Although a large percentage of companies deploy ERP software to automate back-office operations, most of those systems enable users to refer to a contract only as part of a sales or purchase order. As David Boulanger, an analyst at AMR Research, points out, ERP systems typically do not store contracts down to a line-item level. "The reason why some of these contract automation systems are so interesting is that they give each line item in a contract a life cycle," says Boulanger. "'It gets negotiated, formalized, monitored, reviewed, and renewed," he says.
Customer Relationship Management
Why Not ERP?
Consolidation has studded the customer relationship management (CRM) sector of late. On the one hand, "best of breed" vendors, once specialists in fields such as call center or sales force management software, have broadened their offerings. On the other, big ERP vendors like PeopleSoft and Oracle have plugged gaps in their CRM lineups by acquiring smaller product sets. Both camps have thrown in doses of in-house development for good measure.
The fortunes of SAP reflect the changes most. Just a year ago, market share studies placed the German software giant in eighth position. Now it's at number two, behind U.S.-based Siebel. In short, SAP is living the "ERP II" dream.
With Y2K relegated to history, many pronounced the death of ERP because of its focus on back-end systems at a time when outward-facing, front-end applications like CRM and supply chain management tools were becoming trendy.
But the point of ERP II is that back-end systems are tied to the front end, often without the need for additional programming. It's point-and-click configuration. This has made it possible for so-called operational CRM applications to be married with analytical ones. In other words, software used by employees who interact with customers can feed information to colleagues who are responsible for things like market and competitor research; campaign planning, product and brand management; and sales team performance analysis.
"Companies can no longer afford to invest in point solutions and one-off CRM projects," says Lee Boon Lee, managing director of SAP Hong Kong. "CRM investments must be part of a long-term business strategy," he says. To date, SAP's rise up the CRM charts has been built on its installed base of 15,000 customers, which includes Philippine brewer San Miguel, Unilever South East Asia in Singapore, and India's Marico Industries. The latest release of mySAP.com's CRM takes SAP into a brave new world — the product is "standalone," which means companies don't have to be using SAP's sometimes intimidating enterprise software in order to install its CRM applications.
The buzzword may be old hat in Silicon Valley, but the significance of a well-executed "knowledge management" strategy is now gaining acceptance in unlikely places, such as among manufacturers in the Pearl River Delta. Observes Edward Young, a Hong Kong-born expert: "There's growing recognition that knowledge management strengthens a company's ability to innovate, respond and compete through sharing and leveraging people's knowledge and expertise."
Young's credentials are sound: In 1992 he co-founded the pioneering data warehousing company, Prism Solutions, with Bill Inmon, the so-called "Father of the Data Warehouse." But there's a hitch. To date, most companies in this part of the world have not been able to afford such systems. "It's not just about buying the software, which can be expensive in itself," says Young. "Many companies lack the skill set or in-house resources to implement and service it so they need to bring in professional services."
Even companies at the other end of the spectrum have their problems. U.S. researcher IDC estimates the cost of "knowledge deficit" — defined as costs and inefficiencies that result from intellectual rework, substandard performance, and inability to find knowledge resources — at Fortune 500 companies is about $5,000 per knowledge worker per year, and rising.
Young decided that an approach tailored to the greater China market was needed. Although he is CEO of U.S.-based Consonum, an enterprise software company focusing on "extended relationship management" (XRM), he is also a director of Omnitech, a Hong Kong-based knowledge management outfit. In this capacity he designed Omnitech InfoBox, which brings data from different sources and of different nature together to form a centralized information center.
The idea is to provide local medium-sized organizations with a sophisticated tool previously only affordable by top-tier companies. The system, which supports Chinese characters, works with relational, application, desktop, or Web sources.
Adam Lincoln is the executive editor of CFO Asia. Additional reporting by CFO's Scott Leibs, John Edwards, and Jennifer Caplan.