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The fine art of getting business units to foot their share of IT costs. Also: who spends how much on computer security; finding out how much your old computers are worth; CIOs feel good about the economy and will overspend accordingly; and more.
CFO Staff, CFO IT
September 15, 2004
When Bobby Lie, now a senior vice president for enterprise architecture at Fidelity Investments, was in charge of usage-based billing, he had the largely thankless task of hitting up the financial-services company's many business units for their respective shares of network expenditures. With network usage increasing sevenfold every two years, divisional CFOs weren't happy about receiving an ever-higher bill, especially since the company's practice of billing by head count struck many as unfair.
Turns out it was. Using technology from Evident Software (known as Apogee Networks at the time; the company changed its name in July 2003), Fidelity was able to analyze network traffic, with a particular focus on the bandwidth taken up by data-intensive applications. "We published a list of the top 100 'talkers' as part of our effort to allocate costs by actual usage, not simply head count," says Lie. That was useful, because such a shift in chargeback inevitably results in winners and losers, and divisions that saw their bills rise were not happy about it. Fortunately, the Evident software not only reveals who's using how much bandwidth but also helps identify faulty software and hardware designs that cause far more data to flow through a network than is necessary.
"Our applications development efforts became much more disciplined about writing programs that made better use of bandwidth," says Lie. Fidelity was able to slow the growth in network traffic and actually shrink costs by almost a third, saving an estimated $90 million to date. That still left some units digging far deeper than they once did — the applications development team itself went from paying 2.5 percent of network costs to 13 percent because it's such a heavy user. But Lie says the pain was mitigated by the belief that everyone will save over the long term.
Evident describes its market space as "IT business analytics," although "IT asset optimization," "IT asset management," and similar terms are invoked by competitors. To date, it's a fragmented market in which various vendors address facets of IT infrastructure, although many are racing to expand from their initial areas of specialization to a broad analysis of IT asset use. Analysts (and vendors) caution, however, that IT asset management is largely about process, not technology. Lie says the success of the software at Fidelity hinged on support from the CFO and senior finance people at the divisions, who "helped to sell it and get the consensus we needed. This was a culture change that needed buy-in."
Safety, in Numbers
What price security? Somewhere between $110 and $334 per employee, depending on the size of your company.
Economies of scale allow larger companies to spend less per employee, while companies in certain industries (transportation, high tech, and telecommunications, as well as federal and state governments) spend far more heavily per employee than companies in the medical, retail, and manufacturing sectors, according to the ninth annual Computer Security Institute/FBI Computer Crime and Security Survey. When asked about security spending as a percentage of their overall IT budget, nearly half of the 494 respondents pegged it at 1 to 5 percent, 15 percent put it at 6 to 10 percent, 8 percent indicated that security accounted for more than 10 percent of all IT expenditures, and 14 percent said they didn't know.
Asked about the metrics applied to security spending, fully one-third of the respondents stayed mum. Of the 320 who did respond, slightly more than half said security spending decisions were subject to ROI analysis, while the other half was split between net present value and internal rate of return. Outsourcing of computer security has yet to take hold to any meaningful degree: nearly two-thirds of the respondents said they don't outsource any aspect of security, and less than 1 percent said they outsource all of it. Slightly more than one-fourth of the respondents said they have signed on for some form of cybersecurity risk insurance.
Time to Unload Old Gear?
"Out with the old, in with the new" is never an easy decision in the IT world, particularly if companies hope to get some residual value from obsolete PCs, laptops, PDAs, and other kinds of hardware. Environmental regulations and concerns about data security can make it costly to simply dump old machines, with some observers predicting a growing crisis regarding such "E-waste." With IT asset management now receiving more attention (see "Look Who's Talking," above), a company called PlanITROI is encouraging its corporate clients to manage the back end of the procurement process and part with that gear while it still has some value.
There is no shortage of vendors in that space. IBM, Hewlett-Packard, and others now often address that final phase of the equipment life cycle when they strike deals, but PlanITROI brings an E-business model to the task. Its Valuator is a Web-based calculator and asset manager that allows companies to enter details pertaining to the gear they want to get rid of and find out with a mouse click what it's worth. The Valuator will also walk companies through the process of deciding when to get rid of old equipment for maximum gain. Whether a company uses this service or not, keeping a detailed record of all hardware — from manufacturer, model, and serial number to add-ons, options, and current condition — is key to any effort to salvage some value from aging equipment.
Rethinking Sarbox and IT
A number of surveys, including our own (see "IT Directions 2.0," Fall 2003), have found clear evidence that CFOs have not seen a huge role for IT in meeting Sarbanes-Oxley requirements. But that view may be changing.
As the deadline for meeting Section 404 — which requires that companies document and attest to the effectiveness of internal controls and financial reporting procedures — approaches, a PricewaterhouseCoopers survey of 177 senior executives at U.S.-based multinational companies found that 51 percent are considering adopting new technologies to improve their reporting infrastructure. Nearly as many (46 percent) say that IT budgets will rise accordingly (although of those, three-fourths say the increase will be only moderate).
"Sarbanes-Oxley compliance has drawn attention to weaknesses in all major aspects of corporate reporting," says PwC partner Mike Willis. As of July, when these executives were polled, a majority (71 percent) said the policies and procedures that their companies use to address reporting were split about 50/50 between manual and automated processes, with data warehouses and ERP systems identified as the typical technological underpinnings. One-fourth of the respondents said the process of collecting, standardizing, validating, routing, and reformatting data to produce reports is highly effective at their companies, while two-thirds said it is acceptable, which suggests that IT vendors still have work to do to convince them that new tools will save the day.
AMR Research found that 68 percent of the companies it surveyed expect to spend more on IT-related compliance in 2005 than they will spend this year. Only 13 percent of the respondents expect to spend less.
Not Sold on Themselves
With the holidays just...well, let's not start counting down yet. But when they do arrive, they will no doubt extend what has become a new tradition: gauging the impact of online sales.
Web shopping has many virtues and has shown strong gains from one year to the next, but one group is not particularly impressed: E-tailers.
Asked to grade the online shopping experience, 433 E-tail insiders (executives, directors, and decision-makers) offered up a satisfaction rating of just 65 out of a possible 100. That's almost 20 points lower than some surveys of E-tail customers, which has to count as a good thing (would E-tailers want the scores reversed?). But the survey found that E-tailers aren't sure what to do next to make online shopping a better experience.
Most respondents indicated that the current crop of Web research tools and behavioral metrics come up short, and that as a result, they aren't sure how to prioritize Web expenditures. The survey also found that companies with a strong E-tail component are less likely to rely on experts and gurus.
In fact, asked which feedback methods are seeing increased usage, they cited call centers and customer service. Phone contact, it seems, still has plenty of value. Asked about individual aspects of the E-tail experience, merchandise return rated as the worst for the third straight year, getting a score of only 54. Still, that represents a slight improvement from previous years.
The one aspect to actually drop in score was look-and-feel, suggesting that E-tailers have encountered a certain creative inertia. But site performance received a huge boost, from 56 in 2002 to 67 in 2004, suggesting that broadband connections and other technological advances are making sites easier to use. (Last month, Nielsen/NetRatings reported that in July, use of broadband connections in U.S. homes surpassed traditional dial-up for the first time ever.) Maybe that increased horsepower will inspire some better E-tail sites.
Trough Is Beauty
Even casual followers of the information technology industry may be aware of the so-called hype cycle, a thesis that holds that most technologies go through distinct phases en route to widespread adoption. Consulting firm Gartner defines these stages as the technology trigger, peak of inflated expectations, trough of disillusionment, slope of enlightenment, and plateau of productivity. By that logic, the trough is a sort of sweet spot, a launching pad to genuine, unhyped success.
So which technologies of most interest to corporate IT does one find in the trough right now? A peek into the darkness reveals them to be:
Money for (Almost) Nothing
Who remembers Flooz? Or Beenz? At the height of the dot-com craze, they were among the alternative currencies proposed as a way to facilitate low-value (typically $5 or less) electronic transactions. Early efforts failed, but the idea of an electronic payment that could be used for such transactions without requiring much in the way of processing or customer-service costs continues to intrigue, and now research firm TowerGroup reports that several trends may combine to reignite the concept.
Last year, Internet micropayment transactions totaled $1.9 billion, driven by the booming markets for online music (where songs may cost 99 cents or less) and cell-phone ring tones. Online publishing content was also a driver. Several methods of payment are currently in keen competition, including merchant aggregation, in which a company keeps track of small charges and then submits them as a single transaction; prepaid accounts, in which a customer prefunds an account and draws upon it; and direct transfer, in which funds are pulled directly from a customer's bank or other account. TowerGroup expects all these methods to remain viable, and says financial institutions, E-tailers, and other corporate entities should take a close look at how to facilitate such transactions as economically as possible.
CIOs Predict Climatic Shift
Last month, Forrester Research released the results of its latest quarterly CIO Confidence poll, and the numbers suggest widespread optimism about the economy and a concomitant rise in IT spending. For the first time in three quarters, more than half of the 195 respondents said they consider the business climate for their particular industry to be strong or very strong. Asked to look ahead three quarters, 71 percent said they expect conditions to improve further, up from 63 percent who felt that way three months ago. That appears to be translating into higher IT spending, as 39 percent reported that actual IT spending will outpace what's been budgeted over the next three quarters. In the first quarter of 2004, only 25 percent expected to outspend the budget.
Looking to 2005, two-thirds of respondents expect IT budgets to increase, while 27 percent expect them to stay flat and the remainder expect a cut or aren't sure. Among the industries expecting the biggest increases are retail/wholesale, averaging a 9.2 percent rise, and manufacturing, an 8.5 percent increase.
A Touchy Election Issue
As the Presidential election approaches, one of the hottest debates has nothing to do with the candidates. Instead, the controversy centers on the reliability of E-voting, which takes two forms: direct recording electronic (DRE) voting machines that provide touch-screen selection, and voting via the Internet.
A 2001 study by the Caltech-MIT Voting Technology Project compared touch-screen voting to such traditional methods as lever machines, fill-in-the-blank forms, and the infamous punch cards that commanded so much attention in 2000. DRE machines proved nominally superior to punch cards as far as percentage of rejected votes, but lagged the other techniques. But in the 2002 elections in Georgia, where DRE machines were used, they fared better. MIT professor Ted Selker says "lots of supervision" combined with refined ballot design and improved placement of touch-screen options helped DRE machines advance.
Diebold Election Systems, a leading maker of DRE machines, claims that touch-screen technology helps people with disabilities or special language requirements cast their votes. But the larger issues of accountability and security have sparked enormous controversy, prompting more than half a dozen makers of DRE machines to form an alliance and pledge improvements.
In 2002, Congress made $3.8 billion available to the states to upgrade voting systems, so those companies have plenty of incentive. Meanwhile, Internet voting, which was used in the Michigan Democratic caucuses and had been under consideration by the Pentagon as a way for as many as 100,000 soldiers and overseas American citizens to cast their ballots, shows little momentum. Last winter, citing security concerns, the Pentagon scrapped an Internet voting pilot project after an independent panel deemed secure Internet voting "essentially impossible." But DRE machines will be used by approximately 30 states this November and are expected to account for 50 million votes. —Roxanne Khamsi
The Real Customers for CRM
Customer relationship management (CRM) software has been criticized for failing to deliver, but McKinsey consultants Anupam Agarwal, David P. Harding, and Jeffrey R. Schumacher suggest that one key problem lies with how companies implement it. Because CRM software is often used by a broad cross-section of employees, from front-line sales to business analysts to managers of all stripes, accountability for project success is often lacking, as is motivation to actually use the system.
The consultants found some notable differences between companies that are happy with their CRM efforts and those that are not. Those that reported implementations were successful were more than twice as likely to have provided appropriate training to users, solicited input from all affected business units during the planning stage, launched modules in intervals to promote adoption by users, and addressed the cultural shift that a major new piece of software often entails.
In short, the companies treated employees as customers of the new software. Given that research firm IDC projects an 8.9 percent compound growth rate for CRM sales during the next four years (reaching $11.4 billion by 2008), a focus on (internal) customer satisfaction will prevent plenty of waste.