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How the dot-com bust helped one company boom. Also: a look at vendor consolidation; technology that solves trffic jams; the current state of Web conferencing; the fate of pricing software; and more.
CFO Staff, CFO IT
September 15, 2005
It's not every software company that can point to the dot-com bust as a good thing, especially when a good portion of its senior management went down in flames. But that's the case at Autodesk Inc., the $1.2 billion maker of computer-aided design, modeling, and collaborative software products. Luckily for the company, the managers in question worked at other firms when the bubble burst and learned valuable lessons that have since reshaped Autodesk's culture. "I worked at two dot-com companies and learned two lessons," says Autodesk CFO Al Castino. "First, I learned that you can sometimes make a lot of money for doing nothing, which is nothing to brag about. My second experience was more useful because it was at a company that had great technology but was struggling, and we had to be extremely aggressive about waste and costs."
Castino had also worked at Hewlett-Packard, Sun, and PeopleSoft, so when he was hired at Autodesk in 2002, he brought a mix of experience to the job. "When the bubble burst," he says, "our CEO [Carol Bartz] knew there were a lot of good people out there, so she brought in some new blood, and many of us in turn brought in new people."
That entering class, Castino says, shared a valuable trait: an impatience with waste. Prompted by a McKinsey benchmark study that showed that the company's productivity and processes were also nothing to brag about, Autodesk launched a number of productivity initiatives that, in conjunction with a long-range product-development strategy, have helped the company increase revenue and profits substantially, which has boosted its stock price to the high $30 range. That has helped rally the troops, Castino says, because "many people here thought the stock had reached a permanent ceiling in the high teens." Castino readily agrees that change is never easy, and says that while IT can help (see "Building a Better Workforce"), ultimately it comes down to good management.
Toward that end he made a rather unusual contribution: he developed a course on "process analysis and design" that is being taught to finance and operations staff worldwide, and which imparts the lessons he learned in manufacturing to a sector whose high margins tend to discourage such thinking. As Castino says, "Growth hides many sins, including poor productivity."
As useful as new blood may be, however, Castino is quick to point out that change requires a mix of veterans and new players, and broad commitment. "Everyone has three-year productivity goals," he says, "and no one thinks that a rise of, say, 20 percent in revenue means that their budget will increase 20 percent." In fact, much of the productivity push at Autodesk hinges on consistently widening the gap between costs and revenue. Not that it's all about belt-tightening; some of the savings go into an investment fund that's doled out for promising growth opportunities.
All Together Now, but with Differences
A recent survey by IDC confirmed what most people have known for some time: companies want to consolidate on fewer IT vendors. But the research firm uncovered an interesting schism between IT execs and line-of-business (LOB) leaders. When asked why they want to consolidate, 30 percent of the LOB executives said they want greater accountability from vendors — that is, the proverbial "one throat to choke." But that rationale was of interest to only 8 percent of IT executives. Their top answer was "get higher quality of service." Both camps seemed to agree, however, on what is not important: only 20 percent of the LOB execs said that "getting better pricing" was their prime motivator, and only 17 percent of IT managers picked that as their top reason.
IDC analyst Frank Gens says that while the current preference for dealing with fewer vendors for ever-larger slices of the pie may resemble the way IT was handled in the '70s and '80s (that is, loyalty to key vendors that often resulted in customers being "locked in" with them), customers today want commitment and accountability but also want vendors to offer the best technology. To provide that, Gens says, vendors are more likely to tout their "rich ecosystem" of partnerships rather than try to meet all of a customer's needs with their own products and services.
Your Place and Mine
When it comes to staying in touch electronically, E-mail and instant messaging predominate while Web conferencing remains something of a well-kept secret. Perhaps not all that well kept: companies did spend more than $500 million on it last year, according to research firm Frost & Sullivan, and will spend more than $3 billion by 2011. But the company says that in order to thrive, Web conferencing — in which people communicate from their respective desks (usually by telephone) using the Internet to share a common view of, say, a sales presentation — must expand from the areas in which it has gotten a firm toehold, such as training and marketing, and into mainstream use.
Market dynamics will help: strong competition and ever-improving technology are proving persuasive, especially when Web conferencing is compared with plain old teleconferencing. The market may get a boost from compliance requirements. This summer, market leader Webex added a "retention solution" that allows companies to archive and search all components of a Web conference, from audio and video to chat and presentations. Packing multiple collaborative technologies into a single product is also gaining steam. Last month, Arel Communications & Software teamed with Microsoft to bring expanded video and audio capabilities to Microsoft's Live Meeting service, including the ability to see up to 16 video windows in a single session, regardless of bandwidth.
My Way on the Highway
Technology vendors often claim that that their products or services solve a "pain point," or a costly and vexing problem. Many executives encounter just such a pain point even before they arrive at the office: traffic jams. Now, companies ranging from Microsoft, Yahoo, and Palm to satellite-radio competitors Sirius and XM see a market opportunity in gridlock and have or soon will offer potential solutions. Palm, for example, began offering a new $4.99-per-month service in July that will send alerts and maps to owners of Treo smart phones in 10 cities nationwide. Andrew Breen, director of data solutions at Palm, says that "the one device people always have with them is their phone, and if we can give them information that includes maps, that's a lot better than just listening to a traffic report."
Don't tell that to XM and Sirius, which now tout continuous traffic reports as superior to the every-10-minutes approach that broadcast stations use. Yahoo has combined traffic alert data with its mapping function to help commuters spot alternate routes, a mix that may give it a leg up on other Websites that also include traffic reports. The one problem with these services is that they often rely on a mix of sources for their information; that means that several entities must be on top of their game if the commuter is to not just learn about a snag but actually drive around it.
In a Fix
What separates a high-performing company from one that performs subpar? Accenture surveyed more than 300 CIOs at large companies around the world (along with large government agencies) and found that, from an IT perspective, the best differ from the worst in several respects. For starters, high-performing organizations spend just 5 percent of their IT resources fixing applications, compared with low performers, which spend 16 percent of their time fixing what's broken. High performers devote 43 percent of their new projects to business-productivity initiatives, compared with just 24 percent for low performers and 30 percent for average performers.
Most notable of all, perhaps, is the issue of metrics: while nearly half of all high-performing companies have access to IT productivity and performance metrics, the figures drop to 21 percent (productivity) and a mere 3 percent (performance) for low performers. Then again, maybe there isn't much to measure.
Wait 'Til Next Year
Oracle's acquisition of ProfitLogic in July is but one sign of the consolidation about to hit the "pricing solutions" sector. So says Forrester Research, which predicts further acquisitions on the part of Oracle, SAP, and PROS Revenue Management. Sometimes called pricing- or profit-optimization software, this technology aims to help companies boost revenue and/or profit through a mix of demand forecasting, inventory management, and other measures that ultimately help companies decide how much to charge for a product or service. According to Forrester analyst Noha Tohamy, 2005 was thought to be the year that pricing software would go mainstream, but it hasn't worked out that way. High price tags, conflicting and confusing messages from vendors, and customers' reluctance to talk about their actual use of the software have combined to keep pricing solutions off many companies' radar screens.
But Yankee Group analyst Kosin Huang says the rosy prediction for 2005 was simply 12 months premature: 2006 will be the breakout year, he says, as companies wake up to the double-digit ROI that such products provide. He pegs the market at $364 million today but says it's doubling year over year, driven in part by a greater interest shown by CEOs and CFOs, who are now more willing to invest in IT that increases the top line. Huang also says that despite signs of vendor consolidation, customers should not wait to explore the potential benefits.