How E-Business Transformed Intel and CFO Andy Bryant

Web initiatives have dramatically changed the way the chip-maker operates -- and the way its finance chief thinks.
Tim ReasonOctober 1, 2001

Andy Bryant is a consistent heretic.

In 1998, when Intel chairman Andy Grove first vowed to reinvent Intel as a “100 percent E-corporation,” the CFO simply didn’t believe the Internet was the way to go. “I sat there and said, ‘Great, we replaced fax machines with online orders. Big deal,’” he recalls. Today, with Nasdaq wallowing and the economy looking more blue than “new,” such a claim might smack of revisionism.

But Bryant’s unorthodoxy is reliable; while others now throw stones at anything E-, he has become an Internet convert, making sure that every new business application within Intel is based on Internet or E-commerce technologies. His early contempt for online ordering evaporated overnight when he realized that 26 percent of orders were coming in after hours. That flexibility, he says, “is value to our customers.”

Today, the E-transformation — for both Bryant and Intel — is practically complete. Last year, for example, 90 percent of the company’s revenue — $31.4 billion — came through E-commerce transactions. Likewise, Intel procured more than $5.5 billion in supplies over the Net last year, an increase from zero in 1999. Already, 70 percent of direct and 35 percent of indirect material suppliers are linked to Intel via the Net. This year, Bryant’s goal is to move all materials transactions online.

In all, Intel has launched more than 300 E-business projects since 1998, guided by Bryant’s eBusiness Group, a shadow organization of 2,000 employees who work with the individual business units to make sure that all new systems and applications development are Internet-based. “All of our new projects are launched with an E-business philosophy and backbone,” explains Bryant, the winner of the 2001 CFO Excellence Award for Finance Transformation in the Internet Era. And thanks to his direction at the C-level, he adds, “we have cooperation and collaboration we didn’t have before; we are breaking down the stovepipes.”

Inside Intel

Bryant started at Intel 20 years ago as a controller, working his way up to the CFO post in 1994. But oversight of Intel’s Internet initiatives didn’t land in his lap until his 1999 promotion to chief financial and enterprise services officer. That lengthy title came with a commensurate set of new responsibilities, including human resources, information technology, and, of course, E-business.

Ironically, Bryant’s skepticism about E-business helped land him the job. When Grove first established his “100 percent E-corporation” goal, Bryant was unimpressed. “Initially, I thought it was dumb,” he admits. “I didn’t say that too loudly, because Andy Grove is the boss and I’m not stupid. I just thought, ‘This too shall pass.’”

But Bryant’s opinions were no secret. “We are a very open company, and they always knew I was skeptical,” he says. In executive budget meetings, he always argued for more investment in Intel’s basic IT infrastructure, rather than “more money for this E-business stuff.” Apparently, that attitude guaranteed him the job. At a company that believes only the paranoid survive, putting a confirmed skeptic in charge of an enormous Internet initiative seemed like a natural move.

“Intel [executives] correctly saw the possibility of reducing their cost structure by using the Internet,” explains Standard & Poor’s equity analyst Megan Graham-Hackett. And while it is “not entirely usual for CFOs to oversee E-business initiatives,” she adds, putting Bryant in charge ensured that these initiatives would have financial discipline and would track return on investment. “Every project has an ROI,” notes Bryant. “It isn’t always positive, but you still have to measure what you put in and what you get back.”

Bryant quickly discovered that in most cases Intel got a lot back. In fact, CEO Craig Barrett didn’t initially include HR and IT as part of Bryant’s assignment, but after some study, says Bryant, it was clear that all applications should fall under the new eBusiness Group so that innovations could be shared companywide.

Recent examples include an electronic payroll project, rolled out in August, that eliminated paper pay stubs for more than 95 percent of employees, saving $1 million a year. An electronic accounts-payable project rolled out at the end of 2000 reduced the number of AP department employees handling routine transactions by more than 50 percent, allowing them to be redeployed in more analytical functions. Bryant estimates that the net present value of the AP project is $8 million, “plus we are getting discounts [for prompt payments] that we were missing before, so we will triple that savings,” he says.

Keeping the Cupboard Bare

Bryant hasn’t completely changed his tune when it comes to Net hype, however. For one thing, he’s aware that no matter how genuine his own passion, having the world’s largest chipmaker cheerleading for Internet-based corporations can seem self-serving. But he thinks most people miss the fact that Intel benefits most from internal uses of E-business. The true promise of the Internet, says Bryant, is often obscured by the attention given to Web-based companies like Amazon. “The Internet,” he insists, “is about how to run a company.” And Bryant has put his money where his mouth is: This year new spending for E-business applications will be more than 22 times what it was in 1997.

By far the greatest financial benefit for Intel came from improved control over procurement and inventory. “The place where we can maximize cash retention for the shareholder is in inventory,” says Bryant. “Here we are in a downturn, and my revenue is down 24 percent,” he adds. “But raw materials inventory as a percent of cost of sales is down 67 percent from two years ago.” Without the E-business systems that allow him to track demand and cost of inventory, Bryant estimates, Intel would have had to take write-downs of anywhere from $500 million to $1 billion. “The whole program paid for itself in the last six months,” he says.

As the PC market struggles, Intel’s days of inventory have been creeping up from the low 40s to the high 70s, notes Dan Niles, equity analyst with Lehman Brothers. But, he adds, “During the worst downturn the semiconductor industry has ever seen, you haven’t seen a lot of write-downs coming from Intel.” That’s in stark contrast to substantial write-downs taken by almost 80 percent of the companies Niles covers.

“The big thing for Intel was using the Internet as an avenue for tracking customer demand and customer inventories as well as for sourcing materials,” says analyst Jonathan Joseph of Salomon Smith Barney. “[The company is] so huge that knowing customer-demand inventories on a real-time basis is really critical.” Indeed, at one time, says Bryant, “if we decided the economy was going soft, we needed 35 days to replan our factories.” Today, Intel can replan a factory in 5 days; its goal is 3 days. “We’ve already eliminated a month of building the wrong stuff,” he says.

Of course, the economy’s tumble has resulted in disappointing preannouncements from Intel for several quarters, but analysts are quick to place the blame on a volatile market. “If you compare him with a lot of other CFOs, I would put Andy among the top I’ve ever dealt with,” says Niles. “Andy may get a forecast wrong, but you know it was based on a lot of good data and that the processes he put in place have helped him get better information.”

That comment reflects the common opinion of analysts that E-business is in the right hands at Intel. “Intel wasn’t the first to hop on the E-business bandwagon,” notes S&P’s Graham-Hackett, “but Andy Bryant is one of the few CFOs who has consistently talked about what has been done and what kind of returns they have had from those efforts.” And while financial discipline is important in an E-business initiative, say analysts, the strategic importance of Bryant’s efforts goes far beyond ROI calculations. “Thinking a CFO is just a financial person is very old-fashioned,” notes analyst Nimal Vallipuram of Dresdner Kleinwort Wasserstein. Intel CEO Barrett agrees. “Andy has taken the role of CFO of Intel to a new high,” he says, “and he has the absolute confidence of our senior management and board.”

Bryant sums it up simply: “As CFO, Intel uses me to make sure the company runs properly.” Thanks to him, these days it is running on the Net.