IT Rocks The Web

Gypsum is abundant, a mineral that is easily mined and simple to process. Crushed and ground, it’s the main ingredient in wallboard. For nearly 80 years, National Gypsum has made wallboard and other building materials according to a business model that has remained relatively unchanged. In an age when outsourcing is a way of corporate life, National Gypsum is vertically integrated—owning its quarries, its production plants and some of its logistics operations.

This CIO 100 honoree, now privately held, has survived some rocky times. Once in the Fortune 500, it was wracked by asbestos litigation (asbestos was used in joint compounds and texture products) and a failed leveraged buyout in the 1980s. In 1990, National Gypsum filed for bankruptcy, reincorporating in 1993. Today, the company’s revenue exceeds $1 billion.

When you deal in a low-cost commodity, controlling expenses is job one. But you grow by catering to your customers. And so National Gypsum put its money into the Web. The company built an extranet that provided customers with unprecedented access to data about their orders, shipments and account information. It was a bold move for a traditional business with an IT department full of company veterans, and it’s why National Gypsum is a CIO Bold 100 honoree.

Back in 1999 when the company came up with the idea for the extranet, every business was looking for a piece of the online action. And in CEO Tom Nelson’s view, National Gypsum seemed vulnerable to the emerging B2B auction sites. As an investment banker for Morgan Stanley and a partner with his wife, Anna Spangler, in the venture capital firm Wakefield Group, Nelson had spent most of his career investing in high-tech startups before he joined National Gypsum as its CFO in 1995. He was well-versed in the risks of betting on new technologies. But to not invest in the extranet could put the company at risk of losing market share. Two years later, the company launched the first version of the extranet, which supported about 250 customers. Through subsequent upgrades, the network now supports thousands of users and transmits more than 1 million orders, invoices and statements per year. “Even though this business has been around for a long time, we’re constantly trying to innovate,” says Nelson.

Nelson talked with CIO Senior Editor Elana Varon about what it takes to make a bold decision pay off, the role IT plays in protecting the company’s competitive advantage, and what a CEO needs to know about technology.

CIO: What role does IT play at a company that makes its money from rocks?

Tom Nelson: IT is central to our ability to deliver customer service. We were the first in our industry to centralize our customer service center. We did that over a decade ago. We went from 53 district sales centers to one. Technology is [also] embedded in our manufacturing process. It may seem like a simple product, but there’s quite a bit of research and development that goes into it. For example, we’ve got a system called Automated Data Collection. It monitors our manufacturing process. It’s especially useful if we ever have a quality issue. We’re able to go back and diagnose what might have been the root causes. Also, there are alarms on this system, which allows us to tell when we’ve moved out of spec.

What do you look for in an IT-enabled innovation?

It’s no different than what we look for in any other business opportunity. How does it impact dealing with the customer? Does it help us become more productive, lower costs, improve quality? I think every project is different, but at the end of the day, return on investment and return on capital are important metrics. They’re not always easily definable in the IT world. Some things are hard to measure, especially in our circumstance where we’re selling everything we can make. It would be hard to justify [an IT project] based on selling more.

Before you launched the extranet project, you surveyed customers and found they were happy with your service. Some companies would maybe tweak a few things. But you did something that was really different, and that’s what made it bold.

If you think back to 1998-1999, there were cooperative groups forming, setting up exchanges on the Internet. We were trying to figure out, How do we play? We saw ourselves—as a lot of corporate America did—as vulnerable.

We decided to work on what we could control: How we interface with our customers. Opening ourselves up to our customers was an important step to giving them better information and, hopefully, tying them in with a longer-term relationship.

What were the extranet project’s risks, and what did you do to mitigate them?

The fact that it wouldn’t work would be the biggest risk—that our customers suddenly realize we’re not that easy to do business with. Certainly, [the key to mitigating the risk] was to get our customers’ voices heard while we were building it and to go through a pretty extensive trial period with a handful of leading lights among our customers.

Another risk would be that if it failed, future investments would be compromised because here IT spent all these resources and didn’t deliver. Our customers would become skeptical of any other types of enhancement: Listen, we spent the time trying to understand your extranet, and it just didn’t work for us.

So when it came to executing this project, what were you concerned about? And how did you address those concerns?

We surveyed the landscape of other companies going through similar changes. The bulk of them were using significant outside resources. We interviewed consultants who were skeptical that we would be able to deliver.

But we had people who knew our existing systems, who knew our customers, and who knew what we were trying to achieve. And we realized that at the end of the day, the skills we had in IT, coupled with the understanding [IT had] of the marketplace, were going to be more important to the success of the project. There was a cost advantage to doing it ourselves, and there was a control advantage. These were people that would be dedicated to our project and that had skin in the game.

The sales group, on the front lines with customers, was initially skeptical. What did you do to foster alignment between business leaders and IT?

When we put the [extranet] team together, we took people from all over the company, including people from the sales and marketing area. Once they became inculcated in the team, they were better able to evangelize with the groups that they’ve primarily worked with in the past. [Also,] we have a lot of longevity within the IT [department]. They know our manufacturing process, they know our customers, they understand the external factors that impact our business, and they’ve developed personal relationships with people in different functional areas.

If you lived in this company every day, you’d see there are a lot of cross-functional teams with everything we do. It builds better alignment. We make better decisions, and we have more success in the marketplace.

Has your view of IT changed since you came to the company?

I think most of corporate America’s view of IT has changed since 1999. Then, there was a view that the world was going to change overnight. Clearly, long term, we’re going to have significant changes in the marketplace wrought by use of information technology. But we still need to ask tough questions before we commit resources.

Has that made you more cautious about making IT investments now?

From a venture capital perspective, it has. I think if there’s a lesson of the late ’90s, it’s that most of the new companies that were created didn’t have enough sense of what the customers were really valuing. You need to try to drill into real metrics and real deliverables.

So what questions about IT investments are you more concerned about?

One, the venture capital experience has heightened the concerns about the financial stability of IT vendors, especially startups or small companies. Two, do customers really value this enhancement [that’s proposed]? Show me data. Three, bottom line, does this project help us grow revenue, improve quality, lower cost or improve productivity?

Senior Editor Elana Varon can be reached at evaron@cio.com.