Raising the Bar on IT Value

We learn early that our fiercest competitors should be ourselves. We don’t win, we are told, by looking over our shoulders to see how quickly our opponents are gaining on us. It’s too easy to misread our competitors’ pace, to stumble over obstacles in our path. Instead, we are taught to look ahead, to draw strength from within and to push ourselves, as hard as we can, forward. We become better because we imagine we can be. And we become leaders—visionaries, even—when our peers adopt our expectations as their own. n For nine years, CIO has honored information technology visionaries with

the Enterprise Value Awards, and each year the winners surpass the standard for excellence set by their predecessors. “The bar is going up,” notes Doug Barker, CIO and vice president with The Nature Conservancy and one of five independent judges who selected this year’s awardees. “As technology has evolved, it’s more powerful than ever in terms of what it can accomplish for an organization.” Award winners are those companies that harness that power to coax ever more value from their technology investments.This year’s honorees extended the benefits of information technology beyond the boundaries of a single department or production process—beyond, even, their corporate walls. Companies know they must adapt to an economy in which survival depends on more than distributing products and services in a cost-effective way. The victors in a networked world will be those organizations that derive additional value from interactions with employees, customers and suppliers.

While many organizations struggled to identify how IT can deliver these new opportunities, the 2001 Enterprise Value Awards winners—Tufts University, Office Depot and Harrah’s Entertainment—conceived a vision of the future and pursued it. “They clearly changed their businesses in a broad, sweeping way,” says judge Patricia Wallington, former CIO of Xerox and now a consultant.

Which should come first—identifying where there is value to be tapped or understanding how IT can extract it—is a bit like the chicken-and-egg question. It’s safe to say that all of the honorees were spurred to develop their winning systems based on a deep understanding of their businesses and the relationships that were critical to their success. They imagined how IT could help them make those relationships more valuable. This award honors that imagination.

Leaders and Winners

In each case, the winners placed technology at the center of their business strategy. In past years, “we would look at a single division project or an internally focused project and that would be a candidate,” says judge Peter Solvik, CIO and senior vice president of Cisco Systems. Now, a winning system “has to provide enterprise-level competitive advantage and strategic differentiation.”

For Tufts University that meant thinking differently about what makes an educational institution great. Home to one of the nation’s top-ranked medical schools, Tufts faces intense competition for students from rivals like Harvard and Dartmouth. Usually, universities maintain their cachet by hiring star faculty or building state-of-the-art laboratories. But what counts in the end is how well they teach their students. Tufts decided it could make its mark by using technology to change how its students and faculty interact.

The university built a multimedia knowledge management system for course materials, including texts, laboratory slides and recordings of professors’ lectures, that students can access over the Web. The system, called the Health Sciences Database, helps students learn better by linking information across courses and providing ways for them to assess their knowledge daily. Faculty can share materials, thus saving time and money, while online feedback from students helps them use class time to focus on topics those students want to discuss most.

Not all of these benefits were obvious to Tufts at the start of the project. Elizabeth Eaton, director of Tufts’ health sciences library, initially intended to build a simple image database, something faculty members had requested for storing copies of their slide collections so that students wouldn’t have to use often irreplaceable originals. Some pointed questions from Tufts administrators about what would make students want to use the database led Eaton and her team to create a must-visit destination, with access to other online teaching tools. No focus groups told them this was what the increasingly wired student body wanted, but they assumed students expected no less.

“They had an open-minded way of thinking about what their objectives were,” says Wallington. That flexibility freed Tufts’ students and faculty to find new uses for the system, from posting changes in class schedules to filling out course evaluations. Tufts’ dental and veterinary schools adapted it for their own curricula.

The idea that Tufts should integrate its medical programs had germinated for years. The late Jean Mayer, a nutritionist who was president of Tufts from 1976 to 1992, had called for a unified health sciences curriculum. “His whole dream was to have all the faculty share in the education of all our students. We had that [concept] of ’one medicine’ as our model,” Eaton says.

“The benefits were huge and so visible that it changed the way education is being delivered in this institution, in a way that benefited every stakeholder,” Wallington adds. The value of the system is now accruing beyond the university. The American Association of Medical Colleges, the accreditation body for U.S. medical schools, is studying the project as a model for teaching health-care professionals at universities around the country.

When Office Depot launched its online business in 1997, every retailer was scrambling to figure out what the Internet would mean to them. Some still are. What distinguishes the office supplies vendor is how it approached the challenge. Rather than ask how the company could do business on the Web, executives asked how the Web could help them do business.

Framing the question this way led Office Depot to consider the value of the Web not merely to its internal operations, but also to its customers and suppliers. The company figured that customers wanted the same things—like ways to check for in-stock items or to find out when their orders would be delivered—whether they shopped online or in a store. Suppliers provided the same products in each sales channel, executives reasoned, so they should be able to deliver item descriptions and monitor inventory through a single interface. Offering such online services to everyone would make Office Depot a more valuable business partner.

So Office Depot integrated its Web, telephone, fax and brick-and-mortar sales channels through its back-office systems. The same accounting, billing, ordering and inventory systems, fed by a central data warehouse, support each channel. Views of this information are delivered through a corporate intranet, vendor extranet and the company’s online store, OfficeDepot.com. While a similar approach is now being adopted by other retailers, it contradicted the conventional wisdom of the time, which favored separate online business units that had spinoff potential.

“We thought the spinout model was going to be temporary,” says Office Depot CIO and Executive Vice President Bill Seltzer. “We looked at other companies—not dotcoms—that had done spinouts in the past,” he says, and concluded those companies achieved only short-term benefits.

Award judges were impressed by the returns Office Depot has achieved from this bricks-and-clicks strategy, including lucrative new contracts from Fortune 500 companies, brisker sales and the ability to tap overseas markets. Judge Gregor Bailar, CIO and senior vice president of the National Association of Securities Dealers, says the company “is fundamentally changing the way its bricks are working.”

Harrah’s too understood that it could use IT to make its services more valuable to customers and, in turn, benefit the company. While other casinos were investing millions—even billions—of dollars in splashy attractions, Harrah’s studied what really motivated people to visit its casinos. The result of this research was a customer relationship management system called Total Rewards, which offers incentives such as free hotel rooms to frequent casino visitors so that they’ll return even more often.Deploying Total Rewards meant that the company had to change its attitude toward its customers and treat them differently than its competitors did. Like other gaming companies, Harrah’s viewed its customers as “belonging” to the one casino they visited most often, generally the casino closest to where they live. But when Harrah’s started to treat them as customers of the entire company, it increased the number of customers who visited different casinos. The company has nearly doubled its revenues from cross-marketing.

Harrah’s invented a new value proposition for itself, notes Barker, and doing so required that key executives and the IS staff “have a long-term, mutual understanding of their strengths.” It also required that they stick to their vision through the four years it took to develop Total Rewards. IT vendors told John Boushy, Harrah’s senior vice president of brand operations and information technology, that what he wanted to do was impossible. The company’s rank and file, meanwhile, doubted the project was worth the effort.

Boushy says the company persisted because CEO Phil Satre believed in the research he had done, which showed that customers patronized different Harrah’s hotels around the United States, and he was convinced that the company would benefit from encouraging its customers to visit multiple properties.

In the end, Harrah’s imagination and doggedness propelled it to the top of its industry, based on same-store sales growth and the number of individuals who carry Harrah’s player cards as opposed to those of its competitors.

The Evolution of Value

One challenge judges face year after year is assessing whether the systems have generated true enterprise value. Early on, judges demanded that applicants show clear financial returns on their investments. But as IT has become part of the fabric of an organization, not all of its benefits can be measured in monetary terms. Financial returns are appropriate for some types of projects, but “projects that have to prove a simple financial ROI aren’t as strategic and core to a company’s business,” says Solvik. The judging process has evolved to accommodate that change.

“One of the things we’ve learned over time is that the definition of value is very multifaceted,” says judge John Glaser, CIO and vice president with Partners HealthCare System, which won an Enterprise Value Award five years ago. “There can be market share measures or service gain measures.” Harrah’s, for example, measures repeat visits by customers as well as the revenue it has accrued from cross-selling. Tufts notes the speed with which faculty can respond to online course evaluations. Office Depot counts the convenience and savings its website offers customers in addition to how much more they spend on average.

There is value that’s even harder to measure but is, says Wallington, “intuitively obvious.” How, for example, to quantify the value of a learning tool? What is it worth to be able to concentrate on images of a healthy heart and a diseased one in your living room, rather than in a crowded library with a line of peers behind you clamoring for a couple of sets of slides?

Here’s where leadership and experience count. For example, Office Depot’s executives understand their business well enough to know how crucial the Web is to their operations. “They don’t need to explicitly cost it all out to know something makes good sense,” says Barker. “It does not mean a lack of accountability or an open checkbook. They don’t need to be explicit because they’re paying attention to the right business measurements.” Those measurements may be different for every company, he adds, but they demonstrate that IT has enabled each organization to grow and move forward.

Learning from Experience

Sometimes, a project can provide value to an enterprise even without transforming a company. Such was the case, the judges decided, with automaker General Motors and ESAB Welding and Cutting, which produces manufacturing equipment. Both tackled the challenge presented by electronic commerce and demonstrated the potential for huge gains, though their current returns are modest. They are recognized with honorable mentions this year.

Both companies represent traditional industries that, despite the e-commerce boom, still do business much as they always have. Like every car manufacturer, GM sells its cars through a network of dealers even as the online marketplace for car shopping is expanding rapidly. ESAB conducts the majority of transactions with its mostly unwired customers by phone, paper and pencil.

Yet both companies explored ways that they could turn the Internet to their advantage. GM set up a website, GMBuyPower.com, through which it could funnel sales leads to its dealers. ESAB became the first welding equipment manufacturer to build an e-commerce infrastructure and taught its distributors how to use it.

In each case, says Glaser, it’s too soon to say what the long-term value of these two systems will be to their respective companies. “There are all different kinds of values,” he says. “They didn’t bet the farm because it’s not clear that would be the right thing to do. [But] in both cases, they were well-conceived experiments to understand what the role of the Internet is.” The value of these projects lies in what the companies learn from them—a return that won’t necessarily show up on any balance sheet.

It is a company’s willingness to take risks, to imagine a different future, that determines whether it has any chance of reaching the winner’s circle. This year’s winners imagined themselves differently—and better—than they were and have reaped the rewards.

“The real winners are going to be those companies that have a far-reaching view of their business and the fortitude to implement it,” concludes Wallington. Then they’ll have to start all over again. “I don’t think that just because you reinvented your business today that you’re done.”

Technology doesn’t simply support such transformations. It is making them possible.