This is a good year for enterprise value. The protracted economic slump has placed a white-hot financial spotlight on IT investments. If 2002 was the year of IT budget and staff cuts, cost reduction and contract renegotiation, then 2003 is the year of value, ROI and bang for the buck. Investment decisions will be simple?no value, no funding.
While not every company will calculate the dollar payback of every IT investment, few will buy or build systems without knowing when, where and how they will pay off. CIOs, CFOs, line of business executives and IT vendors will team up to build value-based business cases grounded in reality rather than wishful thinking. We will not repeat the sins of the past, when an estimated $62 billion was wasted on IT spending in 1999 and 2000 during what George Colony, CEO of Cambridge, Mass.-based Forrester Research, calls a frat party of naked technology?IT that was not clothed in enterprise value. The five winners and two runners-up, singled out from the 80 companies that competed in CIO’s 11th annual Enterprise Value Awards, set an example for this new value era. Though most of them made their investment decisions in the mid- to late 1990s (the award rules state that submitted systems must be operational for at least two years), they were not investing in naked technology but in systems that had sound business cases.
Their value took many forms?ranging from transformational to operational; though, interestingly, the majority of the honored systems facilitate and optimize data collection, analysis and retrieval. But what all the companies had in common was a crystal clear understanding of their core business value; the courage to reexamine what they do, how they do it and with whom they do it; and a commitment to careful change management.
Eye on the Prize
“The difference between the winners of an Enterprise Value Award and those who come very close is the extent to which those winners understand the value proposition of their business, and the degree to which they orient their work to that business value,” says Carolyn T. Purcell, CIO for the state of Texas and Enterprise Value Awards judge.
The value proposition was eminently clear to Enterprise Value Award winner Con-Way Transportation Services. Its core business model, which is fairly unique in Con-Way’s overnight trucking niche, was the value engine, not any IT system. “That model is the key to Con-Way’s competitive edge,” says Douglas W. Stotlar, executive vice president and COO of the Ann Arbor, Mich.-based freight shipper. Expert system technology was available from academic labs that could help Con-Way automate its nightly freight routing, but Con-Way would have had to adapt its business model to the technology. “There was no way we would ever touch our business model to accommodate an outside system,” says Stotlar. Instead, the company spent $3 million and several years to internally develop what may be the first system of its kind in the industry (see “Cruise Control,” Page 60).
While Con-Way sought to preserve and enhance its value engine, other award winners saw their business models, processes and norms as ripe for revolution, and they stepped forward to shake up the status quo. “They transformed the way they were looking at themselves within their market space and their competitive positioning,” says Doug Barker, Enterprise Value Awards judge, former CIO of The Nature Conservancy and now CEO of Barker & Scott Consulting in Washington, D.C.
Health Decisions, in fact, has planted the seeds of disruption for its entire industry. The small clinical research organization in Chapel Hill, N.C., built a clinical-trial data management process that remade the front and back ends of its drug development testing business, bringing multitasking and real-time response rates to an industry accustomed to waiting months to receive data analyses. Company founder and CEO Michael Rosenberg had a vision for how his company could deliver greater value measured in speed and cost savings. “I think there are a lot of efficiencies that are waiting to be realized in this industry, and what we hope is that we will be the catalyst for these changes,” he says (see “The Little Company That Could,” Page 68).
Another award winner that remodeled core processes is the Securities and Exchange Commission in Washington, D.C. The SEC modernized its venerable electronic data gathering, analysis and retrieval (Edgar) system to take advantage of the Web’s instant accessibility. Edgar now enhances the fairness and efficiency of capital markets by simultaneously making available to everyone, even individual investors, the timely corporate financial data necessary for making informed decisions. Web-based Edgar is “literally redefining the interface among the investor, the actual stock share issuer and the SEC,” says Gregor Bailar, Enterprise Value Awards judge and executive vice president and CIO of Capital One Financial in Falls Church, Va. (see “Full Disclosure,” Page 74).
University of Pennsylvania’s Wharton School bucked its own established norms when it made the controversial decision to offer an internal academic research database management and analysis toolset to the outside world?including its fiercest competitors. That move sounds illogical but “it was a smart maneuvering of internal assets,” says John Glaser, vice president and CIO of Boston-based Partners HealthCare System and a veteran Enterprise Value Awards judge. By licensing the research engine to other B-schools and nonprofits, Philadelphia-based Wharton not only fulfilled its mission to disseminate knowledge, it receives licensing revenue that funds system maintenance and enhancement. Adding a delicious irony to the arrangement is that rival schools are paying Wharton, in effect, to market its brand (see “Best in Class,” Page 52).
In the same vein as Wharton, MasterCard International at first planned to create an online service tool for internal use only. But the MasterCard team saw greater value in extending online services to its member banks as well. The company held focus groups with financial institutions and heeded their recommendations for which services to include in what became Member Services Online (see “Online Services…Priceless,” at www. cio.com/printlinks). The effort paid off in massive efficiencies for all parties and enhanced member relationships, earning MasterCard an honorable mention from the judges.
Keeping an eye on the value prize and being open to challenging the status quo will pave the way for enterprise value, but only savvy change management will drive it all the way home. Perhaps the most impressive demonstration of this critical success factor comes from the University of Illinois Medical Center at Chicago, which needed to convince its doctors to use an electronic patient medical records system and reap the benefits of reduced errors, faster retrieval and enhanced communications (see “Off the Charts,” Page 46). This powerful constituency initially resisted the system because it couldn’t see past the extra time it took to create a medical record in the system. (If you don’t know how tough doctors can be on IT, read “How to Win Friends and Influence Users,” available at www.cio.com/printlinks.) So Associate Vice Chancellor Joy Keeler enlisted another powerful group?nurses?to help convert the doctors. Illinois has accomplished what every hospital wants to but few have been able to do, says Glaser.
Another example of a company that has succeeded at change management is Con-Way, which knew its truck dispatchers might resent a proposed expert system that would automate much of their job and supposedly do it “smarter.” So the company involved them in a multiyear system design and testing process. Sold on a vision of the technology taking the tedium out of their work, the dispatchers became so invested that they were more anxious than anyone to see the complex system finally up and running.
For the Enterprise Value Award winners, “Change management was a fundamental aspect of their overall implementation plan,” says Rebecca Rhoads, vice president and CIO of Lexington, Mass.-based Raytheon and a returning Enterprise Value Awards judge. “There was an appreciation for the significance of the cultural changes. Many of the companies brought the [internal and external] customers into the solution and involved them in the problem.”
Sometimes the right way to minimize user resistance and still achieve the value goal is to pick the most appropriate, user-friendly technology, which may not always be the newest and most glamorous IT on the block. Health Decisions chose fill-in-the-bubble paper forms and optical mark readers?rather than an Internet-based system?to collect testing data from the doctors in the field. MasterCard built the services its members wanted most into its online offering. These companies “eschewed the opportunity or the temptation to build a technologically elegant solution,” says Purcell. “Rather, they listened to their customers and committed to providing the service their customers needed.”
Technology choices were also at the heart of Belo Interactive’s goal to create an online content management system. The Internet subsidiary of Dallas-based media company Belo chose largely to leverage legacy systems, rather than investing in costly and unfamiliar new technology, to integrate content flow across Belo’s stable of 24 websites, sister newspapers, TV stations and cable networks (see “All the News That Fits,” at www.cio.com/printlinks). The judges were impressed enough with the effectiveness of this approach to award Belo Interactive with an honorable mention. “This is a smaller company pursuing reuse of what they already had to distribute content in a way that’s cheap and integrated,” says Bailar. “That’s hard to do, and they did it with a small group.”
If value is the name of the game for IT in 2003, then these organizations have shown that they know how to play to win. “Their applications were the products of teams at companies where dollars are very precious today,” says Purcell. “These teams presented to their management a value proposition on which they were willing to stake their personal reputation. They took risks, but they had the confidence to bring these projects in on time and on budget, and to actually realize the benefit they projected.” The systems, begun in better times and judged in the harsh light of this economic malaise, have withstood pressure from naysayers, penny-pinchers and vested interests to prove that IT can and must deliver unassailable enterprise value.