Before one stock traded on Wall Street on Jan. 22,\n the world had telegraphed its view of the\n slumping U.S. economy. \n MORE ON CIO.com\n \n How to Keep Wall Street Analysts Happy\n \n How TJX Avoided Wall Street's Wrath\n \n Credit Suisse's Balancing Act\n \nThe Hong Kong market followed up Monday's 5.49 percent dive\n with a 7.22 percent decline on Tuesday. The Nikkei in Tokyo\n slumped to a low point not seen since September 2005. Mumbai's\n Sensex Index plunge of 7.4 percent on Monday was the\n second-worst ever. And the Frankfurt Stock Exchange nosedive\n was its worst since Sept. 11, 2001.Then the Federal Reserve slashed interest rates with an\n unheard of "emergency U.S. rate cut." It wasn't enough: The Dow\n Jones Industrial Average took an early-morning nosedive.\n President Bush continued to talk up an "economic stimulus plan." And the weak\n U.S. dollar fell sharply against the Euro.All was not well.Certainly few could pinpoint blame on IT departments for\n causing all the turmoil or count on IT chiefs for quick fixes\n to the credit crunch, subprime mortgage crises, housing\n slowdown and jobless rate climb.But the recent turn of events and sour forecasts for 2008\n raise intriguing questions of exactly what IT's role is at\n publicly traded companies, how much a CIO and his IT\n operations can influence Wall Street, and what CIOs should do to\n keep their companies in the good graces of its\n shareholders.CEOs and CFOs can all talk a pretty good game about how\n mission-critical IT systems are these days, but just how much\n does IT actually matter to those who work on Wall Street?The answer, it turns out, is both simple and difficult. The\n simple version is that IT matters a lot when systems and\n networks go horribly and publicly wrong, as these things\n sometimes do. The bigger-picture view is that IT run very well\n can make internal operations more efficient for bottom-line\n results.But the fight to get credit for that work on Wall Street is\n like the mechanic who gets little credit for a well-cared-for and\n dependable car, say CIOs and financial analysts. A car should run along\n smoothly, shouldn't cost too much to maintain and should take good care\n of its passengers. Surprises ought to be rare."If everything is going swimmingly with a company and its\n stock, then IT doesn\u2019t matter [to Wall Street]," says\n Patricia Edwards, a portfolio manager and managing director at\n Wentworth, Hauser and Violich who\n focuses on retail. But if systems are ignored and IT\n investment is continually chopped, then, to borrow the car\n maintenance analogy, "companies won't notice it at 7,000 or\n 8,000 miles, but they will notice it at 15,000 miles,"\n Edwards says. "Sometimes it doesn\u2019t matter until it\n matters." Like when the muffler falls off when you're\n heading down the interstate at 75 mph.One of the most notorious examples of IT directly\n influencing Wall Street was Nike's supply chain disaster in 2000. A\n software "glitch" in Nike's i2 system rollout depressed its\n stock price by 20 percent, cost Nike more than $100 million\n in lost sales, triggered a flurry of class-action lawsuits,\n and caused its chairman, president and CEO, Phil Knight, to\n lament famously, "This is what you get for $400 million,\n huh?"The Goal: Making IT So Good It\u2019s InvisibleAs the CIO role has evolved during the last 10 years, with\n its elevated status and "seat at the table," those executives\n in charge of core IT operations in publicly traded companies\n have received a crash course in the push and pull of keeping\n The Street happy. The pressure to satisfy shareholders and\n financial analysts (with lean IT operations, decreasing annual\n technology investments and lots of short-term successes) does\n not always make for great IT."There is a balance," says Frank Modruson, CIO of Accenture.\n "Your goal is to operate so cleanly that IT becomes invisible\n and that it fades into the background. But at the same time,\n you want to drive that IT ability to get better and better\n because it can take friction out of the business and reduce the\n cost of doing individual transactions."A recent Accenture survey of CIOs found that IT\n innovation has suffered because executives' technology\n priorities and investments were more aligned with Wall\n Street's needs rather than focusing on customers of IT\n inside and outside a company."Executive and technology leadership\u2014under pressure\n from investment analysts and other Wall Street observers\u2014are undertaking superficial improvements in their IT\n systems rather than making fundamental changes to meet the\n growing demands of users," stated the survey, which polled CIOs\n at nearly 300 global Fortune 1000 companies.The problem is that IT shops have been paying too much\n attention to cutting costs and maintaining legacy systems, and\n not enough attention to developing online customer service\n initiatives, and innovative Web 2.0 and social networking\n projects, the survey found.But just how do those new technology applications translate\n to company financials that will appease financial analysts and\n shareholders\u2014if they do at all?Credit Suisse CIO Tom Sanzone, who's a\n member of Credit Suisse's executive board, says the reality\n is that IT doesn't get mentioned when earnings are good and\n the business is performing well. In many of Credit Suisse's\n technology-centric business units, he says, IT systems are\n critical and can provide a competitive differentiator."For example, in a business where you're doing electronic\n trading or algorithmic trading, the majority of business flows\n through our technology infrastructure," he says. "If that\n business is performing well, clearly IT has a big part to play.\n But when we report externally, we don't say that the IT\n platform or our IT execution systems performed well. We say,\n 'Equity did well.' You talk about results from the business\n perspective."Of course, the flip side is that if a significant systems\n failure placed a hit on quarterly earnings, the company "would\n highlight that as a reason and why the results were affected,"\n he says. "In that case, [IT] gets specifically called out."Execute Well, Impress Financial Analysts Like Bonnie\n ChanTo Modruson, his responsibility to Wall Street is clear: "I\n try to make operations as efficient as possible while freeing\n up money to invest and continue to make IT better," he says.\n "I'm always looking for opportunities to make IT more\n efficient, and constantly looking at what's the next thing over\n the horizon, and also having the money available to invest when\n something new comes along that will benefit the company."To that end, he stresses the importance of offering a track\n record of IT successes\u2014with hard-dollar returns on IT\n projects and metrics that bolster IT's contribution to both\n operational savings and increased productivity.That track record is key to financial analysts like Bonnie\n Chan, a securities analyst who covers financial services at\n Dreman Value Management, a $22 billion\n money management company. Because she and many of her fellow\n financial analysts aren't IT experts, she looks for a\n strategy from IT that either saves money or enhances\n productivity."I don't need to know the nitty-gritty details about\n what exactly this IT platform entails," Chan says. "Execution\n is key: Who is doing it and what's their track record?"While Chan doesn't follow Accenture specifically, the\n consulting giant tries to impress analysts like her by\n demonstrating how its IT operations execute.As an example of his contributions, Modruson cites a\n scheduling system for Accenture employees that IT rolled out a\n couple of years ago.Scheduling is critical for firms like Accenture, which must\n track billable hours spent by multiple consultants on multiple\n clients' projects. But after doing some research,\n Modruson's team discovered that the previous system was\n the third-most expensive application to run (in terms of total\n cost of ownership), was slow performing and had a poor user\n interface. "Not exactly a win-win app," Modruson says.Analysis on the application showed why: It was poorly\n architected and required a ton of extra hardware costs and\n staff attention to keep it running, Modruson says. Accenture\n eventually replaced it with a custom-built application that\n took a year to build, costs half as much to maintain as the\n previous application, and reduced, by 70 percent, the time it\n takes to staff employees for assignments. "We hit all three:\n better, faster, cheaper," he says.To Modruson, efficiencies gained from projects such as the\n scheduling system as well as a project to standardize\n Accenture's global ERP systems on SAP have allowed him to\n reduce what IT spends per person by 60 percent, when compared\n with 2001 data, which is just before he arrived at Accenture.\n That has happened even as Accenture has continued to invest\n more in IT each year and the company's headcount\n more than doubled in size\u2014from 75,000 employees in 2001 to 175,000\n today. Over the same period, Modruson points out, Accenture's\n revenue has gone from about $11.4 billion in 2001 to $19.7 billion\n for the past fiscal year."We didn't just cut the IT costs, we replaced [IT systems]\n with better technology that was more efficient to operate," he\n says. "If you look at overall G&A spend [general and\n administrative expenses], it's gone down substantially since\n 2001. A chunk of that is from IT because we've made IT more\n efficient."So while Modruson's CEO probably hasn't called out his IT\n projects by name during quarterly earnings meetings, chances\n are those IT achievements are residing on a line item somewhere\n on the quarterly report's balance sheet.The Dangers in Mergers and AcquisitionsWith a hot mergers and acquisitions market, the pressure on\n IT to ensure smooth systems integration and careful\n consolidation has never been greater."One of the key factors of very big integrations is the\n ability of IT to consolidate and streamline the acquisition\n onto a single platform and gain significant cost savings," says\n Sanzone of Credit Suisse, who has worked in the M&A space\n in the past. "As the head of IT, I know what would be expected\n of me, and that's certainly a type of pressure I have felt."But have all of these deals necessarily been better for\n acquiring companies and their beleaguered IT shops, which are\n tasked with meshing together dissimilar systems that have to\n provide the expected efficiencies and savings?According to an August 2007 Boston Consulting Group study of more\n than 4,000 completed mergers and acquisitions between 1992\n and 2006, 58 percent of deals actually destroyed value for\n acquirers, with a net loss of 1.2 percent for all\n transactions."What happens in looking at these deals is that [the\n companies] don't realize just how hard and expensive it is to\n consolidate onto one platform," says Barry Jaruzelski, VP and\n lead marketing officer at Booz Allen Hamilton. He notes that the\n challenge is intensified when companies start looking at\n consolidating and changing all of the pre-existing\n business-to-business connections and terabytes of customer\n data that companies maintain."Companies are entangled with their customers, and\n customers don't want you to move to [something\n different]," Jaruzelski says. "The transition costs of moving\n the data, translating it, and all the workarounds that have to\n happen can become huge when they get into the granular\n implementation."One company that has had troubles integrating its acquired\n companies is Level 3 Communications, a global\n communications company that provides IP, voice, voice-over-IP (VoIP) and\n broadband services.In its 2007 third-quarter earnings report delivered on Oct. 23,\n 2007, Level 3 President and COO Kevin O'Hara detailed the\n ongoing integration challenges. Level 3 has acquired six\n network companies since 2005, each with its own provisioning\n processes and systems, he said. Level 3's Project Unity\n integration plan was to have the new processes and systems\n deployed in increments in 2007 and into 2008."While the fundamental approach was sound, we made\n some implementation decisions that in retrospect made achieving\n our provisioning throughput targets more difficult," O'Hara\n said. "In particular, we took certain processes which had been\n centralized and split them up among our customer facing groups,\n which made identifying and fixing throughput issues more\n difficult. As a result, we fell short this quarter in\n increasing our provisioning capabilities to the level we\n expected."O'Hara reported that in the third quarter, Level 3 "incurred\n approximately $20 million of integration expenses for a total\n of $80 million year to date," and the company still expects to\n incur approximately $100 million in integration expenses for\n the full year.Market researchers at Current Analysis attributed Level 3's\n integration challenges, "mainly involving the transition to a\n single set of back office systems for its acquired carriers, as\n the reason for difficulties in converting high order levels to\n revenues and a subsequent reduction in the growth of its core\n communications revenues during the second and third quarters of\n 2007."And while the company's revenues have increased from $1.7\n billion in 2005 to $3.4 billion in 2006, it is still not\n profitable, losing $744 million in 2006. Since its Oct. 23\n earnings announcement, its stock price slid from $4.50 to $2.50 a\n share.What's the Value of Good Technology?Nordstrom is a company with a great\n brand name and an upscale customer base that many retailers\n would love to have.But since its founding in 1901 right up to the turn of the\n century, Nordstrom wasn't a big believer in IT and retailing\n systems. Nordstrom had "systems so antiquated that they were\n taking physical inventory twice a quarter, writing it down with\n a pencil or pen," says retail analyst Edwards. "They were so\n far behind the eight ball."But after 2000, Nordstrom embarked on a technology overhaul,\n taking advantage of new point-of-sale (POS), inventory,\n price-optimization and buying systems, says Edwards. The\n company has also been able to link its Internet and in-store\n inventory management systems, allowing for more innovative,\n customer-friendly and flexible delivery options. "They are a\n shining example of how technology can help," Edwards says.In Nordstrom's 2006 annual report, company executives\n acknowledge technology's impact. "Our investments in new\n technology and systems over the last five years have laid\n the foundation for more accurate decision making. Improved\n operating disciplines and cost controls have led to a higher\n return on investment," it states. "Our new systems and\n merchandising disciplines have helped us begin to tap into\n that business by enhancing our ability to keep inventories\n fresh and turn them more rapidly." (Nordstrom executives\n declined to be interviewed.)Wall Street has reacted warmly to the technology-induced\n changes. In 2000, the retailer's stock price hovered around\n $15; by January 2007, it nearly topped $60. The week of Jan.\n 22, 2008, Nordstrom was trading in the $30s. But\n Edwards notes a clear long-term trend: "You can absolutely\n see that the technology has helped them over the last seven\n years," Edwards says.The technology sword can cut both ways. In the 2006 annual\n report, Nordstrom detailed some of the challenges it\n experienced in creating a "seamless experience for our\n customers between our stores, catalogs and Web site, linking\n the Full-Line stores and Direct merchandise organization."While executives believed their strategies would improve\n operating performance, "we also found that the technology\n changes will be more challenging than we initially\n anticipated," they wrote, adding: "Executing this strategy may\n cost more and take longer than expected, which could impact our\n future operating performance."Despite the challenges, Nordstrom executives plan to spend\n $170 million each year on IT operations and systems development\n to sustain its competitive position and grow the business. "We\n must monitor and choose the right investments and implement\n them at the right pace. Targeting the wrong opportunities,\n failing to make the best investment, or making an investment\n commitment significantly above or below the requirements of the\n business opportunity may result in the loss of our competitive\n position," the report stated. "In addition, an inadequate\n investment in maintaining our current systems may result in a\n loss of system functionality and increased future costs to\n bring our systems up to date."At Credit Suisse, CIO Sanzone and his team have taken\n advantage of virtualization technologies to save\n millions and become fast, flexible partners to their\n business counterparts. The IT team has reduced the time it\n takes to allocate server space for application-hungry lines\n of business from weeks or months to a day or two. This\n allows "quicker time to market for the products that they\n need, competitive advantage and driving revenue growth," he\n says.But do the financial analysts who follow Credit Suisse care\n about this? "I don't think the analysts are interested in a\n virtualization conversation," Sanzone concedes. "But what they\n would be interested in is if we were doing things from a\n technology perspective that were going to significantly reduce\n expenses or improve efficiencies in the coming months that were\n meaningful to earnings or to the bottom line." His CEO or CFO\n just probably wouldn't mention the specifics of Sanzone's\n virtualization program.Sanzone says his CEO has mentioned Credit Suisse's Centers\n of Excellence (COE) program, which Sanzone heads, that focuses\n on gaining efficiencies and savings through offshoring. "Our\n CEO has talked to the analysts on multiple occasions about our\n COE program and the size, scope and impact of that program,"\n Sanzone says.Like most CIOs, Sanzone himself has yet to present at one of\n Credit Suisse's quarterly earnings calls\u2014which is not\n unusual. Securities analyst Chan says it's not often that\n she'll hear a CIO on an analyst call. "The only times when we\n see them is if the company is embarking on a major initiative,\n and the investor community will demand to know the ins and outs\n of the program," she says.Sanzone doesn't seem bothered. "Being a part of the executive\n board, I'm there at a number of them," he says. "But I haven't\n presented to this point."