by Stephanie Overby

Why the 2008 CIO 100 Winners Are Focused on Operations and Controlling Costs

Aug 01, 200814 mins
IT Leadership

The 2008 CIO 100 honorees are focused on rnoperational innovation—transforming their infrastructure, analytic tools and business processes to control costs and enable the next level of competitive advantage.

Josh Morton almost has to chuckle when he thinks about the IT demands of yesteryear. The customer wanted quality, speed and cost-effectiveness, of course. But back then, you could comfortably tell the user he’d have to pick two, because you certainly couldn’t deliver all three.

In 2008, that sounds almost quaint.

“The business reality today is you have to be better, faster and cheaper,” says Morton, vice president of IT Operations and enterprise testing for Sprint Nextel. He regularly reminds his team—without a hint of hyperbole—that its goal is to provide the same great quality of service at half the cost and 10 times faster. “You can’t say, ‘Pick two,'” he says. “That’s not the reality of our world.”

The better, faster, cheaper focus led to a revolution in how Sprint’s IT organization delivers infrastructure support to the business, ultimately enabling the company to be more nimble and improve its own time to market. The effort, a server and storage farm with an integrated infrastructure management layer to automate the provisioning of resources, garnered Sprint Nextel a 2008 CIO 100 award.

A look at this year’s CIO 100 honorees reveals the pervasiveness of Morton’s mind-set and where that way of thinking has led CIOs to focus their creativity. One-third of this year’s CIO 100 honorees—who are being recognized for delivering business value through IT innovation—categorized their projects as impacting operations, while 28 percent said their project had strategic benefits. More implementations contained an element of business process management than any other kind of project, followed closely by service-oriented architecture and network-related work.

While a focus on operations, infrastructure and process may sound like a step back for IT, there’s something more at work. These projects aren’t aimed directly at disrupting business models or capturing new markets (the innovations that excite academics and analysts), but they have potential, nevertheless, to change companies. “The next round of competitive advantage for businesses will not be provided by capital, labor or raw materials, but resilient business processes,” says C.K. Prahalad, coauthor of The New Age of Innovation and professor of corporate strategy at the University of Michigan Ross School of Business. If IT is to enable the business to compete, says Prahalad, CIOs must concentrate on IT architecture, business process agility and resilience, and analytics that focus on business-critical data in real time.

Given today’s tight economic situation and increasing global competition, IT must accomplish such transformation in more innovative ways. “We’re being asked to do more with less so we have to ask, Is that adding value or is there a more creative way that will cost less and provide additional functionality?” says Marriott EVP & CIO Carl Wilson.

Thinking Like a Service Provider

Sprint’s award-winning infrastructure project was driven by the need for speed. In the competitive telecommunications industry, business needs to evolve quickly, explains Morton. “Historically infrastructure operations would say, You guys get your act together, give me clean set of requirements, and then I’ll build it. But it will take a while.”

The Simplicity, Speed, Standards, Stability (4S) project streamlined the deployment of new application test, development and production environments. IT can now set up a three-tier server environment (a database system, applications and Web environments, along with terabytes of storage) within 15 minutes. That provisioning used to take a few weeks. Put simply, 4S created an on-demand model for infrastructure support. “You’ve got to think like a service provider,” says Morton. “You’ve gotta think like the business. Because if I’m not fast, they will go out to someone else.”

The project, which incorporated server virtualization as well, enabled Sprint to cut equipment and software licensing costs in half, and Morton is currently applying the new architecture to production environments. Reuse is key. “We make those resources available to someone else when testing is over, so you don’t have unused capital sitting there,” explains Morton. The biggest obstacle to the project was “getting people to conform to a common set of infrastructure standards,” says Morton. “But they saw that if they abided by standards, we could accommodate them very quickly. If they wanted to be special and do things differently, it took weeks or months.”

Streamlining the IT backbone is one of the best ways IT can enable business innovation at Sprint today. “A greater percentage of the IT budget is spent in infrastructure and operations than on building and developing new capabilities that give the business value,” says Morton. “By driving better behavior and conforming to standards, not only will I be better, faster and cheaper, but I’ll ask for less budget so you can have more.”

Doing Much More With Even Less

On the face of it, insourcing disaster-recovery operations hardly sounds pioneering. And CIO 100 honoree Marriott could have brought that backup data center in-house and left the project at that. Several years ago, it might have. But like its CIO 100 peers, Marriott’s IT leaders are looking to wring every last bit of value out of whatever projects they tackle today. Marriott could no longer tolerate the 24-hour recovery period provided by its outsourced disaster-recovery data center.

Because of Marriot’s global reach, revenues flow through the company’s applications (most notably its web site, at all hours of the day, and a day of down time is no longer tolerable. In case of an outage, the company wants and other applications back up within a few hours. “The way to do that was to insource it,” says Wendell Fox, senior vice president of shared services and information resources. “But we wanted to explore how we could get more value from the decision.”

Fox and his team decided to build a disaster-recovery and development center where hardware would be used on a day-to-day basis for development, testing and quality assurance in addition to serving as emergency backup. While they were at it, they attacked skyrocketing data center costs by working with Iron Mountain to locate the leased facility in a naturally cooled mine 220 feet underground. The mine has a consistent temperature of 55 to 60 degrees Fahrenheit, a creative way for Marriott to cut its cooling costs in half. (For more details about this project, see “Marriott Goes Underground With Disaster Recovery.”)

Creative problem-solving also came into play for CIO 100 honoree University of Notre Dame. A few years ago, the school noticed students moving off campus because of overcrowding. After Notre Dame added four new residence halls, then had to attract students back to campus living would have created a potentially significant revenue shortfall. The students wanted amenities that the dorms didn’t offer, like cable TV and Wi-Fi. At the same time, says Notre Dame CIO Gordon Wishon, the residence hall landlines were outgrowing their usefulness. Nearly 97 percent of students were using cell phones exclusively, yet the university was shelling out a million dollars annually for phone service. Meanwhile, specific areas of campus, including some residence halls, received poor or no wireless coverage.

While Wishon was talking with Comcast about renewing Notre Dame’s contract with Comcast and about a deal to bring cable, Wi-Fi—and, hopefully, more students—to campus, a solution emerged. He could turn off service to the landlines (offering them instead for a fee) and redirect that money to pay for the new services. But the project didn’t stop there. Wishon also had to tackle the spotty cell phone service.

The university and local historic landmarks officials, seeking to protect historical buildings across the campus, had always refused to erect traditional cellular antenna towers. So Wishon found a vendor, NextG, that offered a blade antenna system that tucked under the eaves of buildings. Because the system supported multiple carriers, Wishon was also able to roll out an emergency notification system with a higher success rate (95 percent of text messages delivered successfully) than most such school notification systems. Wishon. Wishon says it’s difficult to claim a direct cause and effect relationship the new system, and the message delivery success rate. But the presence of a strong cellular signal anywhere on campus seems to have encouraged more of students to provide their cell phone numbers to the university so they can receive emergency messages.

By thinking about the bigger picture, “we solved a range of coverage and capacity issues,” says Wishon. Everyone can access wireless voice and data services anywhere on campus. Cable came to the residence halls. And the students came back.

Transforming Business Processes

The project that won the Hartford Insurance Co. a CIO 100 honor started off simply. After 9/11, the company realized that it needed a terrorism risk management system. It purchased a standalone system from a vendor that let it examine the existing business and highlight areas of exposure to terrorism-related risk. The company intended to replace the system with a more integrated application down the line. But as plans for the project progressed, IT leaders realized that a broader enterprise risk management system, which covered everything from the likelihood of a natural disaster to an act of terrorism, would be more beneficial.

Rolled out in April, The Hartford’s Catastrophe Risk Management (CatRM) Program integrates geographical information systems data with other analytical tools to provide underwriters with a real-time assessment of the risks to specific locations. Underwriters using the system can see pre-populated fields of risk-related information about a place (distance to a coast, for example) before they sign new business.

Because CatRM incorporates the first-ever enterprise data mart tied to GIS data services at The Hartford, John Chu, EVP of e-commerce and technology, says the system will enable future capabilities like claims evaluation or cross-product customer information.

“We could expand this exponentially by embedding this data into our business processes for claims and underwriting and more and leverage it in real time,” adds Chu, who is SVP for eBusiness and technology; CatRM allows The Hartford “not only to look at aggregate risks in quicker fashion, but also on proactive basis.”

“Every second you save on a phone call or work for the underwriter translates into an operational efficiency you can harvest for something else,” adds Hartford CTO Michael Kim. Whenever IT can turn the conversation with the business from one about applications to one about business process, it’s a win for both, says Alex Cullen, research director with Forrester Research. “It changes the IT-business conversation from what IT does with systems to a conversation about how IT and the business can work together.”

Meanwhile, Kim saw the benefit of building CatRM in a way that would further The Hartford’s new service-oriented-architecture model. “Major financial services companies have so much legacy environment built up, yet the need to have applications that aggregate data to create efficiencies is vital,” says Kim. Creating reusable services that aggregated and distributed data from those legacy systems made the project cost-effective.

During his 11 years as EVP & CIO of Health Plan of Michigan (HPM), the third-largest Medicaid HMO in the state, Thomas Lauzon has always had to look for ways to increase process efficiency and manage his business risk: sick patients. “I realized from day one: One sick person could take us down. One too many employees could take us under,” says Lauzon. “And administrative costs we can control. So we’ve tried to be as efficient as we can with our processes. And all of those efficiencies are gained through the IT department.”

The latest process improvements have come from a system Lauzon and his team created to integrate healthcare data from Michigan’s fee-for-service Medicaid program, and other sources into HPM’s managed care system—something no other Michigan Medicaid provider had attempted. The result is a comprehensive health record for each of its members, including information about treatment they received before joining HPM.

“Before, we’d have to wait for you to go to the doctor and file a claim before we realized you have diabetes or heart problems,” says Lauzon. “Now, we can start helping that member right away.”

Lauzon’s team wrote business rules to identify new members with severe illnesses. “If you’re diabetic and we see you’re going to the ER a lot, not getting prescriptions filled and not seeing your primary-care provider, you’ll go straight into case management, where the nurse works with you one-on-one to get your health back under control,” Lauzon explains. A member with heart disease who is a bit behind in seeing his doctor might be put into a disease management program and receive newsletters and reminders about managing his illness.

Back to Basics—and Beyond

Like her counterparts at the Health Plan of Michigan and The Hartford, Patricia Lawicki, senior vice president and CIO of Pacific Gas and Electric (PG&E), is interested in transforming processes across the enterprise. “Most organizations right now are taking a holistic, end-to-end view of their processes,” says Lawicki. “Several years ago, IT initiatives were more silo-based.”

Three years ago, PG&E decided to revamp its business model with a focus on providing better, faster and more cost-effective service to its customers while helping them to improve their energy efficiency and shift their energy usage from peak demand hours. Driven by that goal, Lawicki and her team began looking at automated metering. The company created the SmartMeter program, utilizing intelligent gas and electric meters. Other utilities were exploring the meters as a way to eliminate in-person meter reading.

Lawicki saw more than a tool for the billing department. She saw a business intelligence tool that could streamline processes across the company and deliver valuable information to PG&E’s 5 million customers.

To date, PG&E has deployed 800,000 gas and electric SmartMeters to homes and businesses in California. The devices allow the company to read meters at frequent intervals and offer customers new time-of-day pricing plans that let them the opportunity to save on their energy bills. Customers can access their energy usage data online. (For more about PG&E’s SmartMeter program, see “The 2008 State of the CIO: The Imperative to Be Customer-Centric IT Leaders.”)

This rush of data created an infrastructure challenge for IT. Lawicki had to build a network that would support meter reads every 15 minutes instead of once a month, process a petabyte (1,000 terabytes) of data per year, warehouse it and then make that data available in various forms from PG&E’s customer website to its billing systems. PG&E’s first generation solution is using two network technologies to transmit data from customer meters back to corporate: a radio-frequency network for gas meters and a power-line carrier system network for electric meters. IT also upgraded its data centers and introduced energy-efficient servers to handle the new workload.

“Now we’re able to modify and enable other business processes around (the new systems),” says Lawicki. SmartMeters will enable a host of new processes and benefits, such as interval billing, remote service connections and disconnections, more efficient outage management and demand-based pricing. At Dolby Laboratories, a creator of various sound and image technologies, CIO George Lin is focused on reducing IT and business process complexity. Dolby’s Enhanced Licensing Financial (ELF) program is part business intelligence tool, part operational efficiency, part business process improvement—a good example of what Lin and other CIO 100 honorees care most about right now.

Dolby executives were eager to expand their business by positioning their products as an essential ingredient in more entertainment experiences and consumer electronic devices.

But over the years, Dolby had created overly complex processes for licensing its intellectual property that were onerous both for Dolby and its licensees. IT didn’t just throw more applications and infrastructure at the problem. They worked with the business to streamline its processes and built the systems that make up ELF to support those new processes.

The eight-part ELF has made it easier to sign on new customers, transitioning them from a spreadsheet-based royalty system to a Web-based one. Dolby’s compliance team now has complete visibility into the license infringement, thanks to the system’s ability to reconcile details about which products are licensed to which consumer products. Licensing revenues grew from 73 percent of revenues in 2004 to 80 percent in 2007.

But, like Lawicki, Lin is quick to point out that ELF is more than the sum of its IT parts. Ultimately, he says, the project is critical to enabling a much larger transformation: the company’s planned expansion into new markets, such as 3-D, gaming and mobile.

“If you ask what should IT be helping business on, it’s much more than building systems. It’s about reengineering business processes to build better systems and make information more readily available.”