ZIFFPAGE TITLEGrand PrizeBy Briana Hallstrom | Posted 2005-07-08 Print
Returns on investment for the Baseline ROI Leadership Awards handily topped 1,000%, courtesy of the Internet.
Company American Express
Annual Return 2,736.1%
Five years ago, American Express—winner of the Grand Prize and Innovation awards in the 2005 Baseline ROI Leadership Awards—commanded a "march of a thousand spreadsheets" when it came to allocating money for projects. Each of the 10 business units comprising the $29 billion financial services giant had its own funding projections for technology, sales, operations and marketing projects. Cost estimates for these projects were then compiled by each unit's finance department, which submitted the proposals.
The problem? Business units didn't use the same methods to calculate returns. The Global Corporate Services group, which handles corporate card and travel customers, might use a 12% discount rate to calculate net present value on a project, while the Consumer and Small Business Services unit would use 6%.
Other complications included unregulated version control, little accountability for financial projections and no easy way to get a corporatewide view of projects and their finances.
"It was every group for itself," says Anand Sanwal, director of corporate finance at American Express. "There were guidelines, but it was so easy to change things inadvertently or on purpose."
Enter some almost-invisible innovation. Weary from the old system, the International Payment Services group built a prototype for what would eventually become the parent company's Investment Optimization System (IOS). Using Microsoft Excel templates uploaded to an SQL server and then read and analyzed by Microsoft Reporting Services, the system puts Amex' global business units on equal financial footing, with standardized models and assumptions, tighter version control and better analytics. Since it went online four years ago, the system has reallocated tens of millions of dollars between business units for more optimal investments.
"It's a real-life problem that besets most corporations," says Sateesh Lele, one of the three judges selecting the grand prize winner. He is chairman of Global Data Systems, a San Jose information-technology services firm, and former CIO of Avon Products, Pepsi and GM Europe. "Numbers in the billions make it almost impossible to dissect where [American Express] is spending money and what it should be spending money on. And [the company] did it in pretty short order. I was impressed."
A project's worth is now easily evaluated based on projected profits and fit with the company's overall strategy. Initiatives can also be compared within units and companywide. For instance, the U.S. card group may want to launch a direct mail campaign projected to yield a $1 million profit, while Global Corporate Services may request funding for its own mailing that it predicts will make $5 million. With IOS, American Express can decide whether it should scrap the first project in favor of the second. While that prioritizing can chafe, "People are starting to embrace what is right for the enterprise," Sanwal says.
Next up for the system is a Web interface for the several hundred finance workers and project leaders who use the system, guaranteeing a single version of any proposal and integration with the project tracking database, a system that monitors actual performance. Sanwal is eager to link the two databases.
"We'll be able to see if people are delivering on their projections," Sanwal points out. "That's a massive win."
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