Extreme ReturnsBy Tom Steinert-Threlkeld | Posted 2003-06-01 Email Print
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What does it take to get your money back ten times over? Find out from the winners of the first baseline-nucleus research technology ROI awards.
The returns are in.
And they are extreme.
From a 50% annual return for the simple redistribution of computers, to 605% for a system of tracking millions of vehicles criss-crossing the country, to 1,986% for bringing a major Southwestern city into the modern age of performance reporting, the evidence is in. And it is overwhelming.
Information technology does matter.
And the numbers support the finding. Scores of North American organizations, from small businesses to large enterprises to government agencies entered the first Technology ROI Awards competition, held this spring by Baseline magazine and Nucleus Research, and sponsored by Mercury Interactive and Advanced Micro Devices.
These organizations submitted detailed cost and return information on significant information-system projects that they undertook in the past three years. They then allowed their results to be examined and verified by Nucleus, a Waltham, Mass., consulting firm that specializes in determining the quantifiable results of technology deployed by companies of all sizes.
That meant that, unlike many awards competitions, the numbers rule. Subjectivity is limited to a review process, where a panel of three judges reviewed the top entrants in each category, and were allowed to affirm or reject the numbers based on their experience, if there were justifiable red flags.
The main judgment: The Grand Prize, where the winner was selected based not on overall return of its project, but the impact of that return on the company.
Here follows a summary of the outsized returns by organizations that found it worthwhile to invest in information technology and the projects they undertook.
There were 10 basic categories of competition, and one Grand Prize. The returns cited are annual returns, averaged and verified over a period of three years.
All the projects that were submitted were initiated between January 1, 2000 and Dec. 31, 2001.
THE PROJECT: Converting manual system of keeping records on the pacemakers, defibrillators and other car- diovascular equipment it designs and manufactures.
By installing record-management software, the company cut the time it needed to prepare documents for in- ternal use or by government agencies from five hours to one.
Records managers got full online access; while business managers were able to read documents on an intranet, without altering the underlying data.
BENEFITS: Reduced records administration staff; Reduced postage and communications costs for sending documents to remote offices; Higher productivity in engineering, finance and legal departments; Higher information-technology staff productivity.
Computer Redistribution Team
THE PROJECT: Take computers headed for landfill, refurbish them and provide them to individuals lacking access to the Internet and other digital resources.
Teach students and interns how to repair and upgrade computers.
BENEFITS: Help single parents improve the educational and career prospects of their children; Improving job seekers' computer skills; Connect elderly and homebound individuals to outside world, family and friends, via electronic mail.
Wachovia Corporation THE PROJECT: Obtain corporate support for creating a Virtual Classroom for training employees with online content. The team won support by promising a return on the company's investment within one year, and getting the classroom program up and running within six months. The team also created a Virtual Classroom Consortium that included two representatives from every affected business unit and made them responsible for all training, marketing and communications in their departments.
BENEFITS: Savings on travel and telecommunications, of $1 million a year by third year; Upgrade skills of work force; Improved scheduling of classes; Training on demand.
Bedford, Freeman & Worth
THE PROJECT: Revamp its project planning. The publishing company relied on spreadsheets to conduct its financial planning for sales and production costing. The company improved its ability to make intelligent decisions about which book projects to undertake by putting all the information that might affect the profitability of a book on the screens of editors, portfolio managers, production managers and financial managers.
BENEFITS: Better decisions on which book projects to back; Savings of $40,000 on each of its 13 book projects each year, or $520,000 all told; Avoid unnecessary hiring and reduce administrative costs.
THE PROJECT: Answer questions of customers (which had grown from zero to 1.3 million in three years) about its Internet communications software wholly online, if possible. Created a knowledge base that combined the contributions of customers and its own support personnel that could be easily searched and tuned as it developed. Make the knowledge base available not just on the Web, but to customer-service personnel working phones or e-mail queries.
BENEFITS: Reduce calls to phone center, saving $315,000 a year; reduced e-mail responses required, saving $135,000 a year; improved productivity of support agents.
Toyota Motor Sales USA
THE PROJECT: Track and measure costs of moving 1.6 million vehicles every year from cargo ship to automobile dealerships. Using bar codes based on each car's vehicle identification number, any transaction or activity involving the car is turned into data for storage and later analysis. Using Brio servers, employees can select reports on anything from shipping costs to carrier performance to customer satisfaction; and receive analyses instantly. More than 2,000 employees run 4,000 reports a month.
BENEFITS: Some identified savings include: $800,000 in duplicate freight billing, $300,000 in automated monthly reporting, and $200,000 in freight-analyst time.
INVESTMENT: $8.7 million
THE PROJECT: Automate what had been a manual and verbal process of tracking bid and ask prices on multiple energy commodities. The new system would supplant a system of price updates yelled by floor workers, updated on whiteboards during the day by "board boys" and communicated between offices in New York, Houston, London and Singapore by phone and e-mail. The yelling was replaced by a series of shared Excel spreadsheets. Brokers in each office could view and modify the sheets at the same time.
BENEFITS: Fifty $100-an-hour brokers worldwide each gain a half-hour of productive time each day, for a productivity gain of $625,000 each year.
THE PROJECT: Regain control of an order-processing system that was crashing once a week, imperiling the 250 orders a day the company processed. Update the order processing system so dealers and consumers could place orders onlineand check their status. To integrate its purchasing and delivery systems it employed an enterprise planning system from a small California company instead of brand name software.
BENEFITS: Sales have tripled; orders have reached 1,000 a day; Staff only doubled; Avoided $360,000 worth of new hires; Inventory turns 11 times a year, up from seven, saving $400,000 a year.
City of Albuquerque, New Mexico
THE PROJECT: Find a way to let managers of fire, police, paramedic services, water, and other departments of the city develop reports about their divisions' operations and performance, and allow those reports to be shared and consolidated.
Decision-makers used to compile paper reports, pulling data out of a wide range of mainframe databases. Managers were given point-and-click access to information via Web browsers.
BENEFITS: Thousands of fewer calls to finance, human resources and planning departments for answers; higher information services staff productivity; reduced overtime pay; control of "small" costs like cell-phone usage. Overall annual expenditures cut 6%.
The impact of this project on a company with $25 million in annual revenue and 40 employees outweighed the impact of the returns of other entrants, even in cases of much larger firms with much larger aggregate dollar savings and impact.
JUDGES: Robert Madore, chief financial officer, New York & Co.; Gene Trudell, chief information officer, U.S. Steel; Sateesh Lele, chief information officer and chief technology officer, Build-To-Order Inc.