Optimizing IT Needn`t Be CostlyBy Tony Kontzer | Posted 11-13-2007
Optimizing IT Needn`t Be Costly
Imagine it's 10 a.m. on a weekday in Anchorage, and Alaska Airlines Flight 97 from Seattle is about an hour from landing. On board, a passenger complains that her tray table is broken and her reading light has burned out. Not exactly an airline emergency, but enough to cause a maintenance delay when the plane lands in Alaska's largest city.
That is, at least, in days gone by. On this day, the flight crew, in real-time, notes the malfunctions in the message it routinely sends to the ground crew as the plane nears its destination. A new line-maintenance system provides technicians with more information than they've ever had at their disposal.
The technicians are ready and waiting at the gate to make repairs when the flight arrives. No delays. It may not be business transformation at its sexiest, but in an industry in which time is money, the new system has a profound impact by making ground time more efficient than ever. "Every minute counts," CIO Bob Reeder says.
Reeder says the year-old maintenance system is a shining example of how a simple IT project--one that optimizes the inherent business value of IT assets--can have far-reaching business impact. He only regrets that he and his team didn't think of it sooner. "We could have done this 10 years ago, and that makes me want to bash my head against the wall," he says.
A business process-centric approach is what made the new system possible. The airline's business process-improvement team had assembled an informal group, including maintenance champions from the IT staff, to review procedures related to getting aircraft back in the air. Once the mechanics' lack of up-to-date information was paired with the potential for adding unplanned repairs to the flight crew's in-flight messages, the solution became clear. "It was just a matter of looking at the information from a mechanic's perspective," Reed says.
The compulsion to match business needs with technological capabilities is at the heart of IT executives' growing reliance on IT optimization. This is a long way from the many tales of multimillion- dollar enterprise resource planning and customer relationship management deployments that yielded questionable business results. In fact, effective IT optimization doesn't have to involve substantial technology investments. It can be motivated by an IT department that has accumulated business smarts and formed strong collaborative ties with other parts of the business. It's the difference between finding answers and investing in engineering.
It hasn't always been that way, though. In the 1990s, IT optimization was generally driven from the supply side: IT departments sought to improve efficiency, rationalize IT assets and consolidate infrastructure, for instance, independent of business needs. In some cases, that supply-side focus could be traced to a desire to reduce operating costs to make companies more attractive to potential buyers. Eventually, a category of "CIOs for hire" emerged, with a specialty of turning around inefficient IT departments by establishing the controls needed to deliver basic services at an agreed-upon percentage of revenue.
But over the past several years, Clevel executives have begun expecting CIOs to provide more competitive advantage. In exchange for the ability to articulate the impact of IT on the business and vice versa, demand-side CIOs were granted a seat at the executive table, leading the emphasis in many IT departments to shift toward demand-side optimization. "I don't see IT optimization," says Michael Farber, a vice president in IT consulting at Booz Allen Hamilton. "I see business optimization."
With the days of technology for technology's sake disappearing, the ties between IT and business clearly are tightening, as reflected by the growing incidence of CIOs who come from the business side, as well as business execs who come from IT. In some cases, executives actively straddle both worlds.
Take Bob Wittstein, CIO and vice president of procurement for specialty paper-maker Sappi Fine Paper North America. Those dual roles reflect not only a career that has spanned both sides of the ITbusiness fence, but also Sappi's increasingly crossfunctional approach to solving business problems.
Sappi has created a shared-services center in which directors from financial services, customer service, logistics, operations planning and IT work together as a team, establishing agreed-upon lists of business priorities that can be addressed through better use of IT resources.
And Wittstein makes the most of those resources--across-the-board cuts have reduced his staff to 78 from 150 over five years, with the biggest portion of those cuts hitting IT management, yet he insists IT produces more results for the business than it did previously.
When that cross-functional team identified several potential ways to streamline Sappi's sales processes, most of which centered on improving data integration and putting more information and analysis at the fingertips of its sales staff and customers, a clear technology path to solve those business problems was established.
Sappi added a layer of business-process integration software from Sterling Commerce over its SAP enterprise resource planning suite in 2005, establishing integration of customer data with the company's new business-to-business e-commerce platform.
The new e-ordering capabilities allowed customers to get their orders in before Sappi's daily 5 p.m. deadline, something that had been impossible in the old batch-order paradigm. That helped bolster customer confidence in electronic transactions, and in the two years since, the portion of stock orders placed electronically has risen to 65 percent from a mere 5 percent.
Wittstein's team also built a software tool that analyzes customer data to determine order volume and profitability by product or customer. The resulting intelligence is delivered to desk tops and laptops via a Web browser or Microsoft's Sharepoint collaboration software, letting the sales staff focus on building customer relationships that generate the healthiest profit margins. And that's not all; Wittstein's crew developed a piece of software it calls a pocket margin calculator that salespeople access via a Web browser.
The calculator applies a formula that lets the sales staff pull out rebates and bulk discounts from a proposed order to determine whether the sale is priced right to achieve sought-after margins. The result has been a reduction in low-profitability orders for products such as textured business paper, pulp and tissue wadding used in everything from toilet paper to medical wipes.
In each case, the sales tools are drawing on data that existed in Sappi's SAP system--it was simply a matter of extracting that data and making it available in an appropriate format for those who needed it. "IT optimization is about translating technology into something that's useful in the business world," Wittstein says. "We can talk about this and we can think about that, but if we can't deliver it, it's for nothing."
The way Wittstein sees it, the increased blending of IT and business has made it easier for IT to understand the problems business execs bring forward, as well as for business users to better understand the impact of IT. Everyone in IT understands that all projects must do at least one of the following:
- improve profitability,
- boost customer satisfaction,
- create new product attributes and
- cut costs.
As a result, everyone in IT is thinking about IT's role in the business and is becoming better able to demystify technology.
Equally important is the fact that Wittstein no longer begs for every last dollar needed to pursue projects in the name of IT optimization--not only because his business background provides inherent legitimacy, but because Sappi's business leaders understand they have a vested interest in IT. "I never have to fight for resources like my peers do," he says. "My business people are fighting for them for me because we've already agreed on what the priorities are."
Elsewhere, sadly, there are plenty of C-level executives who think of IT as little more than an infrastructure cost center. "It really depends on where the organization is in the maturity of its IT and how it uses it," says Booz Allen's Farber, who defines IT maturity based on the readiness of a company to make the transition to businessfocused, demand-side IT. "You'll have organizations that really understand the value of IT and how it needs to support the system. Those CIOs have a big advantage."
Those are also the companies fueling a growing trend of hiring CIOs who come from the business side and thus understand the need for IT investments to impact business processes. "These businesses understand what they want their CIOs to do and be, and that's influencing the people they put in these positions," Farber says.
CIOs who are stuck providing supplyside IT must establish a focus on what IT is contributing to the business, he says. They may want to seek feedback from business executives on how IT can deliver more value to the business, match their IT objectives to their companies' strategic plans or even bring business leaders into the IT organization, Farber says.
Some companies take a different tack, capitalizing relentlessly on an IT strategy that can't help but deliver business value. Such has been the approach of Avis Budget Group (formerly Cendant Car Rental Group), which operates the Avis and Budget car rental brands as well as Budget Truck Rental. The company relies on a culture of technological opportunism that longtime vice president of technology John Turato has been busily leveraging to further aid the business.
Chief among its IT legacies was a strategic commitment to building a robust service-oriented architecture that would let Avis Budget create a library of business functionalities to be used over and again. That, in turn, is extending the life of its legacy mainframe architecture by allowing functionality to be added on the fly rather than requiring time-consuming coding.
Turato believes Avis Budget's SOA represents the essence of IT optimization-- it lets the company extract the most value from its IT assets with the least investment. But what separates a company's SOA from the pack, Turato says, is that it flows from the business processes that will benefit from it. "Businesses are starting to realize they have to work not only on service architecture and technical architecture, but also business architecture," Turato says.
In the case of Avis Budget, this means that when evolving business needs demand a new service, Turato's team builds that service with the knowledge that if one business process needs it, others will follow, or even add to it. Think of it as a Lego set--a standardized toolkit of pieces that can be put together in countless ways.
Avis Budget, for instance, uses a customer service called e-receipts, which lets customers receive rental car receipts via e-mail--no fumbling with paper receipts while they're on the run. To make this possible, Turato's staff built a notification service that triggers the creation of an e-mail when a given process occurs. Other apps, such as the company's fleet management and insurance replacement systems, now use this notification service as well, and when one application needed to generate automated faxes, the IT staff rolled that capability into the service, making it generally available. Things worked similarly when another app needed to send automatic text messages to mobile phones.
IT's service architecture group has established a services governance team to decide on additions to the SOA, with the director of service architecture overseeing the process and members of the application development team participating in decision-making. (Eventually, Turato plans to bring business leaders into the process.)
The team scrutinizes each proposed service before approving or disapproving it. The last thing Turato wants is a library filled with services that won't be used. "A Swiss Army Knife is not a good solution," he says. The governance team also determines whether a proposed service should stand on its own or be added to an existing service, as was the case with the fax and text message notification services.
Granted, Turato and his staff have focused on low-hanging fruit thus far, serviceenabling relatively simple business functions. Things figure to get a lot more complex when the company reevaluates its core mainframe reservation system, Wizard. The system is tightly wound, so determining how to partition it into services will pose a huge challenge.
Likewise, when it comes to re-architecting reservation and rental processing, rate shopping, fleet operations and the like, the application development and architecture teams will face some tough choices.
In the end, the factors that will determine when and where services make sense will be the same--such as a service's expected degree of re-use, or whether it's too granular to deliver sufficient business value. "It's like Goldilocks," Turato says. "This is too hot, and this is just right."
IT execs agree that the key to effective IT optimization is that it meets business requirements rather than forcing the business to adapt to it.
In almost any large company, there's a long history of impressive IT projects that were completed in a vacuum. They may have originated as smart, innovative and potentially valuable. But if they don't solve an actual business problem, they're little more than novelties.
"You have to start with business process optimization," says Alaska Airlines' Reeder. "If you just look at it as IT optimization, you'll end up with nothing more than automation."
And that, as any CIO will tell you, is a one-way ticket to business obscurity. Not to mention the unemployment line.