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Concerete Proof

By Rob Garretson  |  Posted 05-07-2007 Print

Concrete Proof

At Cemex, a 101-year-old global ready-mix concrete supplier with annual sales volume of about 70 million cubic meters, what matters is the product's perishability. The concrete begins to harden as soon as it's loaded into a truck for delivery to a construction site, so Cemex needed a way to accommodate weather and traffic delays, not to mention last-minute orders from builders. Taking a page from the handbooks of FedEx, food delivery services and ambulance dispatchers, cio Gelacio Iniguez led development of a scheduling and routing application based on dso (Dynamic Synchronization of Operations), which is combined with a GPS system installed on the company's cement-mixer trucks. Dubbed CemexNet, the system has increased truck productivity by 35 percent and cut average response time for changed orders from three hours to 20 minutes. What's more, Cemex can now charge premium prices to time-sensitive customers, and it is building brand loyalty among contractors whose costs spiral when crews wait idly for deliveries.

Cemex's ability to guarantee fast delivery is a huge competitive advantage over other companies that require a half- or full-day delivery window, Harris says. "It allows them to charge premium prices for what is the ultimate commodity product. It's hard to have more of a commodity than cement." The company grew sales more than 72 percent last year and has a three-year growth rate of nearly 30 percent for sales and more than 42 percent for earnings per share, according to Reuters.

At the opposite end of the spectrum are newer businesses--think Google Inc. and Netflix Inc.--that embrace IT innovation to the max.

"Google is building out IT infrastructure at a rate that is simply unbelievable," says Martin Reynolds, a vice president at Gartner. Google, which evolved from a popular Web search site into a major media company with a stock market value of more than $100 billion, spent $2 billion on IT infrastructure last year and plans to spend $3 billion this year, compared with about $600 million spent by rivals Yahoo and Microsoft. "It's giving Google a foundation for competitive advantage like you wouldn't believe."

Netflix continues to use information systems to keep chief competitor video rental giant Blockbuster at bay. Netflix' stock market value at about $1.5 billion remains 50 percent higher than Blockbuster's, despite the video chain's five-to-one advantage in annual revenue and its recent attempts to mimic and even leapfrog Netflix' online DVD delivery service.

Netflix uses more than low overhead, a whiz-bang Web site and logistical wizardry to keep costs down and profitability up. Its data management and analysis prowess in anticipating customer behavior and buying patterns is its not-so-secret sauce. Founded by ceo Reed Hastings, who has a Master's degree in computer science from Stanford, the company uses proprietary algorithms and software to drive its movie recommendation engine, which helps steer customers of its all-you-can-watch, free-delivery-and-return service to lower-demand DVD titles, smoothing inventory allocation. More controversial is its automated systems for prioritizing shipments, which favors more profitable infrequent-use customers over the dvd gluttons that cost the company money.

Netflix is among the growing class of data-driven organizations Accenture calls "high-performance businesses." They not only deploy IT to address specific competitive challenges, but incorporate an "analytics architecture" throughout their organizations, Harris says. An example she cites in her book: Netflix applied insights gained from data analysis when deciding what it was willing to pay for distribution rights to Favela Rising, a documentary about musicians in Rio de Janeiro slums. Executives were able to correlate the 1 million customer orders for the 2003 film, City of God, a drama set in the slums of Rio, with 500,000 customer selections of a documentary on slum life in India, Born into Brothels, to come up with its license for 250,000 rentals of Favela Rising.

Carr's thesis is that technology innovations like Netflix's data analysis are easily duplicated in an age when companies have access to many, if not all, of the same tools. Blockbuster, for its part, has tried to go Netflix one better, offering the same type of all-you-can-eat DVD rental plans for a fixed monthly fee, but allowing immediate exchanges for new movies at its video stores, eliminating the wait that Netflix customers have receiving the next title on their priority list only after a dvd is returned by mail.

Yet in May, despite adding approximately 800,000 subscribers to its Total Access online service in the first quarter, Blockbuster reported an operating loss for the quarter of $18.4 million, compared with operating income of $32.1 million in first-quarter 2006. Cash flow for the quarter was a negative $144 million, down from a positive $41 million in first-quarter 2006. Hastings at Netflix has publicly called Blockbuster's service and pricing not "economically feasible," and it appears he may be right.

In a recent survey of 450 executives in 370 companies across 35 countries and 19 industries, Accenture found a strong link between extensive and sophisticated use of analytics and sustained high performance.

"All true high performers had an analytics architecture so they could provide the clich: all the information at the right time, with the right tools," Harris says.

What makes companies like Harrah's, Netflix, Cemex and others less vulnerable to rapid duplication of their innovations, Harris says, is the way the use of information is engrained in their corporate culture.

"Their real differentiation is their organizational capability to have a steady stream of analyses that generate value-creating insights and their ability to execute on those insights," she says. "A lot of organizations have analysts who generate reports, but those reports just sit on a manager's desk."


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