Priorities Shift At The Top

Successful companies don't save their way out of a recession, Intel CEO Craig Barrett said a half-year ago. They spend their way out, investing in great new products that slap the competition when demand bounces back.

Expect more bloat than bounce for perhaps another year, according to the latest projections by CEOs and economists. Even so, this year's InformationWeek 500 survey shows that Intel and the others on the list--the companies judged by InformationWeek as the most innovative users of information technology--are taking Barrett's advice. Yes, the top 500 technology users are tapping the brakes, spending a smaller portion of overall revenue on IT, allocating less money for compensation of IT workers, and reviewing their spending plans more frequently. But they're also keeping the pedal to the floor on key initiatives to hold their edge, maintaining investments in online commerce, data-analysis tools, and customer-relationship initiatives.

"Instead of just scurrying after the E-business moniker, you're seeing a sharper focus on bottom-line businesses," says Tony Scott, chief technology officer for IS at General Motors Corp. The automaker is scrutinizing each IT investment, he says. "How much money have we saved? Is it allowing us to better leverage capital? Increase profits? Increase sales? If I've got a dollar to spend, I need to justify a tangible benefit."

More than ever, those benefits include lower costs and broader markets through Internet commerce and closer collaboration with suppliers, customers, business partners, and employees. To compile the study and determine the rankings, InformationWeek surveyed U.S. companies with more than $1 billion in annual revenue, rewarding patterns of technical, procedural, and organizational innovation (see methodology, p. 32). A more in-depth survey of 250 of the 500 companies spotlights IT management agendas.

InformationWeek 500 companies say 36% of their suppliers are connected in electronic supply chains, up from 28% last year. However, the percentage of E-enabled customers dropped slightly, to 32% from 34%. Also, 91% of companies solicit customer feedback to help develop or customize products and services. And nearly half of the InformationWeek 500's IT divisions sell products, while nearly one-third sell IT services to other companies.

During the past year, GM has invested in projects such as BuyPower, an online shopping site that's scheduled to reach more than 40 countries by year's end; GMAC SmartAuction, a Web site that's sold more than 80,000 off-lease cars and trucks to dealers; and Covisint, the Internet exchange through which the company says it bought $96 billion in raw materials and parts. Gone are notions that GM might buy into online marketplaces operated by outside companies. "People saw GM as this giant sandbox of opportunity," Scott says. "We now have a much more focused approach."

Companies say there's a delicate balance between opportunistic investments and prudent spending. Staying competitive in a down market is critical for the InformationWeek 500. Eighty-seven percent of the 250 companies polled in our secondary survey say early adoption of new technologies is important to their success--and one-third of that group says it's extremely so.

InformationWeek 500 companies say they'll spend 3.9% of revenue on IT this year, down from last year's forecast of 4.3%, but still a healthy percentage. The top 100 companies are even more aggressive, saying they'll spend an average of 4.9% of revenue on IT. Though IT budgets fell as a percentage of revenue, actual IT spending among the InformationWeek 500 rose an average of 9.4% this year, to $483.9 million, on $12.5 billion in average annual revenue. The biggest IT investors: telecom and financial-services companies, though both experienced dollar fall-offs this year. Upping their IT budgets fastest were consulting firms, which will spend 6.8% of revenue on IT this year, up from 4% last year; and the chemicals sector (4.3% compared with 2.1%).

Yet few companies are waiting very long to reassess spending plans. Nearly half of the InformationWeek 500 say they review IT budgets monthly, and 6% conduct weekly or daily reviews. "When you're taking a billion-plus dollars out of the cost base of your business, it's important that you take it out in the right places," Xerox Corp. CEO Anne Mulcahy said this spring.

Xerox is outsourcing more high-volume manufacturing of low-end products, while investing in research and development, consulting, and software. Its $3.5 billion "document outsourcing" business, which combines software sales, operations consulting, and application hosting, is growing 20% a year. One example: a project that lets Enterprise Rent-A-Car Co. scan its rental contracts and retrieve electronic copies using technology developed at Xerox's Palo Alto Research Center. "When we look at the areas where we want to build strength," Mulcahy says, "we've done nothing but grow our investments."

IT executives say the top business priorities they'll support during the next year are improving customer service and increasing worker productivity, each named by 96% of 250 companies polled. Also near the top: meeting customers' needs (named by 93%) and improving collaboration among employees and with customers (91% each).

The top 100 companies in the InformationWeek 500 are the most avid collaborators. Nearly all operate an electronic supply chain or extranet, compared with 71% of the remaining 400 companies on the list. Ninety-three percent of the top 100 use knowledge-management and collaborative software, compared with 55% of the rest. And 89% of the top companies use customer-relationship management software, compared with 55% of the others.

"Whenever people see a direct benefit of sharing information, they'll share it," says Roy Dunbar, CIO at Eli Lilly and Co., the Indianapolis pharmaceutical company that makes Prozac and the osteoporosis drug Evista. Lilly spent $3.5 million last year to roll out an Oracle-based knowledge-management system housing chemical, manufacturing, regulatory, and clinical-trial data on the company's molecular compounds.

One application, called the Molecule Library, gives about 3,500 scientists and engineers Web access to approximately 600,000 documents, pictures, and database records, slicing search times in some cases from weeks to minutes. In the past, when answers were harder to come by, Dunbar says, "people felt they owned knowledge and were reluctant to share it."

InformationWeek 500 companies say one-third of their white-collar workers use business-intelligence tools to access company data from their desktops, compared with 29% last year and a quarter in 1999. Ahead of the curve are general-merchandise retailers, which report that nearly half of knowledge workers use the tools, and specialty retailers (43%). The industries with the lowest usage: utilities and media and entertainment, with participation rates in the teens.

The flow of information keeps increasing. The top 500 companies say they capture 42% of intellectual-property data in knowledge-management systems, up slightly from last year. The most commonly used systems to store and interpret this data are relational databases, cited by 94% of respondents, and data warehouses, named by 89%. Data-mining tools, document search engines, and groupware are also popular.

Each day, employees at Boise Cascade Corp., the Boise, Idaho, paper and lumber manufacturer, send 200,000 E-mails, execute 100,000 workflow operations on Lotus Notes, hold 30 online meetings, and post 12,000 Listserv messages, VP of IT Bob Egan says. "IT's responsibility is to remove the barriers related to the technology," he says. "The next step is for users to run with it."

Boise Cascade is upgrading its network infrastructure, installing Microsoft's Exchange 2000 Server and Windows 2000 Active Directory so employees can read E-mail over the Web. It's also building tools to prioritize network voice and data traffic to clear room for bandwidth-hogging online training. "You don't just decide to do these things," Egan says. "You have to have a current design to your network."

Companies trying to promote collaboration won't find the going easy. Three out of five say it's been difficult to change their culture to one of knowledge sharing, rather than knowledge hoarding, according to the survey of 250 companies. Last year, only about half of companies called the problem difficult.

Collaborating with customers can be tricky, too. Hewlett-Packard CEO Carly Fiorina says changing HP's culture from being purely technology-focused to understanding customers' desires is a huge challenge. "Our culture is, as most strong cultures are, our greatest strength and our greatest weakness," she said in a recent interview. "It's a strength because it binds many of our customers and our partners to this company; it's a weakness when it causes people to freeze looking into the rearview mirror instead of forward into the oncoming car." Fiorina's job will get tougher as she tries to execute HP's proposed acquisition of Compaq.

There are technical hurdles, too. The top obstacles to promoting collaboration and information sharing among these 250 companies are scattered legacy data sources (named by 62% of respondents), integration with legacy systems (60%), and lack of data standards (55%). "For data, the natural course of events is that things get out of control," Boise Cascade's Egan says.

Just 29% of 250 survey respondents say their companies are very prepared to collaborate with outsiders. But by and large, companies that collaborate electronically with customers, suppliers, and partners report high levels of satisfaction. More than 80% say their experiences with each group have been highly or somewhat positive, according to the survey of 250 companies. The most commonly shared data with suppliers and partners includes order status, named by 78%, collaborative planning (68%), monthly or quarterly sales figures (65%), and aggregated customer sales data (65%). Fifty-seven percent share sales forecasts.

No. 1 on the InformationWeek 500 list, Owens & Minor Inc., a Glen Allen, Va., medical-supplies distributor, says its Wisdom decision-support software has turned the distributor into an "information intermediary" between the hospitals and HMOs it sells to and the medical-equipment suppliers it buys from (see story, p. 39). Owens & Minor stores sales information in a terabyte-sized Oracle data warehouse (a switch to NCR Teradata is in the works) and exposes it via the Web. That has let the company enter the profitable logistics-planning market, helping customers and suppliers jointly plan manufacturing schedules, inventory levels, and deliveries.

As businesses open up to their customers, suppliers, and employees, IT departments are collaborating with their own constituents: business managers and end users. At Continental Airlines Inc., a first officer on a Boeing MD-80 also serves as a senior manager in the IT department to represent the IT needs of the Houston airline's 5,000 pilots. For example, Continental this year introduced an application that lets schedulers search for pilots based on criteria including their education and experience. Continental is considering rolling out the software to ramp crews as well. "We're giving people tools and developing infrastructure that you can reuse again and again," CIO and senior VP Janet Wejman says.

IT executives are spending more time meeting with department managers: 71% of InformationWeek 500 companies say IT execs spend more than 25% of work hours a month with business managers; 35% say these execs spend at least half their work hours doing so, up from 30% last year. The percentage of IT executives sitting on their companies' executive management committees increased 4% this year, to 81%.

No matter what their agendas, IT departments need to keep in mind their most important customers: the people who use their products each day. Eli Lilly has introduced new functions to its Molecule Library every three months since the software's August 2000 launch, incorporating users' feedback about everything from which databases to include to how users prefer to log on to and navigate the system. The result? Even downtime for turning on new versions of the prototype causes an outcry, Eli Lilly's Dunbar says. "This is an iterative way of building IT, where you're not going away for a year and then saying, 'Voila, here it is,'" he says. "You're adding value as you go."

For companies attempting to innovate their way out of a sales slump, that's yet another piece of sound advice.

--With Robin Gareiss, Mary Hayes, Diane Rezendes Khirallah, MarIanne Kolbasuk McGee, John Rendleman, and Rick Whiting