IT fuels business success stories at US firms

At IDC's Forum and Expo, attendees told of how aligning commercial and technology goals paid dividends for their organisations

Three years ago, Federal Express launched a sweeping IT transformation project based on a key insight by Rob Carter, its CIO. Carter amassed data and created a bewildering “spaghetti chart” that showed how a spate of acquisitions by the US transport and logistics provider was creating an ever more complex and costly IT infrastructure.

“We’re broken,” he told his top managers, including Dorothy Berry, who was vice president of the company’s IT strategy management office that oversaw the project.

Berry was among a host of IT professionals who shared their lessons learned at the recent IT Forum & Expo, an event in Boston hosted by analyst firm IDC. The conference focused on how IT can enable organisations to reinvent themselves, grow and succeed, but only if IT and network professionals think in strategic business terms.

Berry told of how FedEx’s divisions were meeting one FedEx precept — “operate independently” — but failing in another, “compete collectively”. Among other things, she says, Carter cited customer complaints about the widely differing business rules that existed from one FedEx division to another.

Carter’s critical insight, Berry says, was realising that these trends meant FedEx’s vaunted IT group would soon be an anchor holding back the company’s growth.

Berry admits she and others resisted that conclusion until Carter’s data made it undeniable. The main goal of the transformation effort, carried throughout the IT organisation, was to be “fast and flexible in meeting business goals”. To prevent this from being an empty slogan, an essential part of the IT transformation was to identify the measures and data that could be used to assess the IT group’s strengths and weaknesses, and measure its progress, she says.

Other speakers described similar conflicts — business metrics trending in unsustainable directions — calling for a kind of careful radicalism in reordering business processes that would be powered by corresponding changes in IT.

Neal Elgersma, executive director for HP’s discrete manufacturing solutions division, told of how HP was facing rising warranty costs, coupled with new US federal laws that required companies to set aside reserve cash to cover them. Also, the company realised it lacked the processes and tools to manage and minimise these costs, he says.

HP mapped out the variables in its warranty process, matched these with available third-party software tools, and then filled in the gaps with its own software development, including, for the first time, a common database for all warranty information. The far-ranging changes let managers see, for example, that when repair sites replaced a failing modem in one laptop model the process often also cracked part of the keyboard, which would have to be repaired separately.

With the newly transparent warranty process, HP made simple changes in the modem repair process, avoiding the extra damage and cost.

Elgersma says that with results like this, HP will save US$600 million (NZ$972 million) in reduced warranty costs, money that falls directly to the company’s bottom line.

Robert Cantow, Boston Scientific’s group vice president for supply chain, told of how, by the late 1990s, the company found its supply chain breaking down, after years of high but not necessarily profitable growth. Some of the symptoms resulted in frequent ‘stock-outs’, resulting in a growing number of expedited shipments at premium freight costs, he says.

The company did an end-to-end diagnosis of its supply chain and made extensive changes to business processes at every stage. Among the key IT changes were a global SAP-based ERP deployment, supply chain modelling software and sophisticated revenue forecasting tools.

“IT by itself doesn’t fix a problem,” Cantow says, “But it accelerates what we can do”. The model used by Boston Scientific was to assess and diagnose, pilot and evaluate, roll out and adjust.

IT-enabled business transformation has driven growth and profitability for Westchester Medical Group, a physicians’ practice in New York State. The group’s chief executive, Simeon Schwartz, a practising physician, describes an unforgiving economic environment for medical practices, which face little or no rise in reimbursement rates and rising costs for labour, insurance and supplies.

The practice opted to create a paperless office, through an electronic medical records system. However, this change drove a wide range of other business workflow changes, to automate large parts of day-to-day operations, from billing and settlement, to lab tests and reports — about 20 different systems altogether. Westchester is also piloting self-service kiosks in its offices, so patients can check themselves in for scheduled appointments, and has created a secure web portal, where patients can see their medical records and billing information.

Creating the interfaces among the off-the-shelf software applications was a complex process, Schwartz says. The laboratory process was reworked four times to create a streamlined, usable and highly automated system. The medical group participated as a beta site for the software vendors, and made use of some outside IT consultants to supplement its five full-time IT professionals, who include one database administrator who supports 80 physicians.

With the business process changes and the IT infrastructure, a new culture had to be created for the entire organisation, Schwartz says. “People had to take ownership of their problems — we became a results-oriented [business] culture.”

Results have been dramatic. A few years ago, the group had at least 25 people, and sometimes twice that number, devoted to handling paper-based processes. Today, there are three or four. The lab performs 700,000 to 800,000 tests a year, with just three full-time employees. Revenue has grown from US$25 million to US$60 million.

With these kinds of technology-enabled changes, Schwartz says, clinical productivity gains of 25-35% are “easily achievable”.

Change management on such a scale “must be a careful, thoughtful plan”, FedEx’s Berry says. “IT’s role is to listen and then tell the truth.”

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