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Putting Two and Two Together

Putting Two and Two Together

Most businesses are home to scores of information systems that remain uselessly disconnected from one another. Until those systems are integrated, technology investments won't live up to your expectations.

In a teleconference last spring with Wall Street analysts, Nike Chairman Phil Knight aired his frustrations with an underperforming supply chain management system, which he blamed in part for Nike's lower-than-expected financial results. Asked Knight rhetorically, "This is what we get for $US400 million?"

Like his shareholders, Knight wasn't happy. And he had an inkling why. Because the costly supply chain system wasn't tied in to other key Nike technologies, its anticipated business benefits fell critically short of the mark. Without access to important information locked within these isolated systems, the supply chain project's usefulness was limited.

Nike isn't alone in expressing disappointment with technology's payoff. There is considerable unhappiness in many executive suites. How did this epidemic of discontent come about? Some recent history might offer a little context.

The year 2000, in particular, saw an unprecedented technology buying spree, triggered in part by the mandatory diversion, during 1998 and 99, of IT investment priorities and dollars toward Y2K remediation. Once the millennium rolled over more or less without serious mishap, business emerged from its bunkers to deal with a lot of pent-up demand. It was time to get cracking on those long-delayed projects - along with some fresh competitive realities. Juicing up the already high sense of urgency was a brand-new business anxiety: "How are we gonna keep from getting Amazoned?" A pervasive sense of needing to spend fast and furiously to catch up with the Internet phenomenon drove a period of frantic buying.

Naturally, those who signed the big, scary cheques expected that binge buying would soon be followed by impressive competitive gains. But in their haste to get someplace fast, many companies neglected the messy reality that their back-end infrastructures consisted of a stew of incompatible systems that could not usefully interact with one another.

Consequently, many newly purchased applications failed to deliver the promised benefits, says Tim Talbot, senior vice president of information technology services at PHH Arval, a vehicle fleet-leasing and -management company headquartered in Maryland. "Executives got sold a product that was supposed to do all these things but couldn't do them all if systems integration wasn't [in place]. A CRM application is not going to stand alone, but businesspeople don't necessarily understand that," he says.

To get real business payback from CRM and various e-business systems applications, companies must make sure that the entire technical infrastructure is interconnected so that business information can flow freely throughout the enterprise.

Attaining that free flow of business information is more than a technical exercise in linkage; companies that get it right can use this new ability to completely rethink the way business is done, maximising competitive value by offering heretofore unheard-of customer benefits and services.

Look at PHH. The company has been integrating its systems since 1995, when it gambled on an application called PHH Interactive. The system pulls information from dozens of once-separate PHH applications and assembles a unified mother lode of data. As a result, thousands of fleet managers at PHH's customer facilities can freely access information as varied as car maintenance histories and trends, driver accident rates, fuel transactions, repair-cost comparisons across various automobile makes and models, and billing information. This gives the fleet managers an opportunity to optimise their resources and control expenses - making them incalculably grateful to PHH and thus less likely to bolt to a competitor. Indeed, since implementing PHH Interactive, the company has been able to cut costs by 30 per cent while signing on 20 per cent more business; it is the number-two fleet management company in the country, behind GE Capital's fleet management division. The company considers PHH Interactive to be such a competitive advantage that it often sends IT staffers out on sales calls to demonstrate the application.

Then there's Dell Computer. Considered one of the poster children for good integration, the company has tied together not only its own systems but those of its suppliers. Called Valuechain.dell.com, the integrated system has kept Dell's inventory down to an incredible four days' worth of supplies (compared with its competitors' 30 to 50 days). Dell's ability to use customised Web sites to feed its biggest customers such vital data as order-tracking and billing information would be impossible without full integration of its disparate systems.

In part because Dell has driven inefficiencies out of its supply chain and can interact directly with customers, it has become the number-one PC maker in the world.

Such examples may be alluring to the business, but CIOs know they are not easy to achieve. A great many companies have baulked at the idea of fully integrating corporate systems for a couple of very basic reasons: integration is a tall - and expensive - order. For example, CTO Julie Hall recently dealt with a major systems integration project when her Texas-based company, Advance Paradigm, merged with PCS Health Systems to create AdvancePCS. Hall counted several hundred disparate systems between the two companies. Her integration project timetable: one year. The cost: 50 per cent of her total IT budget.

Fifty per cent of an IT budget is a lot of dollars but not an outsize amount when it comes to integration. Beth Gold-Bernstein, vice president of strategic services at Ebizq, a New York-based integration information portal, estimates that a large integration project will cost between $US500,000 and $US1 million for software and licensing, and implementation costs will run twice as high.

But in spite of the cost and difficulty of integration, the vision of reaping Dell-like benefits ought to make such projects a top corporate priority, says Bob Parker, vice president of e-commerce strategy at AMR Research in Boston. Yet despite their importance, he says, many integration projects fail or get abandoned.

It's tempting (and all too easy) to line up the usual whipping boys of technology failure: overhyped software, unresponsive IS staffs, incompetent systems integration firms. But Frances Karamouzis, a research director at Gartner (US), says that the problems don't lie with technology alone. In fact, she says, "Technology is usually ahead of the curve from the perspective of integration." The real culprit, as she sees it, is a failure of executive leadership. "One reason many companies are not well integrated is the amount of change required on the business process side, in addition to the technology component," says Karamouzis.

Most business executives mistakenly think of integration as the exclusive province of gearheads: the techies will fix it down in the bowels of the engine room. But true integration also requires significant involvement from the business side of a company, and that's not happening at many places.

"Businesspeople want the magic of what integration is going to do, but they're almost always unwilling to pay the price in terms of what it's going to cost them in extra work," says Steve Morelli, CFO at StarKist Foods in Pittsburgh. In fact, Morelli says, "[That resistance] is a big part of the reason these projects fail. Businesspeople get into implementation, get overwhelmed and either fight it or give up on it."

"I think, for the most part, businesspeople can appreciate the amount of effort that has to go into integration. But let's face it, they don't really understand the guts of it," agrees Linda Reino, CIO at Pennsylvania-based Universal Health Services (UHS), a $US2.6 billion hospital-management company.

Yet getting businesspeople on board integration projects is a critical issue, says PHH's Talbot. "If you don't get the business aspect of integration nailed, you may as well just stop."

Nailing that business aspect, however, means managing the changes wrought by integration, and that's a huge up-front task lacking instant gratification, says Gartner's Karamouzis. Just one example: as integration links processes across departments and divisions, executive sponsors will need to gird themselves for the turf skirmishes that inevitably flare when the walls between departments crumble. But there are things business executives can do to maximise the chances of success for integration projects.

Start by analysing your company, advises Lisa Reisman, director of the digital strategy and research group at Andersen Business Consulting in Chicago. According to a recent study by Reisman and fellow analyst Kim Collins, different types of companies have varying integration needs. For instance, if your company doesn't drool over leading-edge technology, it might make more sense to choose software from a big enterprise software vendor, such as SAP or PeopleSoft. That's because technology laggards can typically afford to wait for such vendors to roll out add-on software modules for different business functions. Conversely, companies whose competitive edge is honed on the latest and greatest technology are more likely to add capability in such areas as supply chain management or CRM from the so-called best-of-breed vendors, who tend to get their products to market earlier than the big enterprise software companies.

David Root, the CFO at Canadian training company Eagle's Flight, suggests following up with some cost-benefit analyses. "Integration is an ROI decision," he says. "You need to ask what's the dollar cost, what's the cost in terms of time and people, and what's the relative benefit?" The outcome will help executives pinpoint which business processes merit integration, he says. Not everything does, as crunching the numbers can show. "Lots of times the costs of integration are a lot higher than people would like, and the benefits a lot less," says Morelli. "It doesn't mean it's not the right thing to do, but it does need to be thoroughly looked at."

PHH's Talbot says that his IT group works closely with business executives to identify areas that are ripe for integration. They compare the current costs of managing the process with the estimated cost of integration. "For example, let's say we use a certain up-fitter to customise pickup trucks with bucket lifts," says Talbot. "Right now, the process is done by phone or fax and takes about two hours of a PHH employee's time. But we only need to have that kind of work done maybe once a year. So even if it would only cost $5000 to $10,000 to integrate our systems with those of the up-fitter, it doesn't make sense. If we did two or three such jobs a month, it'd be a different story."

Talbot takes it one step further, suggesting that cost-benefit analysis should drive the actual level of integration. There are different ways of integrating systems, each with corresponding pros and cons. A batched integration process, for example, means that two different systems send updated batches of information to each other at preset intervals - every 24 hours, perhaps. Although this type of integration doesn't provide continuous updates 24 hours a day, it does have the benefit of being relatively inexpensive and easy to implement. Real-time integration, on the other hand, links systems so closely that information is continuously updated. While this has obvious business benefits, it's also more complicated and expensive to achieve.

The trick is letting the needs of the business dictate the integration strategy. The radiology systems at UHS's hospitals are integrated in real time - though only to a point. "If you need an X-ray, the order had better be there 10 seconds after you press the button," says CIO Reino. But hospital charges are sent to the hospital billing system only at the end of the day. "Hospitals don't need to present point-of-service bills like retailers do," she points out. "So why should I maintain that kind of overhead?"

Business executives should also respect the technical issues of an integration project as well as the business drivers. Say, for example, that the vice president of sales is pushing the IT department to get a CRM project done fast. The CIO has to decide between meeting the sales vice president's deadline or completing the integration piece of the project in the most thorough way possible. It's a tough choice to have to make.

"The CIO will try to push back," theorises StarKist's Morelli. "But at some point he'll realise, 'Here's the momentum of the organisation. I can either get with it or get run over by it.'" A tremendous amount of pressure is put on CIOs, Morelli says. "Most business users want this stuff because they're at their wit's end and their bosses are pushing them for more improvement." The best the CIO can hope for, he notes, is to manage the process so that people understand and buy in to the importance of integration as the project unfolds.

Once integration is under way, executive sponsors should help business users understand the degree of change that the various projects will bring to their work processes. As different departmental systems are tied together via integration, business processes are too. Consequently, newly linked tasks can require a heretofore unknown degree of cooperation between and among departments.

Morelli gives the hypothetical example of a purchasing department's business process. Pre-integration, it might take employees six different tasks to complete a purchase order. But once that isolated purchasing system becomes integrated with other corporate systems, the unified purchasing process might require 60 tasks. Those new tasks may well mean that the company can reduce order errors that result from rekeying data, or keep inventory levels low. But for users faced with new tasks, sometimes it's hard to see the forest for the trees, says Morelli. "Business users don't recognise that integration is going to impose a new level of discipline and workload that they don't have to deal with today."

But he insists that doing so is vital. "No matter how integrated the systems are, you won't get things to work unless the information therein is also integrated. The interrelated aspects of the business have to be kept up to date," he says.

CIOs know the hard truth: integration has been an enormous challenge for years. With the growing complexity of technology environments, coupled with escalating business pressures, it won't soon get any simpler. But despite the difficulties, the potential payoffs are overwhelming. For Jim Trotman, director of strategic development at PHH, the results have been a revelation. Over the years, he says, "I've had times when I thought of integration and architecture as a pain in the rear. But now that I've lived in a world where it gives payback month after month after month, I've almost become an evangelist for it." (Note that ambivalent "almost").

Creating an Integration Czar

Having only recently launched an e-business strategy group, LandAmerica Financial Group is a little behind the curve on that front. But it's way ahead of most companies when it comes to thinking about integration. That's because the company, a Virginia-based real estate services organisation, has decided to build integration efforts into its e-business strategy from the get-go. It's even hired Neil Singer to get the job done-and given him a title worthy of its commitment: senior vice president of e-business integration.

LandAmerica is in the early stages of e-business planning. The company's major market is title insurance, but Singer says the goal is to use the Web to expand into other real estate services for lenders and real estate brokers. The 20-person e-strategy team is just figuring out how to put that plan into action. "We're still going through our market research and trying to identify the costs and benefits involved in creating this strategy," he says.

Singer has been charged with making sure that technical integration issues are built right in to the company's e-business strategy; the business and technology aspects of integration themselves are integrated in Singer's role. "It's a fairly unusual situation," he says. "Usually, you have business executives who talk about the business opportunity and functionality of a system. But they defer to IT when it comes to talking about the architecture."

Singer will draw on past experience as a CIO to translate technical integration issues for his business-side peers. "Most of the senior management at this company don't have IT backgrounds," he says, so they don't fully understand technology issues.

Once the team begins building, Singer is confident that his presence at the table will keep integration challenges at the forefront. "From my side of things, we're really trying to identify what the value proposition is for the customer," he says. "And when we build out the technology, we need to make sure that that value proposition remains visible to everybody involved."

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