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Small World, Big Business

Small World, Big Business

It's a quandary. The world's fourth-largest continent is so sprawling that Australians must be creative to serve local interests. But it's also so isolated that its businesses are global by necessity. As CIOs worldwide are pressured not only to serve global markets but also to make their companies facile at one-to-one marketing, the Australians have tackled these problems already, with edifying results.

Whatever the competitive challenge -- logistics, deregulation, customer loyalty -- the Australians look at it from a much more challenging perspective. They pride themselves on their creativity (see "Australia Unbound"), and they've squeezed productivity where others might not have seen it.

Many Australian companies have outgrown their regional boundaries and become national -- even global -- entities unmatched by American corporations.

Australia's four largest banks, for instance, have expanded beyond the borders: National Australia Bank owns Michigan National Bank in Farmington Hills, Michigan. Likewise, North American customers of telephone companies US West or Ameritech receive monthly bills designed by IT folks within Telstra, Australia's telephone behemoth.

A common link for these breakthrough strategies for global effectiveness and local efficiencies is the IT department. The following examples of some of the most creative strategies found in Australia -- from banks, retailers, manufacturers and even the phone company -- are offered with the belief that they can apply anywhere. The Australians may be far away, but they're not far out.

Beyond Loyalty

Comparing a $20 billion Australian retail giant Coles Myer to a single American corporation is impossible. Imagine a chain combining Federated Department Stores, Home Depot hardware stores and Safeway supermarkets and you'd be close.

Coles Myer CIO Jon Wood recognised that the company's FlyBuys loyalty-card program, begun in August 1994, was a two-edged sword. The program tallied important data about the habits and preferences of customers at the company's retail outlets: Grace Bros (department store), Bi-Lo (discount), Officeworks (office supplies) and Liquorland (beverages) among others. But the awards program, which offered free airline trips, was expensive and, according to Wood, boring.

Wood came to the CIO position in 1998 from the marketing department, not IS. So not surprisingly one of his first priorities was to change the structure of the loyalty-card program. "Loyalty cards don't work for retail because you have no flexibility to offer different services to different customer groups," he says, and the folks who shop at Bi-Lo represent a different demographic from those who shop at Grace Bros. Coles Myer has acquired multiple stores as a matter of efficiency in its limited market, but that didn't mean it couldn't serve each demographic group well.

Wood tried something so simple it was brilliant -- he asked customers what they wanted from the FlyBuys program. A whopping 80 per cent used the program vouchers toward purchases at stores within the retail chain. So Wood nixed the airline part of the program -- decreasing FlyBuys' cost to Coles Myer by 35 per cent in the process -- and rejiggered the system to create something he's never seen anywhere in the world. Now FlyBuys cardholders get base points. They get bonuses based on the particular products they buy, the stores at which they shop or times of day they shop. Select customers, the ones who are deemed most loyal and profitable, get VIP points. Soon all customers will be able to use kiosks when they enter a store, swipe their card and receive coupons for items that are on sale in that store.

"This is much more flexible for marketing," says Wood. "You can use it to drive traffic on slow days or for products you need to push." It helps Wood understand customers' behaviour better. "It's a shift from looking at how products [are sold] to knowing who is actually buying products." The Multimillion-Dollar Phone Bill Telstra is perhaps the easiest Australian entity to compare with an American counterpart. It's like AT&T before Judge Harold Greene broke it up in 1984 -- that is, if AT&T had also provided local telephone service everywhere in the United States.

In 1997 one-third of Telstra was privatised and today is traded on the Australian Stock Exchange. The government owns the other two-thirds, and at press time legislation was being debated in the Senate to privatise the whole company, or at least another third. Part and parcel of the privatisation is increased competition.

Dwight King, the putative CIO who goes by the unwieldy title of executive director of customer process and information, takes competition very seriously.

From an IT standpoint, he's not satisfied with serving just Australia, mostly because Sydney-based Cable & Wireless Optus and England-based Vodafone are just two of the dozens of companies now vying with Telstra for the lucrative telephone and networking market. (How lucrative? Thirty-two per cent of Australians carry mobile phones, the highest penetration per capita in the world, higher even than in the United States.) Like a lot of government agencies, King has diversified. Like a lot of private companies, he can't rely on Australia's limited market for success. "How much can we grow in Australia?" he insists. "We have to expand offshore to grow." Through an arrangement with Andersen Consulting LLP, Telstra has sold its Flexcab billing system -- which cost multiple millions to develop -- to six other telecommunications companies, including American telecom companies US West and Ameritech and Telecom Argentina in Buenos Aires (Telstra declined to divulge the exact development cost or the other three customers). Even so, King insists, "We are not a software development house. It's Andersen's gig. I get token revenue from it." But there are payoffs. If anybody in the federal government asks how well the billing system works, King can boast that it's being used on two other continents. "The other value I get out of it is to work with other carriers," he says, noting that when the folks from Telecom Argentina came over to conduct due diligence on how the billing system worked, King arranged a deal whereby productive members of his staff could travel to Argentina to see how it was implemented and run (12 staffers have already made the trip). "Australians like to travel," he says casually, "and we share best practices as well." Lending a Hand Just as there's no easy US counterpart for Coles Myer, neither is there one for Macquarie Bank (named for Lachlan Macquarie, one of New South Wales' first governors). It handles both institutional and retail investing, so it's part Goldman Sachs and part Charles Schwab. With 350,000 retail clients, Macquarie's cash management trust is the largest in Australia.

Part of the local challenge for Australian CIOs is finding expertise to get the work done, and most of them have outsourcing deals in place for one or more facets of their business. For instance, Gail Burke, executive director and head of information services for Macquarie, outsources her wide area network to British Telecommunications PLC and her mainframe system operations and technical support to IBM Global Services, taking advantage of their expertise in those arenas. But in 1998 she realised Macquarie's IS department had expertise that would allow it to conduct outsourcing for other companies -- specifically, smaller firms doing the same kind of mutual funds processing as Macquarie, but that didn't have the same IS resources.

Although not unheard of in the financial services field, Macquarie's tactic is a rarity in most regions. Essentially, Macquarie piggybacks the smaller companies' back-office systems onto its own, thereby amortising the investment it's made in funds-management software and earning incremental value. There is no competitive conflict, says Burke. "There's a lot of consolidation in funds management, and the small players are finding they can't compete across every product line because IT costs are enormous. They're choosing to specialise in one product or another or in advice." As a result, Burke is beating IBM and Electronic Data Systems (EDS) at their own game, offering her IT group's systems expertise for less than the big outsourcing firms would charge. "The way the markets evolved, fund managers are going to other fund managers [like Macquarie], not an IT service company," smiles Burke, noting that the smaller funds are not just looking for IT capabilities. They're looking for product knowledge and the larger company's capability for providing service. Macquarie, meanwhile, scores big public relations points as a larger company reaching out to smaller companies, and Burke shows that she's found a savvy way of feeding money to the IT bottom line. She's already paid to build and deploy the systems internally, after all.

Why not derive some external incremental value from them? Major Movie Deals One week this [northern] spring, the number-one movie in America was the Robert De Niro-Billy Crystal comedy, Analyse This. A couple of weeks later, the top spot was held by the Keanu Reeves-Laurence Fishburne science fiction drama, The Matrix. What these two disparate films have in common is a production company (working jointly with Warner Brothers) with a name unfamiliar to American movie audiences: Village Roadshow. Housed at the back of a tiny shopping mall, behind one of its most lavish theatres, Village Roadshow is taking advantage of its American competitors' complacency and attacking the world market, according to Joe Locandro, general manager of information technology.

Village Roadshow's film business is three-pronged: production, distribution and exhibition. That means it's already got a leg up on American competitors -- since 1948 US antitrust legislation bars the companies that make the movies from owning the theatres that show them. Like Telstra's King, Locandro says for Village Roadshow to grow it must expand outside Australia, and he chortles that the market is wide open for an international film exhibition company. "The Americans are content with their large market share, and the Europeans are too fragmented" to grow globally, he says.

Like King, Locandro relies on IT and telecom improvements for expansion. He's signed up with Global One, a joint partnership of Sprint, France Telecom and Deutsche Telekom, to provide a global virtual private network for international operations. Having what he calls a "tier one operator" that can operate in any market in the world cuts through the thicket of local regulations much quicker and eradicates the issue of geographical boundaries.

That way, he says, executives in Australia can dial in at 6am to see the receipts from the previous evening in Germany instead of having to go to the IT department to request a report. And anytime a film exhibitor can find out fast whether to boost advertising on a film because it's hot or yank it because it's cold, the effect to the bottom line is calculable.

To achieve Village Roadshow's goals, Locandro thinks both globally and locally.

The company uses videoconferencing to break the tyranny of distance, but it also stays cost-conscious and practical. "If you're a large whale in a large sea, you don't think of the cost. We're not, and we're focused on being cost-effective."Senior editor CIO (US) Howard Baldwin can be reached at hbaldwin@cio.com

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