Juggling resources

IT executives let business value drive decisions for managing short-term needs.

By Suzanne Gaspar
Network World, 06/24/02

Dow Chemical's 2001 merger with Union Carbide ate up IT resources that were shifted to support the transition and that stalled progress on other projects. It was a matter of aligning corporate business strategy and spending appropriately, says Bill Lehrmann, director of IT planning and strategy for the chemical giant in Midland, Mich.

"That obviously did take a chunk out of other investment activities that were either killed or slowed down," Lehrmann says. For example, advanced planning systems for Dow's supply chain had to be delayed a year, and the deployment of new global health and safety systems was stalled for 18 months.

Adjustments to short-term and long-term projects freed up the money and staff needed to convert Union Carbide's systems to Dow's systems earlier this year. About 30% of the IT budget was funneled toward migration costs, which exceeded $100 million.

The downturn in the economy forced Dow to reduce IT spending by 3%, despite the company's focus on the business value of technology investments. Scrutinizing, prioritizing and modifying delivery dates and schedules of technology investments has become the norm, Lehrmann says.

Balancing IT expenditures is a juggling act between current costs and future spending. However, a company's strategic plan for IT helps decide when and where to spend. Consensus between the business and IT leaders for prioritizing projects is key for managing short- and long-term needs.

When short-term projects pop up, IT shifts gears to support sudden company needs. For example, Fannie Mae's call centers became overloaded by customer loan refinancing requests last year and needed additional staff. IT responded by moving four of the largest call centers to the Apropos Multi-Channel Interaction Management Suite, which balances call volume across the centers and routes calls to customer service representatives.

"We now have the ability to leverage calls across a much broader set of expertise, and don't have to go through the expense of hiring temporary staff," says Bill Pugh, senior vice president for enterprise systems management for the Washington, D.C., firm.

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Likewise, a divestiture can drive up IT costs yet create benefits, as DuPont learned in February when it announced it's plans to spin off 23% of the company - 22,000 employees - into the DuPont Textiles & Interiors subsidiary.

Initial strategies for securely partitioning the telecom network were drawn so that applications could get parsed out and replicated based on the new company's service needs. But the split also slashed technology consumption levels, which raised previously shared operating costs that are charged to each department, forcing IT to re-evaluate technology goals and allocations. Additionally, 150 of DuPont's 1,000 IT pros will move over to support the new subsidiary, which is expected to branch off by Jan. 1.

Still, the business move will let IT accelerate the pace of its long-term goal for moving to SAP 4.6, says Diane Strickler, director of technology integration for the Wilmington, Del., chemicals and materials manufacturing company.

The magnitude of work required for creating a separate SAP environment to support the new business unit justified upgrading to the next version. "Accomplishing two objectives at once ensures that IT gets the maximum value out of what it's doing," Strickler says.

But Gerald Shields, vice president of insurer AFLAC in Columbus, Ga., discovered that immediate needs could conflict with long-term projects. A new PeopleSoft system could be months away from completion, yet new reports are needed today that require modifications made to the payroll system, Shields says. "That happens every day where you have a system coming in, but it's six months out, and you have to spend money to go into today's system and make changes."

Project pipelines can help govern the decision for IT investments, Lehrmann says. Dow Chemical's project process allocates an increasing percentage of time for three separate stages of researching a potential IT investment. Passing the third stage defines a commitment to the project.

"We look at the risk associated with the economic viability of the particular investment opportunity," he says.

Strickler recommends letting the business heads make the tough calls for prioritizing the to-do and wish lists, thus letting IT stay focused on the technology. "Anytime you can have the business making those choices, the better off, because invariably it's going to make someone dissatisfied. Better if they understand that it was a corporate strategic decision that was made, not an arbitrary decision made by IT," she says.

Understanding the return on investment is more important than cutting costs for Fannie Mae. "If you can't answer the question about the business value, whether you save money or not becomes less important," Pugh says.