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Technology
Growing Technology - ROI
In the current economic environment, everyone is looking for the big technology payoff. Here's how to boast e-business profitability by using winning strategies.
In cooperation with Aberdeen Group
Business Intelligence
Financial Management
Demand Chain Management
Customer Relationship Management
Total Supply Chain Management
In the current economic environment, everyone is looking for the big technology payoff. CFOs are in the driver's seat and are demanding that IT investments be part of overall corporate strategy. In order to provide value, technology must be totally integrated into the organization. It's the only way to increase productivity and gain competitive advantage. As corporate America flexes its muscle to boost earnings and performance, the old axiom "invest in technology for technology's sake" doesn't ring true anymore. Instead, the new mantra is "show me the money." As part of the trend, many managers have hitched their performance prospects on business-intelligence software that helps them harness torrents of data scattered throughout their organization and gain insight into how to achieve short- and long-term goals.
The technology—which can do everything from helping enterprises improve product, sales, and customer analysis to managing their supply chain—has been a catalyst of change for visionary companies reinventing themselves to meet the demands of the global economy.
Over the past several months, the technology has gained more recognition among executives due to the growing emphasis on corporate governance and financial reporting. Grappling with new regulations imposed by the Sarbanes- Oxley Act, managers must have complete control over their data so they can make the right decisions. They cannot be victims of corporate dysfunction. The risks are just too high.
Taking all of that into account, financial managers are loosening the purse strings for technology purchases. That should continue over the next several months as economic storm clouds begin to lift and CFOs increase corporate spending. Most are heartened by the fact that the pulse of the economy continues to get stronger. Over the past seven months, the S&P 500 has climbed 30% and the Conference Board's index of leading indicators—which tracks everything from manufacturing activity to consumer confidence—has been on the rise. It's no wonder, then, that leading economists
predict that GDP could top 6% for the third quarter of 2003, nearly double the 3.3% recorded in the second quarter and far ahead of the first quarter's 1.4%.
Jean Kovacs, president and CEO of Comergent Technologies, a vendor of demand chain management solutions based in Redwood City, Calif., has observed the uptick in activity firsthand. "Over the past six months business inquiries have picked up. We've had more inbound calls and requests for information about our technology than ever before."
Christopher Fletcher, vice president and managing director of Aberdeen Group, a technology consultancy based in Boston, says his firm is "cautiously optimistic about the trend." But you can't take prognostications to your stockholders or the bank. What companies need to do is focus on improving corporate performance. After all, says Fletcher, "no corporate executive can rely on the economic turnaround to solve his organization's ills." As he suggests, technology can be a powerful management tool when implemented correctly. But, Fletcher adds, "businesses need to make sure that any enterprise software they wish to adopt can provide a substantial return."
That is not as easy as it sounds, however. Measuring ROI has become a mind-boggling exercise. As the demand for cost justification has increased, ROI calculators and declarations of projected return have begun to appear everywhere. Unfortunately, though, there are few accepted standards for comparing returns on investments in business-intelligence enterprise software. For that reason, experts advise companies to do their own proprietary analysis to determine what products and services will be worth the investment.
When assessing a technology's prospects, consider how long it will take your organization to reap benefits. While a lot will depend on the nature of your business, the company's organizational structure, and the type of technology being deployed, keep in mind that most companies expect their investment to pay for itself within a year or so. Judy Bayer, CRM and analytics practice partner at Teradata Northern and Western Europe, reports that corporate managers now expect projects to generate ROI within a 12- to 18-month period.
To help managers learn about the ROI prospects of this type of enterprise software, we profile five types. They fall into the following business-process categories: business intelligence and analytics, financial management, the demand chain, customer-relationship management, and supply-chain dynamics.
BI and Analytics: The Key to ROI
As a recent Aberdeen Group report noted, the walls separating different data stores within a company delay competitive-advantage data analysis, add major overhead costs to the process of creating queries and to transactions across data boundaries, and mire today's efforts to leverage proprietary information into long-term revenue enhancement in a hopeless game of "catch up" with enterprises' growing cache of information.
It's therefore no surprise that much of the interest in new investment involves enterprise data warehousing, improving reporting, making more information available faster to support decision-making, and building an infrastructure to improve customer management. According to a just-completed Aberdeen Group survey, worldwide business-intelligence and data-warehousing software expenditures are expected to continue their steady march upward, going from $9.7 billion this year to $11.8 billion in 2006.
Focusing on your company's ability to store, integrate, and analyze data yields twin rewards: a more streamlined, integrated enterprise data infrastructure and a sharpened capability to analyze that data. Together, they yield a payoff in the form of a more agile and competitive, and ultimately more profitable, company. And that same empowered infrastructure will make it possible to determine precisely the actual ROI from a deployed project.
Once upon a time, business intelligence was solely about strategic planning and long-term performance monitoring. High-level data was fed into a separate data warehouse, and the reports that were run from it were studied for business insights.
Times have changed, though, and so has the potential return from data management and analysis systems. According to Guy Creese, research director, knowledge management and analytics at Aberdeen, "Instead of responding to market changes and making decisions at a later date, companies now are getting more into how to leverage insights from business intelligence in real time."
Karen Williams, vice president of product marketing at Ottawa-based business-intelligence vendor Cognos, agrees. As she explains, more corporate managers grappling with the rapid speed of marketplace change are now looking for tools that can help them access critical information instantly so they can solve problems quickly. Cognos, a 34-year-old company with 3,000 employees, offers enterprise business-intelligence, planning, and scorecarding solutions. The technology allows managers to chart and monitor various aspects of company performance so they can assess everything from the effectiveness of global marketing campaigns and the average cost of sales to which products are most in demand at specific retail outlets.
Many companies have turned to Cognos to streamline operations and boost productivity. One is Aspect Medical Systems, a supplier of devices to monitor the effects of anesthesia on patients' brains in clinical and operating-room settings. The company, based in Newton, Mass., sought help from Cognos two years ago because it needed to improve forecasting, inventory control, and the monitoring of scrap, or raw materials not going into salable products, says John Coolidge, Aspect's vice president of manufacturing.
All that data could be extracted from Aspect's QAD enterprise resource planning system, but the process was very labor intensive. "We used to spend hours each week mining data for alignment of actual product shipments," says Coolidge. "Cognos has enabled us to completely eliminate this process. Within two days of the request, we have a working report that is current and used by all users." He estimates this reporting efficiency has resulted in a savings of about $84,000 annually—a significant sum for a small business. Improved forecasting accuracy also has led to better inventory control, with the inventory turning over an impressive eight times a year, compared with an industry average of five to six. Prior to the Cognos implementation, inventory was turning over 1.5 times a year.
The Cognos tools have also helped drive revenue growth. By interfacing with Aspect's Siebel Systems sales-support platform, Cognos can allow executives as well as the field sales force to closely monitor both in-house and OEM partner sales patterns and identify additional sales opportunities.
Coolidge says Cognos has helped keep Aspect's information technology costs in check. "We run a fairly lean IT group of three people. We're a very data-driven company, relying on an intranet portal where all these Cognos reports get collected. Inevitably, all the different managers want different types of reports—different tools for different needs. Prior to acquiring Cognos technology, we were really bogged down getting them. Now all of that frustration and concern are gone." The tale exemplifies just how a business-intelligence investment can revolutionize operations.
Financial Management 101
Being a corporate manager is brutal. Today's economic environment is pressuring managers to provide more timely and accurate information to stakeholders and decision-makers across the enterprise and beyond, and to do so with fewer resources. While businesses get bigger and more complex, they are striving to be leaner, more flexible, and more adaptable.
Meanwhile, recent corporate-accounting scandals have led to sharply increased scrutiny of management. The Sarbanes-Oxley Act now requires that CEOs and CFOs of public companies personally certify that the reports their companies file with the Securities and Exchange Commission are accurate and complete. It also requires companies to rapidly disclose any material changes in their financial condition.
Susan Kane, vice president of product marketing at PeopleSoft Financial Management, a business unit of PeopleSoft, Inc. of Pleasanton, Calif., agrees that the world of corporate finance is a challenging place to be at the moment. "CFOs have over the past two years been in the hot seat. It's been an era of sweeping governmental and regulatory changes, not just in the U.S. but internationally."
While the recent changes in reporting and accountability have been designed to encourage fiscal integrity and honest financial reporting, those changes come at a cost. Kane notes that corporate compliance costs for FORTUNE 500 companies may soar to up to $10 million annually thanks to Sarbanes-Oxley.
Kane urges companies to view the new requirements as an opportunity: "In most cases, companies are working on systems that are ten or 15 years old. As a result of multiple acquisitions or aggressive expansion, they now have a patchwork of financial systems that don't speak the same language, let alone deliver consistent data. And because lots of human intervention and data reentry are required to close the books, the accuracy and integrity of the financial information used for regulatory and management reporting may be compromised."
The required senior management certifications of accuracy and completeness inevitably will force many companies to consider upgrading to modern financial reporting systems with built-in finance best practices, internal controls, and enterprise performance metrics. In its Enterprise Financial Management product line, PeopleSoft offers a wide array of product modules, including analytic forecasting, business planning and budgeting, an enterprise scorecard, warehousing and e-procurement tools, and financial management tools, as well as the familiar accounting tools. It also provides solutions for regulatory compliance: the Internal Controls Enforcer, the Investor Portal, the CFO Portal, and Global Consolidations. In a perspective report on PeopleSoft's Financial Management Solutions, Alan Yong, research director of financial analytics at Aberdeen, called the software a "cutting-edge financial reporting system."
In September, the company unveiled PeopleSoft Enterprise Financial Management 8.8, its next-generation suite of financial management applications. Scheduled for release in the fourth quarter of this year, this version will offer best-practice enhancements such as intelligent self-service, which allows those employees closest to the business process to take responsibility for transactions, and embedded analytics, which makes it possible for financial intelligence users to analyze data on their desktop.
The new release will help companies comply with the business and regulatory reporting requirements of Sarbanes-Oxley through system controls such as real-time cash positioning, automatic bank statement reconciliation, duplicate vendor prevention, and proactive credit and collections. The company also offers a flexible approach to implementing the International Accounting Standards and conforms to the electronic-payment format required by the Healthcare Information Portability and Accountability Act and the Joint Financial Management Improvement Program.
The state of North Dakota, which has 8,500 employees and an annual budget of $5 billion, has used the issue of new transparency and reporting requirements as an opportunity to cut costs through upgrading its 200 disparate management systems into ConnectND, a single solution consisting of PeopleSoft Financial Management Solutions, Human Capital Management, Student Administration, and Government and Campus portals. The state's version of the reporting issue involves Government Accounting Standards Board (GASB) statement 34. GASB 34, issued in 1999, established an entirely new financial reporting model for state and local governments.
"So much more information is needed for GASB 34," says Pam Sharp, the director of North Dakota's Office of Management and Budget (OMB). "Before, we downloaded information from our mainframe system and manually typed the financial data into spreadsheets. But it still didn't provide all the information we needed."
With the new system in place, the North Dakota OMB will be able to provide detailed financial and performance information on state-government operations to the legislature. State officials report that the PeopleSoft solution will yield ROI in the form of a $7.9-million annual savings through the elimination of duplicate systems, the automation of workflows, and improved business practices. In addition, self-service human-resources applications that are part of the deployment are expected to yield $2 million in annual savings.
Software in Demand
What was once a simple, straightforward business philosophy, "Buy cheap, sell dear," has exploded into a set of complex software systems to manage the buy and sell sides of every business transaction for optimal profitability. Known as demand-chain management (DCM) software, this new technology helps managers with many functions that in the past have been associated with CRM softwareÐpromotions, pricing optimization, and partner-relationship management. Of late, this industry niche has exploded as companies scramble to find ways to better support the sales process.
Comergent Technologies, a five-year-old demand-chain management software company based in Redwood City, Calif., offers tools to automate and optimize sales processes. Among them are products that enable enterprises to place product catalogs on the web, lead customers through guided selling and configuration processes, take orders, and provide order status. Tom Mescall, senior vice president of marketing and business development, says Comergent's technology is designed to use the Internet to automate the many business processes that tie companies to distributors, retailers, and customers.
The company's goal is to make it easier for customers and sales partners to do business with a company. That simple statement masks a complex challenge, however. Bill York, the company's chief technology officer, observes, "You can't tell your customers how to do business. Customers often have different preferences—to interact through a website, via channel partners, by direct purchase. We help accommodate all those processes in a single integrated system."
Comergent accommodated Brooks Sports, a 90-year-old, $120-million seller of running gear based in Seattle, with a web-based business-to-business system and a targeted business-to-consumer website to support several private customer programs. The new system is central to Brooks's strategy, according to president and CEO Jim Weber. Brooks, he says, was looking for a system that would offer to the average running-shop customer capabilities similar to those enjoyed by large retailers like Nordstrom that buy electronically.
The key factors that led Brooks to Comergent, Weber says, were ease of use and the ability to grow his business as needed. In business terms, though, the value of the system is its impact on customer ordering and service. With it in place, retailers can place and track orders quickly and easily. That's essential in an economic climate in which retailers are carrying as little inventory as they possibly can while trying to satisfy customers.
"Unlike our big rivals, who have the economies of scale to price goods at low prices, we compete with premium-priced performance products and top-notch customer service," Brooks says. "We expect the Comergent system to help us streamline our service process, enabling us to save millions of dollars over the next several years, and provide a 75% annual return on our investment."
Weber says the new system, scheduled to be fully deployed in time for the 2003 holiday season, is expected to cut customer service costs by 70% while increasing sales by 30%.
For Choice Hotels, the second-largest franchiser in the hotel industry, the return came when it upgraded its e-commerce system to the Comergent platform two years ago. The technology allowed the company to streamline the ordering process at its virtual marketplace, ChoiceBuys.com, which is the main portal for thousands of its franchisees to purchase products and services from hotel-supply vendors across the country. As Brad Douglas, vice president of emerging businesses at the company, points out, franchisees have saved time and money since the switch.
Just as important, the system has cut the costs of the ordering process in half, adding $1 million to the company's bottom line, according to Douglas. In addition, being able to leverage the technology platform by marketing to independent hotels will substantially increase the revenue contribution.
Another company that has adopted Comergent technology in order to improve its sales operations is the Toro Company, a maker of lawn and landscape equipment and snowblowers based in Bloomington, Minn. For years, Toro's large corporate customers had trouble getting accurate pricing and a consolidated view of their purchasing activity nationwide. That's because they purchase Toro products from multiple distributors or dealers, but at nationally guaranteed prices.
Responding to customer demand, Toro launched an e-commerce sales site two years ago that lists all of its products with prices specific to each account and accepts orders. The site uses the Comergent E-Business System, so online buyers can now easily track orders and obtain consolidated invoicing. Michael Drazan, Toro's vice president of corporate information systems, reports that both order-error rates and account-maintenance costs are down and customer retention is up. He says the demand-chain management system hit expectations after only the third corporate customer was up and running on it and has more than paid for itself.
Profiting from Customer Loyalty
Customer-relationship management (CRM) is a set of practices designed to maximize the profitability of client relationships. It has been the holy grail of financial services since managers realized in the 1990s that they could harness business-intelligence software to better identify and target customers, manage marketing campaigns, generate sales leads, and improve account and sales management.
But as many corporate executives have learned, implementing the technology can be challenging since it often requires the reengineering of established business processes within an organization. As a result, it's very important that managers assess what the payback on a CRM investment will be before they get started and ensure that it is integrated into the business's long-term customer strategy.
"ROI is a very important thing," says Denis Pombriant, a CRM specialist who is vice president and research director at Aberdeen Group. "It needs to be treated a little more seriously than we're treating it. We talk about ROI but don't seem to do the hard work going in that's required to get the answers."
That hard work consists of doing benchmark studies to measure improvements in key metrics such as customer loyalty and profitability. One of the ironies of the present situation is that the data currently available on CRM effectiveness has been drawn from practitioners that haven't been using the technology for very long. There lies the quandary. If CTOs wait to see more extensive evidence of the benefits of CRM, the opportunity to gain competitive advantage will largely disappear as rivals rush to outmaneuver them in the marketplace.
SAP's CRM solution connects front- and back-office functions in a single customer-centric operation, making it possible to use information drawn from multiple data sources and business processes to learn about and analyze the buying patterns of customers. SAP offers industry-specific capabilities in any of 23 different industry groups. Brother International Corp., the U.S. arm of the Japanese consumer-electronics company, has been an SAP user for almost a decade. As the company's office superstore, system integrator, and mass merchandiser growth in the sales of multifunction centers, fax machines, printers, and P-Touch labeling systems skyrocketed in the mid- to late 1990s, so did customer-service calls. When Brother couldn't answer the phone fast enough, product returns started to increase.
The company's national service division responded by upping call-center capacity and outsourcing some customer service to third-party contractors. In response, the rate of returns began to drop. However, Dennis Upton, CIO of Brother International in Bridgewater, N.J., recalls that "all we were doing was answering the phone"—and not all that efficiently, at that. Since the callers were not the company's direct customers—they'd bought Brother products from independent retailers—the national service division realized there was a world of valuable market intelligence on existing customers they were failing to gather from those telephone contacts.
The result, in 2000—2001, was the deployment of a half-dozen modules of the SAP CRM package, with immediate results: The 1.8 million calls Brother handled in 2001 dropped to 1.57 million, allowing the company to reduce staff from 180 agents to 160. Since customer demographic data is now stored and called to the agent's screen based on the incoming telephone number, the duration on 60% of the calls has been reduced by 43 seconds—a savings of over $600,000 per year. Put another way, the existing call-center resources can now handle an additional 100,000 calls per year.
The solutions database that is a part of SAP CRM is the front-line resource for Brother customer-service reps who provide technical support. The national service division reports that the technology has resulted in a talk-time reduction of about 10% on the 60% of incoming calls that concern fax machines, printers, and multifunction devices. That translates into a 39-second reduction in the average duration of these calls, which means an annual savings of over $600,000 per year or an additional 90,000 calls answered.
Upton acknowledges that while he can quantify the return from the CRM deployment in the form of cost savings, he cannot measure the ROI from increased business. "We do know, however, that we get a lot of compliments, so we believe we're really building a stronger brand image."
As companies evolve into extended organizations involved in cross-border collaboration, the links that make up the supply chain have changed. In this brave new world, it's not uncommon for suppliers to also be involved in product development and for foreign distributors to also act as consultants in brand marketing.
Managing these complex operations has become harder than ever, despite advances in online technology. That's why companies that seek to be nimble in the marketplace are looking for ways to gain better control of their global operations. For many, the answer has been supply-chain management software, a set of tools that help managers reign over far-flung empires cost-effectively.
Considering the challenges of deploying such systems, consultants urge managers to study best practices in the industry in order to improve the return on their investments. A May 2003 Aberdeen Group study of supply-chain planning procedures surveyed businesses currently achieving the greatest return from such programs and identified a number of best practices. First, the companies determined how often they should examine and update their supply-chain plans. Next, they made sure to include their network partners—their suppliers, customers, distributors, and transportation providers—in the planning of their supply-chain processes. They also made sure that online collaboration with all of their network partners was possible through a web-based portal that provided connectivity, process integration, and event management. Finally, they examined the sources of the data being used to manage the supply chain, in order to ensure that only accurate and current data would be used to make decisions
What types of supply-chain software are hot now? According to Aberdeen, inventory and warehouse management, material resource planning, e-procurement, and business analytics/data warehousing top the list. And they are being adopted as enterprise-wide tools rather than being deployed haphazardly by different divisions or groups.
Since nearly half of every dollar that a company earns is spent on goods and services provided by external suppliers, technology that can effectively manage and oversee supplier contracts is key. Today most companies still employ a series of fragmented and labor-intensive procedures for creating and managing supplier contracts. In fact, nearly half the companies Aberdeen surveyed continue to store at least a portion of their contracts in paper format, limiting their ability to locate such documents, oversee compliance, identify specific terms and clauses in deals, and analyze contract performance.
Such limited visibility into supplier contracts and performance exposes companies to inflated costs, diminishes their negotiation leverage, and may lead to missed rebates and savings opportunities. It also exposes them to a greater risk of regulatory violations. Aberdeen estimates that ineffective control and management of supplier contracts cost businesses a stunning $153 billion per year in missed savings opportunities.
Another supply-chain challenge is managing service-parts inventory, according to Tim Minahan, Aberdeen Group's vice president and managing director of supply-chain research. That is important because after-sale service is often the key to securing customer loyalty, promoting the company brand, and maintaining competitive differentiation. In addition, the typical company provides support service and parts for an average of more than seven years after the initial product sale, and aftermarket parts and service have profit margins as much as ten times those of initial product sales, notes Minahan. All told, he says, aftermarket service and parts account for 20% to 30% of revenues and about 40% of profits for most manufacturers.
It is hoped that in the future supply-chain technology will help companies to gain better control over their inventory levels so they can improve efficiencies. Right now many organizations have a hard time gauging this activity because they have disparate sources for data, inconsistent naming conventions for parts and suppliers. disconnected inventory planning and execution procedures, and insufficient use of automation and analytics to support supply-chain activities.
All of that leads to poor performance, diminished customer satisfaction, and missed opportunities for selling aftermarket service and parts. The result: billions of dollars in lost sales and profits annually.
—Alan S. Kay
Selling Virtually Everything
Haworth CIO Mike Moon insists that nothing is more important than keeping customers satisfied. Moon should know: Haworth is one of the world's largest contract office-furniture companies. The $1.3-billion privately-held company, based in Holland, Mich., has built its reputation by following that philosophy.
Like many manufacturers, Haworth has defended its market share by developing a system that lets buyers around the globe purchase products electronically. To create that e-procurement site, Moon scoured the marketplace for technology that would allow Haworth to offer a dynamically generated, customized product catalog online. His goal: to make sure his e-commerce site was equipped with an interactive configuration option, pricing and quoting modules, order management, and a seamless interface into any of the e-procurement systems Haworth customers were using.
After evaluating several offerings, Moon chose Comergent. The resulting solution, phase one of which was deployed in April 2003, allows Haworth's corporate clients to select and configure products through a web-user interface. They can also check prices and compare them with their contractual pricing and discount agreements with Haworth, and place orders for merchandise directly or through their own e-procurement systems
It wasn't hard to evaluate the business benefit of investing in Comergent technology. "Had we not come up with this solution and moved forward," says Moon, "we would have risked the loss of business."
The technology has yielded dramatic results. The time it now takes for order processing has been cut in half, and savings from online procurement are running at 30%. Those are benefits that would make any customer happy.
About Aberdeen Group
Aberdeen Group is an information technology (IT) research and consulting organization that closely monitors enterprise-user needs, technological changes, and market developments. Using a comprehensive analytical framework, Aberdeen provides fresh insights into how IT can have an actionable impact on companies seeking to improve their value chains.
Aberdeen Group works for a select group of domestic and international clients that require strategic and tactical advice on how technology can better help them manage their demand and supply value chains.
Headquartered in Boston, Aberdeen has research and consulting divisions in Palo Alto, and Fort Collins, Colo. Aberdeen's independent research can be accessed on the web at www.aberdeen.com.
Creating a Value Network
Is there a change underway in the supply-chain management industry? Mary Haigis thinks so. The chief marketing officer at Optum, a privately held SCM vendor based in White Plains, N.Y., sees a significant shift underway as the industry moves beyond cost-cutting to focus on turning companies' supply chains into value networks.
 That's where Optum comes in. The 18-year-old company, which has 180 employees, focuses on tools that not only make execution easier but also improve visibility and coordination, making it possible to reach out to supply-chain partners in real time to smooth out inefficiencies, anticipate problems, and integrate the entire supply chain.
Optum, offers a series of focused solutions that address specific industry challenges such as, mass customization, contract manufacturing, reverse logistics, service-parts management, and supply-network coordination. These innovative solutions are designed to help companies achieve rapid time-to-value improvements in global supply network management and can be combined into a fully integrated suite that optimizes a company's global supply network.
Optum also offers traditional broad-based supply chain software products. One is TradeStream, a global supply-chain visibility and intelligence solution that coordinates all aspects of the supply chain, both within a company and across enterprises, in real time. TradeStream monitors and manages multiple logistics networks, helping companies improve productivity, reduce inventory, and meet customer delivery expectations. Another product is Move, a warehouse-management system that delivers inventory and ordering visibility and integrates with trading partners. Move enables users to handle complex situations and, since it has a supply-chain intelligence layer, supports real-time management of the warehouse. For help in tracking shipments, the company offers WebShip, an Internet-based transportation and fulfillment solution that also helps managers shop for the best shipping prices.
Traditionally, Haigis notes, improving the efficiency of the supply chain meant maximizing cost savings by decreasing inventory levels and increasing turnover frequency. Those cost savings are as important as ever. But "a properly managed value network also can give you competitive advantage and help you drive revenue by helping you create new business models so you can penetrate markets not previously possible," says Haigis. As an example, she cites using Move to develop "markets of one" by customizing products pulled from a production line for individual customers.
Lucent Technologies, a communications and networking technologies supplier based in Murray Hill, N.J., reached out to Optum three years ago for help in two areas: monitoring and managing the centralization and outsourcing of the logistics pipelines of its multiple business lines and creating a broad view of its global ordering system.
As Dan Fischer, Lucent's supply-chain planning director, recalls, the company did a benchmarking study of its existing technology to determine the extent to which product capabilities matched the company's needs. From that it determined that Optum offered solutions that could help it improve its supply-chain management practices. Lucent now uses both Trade-Stream and Move. The deployment has enabled the company to get a complete picture of what's happening with orders.
Thanks in part to Optum's software and services, Lucent has successfully reduced its warehousing and logistics costs by outsourcing. In North America, for example, it has been able to reduce its number of warehouses from more than 200 to only 15, none of which the company owns.
"That strategy of outsourcing has worked tremendously well for us," says Fischer. "That would not have been possible without TradeStream as the integration point, because we wouldn't have had visibility and control of what's being done on our behalf."
Lucent has also been able to improve customer on-time delivery by some 15% in the past year, to 96%. A lot of that, he notes, is being driven by the order-status visibility that Optum's tools deliver.
Technology's Promise
Everyone knows that knowledge is power, but never have CEOs been more evangelical about this age-old axiom than today. That's because they realize their most valuable strategic asset is their data, a gold mine hidden within the core of their organization that, when tapped, can unleash an array of new market opportunities to boost operational efficiency and profitability. It's a savory prospect many managers find too good to ignore.
But executives are discovering that to be successful they have to invest in technology that gives them a single wide-angle view of their company, not a portfolio of snapshots of its different departments and functional areas. That is the only way they can effectively oversee day-to-day operations and develop long-term strategic plans.
For these forward thinkers, the answer is integrated data management and analytical tools anchored by enterprise data warehousing (EDW) technology, products that serve as a companywide repository for all the data generated by corporate divisions and business systems. This technology allows all information to be integrated, regardless of what system it originated in, giving senior managers what they are yearning for—a "single version of the truth." Just as important, the information can be updated in real time and rapid and repeated ad hoc querying of data is possible—two essential capabilities for positioning a business to quickly respond and adapt to unexpected changes in the marketplace.
Companies at the forefront of this movement are expected to outflank rivals nipping at their heels. As Sid Adelman, a database consultant in Sherman Oaks, Calif., sums it up, "I believe they are going to kill their competition." Many of the early adopters are already doing just that.
The ROI Challenge
The champions of this technology understand the value of enterprise data tools and are eager to show CFOs the bottom-line benefits of corporate mindshare. It's not surprising that many have turned to the enterprise Teradata Warehouse, a single companywide data store that not only delivers ROI but also enables smarter decision-making by making it possible to track the metrics of a host of business-intelligence tools—from customer-relationship management to supply-chain management.
Since its inception 24 years ago, Teradata, a division of NCR, has quietly carved out a foothold in its industry and become the recognized leader in enterprise data warehousing, analytics, and services to rationalize and optimize data. Today its client list reads like a Who's Who of corporate America, including: 3M, Bank of America, Continental Airlines, Delta Air Lines, FedEx, Office Depot, SBC, Sears, and Wal-Mart. For those market-leading companies and numerous others, Teradata's lure was its advanced technology and consulting prowess.
Teradata sells against some tough competitors—including Oracle and IBM. To sell its products and services to companies today, says Vickie Farrell, vice president of Teradata Warehouse marketing, the company must show clients how their investments will generate returns.
"One of the things we've worked on with customers is achieving ROI and helping them to measure it," Farrell notes. "Over the years we've gotten good at it, and as we've encouraged customers to do that ROI analysis, they've gotten very good at it too."
Teradata's track record demonstrates that it isn't hard to make the case for its enterprise-wide data infrastructure. That's because customers report that it delivers the capability to consolidate financial information faster and perform more meaningful analysis. Companies that have invested in the technology have been able to shorten their close cycles, reduce overhead, manage expenses more closely, reduce inventories, and provide managers with the information they need to make better business decisions—faster.
Harrah's Entertainment, based in Las Vegas, is a good example, according to Farrell. The gaming giant, which has a far-flung empire that includes 26 casinos nationwide, implemented its Total Rewards customer-relationship program using a Teradata Warehouse in 1997. It was a major project that involved deployment of the data warehouse, substantial business-process changes, the development of a new set of performance metrics, and a reengineering of how Harrah's looked at its customers. Evaluating such a project, Farrell notes, required looking at the ROI not of the Teradata technology but of the Total Rewards program.
So far the returns that Harrah's has reaped from the technology investment have been impressive. The company has saved $20 million a year in overall costs while increasing same-store sales growth by 14%. It has used the clearer picture it now has of its customers' interests to create incentives that encourage customers to visit Harrah's properties nationwide. As a result, the number of customers playing at more than one of the company's properties has soared by 72%, increasing cross-market revenues from $113 million to $250 million in the first year.
The Big Picture
In modern companies, information is everywhere. Data lives in financial and back-end enterprise resource planning systems, customer-facing systems, and manufacturing and supply chain systems. That breadth of data is often a company's strength.
But it can be a challenge as well. Aberdeen Group, a Boston-based IT consultancy, notes that the "frontiers" between information repositories cause problems. They slow effective data analysis. They increase the cost of running queries and completing transactions across data boundaries. And they hinder today's urgent efforts to leverage proprietary information into long-term revenue enhancement.
The data warehouse has a simple mission in a complex business environment. It's a tool for telling the whole story—for breaking down silo walls and providing senior executives with a broad view that is essential for strategic decision-making and rapid marketplace response. It can also support all the key business processes that contribute to profitability, with tools added to extend its power into financial and business management and demand and supply chains.
There are many arguments for a single enterprise-wide repository for corporate intelligence. Departmental or divisional data marts each require maintenance, and those costs add up. It's very difficult to ensure calculation accuracy across multiple data marts, and nearly impossible to get a rapid response to an ad-hoc query that crosses departments or systems.
But, as with so many things these days, ultimately it all comes down to money. Not only is an information infrastructure that relies on multiple data marts less effective than an enterprise data warehouse; it is also more expensive to maintain. Studies have shown the annual cost of maintaining each data mart to be $1 million to $2 million.
 Teradata takes seriously companies' need to cost-justify the purchase of its products. Aberdeen analyst Alex Veytsel has observed that the Teradata Business Impact Model (BIM) is a notable example of vendor-supplied ROI analysis. The program employs full-time financial analysts to discover the hidden costs and benefits of, for example, consolidating multiple data marts. According to Veytsel, "With more than 100 assessments under its belt, the BIM team has seen 95% of its ROI estimates met or exceeded by clients."
Cheik Daddah, a senior consultant on the Teradata BIM team, points out that although the modeling process usually starts with one of his team's 40 vertical industry templates, it is largely about working with the customer to understand in detail how its business works. The goal is to tailor a solution for the customer that will yield the best returns.
"ROI determination is more an art than a science," says Daddah. "There are lots of factors that have an impact. The template is a good starting point. But in this process we address not what's general but what's specific to the company we're working with."
Performance Takes Center Stage
Despite the challenges of implementing the technology, many corporate managers feel the investment is critical. New government regulations on corporate governance and fiduciary responsibility have made it a budget priority. As a result, senior executives are working with their IT departments to find ways to provide more timely and accurate enterprise information to regulators, stakeholders, and employees. But because they are under pressure to control costs in order to boost their earnings profile, executives are demanding to see a quick payback on the technology.
One area they are increasingly focusing on is financial analytics and business performance. That gives them the ability to analyze accounting and profitability trends and do benchmarking to boost operational performance. Having financial data at the heart of an EDW not only addresses many of these issues but also increases the value of data in other areas of the business.
Everyone is trying to make their business processes more transparent, observes Barb Swartz, the director of Teradata Financial Management solutions. "Having all its financial information in one place enables a company to better manage its ROI," she says.
SBC Services, a subsidiary of telecommunications giant SBC Communications based in San Antonio and a Teradata customer, has used this strategy for years. Today it may have the largest commercial data warehouse in the world. (Actually, it may have the second-largest, behind Wal-Mart, also a Teradata Warehouse customer; no one knows for sure on any given day.) SBC needed a tool to consolidate the detailed financial data across its enterprise. Bringing it all together in common databases got them to a spot where they could then transform the data into a standard look and feel for everyone.
The Teradata Warehouse was originally deployed to support the finance organization. But now the transactional data operations are centrally stored, so other organizations within the company can access it as well. For instance, marketing uses it to understand customer behaviors to develop the right products and services, and then target-market to individual segments. Both the enterprise-wide Teradata Warehouse and analytic applications have helped SBC in its efforts to transform its cost structure through standardization and optimization of systems and processes.
What is the value of having a closeup on the corporation's financial picture? At the very least, for companies like SBC, it allows managers to precisely determine the costs of products to better predict enterprise-wide revenue. But just as important, it helps them develop a more focused corporate strategy.
Know Thy Customer
There is no more powerful use of a single integrated data store than to maximize top-line profitability. But how can you do that if you don't know your customers?
A single view of all information about clients and their buying habits makes it possible to determine their value to the company, and thus to segment the customer base in ways unimaginable when sales and marketing touchpoints were siloed in separate systems.
 A data warehouse supports the development of effective communication campaigns. At the same time, it makes possible campaign cost-effectiveness tracking, and in fact evaluation of the overall effectiveness of the company's customer-facing tools. And, of course, having a single real-time view of the customer on the screen of a call-center agent is likely to yield increased customer satisfaction
As Judy Bayer, a London-based Teradata CRM and analytics practice partner, notes, "The power of analytics starts with leveraging detailed data continuously gathered in your enterprise data warehouse from across all customer touchpoints and systems. Ask any question. Get the answer. It's a technology-enabled, intelligence-creating process. With new insight you can improve your customer equity and customer satisfaction and retention while also generating ROI."
Few businesses are more customer-focused than airlines. With more than 2,200 daily departures, Continental Airlines is one of the world's largest flyers. From a data-management perspective, though, until recently it couldn't be seen by its own top managers as one company.
"We had different versions of the truth, with data coming from different systems," recalls Alicia Acebo, director of data warehousing at the Houston-based airline. There simply was no way to look at the entire business, to see how events were related or influenced one another. "You could look at one piece of the business, but you could not look across the board."
The solution, Continental executives concluded in the mid-1990s, was an enterprise data warehouse. After an evaluation of available platforms, the company chose Teradata as the clear winner. "Where Teradata has its strength is when you are submitting lots of ad-hoc queries. Teradata takes minutes to process them, while the other systems we compared it with take hours, or the ad-hoc queries never come back," Acebo says.
Launched in 1998 to support passenger-load forecasting, the data warehouse is fed today in near-real time by 27 operational systems, including schedules, inventory, reservations, airline tickets, the airline operational system, the One Pass frequent-flyer program, customer profiles and demographics, aircraft maintenance, alliance data, employee and crew payrolls, and customer care. More than 1,000 users have fast and easy access; since it contains deep layers of operational data, it can be used for both strategic planning and tactical decision support.
That investment didn't take long to pay off. Within a year, Continental was seeing payoff on the cost of the system. According to the Data Warehousing Institute, which awarded Continental's central warehouse its 2003 Leadership in Data Warehousing award, the airline has garnered millions of dollars in cost savings. In addition, revenue increased in 2002 thanks to the company's use of four business-intelligence applications: revenue management, fraud detection, crew payroll, and customer-relationship management.
Replacing all of the company's data marts proved to be a big savings in buying new systems and paying developers to develop the data stores. "We did those calculations; there's millions of dollars in savings in not having to do new expenses," Acebo notes. And the company is seeing a return in areas it did not anticipate. "Once the data was there, we're asking 300 questions, not the ten we anticipated. And we're finding we're able to save money or increment revenue or understand better."
Now that Continental is able to determine customers' profiles, preferences, and behavior, the company can analyze how it might affect that behavior profitably. For example, according to Acebo company officials were surprised to learn that delays and cancellations did not significantly affect the behavior of its customers. What did make a difference, it turned out, was how Continental dealt with those annoying events. That led to an understanding of how personnel can best interact with the most valuable customers to retain their loyalty.
"Today," she says, "we know immediately when any of these events happens. First of all, we can notify those valuable customers about the events, since we know who's on that flight, who is a valuable customer, who has said he or she wanted to be notified. And if there is a delay or cancellation, how do we reaccommodate those passengers? It used to be that the first one to get to the gate agent or the one who was yelling the loudest got reaccommodated first and got the better options. Now it is done by an intelligent system behind the scenes that uses the information in the data warehouse to determine how to reaccommodate these passengers based on their value as a customer. It's a complete change in how we do business."
Nurturing Relationships
As customers gain power and options in the marketplace, visionary companies are safeguarding and reaching out for market share through relationship marketing—maximizing profits over the lifetime of a customer relationship. Such relationships are possible only after companies segment and personalize their databases so they can get a 360-degree view of each client.
RBC Royal Bank, one of the world's largest financial services companies, recognized this trend early. It had its epiphany after conducting a study on the competitive banking landscape six years ago. Contrary to the prevailing wisdom that bank customers wanted only accessibility and convenience, RBC learned they also yearned for more personalized contact.
"Our clients expect us to know them," declares Ted Brewer, vice president of CRM and information management. "More important, they expect us to offer products and services appropriate to their needs."
That's a huge undertaking, considering RBC serves more than 12 million personal, commercial, and public-sector customers through more than 2,000 delivery units worldwide, including 4,465 ATMs.
The centerpiece of RBC's information-management system is a Teradata Warehouse it acquired a decade ago. On that foundation it has added Teradata Value Analyzer, an analytics application that enables multidimensional views of customer profitability. In describing Teradata Value Analyzer, Rick Volz, director of business development for Teradata Profitability Analytics, an analytic suite that uses data-warehouse information to produce a completed detailed view of profitability, obs-erves that most organizations are used to measuring profitability from a corporate level, so they can tie to financial systems of record or general ledgers. These aggregations are fine if the goal is to understand the profitability of a business unit. But if, as in RBC Royal Bank's case, the goal is to understand the profitability of an individual customer, averages won't do.
The solution to this problem is to study customer transactions, says Volz. Ask yourself: What is the true cost of each transaction, not the average cost? How much revenue does each generate?
Using this technology, the bank groups its retail customers into discrete segments based on factors such as age, channel preferences, and current and potential profitability. Strategies are then developed for each profitability segment and for thousands of demographic microsegments.
The information infrastructure enables bank agents, to anticipate when younger customers may consider a first home mortgage and when older clients may be looking to shift investments for retirement. For its Registered Retirement Savings Plans (similar to IRAs), the bank executed a marketing program targeted to specific investment styles. The result was an 11% increase in those deposits.
In the case of everyday banking, the bank determined that a significant number of accounts were unprofitable. By drilling into the transaction data, it discovered that a large proportion of customers' account transactions were higher-cost bill payments at ATMs.
Since analysis indicated that most of those customers represented valuable overall relationships, RBC Royal Bank chose not to increase fees. Instead, the bank introduced enhanced access to bill payment, including Internet and automated telephone channels, at no added cost, and promoted the new convenience and access. Over the next 18 to 24 months, many of those clients shifted their bill payments to one of the more convenient, and for the bank more cost-effective, channels.
After deploying the Teradata Warehouse and associated profitability analytics tools, RBC Royal Bank reported direct-marketing response rates of up to 40% (compared with an industry average of 2% to 4%) and increased deposits for specific marketing campaigns of nearly 51%. Moreover, revenue per marketing dollar showed double-digit growth for three years, thanks to more focused product campaigns and tailored services.
Supply-Chain Economics
With competition intense, product demand difficult to predict, and rising customer expectations, it's easy to see how investing in supply-chain optimization can yield a return to the bottom line.
Teradata offers a supply-chain intelligence application that analyzes data supplied by planning and transactional systems and stored in the EDW to inform management of what is actually going on in procurement, production, fulfillment, and logistics systems.
 "The transactional system will say what happened and the planning system will say what should happen, but what we deliver is what is really happening—down to the detail of the individual part, process, supplier, or carrier," says Jerry Hill, director of the Center of Excellence for Supply Chain Intelligence at Teradata. "Our data output is so precise that we can measure the total worldwide inventory of a part, the total cycle time of replenishment from order to delivery, the amount of stock necessary to be carried to cover service levels, and the probability of an excess or shortage of product."
With access to that level of detail, ROI can be very specifically measured and monitored and the effects of preventive actions assessed. In addition, Hill notes, the tool makes it possible to establish precise worldwide baselines against which to measure future performance.
Where the EDW shows its value in supply-chain management is in seamlessly integrating data from disparate systems to provide a holistic view. "There are white spaces in the supply chain in between siloed operations where data is not integrated," Hill points out. (These are also called "touchpoints.") For example, in the typical manufacturing company, as much as 30% to 40% of the total inventory may be in transit rather than at rest on one set of shelves or another. Those goods in motion still represent inventory, but they're being tracked in a different data system from the one that reports on standing inventory.
With the detail and precision provided by Teradata's Supply Chain Intelligence, says Farrell, a manufacturer can perform "what if" analyses to determine optimal inventory levels to keep costs low and avoid stock-out situations. It can optimize logistics by tying priorities to manufacturing needs, so goods are unloaded as needed rather than in the traditional FIFO (first in/first out) order.
Procurement can also be fine-tuned when wall-to-wall data is available and being analyzed. Supplier scorecards allow performance evaluations using a range of metrics that may include on-time delivery, order accuracy, and pricing, as well as more qualitative measures such as supplier flexibility and cooperation.
During more than a decade of delivering supply-chain solutions, Teradata has worked with Wal-Mart, Ford Motor Company, and 3M. Five of the top seven global airlines also rely on Teradata, as do nine of the top 16 global retailers and three of the top four railroads.
Acebo reports that Continental Airlines is now working on incorporating supply-chain data into the Teradata Warehouse. What are her expectations? "We are going to be able to look at the detailed information, and the decisions are going to be based less on statistical estimates and more on real, actual information, because now we're going to have it in a place where it can be processed in a timely manner in all its detail."
Continental already has in place a parts-tracking system that reports on reliability. "We have transitioned from monthly reliability information to real-time information, including procurement history. We predict a significant reduction in the cost of parts management and inventory," says Acebo. And, she adds, the airline will be able to do its parts tracking on a real-time basis, and so will be able to use this intelligence in making tactical decisions. Those are the kind of insights that should give it a sharper competitive edge.
—Alan S. Kay
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