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Inforrnation Technobgy a:ndthe Bottom Line A decadeago.criticsquestioned the returnon investt.ltentfrom information
Inforrnation Technobgy
a:ndthe Bottom Line
A decadeago.criticsquestioned the returnon investt.ltentfrom information
technology.But times have changed.I\ew lT nretricsconfirnrthe powerof
infornrationtechnologyto help conrpaniesarttainbusiness objectivesancl profit goals.
Froma look at how lT enablesreengineeringand global expansionto afr Lrpdateon the
client/serverarchitectureand stand-outtechnologiessuch as electronicdata interchange,
this specialsectionexaminesthe growth of the lTindustryand its inrpacton the bottomline.
FII\ANCIAL V{ORLD(FW) NO\EX\,tsER6,
L994

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sttcIt liltnil$rr[$tcil0t

unprofitableand which businesspro- cessesare inefficient,and they leverage technology to identify new markets. The IT
unprofitableand which businesspro-
cessesare inefficient,and they leverage
technology to identify new markets.
The IT Revolution
Finalll', IT distributed throughout a
companyincreasesefficiencyby deliv-
eringinformationrvl.rercand when it's
nccclccl.
IJF.N I{ISTORI,\NSL()()K
[r:rckerr.ltn to rcclpturc
thc nrood rif thc I 990s.
As
A New Yardstick
they'llno doubt rcferto the dccadc's
\\'tr51rp-plrg1 5,\\'SKI'l'llCS,ltrrr lrow
first
prcsidcntial elcctiorr, rvhcn
canwe tell if ani.'of thescs)'stcmsare
working?Tl'reansweris,you can and
you can't.
Traditional ROI. which has its
rootsin thenrauufacturingera,stipu-
lates that an investment'sworth is
directll' relatedto how much it can
save in labor or materialscosts.By
definition,ROI doesn'taccommodate
what companies are hoping to
achievewith information technology:
Republicanstalkedabout fanrill,r,al-
uesand Democratstalked about the
economy.Businesswatchers alrcady
have a jump on things:They know
that valuesand economicsarethe hall-
improved businessprocesses,market
and customer-servicesupport, and
compedriveness.
To analyze IT expenditures and
outcomes,companiesareturning to a
new subscience.information eco-
nomics.By usingweightsto prioritize
the intangiblebenefitsof IT projects,
man:lgerscanmeasurethemalongside
dollar figurcsof ROI. After layingout
corporateobjectivesand categoriesof
risk and assigningweights to both,
proposedprojectsarescoredbasedon
how well ther"ll reachobjectivesand
on what levelof risk thevcarry.Then
a peer-revieu'cornmirteeanalvzeseach
proposal to screenfor oversightsor
exaggerations.And finally,cornpanies
follow up to determinewhether Lrc'n-
efitsreallyoccurred.
Not only does information cco-
nomics help close the gap benveen
financial professionalsand informa-
tion executives,it can havea p<-lsitive
influenceon corporatedecisionmak-
ing overall.The systemforcesall par-
ties to identify and agreeupon corpo-
rate objectives, weights, scores and
results,in effectsigningoff on each
project before it goes forward. And
that'san intangiblebenefitthat nearly
any corporate management team
u'ould votefor unanimously.
rnrrrksof corporateAnrericain the
'90:.
But rlre "r'llucs" corporations
are aher aren't farnilr'-based,they're
custonrer-brrsed.
Tcrdar"scustomcrs want
better
productsanclsen'iccs,deliveredsoon-
er, and trrilored more specificallyto
theirexacrand ever-changingbusiness
needs.Orgirnizations,whether they
offer serviccsor products,now realize
that customerserviceis one of the few
ways they can maintain and increase
marketshare,particularlyafterthey've
doneali the belt-tighteningpossible.If
customersarethe ticketto the bonom
line,then informationtcchnology(IT)
Reengineering
-REF.NGINEERINC-
THE
TERM

c:rn bc used to idcntifu, anticipate an catcr to tl-rcirnecdstrnclrvants.

orsalrizatiorrsdctcrrninc thr

thcy'rc not cquil.lpcd to ciclivcr n'hr thcir custourers denrand, thcv ttrr inrvard t<l reevaluatc the u,ay thcy' d business.That proccss, known by tl.

now nearlyubiquitousindustrybuz word, reengineering,is at man companiesfollowedby a shift fro

proprietary,host-basedcom puting systemsto an ope flexibleclient/serverconfig ration. That shift allow managersto more easi deliverinformation to em ployeeswho deal directl with customers. Somecompaniespushth cliendservertechnology se eral stepsfurther to becom that most modern of bus nesses:a global entiry tha can deliver its servicesany whereon earthaseasiiyasi it were next door. Withou yet reachingthe halfwa point of the 1990s, it'

When reengineering, companies should view information technology as a tool to enable change, not as the reason for the change,

alreadyclear to businesssoothsay that thesethreeteners-reengineerin client/servercomputingand globaliz tion-will form the cornerstone o business profit and loss for th remainderof the decade.

ha

becomea synonym for any kind o change,preferablyone that promis to makethecorporationmore mone For manyCFOs,rcengineeringmea someoneis askingthem to spendlot and lots of moneyon completelyne comDutersvstenls.

In fact, business-processreengi neering involves radically restructur- ing a company'sprocessesso that cus- tomers
In
fact, business-processreengi
neering involves radically restructur-
ing a company'sprocessesso that cus-
tomers rather than operationsare the
focus of all businessactivity. Because
rethinking businessprocessesrequires
rethinking business policies them-
selves,analystsadvisecompaniesto
view information technologyasa tool
to help enact changerather than the
reasonfor the change.
Companiesfocus on processrather
ensure
)1
than on functional lines to
,L
every employee is adding value and
not simply routing or processing
goods or information. "Reengineering
meansfinding the cleanest,straightest
line between raw materials [or ser-
vices]and the customer,"saysAllan
Frank, national partner in charge of
enabling technologiesat KPMG Peat
Marwick in Radnor, Pa. This often
meanschanging from a verricalstruc-
ture, with individual departments
reporting to higher-upsall the way to
the top of the company,to a horizon-
tal configuration, where the flow of
information, goods or servicestakes
precedence.
The shift is usually achievedwith
new, often open, networked computer
systemsthat allow workers to share
and route information acrossdepart-
ments. Frank suggestsfour wavs IT i
A successful global company uses technology trsendstt to
function as a vidual organization that
expenise
and data where and when they arc needed
The information travels; the people stay
put'
t'
.--r<q--------
can assistoncetiilanagershaveidenti- i
reengineering efforts fail, full and
unequivocal top-management suP-
port of reengineeringand clear com-
munication among the CEO, CFO
and CIO are essential.But if reengi-
l:
$
fied their business-process-reengineer- neeringtenetsare faithfully followed,
E
il
mg goals:
corporations can
reduce cycle time,
o
provide anybody-to-anybody com-
One long-distance phone compan
for example, instituted a system th
lets workers perform ad hoc analy
on the usagepatterns of high-volum
customers and then develop micr
targeted servicesto keep those cu
tomersin the fold. At U.S. Shoe,t
apparel and footwear manufactur
munications
a
reengineering effort that updat
t :,
o
offer accessto sharedinformation
shrink costs,increasethe levelof ser-
vice they provide to their customers
and, ultimately, boost their profit
margins and overall profitabiliry.
Productiviry is high on most man-
agers'listsof reasonsto reengineer;by
ensuring that every employee is
addingvaluerrsefficientlyaspossible
to the overrrllbusinesstasks,produc-
rivity can soAr, tr:rnslating into
reducedcostsand higherprofits.
A successfullyreengineeredfirm is
faster and more flexible in respond-
ing to market initiatives and oppornr-
nities, leveragesinformation more
effectivelyand usesinformation tech-
nology to pinpoint specific markets.
antiquated point-of-sale and
me
f
ir
i.
o
allow the firm to locate functions
whereneededin the organization
let workers capture information at
lts source.
r
chandising systems gave the firm
much more timely and speci
insight into what customers we
Reaping Reengineering's
Rewards
v
HATDo SUCHLOFTYbusirressand
buying--down to sizeand color-a
well as which retailersneededmo
productsand when.
Stayingcompetitivein a changi
businessmarket requires balanci
the need for increasedcustomer s
systemsgoals provide to corpora-
tions?Plenry,sayreengineeringadvo-
vice and value-added service again
cates, if carried out properly. Since
even Michael Hammer, co-author of
Reengineeringthe Corporation, has
concededthat nearly two-thirds of all
costs of payroll,
inventory and oth
operations;both sidesofthe equati
can improve with an lFbased reen
neering effort. Rather than operati

$?tcItr0il1il$tffittilt0t

$?tcItr0il1il$tffittilt0t as separatefiefdoms, finance, manu- facturing, marketing and inventory work with the samebody of

as separatefiefdoms, finance, manu- facturing, marketing and inventory work with the samebody of informa- / tion. Sharing information not only

i speedsthe process,it improvesaccu- rrcy by reducingor altogetherelimi- natingthenumberof timesdatamust bc rekeyed. Reengineeringoften brings into cxistenccinterdisciplinaryteams that allolv a corporation to have several areasof expertiseconcentratingon the same problem at once. Such hybrid teamscan provide checksand balances that keep workers focusedon overall businessgoalsrather than on the goals of their individual departments.

The ClienUServer ComputingArchitecture

ATMANYCOMPANIES,reengineeringhas come to mean the sheddingor sidelin- ing of expensive,rigid maffiame pro- grams for client/server'slesse4pensive, highly flexible computing pladorm. A 1993 surveyof more than 400 CIOs, conducted by Deloine 6c Touche's Information Technology Consulting Group, found that a mere27 percentof respondents'critical applicationswere running on client/serversystems,but a whopping 93 percent of respondents expected this figure to double in their corporationsby 7995.Similarly,nearly half of the 224 CIOs surveyedby CSC Index Inc. listed client/server as the most important emerging technology for 1.993. A simple description of the client/serverarchitecn:re--a computer network in which client PCsor work- stations running user-interface and other software are able to requestser- vices from a server that maintains databases,processesrequestsand ensuresdata integriq'--doesn't begin to explain its nearly explosiveimpact on corporate information systems. Becauseclient/serversystemsrequire much smaller and less expensive machines-personal computers or workstations rather than terminals, and a local area network (LAN) file server rather than a mainframe

(although mainframes can act in this , the horizon are new applicationsan capacity)----costper MIPS is cheapeq 1 application-development tools th

I can suppoft very large implement tions, as opposed to the small pil projects that have dominated corp rate client/serverthus far. Applicatio innovationisalsoexpectedto broad significantll'ass<lhu,arcbccomcsirb to efficientlyhandlea rvide range data types, including free-fornttcx audio,videoand 'With so on. suchbright,shinycredenti why isn't every application a clien serverapplication,and why isn't eve ISmanagersingingitspraises?Cost a big facor, andcomplexiryisanoth 1 Vhile analysts and CIOs genera

framequery rc_VCt

cliendsen'ercomputingis lessexpe sive than mainframecomputing,th price tag for switc

"Plus, there'sthe functionalcapabili- i ry--{very human beinghashis whole i comDuterto himself.

Thisgreatlyexpands the thingsthat per- sonisablerodo.,,

making and supports the rype of a search that would require $2,000 worth of programming for a main-

system,so companiesfreed from the constraintsof the one-computer/onc-I vendor syndrome can shop for the i bestprice from among severalretail- I ers,expandtheir systemsastheywish and rest(relatively)assuredthey'll be able to accommodatefuture changes in standards. Cliendserveraddsvalue to decision I

maintenanceis easier and hardware and software upgradecostsare lower.

i

In addition, client/serveris an open i

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."pt"i"t greeu'ith the industryassertionth

ing from one syst

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ClienUSerVer

the

provides --;l:_;:'

speed, -:'

and

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flexibility

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theworkerempow- improved communi- - break-evenpointc

eredby clien/serv- cations workers need bemanyy."r, "*" er'sdistributedinfor-to beef up customer for somecompan mationliesat the COntaCt fUnCtiOnS. And the relati

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heartof the architec- ture's appeal. Networked systems increase access to information by bringing processingand data where they're needed in the organization insteadof making workers petirion the mainframe.Client/serverprovides the speed,flexibility and improved com- munications workers needto beef up customer-contafi functions. By dis- tributing information and giving users relational databasesand other tools to get at it, companiesare often able tb realize a relatively quick return on their client/server invest- ment once end users,rather than a team of programmers,begin query- ing, modeling and forecastingwith corporate data. In addition, internal communications such as proiect- relatedexchangesamong a group of workers increasedramatically with distributedsystems. Despite the architecture's relative immaturiry its future looks bright. On

youth of the mark means standards havent jelled ye sofrware isn't bug-free and vendo aren't always L00 percent accura with their information. "The technologyis relarivelyimm ture, and that's a big, big concern says John Halloran, managingpartn at Nolan, Norton & Co., a Bosto basedIT consultingfirm. "Compani are being overhyped and underdeli ered by the vendors,and IT is left t sort out the issueswithin the organ zation." Often this situation resultsi cost overruns, sometimesof dramat and unexpectedproportions. A rece survey of Nolan, Norton clien revealed that 53 percent of respo dents found the cost of client/ser was gleaterthan theyhad expected.I toting up cliendservercosts,novic often forget to budget for such ite as wiring, routers, consultants, mi dleware and retraining for employe which can sometimescostasmuch

Client/ServerUsage C-onrpaniesin all industriesexpeaedto dnmatically incmse the number o[ dient/seruerapplicationsin
Client/ServerUsage
C-onrpaniesin all industriesexpeaedto dnmatically incmse
the number o[ dient/seruerapplicationsin usethis I'ear
In decidingwhich sys-
tems to move frorn u
legacy system ro a
client/server environ-
ment, managersshould
Financial Seryies
E-
Halft
Can
Itr-
Banking,|rhrins
Thtrsporlation
G-
merelyinternationalmeansan or
zation'sworldwidebusinessuni
integratedenoughto achievestr
alignment that delivers signi
returns in economiesof scale
scope.
Information technologytakes
and centerstagein this push for
al coordination."The sheervolu
timesyou needto communicater
ets up multiple times," says T
Choate,vice presidentand man
director of [T at Anhur D. Litt
Cambridge,Mass. "IT letsyou s
ln$nne
0.
Retail
f
llEn
$
Mardasturing
l; 5
n.
Energ, Oil & Gas
I
up the rate of those interactions
monizethem and shortencorrunu
tions distances between re
employees."Information techn
cirn function as a great equ
Choatesa,vs."lt letsyou call an
an applearoundtheworld."
r9
Foody'Co6urer
Mucls
'',.
ri
g
Prblishint
E-
Distribution
o%
5%
1(}%
ts%
2046
25%
30't
Percentage ot Applicatims Using Clieni/Sener
Source:Deloine& Touche.1993
or more than all the hardware and
software combined.
"If your CIO tells you that rearchi-
tectingall your systemsto client/server
rvill save money, be skeptical.
Everything I've seensuggeststhat the
total costs of client/server comput-
ing-hardware, sofrware,conversion
of existing systems,developmentof
new systems,training,management-
will be hieherthan the cosrsof main-
franre conrpuring,"says Charlcs B.
V'ang,founclerancl (ltO of Compr,rrer
AssociatesInrernrrrionallnc., in his
br>ok,TechnoVisiott.
One way to avoidor ar leasrmini-
mizeproblemsis to plancarefullyand
implement slowly, experts and ven-
dors advise.The biggestmistake is
rushing to migrate applicationsbefore
ardculating the anticipated payback
and determining the costsinvolved.
identify which systems
represent the highest
businessvalue and are
most in need of cli-
ent/server's distributed
benefits. CIOs should
provide and CFOs
should demand to see
demonstrable added
value. For example, IS
managers at sprint
Corp.'s Long Distance
Division argued-cor-
rectly, ir turned out-
that a move to a cli-
ent/server system for
billingprocedureswould
allow customer-service
agents to answer in-
quiriesor checkthe sta-
rus of large accountsin
45 secondsinsteadof the
24 hours required to
print and analyze infor-
mation from a legacy
system.
Client/server vendors
and consultants advise companiesto
start with a few applicationsto get
their feet wet, then selecttwo or three
strategic but low-risk candidatesfor
pilot projects. FinallS organizations
should developa two-year transition
plan during which they migrate appli-
cations10 or 20 at a time. To mini-
mize programming costs, experts
advisecompaniesto reusewhatever
codetheycan,particularlyif the busi-
ness-specificlogiccodefrom the lega-
cy systemwirssoundin the first place.
Companies
consolidate
35%
domesticand internationaldata
ters, for example, to dramat
reduce their communicationsc
Digital Equipment Corp., w
maintains what's widely vieweda
largestprivate network in the wor
said to have reduced total [T
The Global Gorporation
between25 and 30 percentby co
idating a number of worldwide
centers.
On a broaderlevel,successfu
al companiesusetechnologyto f
tion as a virrual organization
"sends"expertiseand datawher
when they are needed.The info
tion travels; the people stay
Remote communicationslinks a
companiesto stay extremelyfle
in changingmarketsby assembl
hoc "teams" of workersandreso
for particularprojectsrvithoutha
to relocateanyone.
As trade barrierscontinr"reto
rrnclcconomiescontinueto conv
rhesanreelementsthat madecc
ONCEA COMPANYhasreengineeredits
businessprocessesfor maximum effi-
ciency,most often by moving to a flex-
ible client/servernetwork, itt primed
to start competing head-on in the
much-toutedglobal economy of the
1.990s.Beingtruly global rather than
nies
in theirlocalmarket
increasinglydeterminewho "vinners can
peteon the world stage.Analyst
managersagree that an lT:ins
advantageon the home front
serveas a launchingpad for w
wide marketdominance.