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Agent of e-change

David Raths, Information Age

20/12/2000 17:11:34

When Bud Albers took the position of CTO at Getty Images in October 1999 he had to hit the ground running. The company's internal network needed improvements and Seattle-based Getty, which owns more than 70 million images and an estimated 30,000 hours of film, was in a major acquisition mode and on the verge of buying two competitors, The Image Bank and Visual Communications Group.

Albers was charged with helping Getty integrate those companies and getting them to make the same transformation that Getty recently had made: from selling photos through catalogues to selling digitised images online.

One issue Albers faced during the transition was how to manage and lead this radical change in Getty's business model from catalogue sales to online ordering and delivery. The IT department wouldn't just be supporting operations: it would be generating revenue. Today, the department's activities now are directly responsible for generating almost half of the company's revenue stream.

In the second quarter of 1999, Getty's e-commerce revenues almost tripled, reaching $38.3 million and accounting for 44 per cent of sales in the quarter.

"It's not the same old IT environment," says Albers, who spent several years in what he calls a traditional IT shop. "I now spend a third of my time with the head of strategy and business development and the head of sales and marketing, because now all roads go through IT. It's an interesting situation because now the head of sales and marketing, when he's asked for revenue projections, will answer, ‘Well, it depends on what functionality the tech guys can deliver'," Albers says.

Albers' expanding role is but one example of how e-commerce is reshaping the relationship between IT executives and their colleagues. CTOs and CIOs increasingly find themselves at the centre of high-level discussions about whether fundamental changes in business models should be adopted.

As more companies recognise that information technology is driving revenue growth, IT execs must move beyond the traditional technical support function and become leaders in strategic planning.

Unfortunately, not everyone is up to the task. Historically, IT execs have focused on control and cost: control the IT environment and keep costs down. That often led to a reactive mind-set and a cautious way of looking at project management.

Caution and change can collide, especially when an organisation switches suddenly to the Internet's high-change/high-speed environment, says Jim Highsmith, director of e-project management advisory services at Cutter Consortium, an IT consulting company. "There are demands for continued high quality but also for speed. It calls for behaviours not traditionally seen in IT departments: you have to become more agile, follow the new technology more closely. It requires a degree of creativity."

As Getty Images changed, Albers saw the need to reshape his IT team. The department's project management skills had to be upgraded - changed to match the evolving expectations of Albers.

"At the management level, the change in our IT department has been considerable," Albers says. "I lean heavily on vendors and consulting people who think in terms of time to market." He's brought in people from Cap Gemini, Ernst & Young and Hewlett-Packard. "It's much more like a software company than like an IT shop. It's built around updates and release cycles," Albers says.

Another big change at Getty, which has 275 IT people spread across offices in Seattle, Chicago, Calgary, and London, is that the people in IT - and not just senior execs - now follow the financial aspect of their work much more closely.

"It's a foundational shift," Albers says. "My people want to know the endgame. In the old days, it was just sit down, shut up, and build this. Now we're working more closely with the business side, and the employees are more concerned about the bottom line."

But if that's true, then Getty may be an exception to the rule. In an era when there's so much demand for new IT staffers and so much outsourcing to contractors, fewer IT managers actually understand their company's business issues. And that number is continuing to decrease, says Cutter Consortium's Highsmith.

Reshaping project management

Yet if e-commerce is a crucial part of your company's revenue stream, then it pays to work internally on collaboration issues, Highsmith says. "It's not that business line managers can cede authority to IT. It has to be a collaboration," he adds. "And this is true not just at the CIO level, but all the way down the line."

In addition to increasing IT's stake in fundamental business decisions, e-commerce is also reshaping how the department manages projects.

In the past, work was divided either/or: techies either worked on research-like projects or on mission-critical applications. Not today. Now they're expected to do both at once, Highsmith says"They're being asked to integrate CRM [customer relationship management] and ERP [enterprise resource planning] at the same time. It's transaction-oriented and they can't be dropping transactions all over the place. So the traditional kinds of project management approaches are not appropriate for these kinds of projects," Highsmith says.

E-commerce has also drastically changed project time lines. Ask David Holden, manager of e-commerce applications and services at Eastman Chemical.

"What we've noticed the most in the IT department is the speed of the environment," says Holden. "We are looking at very rapid development cycles. We'll be doing a lot fewer of the three-year-long projects. The technology could change on you in that time."

Forget years. Think weeks; in fact, think six weeks. That's how long it took from start to finish for Holden to set up Eastman's own online auction site.

"Implementation wasn't the only problem. Some people on the business side were wary of the auction concept, and it took a little bit of training, but it was fairly well received," Holden says. The auctions, for items such as rail cars of polyethylene, are conducted on Eastman's private auction site using Moai's LiveExchange software.

Similar business, new technology

Eastman executives expect online revenue to account for 30 per cent of the company's sales by the year 2003. "One of the goals of the venture arm," Holden explains, "is [to] be involved in helping shape how the technology develops." The company has even invested in several of the vendors whose software it uses, including webMethods and Moai.

For some companies the shift to business-to-consumer e-commerce isn't a great leap, yet the repercussions for IT are serious.

Lands' End, a direct marketer of clothing, already had a huge print catalogue sales operation, and was known for great customer relationship-building. As Lands' End first dipped its toes online, the IT department wasn't even involved, recalls John Loranger, vice president of information services.

During 1993 and 1994 the company was experimenting with the Internet, interactive TV, and with putting catalogues on CD. The marketing department - not information technology - ran these initiatives.

The cataloguer's first Web site went up in early 1995 as an experiment. At the time IT didn't have the staff to dedicate to this online venture: the project was outsourced to a company that had been working with the cataloguer on other networking projects.

The site was launched: the online orders started rolling in. Lands' End wasn't prepared.

"As you can imagine, we weren't that sophisticated about integrating this new order mechanism into our back-end processes," Loranger recalls.

"We would just print them out, carry them over to our sales department, and key them into the order-entry system."

This "unautomated" process did temporarily solve the problem of how to connect the Web orders with the company's legacy system for order processing. "But once we started getting as many as 1000 orders a day, re-keying became a huge manual task. So we started to build automated feed mechanisms to the order-entry system, which is on a mainframe," Loranger says.

Retooling the department

The in-house IT staff worked with the networking consultants to build that interface. "As the site continued to grow and we gained expertise," Loranger says, "we decided it was time to take control of support of the Web application development."

Bringing that Web development in-house raised new issues for Loranger because his mainframe shop had little experience with Web programming. "The technology was so immature, it was very difficult to find anybody who had experience with Web sites. No one had five years' experience; they might have [had] six months," Loranger says.

Following an aggressive hiring and retraining program, today his department has a staff of 250, 30 of whom work on an e-commerce support team. That team works on the core US site, the international sites the company has set up, and the corporate sales of logoed merchandise. The company's online sales jumped to $138 million in fiscal 2000 compared to $61 million in fiscal 1999.

Friction can result when e-commerce gurus become a Web "silo" inside a larger legacy system. Loranger says Lands' End's IT management team tries to head off any such personnel problems.

"We would be foolish not to realise that this certainly could happen," Loranger says. "We have worked hard to provide opportunities for a number of our internal staff to move to the Internet team as they have expressed a desire to do so. Certainly, these moves must be planned and timed so as not to increase risk to other areas of IS."

Loranger believes his department works well precisely because it is not decentralised. If there is a Web component to something that involves merchandising systems or the call centre, teams are created that include both traditional IT staffers and e-commerce team members.

Loranger's IT department has grown considerably, fuelled by the cataloguer's online success. "Things have always moved fast in IT, but now it's moving at lightning speed," Loranger says. "It's an exciting time, but it brings a lot of added stress."

Keep IT in-house

The decision Loranger made to bring the Web development in-house was a tough one, but the right one, according to Cutter Consortium's Highsmith.

A lack of IT talent is a constraint, but the worst strategy, Highsmith believes, is to outsource everything. "Then you never get the agility, innovation, and adaptability."

The No. 1 problem with outsourcing a Web-based project, according to a recent survey by Cutter Consortium, is inadequate project management. Schedule delays plagued survey respondents' e-projects 79 per cent of the time. Once the systems were delivered, the survey found that these delivered systems met business needs a mere 16 per cent of the time.

Which leads Highsmith to ask one unsettling question: "If IT is becoming a core competency, how can you outsource it?"

The consultant believes that small project components can be outsourced, "but managing projects and dealing with your own business staff, you shouldn't outsource that."

Steve Danker agrees. The CIO of Musicland Stores faced a dilemma similar to Loranger's when his company, a music retailer with more than 1300 stores nationwide, decided in November 1998 to try its hand at online sales.

"We were a mainframe shop and didn't have the expertise," Danker says, "but we decided that through a combination of hiring and training we were going to do this back-end work in-house."

During December and January architectural and product decisions were made. And the sites, under the names SamGoody.com, Suncoast.com, MediaPlay.com, and OnCue.com, were developed from January to April. The sites were launched in June of 1999 with enhancements made through the next five months.

Challenges remain for Danker. He is developing Web-enabled in-store systems and is shifting more inventory and purchasing processes to the Internet.

"We've been electronically trading for years using traditional EDI and we're eager to apply Internet technologies there as well. But we do most of our supply with five companies, the major record labels. It wasn't even easy to convince them to go to EDI, so we're not holding our breath for them to move to Internet technologies." He now has 30 people working on the Web storefront.

The more things change . . .

Explaining the Internet's impact on business to other executives can be a big challenge. Loranger spent a great deal of effort educating execs during the company's early e-commerce initiative.

Lands' End executives needed help to understand that "while the front end of the site looked brand new and was a different way for our customers to do business with us, the key to success would be how well we did as a company to understand and incorporate this new Internet front end with all of our current core back-end processing - the core order-fulfilment processing and inventory processes," Loranger says.

"There's a recognition here that IT can and is shaping new business models," says Eastman's David Holden, "and both IT and line managers have to be aware of that."

What that means, says Highsmith, is that IT must re-examine the fit between department capabilities and functions and the e-commerce mission.

"We keep saying the Internet is going to change everything, but in IT some people don't seem to think it's going to change how they do work," Highsmith says.