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CIO-100: Strategic alignment

CIO-100: Strategic alignment

Today's IT executive is now tasked with having to make all these disparate systems work together because competitive pressures and the e-business environment demand it.

Today's IT executive is now tasked with having to make all these disparate systems work together because competitive pressures and the e-business environment demand it. And custom hardwiring one app to another -- with all the time, money and lack of flexibility that approach entails -- is not going to get you there. That's why you need a holistic integration strategy, a big-picture view that doesn't focus on the trees, meandering from project to project, but gives you the 40,000-foot view from the skies. Piloting that strategy are the business drivers in your company --things such as speed, getting closer to your customers and collaborating with partners. Because an integration strategy that doesn't march in lockstep to your business strategy is a bit like imbibing too much at your high school reunion --it's going to come back to haunt you.

Read on to learn how CIO-100 honorees Staples, Wells Fargo, Dow Chemical and Dell Computer manage their strategies not just one application at a time, but how they attack integration as an end-to-end process, from supplier to customer.

Staples Kiosks Connect Customers and Merchandise

Customer service drives Paul Gaffney's commitment to integration. And profits show that commitment matters.

"Our most profitable customers are those who use the full range of the way we do business," says Gaffney, the CIO at Staples in Framingham, Mass. He adds that customers "want to get a very consistent and seamless experience. When you do the right thing for your best customers, good things happen."

The CIO of the office-supplies giant stresses that for those good things to happen, it's essential to have an overarching strategy that uses IT to advance the company's mission. Gaffney adds that "trying to be more holistic in our outlook is one of the things that separates great IT organizations from the rest of the pack."

One of the products of Gaffney's enterprisewide focus on the customer is the online kiosk -- dubbed Access Point -- that is installed in all of the company's 1,040 U.S. stores. Creating the kiosks required connecting the company's e-commerce website, Staples.com, with its point-of-sale (POS) system, order management system, distribution system and supply chain. On the people front, staffers from the retail, catalog, online, finance, distribution, merchandising and training areas -- practically everyone but the cafeteria chefs -- collaborated. For example, the kiosks offer customers the option of buying, say, an office chair at the kiosk using a credit card, then taking a bar-code printed receipt up front to the register to pay in real-time. Customers can also use the kiosks to access a library of information about products and services, view an inventory of 45,000 online products, and build PCs to order (eliminating the need for more than 35 percent of stores to carry computers). "We're letting customers do business the way they want to do business, not the way we want them to," says Gaffney.

But the benefits don't go solely to customers. For Staples, the multimillion-dollar Access Point project has introduced many customers to Staples.com. The company estimates that a customer who shops in both stores and one other channel (Staples.com or catalog) has a lifetime value of two and a half times that of a store-only shopper.

And the company's approach toward integration goes beyond customer-facing systems. Another major integration Integration On-Ramps project involved consolidating the Staples and Quill fulfillment center facilities. Staples acquired Quill, a mail-order office products company, in 1998. To connect the two disparate order management systems, Staples could have gone the point-to-point route, which would have required building customized connections between the two sets of applications. But the Staples team chose instead to implement an integration layer built on IBM Corp.'s MQ series. "That way, if we had a future acquisition, or needed more volume in the future, we won't have to do a new point-to-point integration project," says Gaffney.

Reducing the number of direct linkages between systems is one part of Gaffney's holistic strategy. Standardization is another. "Every IS organization is trying to deliver more business results for less money. One tool is reducing the number of different technologies that you need your staff to be proficient in. If you have four or five [technology] approaches, you've diluted your staff's proficiency. I think it's a productivity imperative," Gaffney says.

Staples is just starting to look hard at how it can standardize, but Gaffney pointedly says that Web services will play a key role. Because of that, Gaffney doesn't feel a need to standardize his platform on either Sun Microsystems Inc.'s Java 2 Platform Enterprise Edition (J2EE) or Microsoft Corp.'s .Net, since Web services can work with both. "We believe it's more important to focus on good semantics --for example, getting the definition of the interface right on our next generation internal pricing service --than to get hung up on whether it's a J2EE or Microsoft deployment," he says.

To ensure that his IS organization continues to maintain a big-picture integration strategy, Gaffney has appointed a team, led by two vice presidents in IS but involving people from all business areas, to help Staples get a detailed look at its business processes. They also want to determine how people and technologies map against those processes (for example, to see if there are multiple groups of people using multiple technologies, all to produce a sales forecast). They can then use the information they uncover to move ahead on the integration projects that will have the most business impact.

Wells Fargo Synthesizes a Panoramic Customer View

Like the CIO of Staples, C. Webb Edwards, CEO of Wells Fargo Services, emphasizes the customer's role in driving the bank's integration strategy. "We want our customers to use any device, any channel that will support that device, to any business within Wells Fargo, to any product within that business, to any piece of information about that product or service that the customer needs to see," says Edwards, who heads the bank's technology group.

It's the IT integration behind the scenes that enables Wells Fargo to pursue this powerful business philosophy.

A key product of the strategy is the Enterprise Customer Profiling and Referrals integration project, which provides customer service representatives with a real-time view of the customer's total relationship across the company, helping them service that customer. For example, if a customer requests information about a credit card, then asks for information on paying off her mortgage, a rep doesn't have to go through 15 screens to get that information --it appears on one. The system also makes product recommendations to customers, then automatically forwards those recommendations as internal sales referrals to the appropriate line of business. Customers have to input their information only once, rather than each time they have a separate product request, and responses to the customer are more timely.

This project involves creating a new, common infrastructure layer (what Edwards and his team dubbed the business services architecture) that will be used to process all customer transactions. This year, the company has invested more than US$20 million in this new architecture (still in the pilot phase) and the customer profiling project.

San Francisco-based Wells Fargo deploys a variety of both homegrown and vendor integration tools. "The basic Five Points on the Integration Road premise we operate under is if it's something that will differentiate us in the market we will probably build it, not buy it. If it's a commodity-type service that wouldn't differentiate us, we buy it from vendors," says Edwards, who has been at Wells Fargo bank since its merger with Norwest in 1999.

Because of the huge amount of information stored in its legacy systems, he acknowledges, "We will buy any adaptor or translator that converts any technology so that it can be used in the business services layer." He'd like to move toward a more standards-based architecture to eliminate some of Wells Fargo's legacy-based reliance on those adaptors, however.

For moving data around the variety of systems, Edwards is building around XML, and says it will be the cornerstone focus down the road. But he's a realist as well when it comes to all the hype surrounding XML and Web services: "Nobody's really far enough along to come to the table with a set of services you could put together and have end-to-end [integration]."

Edwards offers some golden rules for his integration strategy.

- Understand what the customer's expectations are in the virtual world versus the physical world.

- Use technology as a catalyst to organize your company around customer-centric processes, rather than business silos.

- Make sure information can be delivered to the right person at the right place at the right time.

- Put in place a robust, scalable open network that is secure.

- Spend your money where the money is --integrate those businesses that are making money and servicing profitable customers.

Dow Chemical, a Stickler for Standards

When it comes to orchestrating a holistic integration strategy, Dow resembles a tightly knit wedding band that jams on a few of the current, popular numbers ("Who Let the Dogs Out"), but still spends most of the gig playing reliable standards ("Pennsylvania 6-5000").

According to Frank Luijckx, senior director of information systems at Dow Chemical, the core elements of Dow's repertoire --it's standardized infrastructure --include a globally integrated SAP R/2 ERP system, which it rolled out in the early 1990s. Its Dow Workstation program provides standardized PCs to its 50,000 employees in 170 countries worldwide. A data warehouse gives all its business units a consistent view of financial performance. And it's currently working on DowNet, a voice-over-IP network that will bring telephones, workstations and servers into an integrated environment.

That's just the in-house view. In the e-business arena, Dow offers MyAccount@Dow, a private, customer-specific extra-net for collaborative transactions and information exchange, and participates in Omnexus, a plastics industry e-marketplace, and Elemica, a B2B exchange for chemical transactions.

Luijckx says that the Midland, Mich.-based company emphasis on standards --and integration --has paid off handsomely with regard to its $11.6 billion merger in 1999 with Union Carbide. "We achieved integration in 12 months," he says. "What enabled this was a culture of integration. We knew how to manage human change. We insisted on using our standards like chart of accounts and customer coding."

The choice to stick with Dow's ERP standard embodies this commitment. Dow wants to pull Union Carbide back a generation --UC uses SAP R/3 and Luijckx says Dow hopes to move it onto Dow's mainframe-based SAP R/2 system. Even though this means a change for UC, "We [at Dow] need to tell them the reason we're doing it is because it's good for everybody, that integration is a principle in the company," Luijckx says.

Point-to-point integration has no place in Dow's internal architecture --that approach was cast aside when they implemented SAP. To the folks at Dow, ditching that approach was a no-brainer. "Say a customer says, I want to build a B2B link to your system," says Luijckx. "But the customer orders in Europe, Latin America, Asia and Africa. Now you have to build four different links. A nightmare emerges very quickly." That's why Dow standardized with SAP; instead of making multiple changes on 20 nonintegrated systems, it can make one change and be done. Luijckx also says standardizing on one ERP system has led to higher productivity and better customer service.

On the Web services front, Luijckx says the company is experimenting with it, but wants to study the effects, including cost, the technology would have on its business and systems architecture.

Luijckx offers three integration tips. First, make sure it's business value driven, not technology driven. Second, standardize internally and externally, at both the business and technology level. That includes hardware and software, coding structures, and using an intranet as a communications platform.

And third, make sure everybody understands the value proposition because human change is the biggest challenge. "You have to communicate until they understand and get excited about it. Say it over and over," says Luijckx.

Integration Equals Value at Dell Computer

At Dell Computer, integrated systems --as in an ultra-efficient supply chain --keep the $31.2 billion company's engines humming. "We look at integration as an end-to-end business, not just a part of the business," says Randy Mott, the former Wal-Mart Stores Inc. CIO who joined Dell two years ago.

For Dell, integration is critical to achieving speed and customer service, two things the Round Rock, Texas-based PC and server maker company knows a smidgen or two about. "If integration isn't there, you lose speed and the ability to quickly respond to your customers' needs," he adds.

Dell is currently hard at work improving global operational and logistical processes in its factories and with its suppliers with an integration project called DSi2. Using a product from supply chain vendor i2 Technology, the DS or "demand supply" project lets employees view customer orders and inventory positions online, allowing Dell to now pull 100 percent of its components into the manufacturing process every two hours instead of once a day (which wasn't exactly too shabby). In addition, Dell suppliers that want short- and long-term views of Dell's material requirements at different points in the supply chain can access that information online. The result of these integration efforts? Dell has chopped a day off its on-hand inventory of components, reducing it from five days to four. The company projects a payback of more than five times the cost of the DSi2 project in its first three years (DSi2 was launched in 2000).

Another project on Dell's integration plate is DellServ, a Web-based application used by 7,500 tech support people in nine countries. It supports the more than 80,000 tech support contacts Dell receives each day, and ties together the 14 different systems previously used by the company. (One of those systems, for example, was an application based on Visual Basic and SQL Server that Dell's technical support staff in Europe used to determine parts required to fill orders and validate addresses.)

"[DellServ] is well-integrated with our other back-end systems, such as ordering, history and any interactions we've had with you as a customer," says Mott, which gives reps more information at their fingertips and reduces the length of calls and the number of repeat calls by customers.

Mott stresses the value of standards in Dell's integration strategy. "They're important because of both the speed you can develop systems with a standard architecture and the seamlessness with which you can deploy and implement them," he says. Mott uses a mix of building blocks, including Microsoft's .Net, Oracle databases and Linux technologies. "Integration doesn't have to go to one thing," he says, "but it has to be a number you can get some scale on, some synergy on." Dell uses some Web services from .Net but is keeping that technology in-house. "We need to control that architecture," says Mott.

Ultimately, one begins to think of Mott in a racing suit and helmet at the helm of a Daytona 500 stock car, because he continually peppers his discussion about integration with the word speed. "Make sure that integration constantly adds speed to what you're doing," he advises. "As you look at opportunities to integrate, you want to eliminate redundancies and increase the rate at which things can be done.... Sometimes when getting to this [holistic] level of integration, some people think it will add time. You can't let that happen."

Integration On-Ramps

Point-to-Point: Also called app-to-app, this approach involves hand-coding integration, and typically takes place within an enterprise. This remains a tried-and-true method for moving data from point A to point B. Most companies have some point-to-point, and many --almost 50 percent according to a 2001 survey by AMR Research Inc. in Boston --continue to hardwire applications.

This approach has problems. Think of a company running 100 applications, each in its own box; then picture how many lines need to be drawn to connect those boxes, given that a bunch of those apps would connect to more than one app --it's one big brain cramp. When one app needs to be changed, every connection to that app must change. And development and maintenance costs can be high.

Middleware: Whether it's called object management, event management, session management, data translation or one of many acronyms, middleware creates a layer between applications. The applications are not connected point-to-point; they're connected to a middle layer, which receives the data, translates it, then sends it on its merry way. Many companies use message-oriented middleware such as IBM's MQ series and Microsoft's MSMQ for one-way exchanges of data.

EAI products, also called integration servers, describe more powerful kinds of middleware. Major players include BEA Systems Inc., IBM, SeeBeyond Technology Corp., Tibco Software Inc., Vitria Technology Inc. and WebMethods Inc., although many companies have built their own proprietary EAI systems.

EAI tools are designed to integrate the information in companies' back-office systems with their front-office applications using a single integration layer. These products come packaged with connectors (also called adapters) that can, for example, connect ERP systems to mainframes and CRM systems. Many companies rely on these adapters --at $100,000 a pop --to integrate heterogeneous systems.

Business Process Management (BPM): BPM is a relatively new buzzword, touted as the next generation enterprise integration software. AMR Research defines BPM as "software that integrates data, applications and people together through a common business process." It aims to bring the business and IS side together to figure out cross-functional business processes, which include suppliers, customers, employees and partners, then streamline and automate them.

Web Services: Take your pick: Web services is either poised to take off or will make only minor ripples. Its standards-based technology will let disparate systems talk to each other over the Internet or Internet protocol-based networks, regardless of platform or language. Most of the executives in this story are experimenting with Web services. Amazon.com CIO Richard L. Dalzell says the online retailer uses it as one of the interfaces for its more than 600,000 Associates Program websites that connect back to Amazon.com. And vendors such as Microsoft and SAP are beginning to support Web services in their products. But despite the hype, Web services is in its infancy, and widespread adoption won't happen overnight.

Five Points on the Integration Road

1) Let the business be your driver. "Acquiring a thorough understanding of what your business needs are, and where those needs might evolve, is the starting point of building an integration strategy. Otherwise, it just becomes a technical discussion," says Lloyd B. Taylor, corporate vice president of IT at Cargill, a manufacturer and distributor of food and agricultural products. Cargill, based in Wayzata, Minn., established an Enterprise Application Integration Center of Expertise, a one-stop-shop for business units with integration needs.

2) Articulate the benefits of integration to business-side executives. Sure, you need to do that with any IT initiative, but selling a CRM system is a lot easier than pitching an EAI project. Staples CIO Paul Gaffney emphasizes partnering with the business side and being tenacious in articulating the vision of your strategy. "At the end of the day, integration introduces additional cost advantage and leverage to the business," he says.

3) Get your own house in order first, then look outside. Make sure you have a clear vision for enterprisewide integration before dealing with your external partners. If you don't know the status of an order internally, you'll be less than helpful when your supplier requests an order status.

4) Consider bite-size chunks. Integration projects can take a hefty portion of an IT budget. In a recent Forrester Research survey of 50 large companies, respondents expected to spend about $6.4 million in 2003 on integration. Integration projects had been running more than 20 months on average. And integration tools don't come cheap. Gautam Desai, an analyst at Doculabs, a Chicago-based consultancy, says the software licensing costs for a typical configuration involving two servers and a backup environment ranges from $300,000 to $750,000. Services to get the initial integration up and running is two-and-a-half to five times that amount. Starting small, staying at the department level, then expanding out in future phases will help your learning curve while decreasing the chance of failure.

5) Get bang for your buck. "Spend your money where the money is," says C. Webb Edwards, the CEO of Wells Fargo Services, on integration spending. "Integrate those companies where you're making money and servicing profitable customers because there's only so much money going around. Spend on businesses that help the bottom line."

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