Procter & Gamble is famous for being innovative, but the hard truth is that it had better be. The company spends 3.4 percent of its revenue on R&D, more than twice the average of 1.6 percent in the consumer packaged goods industry. But big spending on R&D does not guarantee success: A study by consultancy Booz Allen Hamilton found no correlation between dollars spent on R&D and profitability. What matters is the productivity of that spend - the "hit rate" of ideas that lead to products.
Stories by Christopher Koch
Innovation in big companies has always been treated like gold -- hidden deep inside secret vaultlike labs and protected from everyone except the researchers in lab coats. When products or services emerge from the labs after years of development -- and just one in a hundred does -- they fail most of the time.
This is what it's like to be an employee for Tata Consultancy Services (TCS), an Indian IT services vendor, when working for a big American insurance company (in this case CNA):
When CIOs began installing ERP systems in the '80s and '90s, they unwittingly took something that used to belong to CFOs: financial controls. The things that accountants used to monitor manually--such as making sure that two signatures from the right people went on every check, or reconciling purchase orders against invoices--all became automated inside ERP systems. The meticulous audit trail that controllers and accountants had established over generations for demonstrating that money was being handled properly (think of black, leather-bound ledgers and long ribbons of adding machine paper) disappeared into those ERP systems without a trace--or at least without being properly documented, and certainly not to the extent now required by the 2002 Sarbanes-Oxley Act, a.k.a. Sarbox.
Harvard Business School professor and business ethicist Barbara Toffler became a partner at Arthur Andersen LLP in 1995 when the auditing and consulting firm's profits were rising and its ethics were heading the other way. Toffler was brought in to build an ethics consulting practice and soon found herself acquiescing to her bosses' edicts to inflate bills and sell clients work they didn't need.
Toffler left Andersen in 1999, well before the Enron Corp. and Global Crossing Holdings Ltd. scandals destroyed the company. Her book, Final Accounting: Ambition, Greed, and the Fall of Arthur Andersen (Random House/Broadway Books, 2003), describes the process of ethical erosion in grim detail.
Doctors at the University of Illinois Medical Center in Chicago used to hide patients' medical charts under hospital beds. Better that than let a precious chart descend to the bureaucratic black hole known as the medical records storage department. Let the chart go and a doctor might never see it again. So the doctors would hide it until they were done with it. "We called it hoarding records," says Dr. Bill Galanter, who used to hide his patients' records in his office rather than under their beds for fear the mattresses would get changed.
Now those records are electronic and accessible from anywhere in the hospital or the Internet. Hard copies don't exist anymore. When the medical center built its new outpatient center in 1997, it did not include a records storage room. "We burned the bridge. No paper," says Joy Keeler, the IS leader of the medical records conversion, drawing out those last two words while boring a friendly hole in your forehead with her intense brown eyes.
In 2003, CIOs will need to think of themselves as CAOs--chief accuracy officers.
In the late1990s, when the federal courts began to show interest in protecting software with patents, it caused a stampede at the U.S. Patent Office. "Microsoft (Corp.) five to six years ago had very few patents, and now it has roughly 2,000," says Suzanne Harrison, senior vice president of ICMG, an intellectual property management company in Palo Alto, Calif. IBM has 20,000 patents and gets US$1.7 billion per year for licensing those patents to other vendors, Harrison says.
In a commodity market, the cheapest producer always wins. In the partially commodified market of software, the cheapest producer isn't a software company, it's a movement: open source, developed by the mostly anonymous group of software hackers who do their work for free and collaborate in a cheap meeting room--the Internet.
"Nobody is buying software right now," says Ken Harris, senior vice president and CIO of San Francisco-based retailer the Gap. "The market has stopped dead in its tracks."
David Drew used to have his own supergroup for IT decision making at 3M: the Information Systems Steering Committee. He had all six business division chiefs in there, along with the top functional leaders, meeting together six times a year to do nothing but jam on IT strategy, endorse IT projects of more than $US1 million and prioritise IT resources
No matter what you may think of Rudy Giuliani's accomplishments as mayor of New York City, no one disputes that he stepped up to the challenge of leading the city in the aftermath of Sept. 11. Now on the lecture circuit, Giuliani gave the following leadership tips at a user conference given by software vendor i2 Technologies last May 15 in Las Vegas.
Have a set of beliefs. "You can't still be wondering who you are and where you're going," he says, "because you'll get confused and go in all kinds of directions. Ronald Reagan was the same Ronald Reagan he was as governor, as president and when he left office. You may not have agreed with him, but you knew what his beliefs were."
When Hewlett-Packard finally got to fork over its money for Compaq Computer last May, you wouldn't have expected anyone from Compaq to be running anything. That's the unwritten law of the business jungle: The dominant company gets all the positions of power in the new company. But Robert Napier, 55, former CIO of Compaq, is now senior vice-president of IT and CIO of the combined companies. He's a clear product of Compaq's brasher culture, and he worked for HP's CEO Carly Fiorina in an earlier life, which may help explain his emergence. But there's more to the new HP than meets the eye, as we discovered when CIO US Executive Editor Christopher Koch interviewed Napier in July.
CIO: How is the merger going?
Now that every company on the planet is trying to automate the relationship between suppliers and customers, it's worth remembering who invented this stuff more than 20 years ago: Procter & Gamble. Specifically, teams of business and IT people led in 1980 by P&G brand manager Duane Weeks (who now runs his own software company, Exemplary) and in 1987 by Ralph Drayer, P&G's vice president of customer services (who now runs his own consulting company, Supply Chain Insights).
Jerry Hale is giving the cold shoulder to the big consultancies that want to help him run his most important software projects. " I refuse to turn over the leadership of my ERP project to consultants," says Hale, vice president and CIO of Tennessee-based Eastman Chemical, which has 6000 users of SAP's R/3 ERP software. He felt burned by a consultant-led ERP project in the mid-90s that went over budget, over scope and far beyond the original project schedule. So when the time came to replace that system with a new one, Hale decided to use his own people to do the project along with a few handpicked consultants brought in to do small, specific tasks.
David Johns, senior vice president and CIO at Ohio-based Owens Corning, doesn't rely on consultants either. He and his IT staff now run Owens Corning's big software projects themselves, using consultants only for certain tasks.