Many firms still bet big on IT

Savvy CIOs know that it’s not a question of how much you invest in IT but how wisely you do so.

In a Computerworld online survey of 106 IT professionals conducted in August, only 24 per cent said they’re working on strategic IT projects that will revolutionize the way business is done in their industries.

Companies such as Wal-Mart Stores Inc., United Parcel Service Inc. and RadioShack Corp. have continued to increase their annual investments in IT, albeit in low, single-digit increments, to help them maintain or achieve leadership positions in their markets.

Mid-tier automotive and aerospace manufacturers that have seen 30 to 40 per cent of their revenue base evaporate in the past three years as a result of the economic slowdown have made Draconian cuts to IT spending.

However, some bigger manufacturers, such as DaimlerChrysler AG, are still making big bets on IT. Last November, the world’s third-largest automaker announced that it was in the early stages of a huge investment in automating the design of its manufacturing plants to reduce the company’s new-vehicle production cycles by up to 30 per cent.

“As the economy has gotten tougher for all companies, we’ve been forced to focus on all aspects of costs, and you start doing a much better job of aligning business priorities with IT priorities,” says Susan Unger, CIO at DaimlerChrysler.

In the Computerworld survey, 51 per cent of the respondents said they’re using this period of tight IT budgets to re-engineer business processes.

Fort Worth, Texas-based RadioShack just completed the first year of a multi-year effort to further optimize its supply chain, including assortment planning, inventory management, distribution and logistics, and store operations.

Last year, RadioShack finished installing a supply chain management system from Rockville, Maryland-based Manugistics Group Inc. Now the consumer electronics retailer is working with Celerant Consulting Holdings Ltd., a multinational consulting firm in London, to address organizational and behavioural changes needed to make its operations more effective, says Mike Kowal, senior vice president of operational effectiveness at the US$4 billion company.

One reform has been to align corporate strategies with how workers and managers are compensated, something that’s out of alignment at many companies. For instance, inventory managers typically want to minimize product inventories to hold down costs, but merchandising managers want to ensure the greatest selection of goods at each store. Now both sets of RadioShack executives have bonus incentives to keep store inventories as lean as possible.

The results? As of June 30, RadioShack was carrying 18.1 weeks of supply (the amount of time it would take it to deplete its inventory). That’s a six-week improvement over its year-end 2002 supplies. Inventory management and other process improvements, such as reducing its new-product development cycles from nine months to seven months, have helped RadioShack cut US$40 million in costs, says Kowal.