Outlook 2005: A Strong Foundation

"We can't work in silos anymore," Ogilvy and Mather CIO Atefeh Riazi says.

Whether expanding on their foundational infrastructure or, more rarely, looking at more of a big-bang investment, there's a clear focus on payback. More than one-third of the business-technology managers surveyed--38%--say that an investment must start showing a payback within one year. In fact, 15% of companies give their CIOs four months or less to justify their IT investments.

But Ogilvy & Mather's Riazi cautions about becoming too obsessed with return on investment. Companies that rely too heavily on ROI think tactically, not strategically, she says. She cites the example of the dynamo electric machine, the direct-current generator invented in 1881, which took 25 years before it increased productivity in factories, to show that technology investments shouldn't be viewed solely on their quick return. "There's a notion that IT ROI should take three years," Riazi says. "But the investments made in the '90s on ERP systems are just providing their return today."Maritz's Hoffman agrees that ROI isn't the best metric for some IT investments, but for many, it's very appropriate, especially if the systems help generate revenue. "ROI helps us make sure we're investing in systems that have value to clients," Hoffman says. "If they do, the return should even be faster."

Some executives are looking for ways to leverage their IT infrastructure and know-how to create new money-making opportunities. Avnet Inc., the $10.2 billion-a-year electronics distributor, through its new Avnet Managed Technologies unit, is beginning to provide remote data-center management (including backup and recovery) and help-desk support to customers. The new business exploits Avnet's existing IT infrastructure and workforce, so the company can create new revenue with minimal investments, Avnet senior VP and CIO Ed Kamins says. "The beauty of this is that we can bootstrap it; we already have the resources in place," he says. That will result in Avnet's gaining a better return on its IT capital investment. In addition, the hosted offerings can attract customers to other Avnet services, such as a new unit that will manage logistics, using the company's existing logistics capabilities.

Avnet is initiating these new services because of shrinking margins on electronic components it distributes. "Providing a broader and deeper level of service helps us recover some of that revenue we're losing," Kamins says. "It helps us grow where otherwise we'd face more of an uphill battle."

The University of Pittsburgh Medical Center has its own plan for using IT to help generate revenue. "Our goal is to patent and copyright a number of products and services and commercialize them over the coming years," CIO Drawbaugh says. In 2005, UPMC is planning a $500 million project to reduce the number of operating systems to three from nine, servers to 237 from 578, and storage arrays to two from five. Later this year, UPMC will select either IBM or Hewlett-Packard to be a partner in the project. The vendor and UPMC will equally invest in the project and will share in any revenue generated from the commercialization of technology or processes emerging from the consolidation venture. So, for instance, if in the process UPMC develops a marketable technology that can link disparate health systems, it will offer that as a product or service.

The game is changing as companies build on their infrastructures to reshape the way they do business. "We're driven by business needs," Avnet's Kamins says, "and are constantly on the lookout for new approaches on how technology can have an impact on our global and economic environment."Bring on 2005.

Illustration by Brad Yeo