Taking Stock update from January 2003

One of a CIO's toughest challenges is knowing when to pull the plug on a project that isn't delivering results.

January 13, 2003

6 Min Read
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Zempel says he believes this approach will prevent runaway IT projects funded solely to justify previous investments in the technology. "It helps separate emotion from the decision process," he says.

The portfolio methodology convinced Zempel and his team they could put off the installation of an integration server to provide data flows among many of Life Time's applications--human resources, Siebel Systems' CRM (customer relationship management) package, which is going live now, and the Member Management System (MMS), to name a few.

Life Time developers had started this task by writing custom applications using Sun Microsystems' JMS (Java Messaging Service). These applications track events, such as an employee hire, and automatically update training, payroll and other systems that rely on up-to-date employee information. "It's a poor man's integration server," quips systems architect Gary Lien. "The number of points of integration is minimal, and the solution in place seems solid, so why would we move to something different at this point?"

These JMS connectors replaced a daisy chain of messaging scripts "where each integration point was its own brainwork," Lien says. "Once anything went wrong, it was a nightmare to get things fixed."

Looking ahead to a time when the CRM and MMS applications--as well as applications run by partner companies--will need to link to the employee applications for paperless contracts and other functions, Life Time spent two weeks pilot-testing a packaged application integration server from Confluent, formerly known as Corporate Oxygen. The software costs $50,000 to $80,000.

Life Time pursued the packaged and custom approaches simultaneously, reasoning that the connectors to legacy systems would have to be written anyway; Confluent's software comes with a few dozen packaged connectors but only for modern enterprise applications.

The development of custom connectors also was necessary to predict how long future connectors will take to develop. Life Time is negotiating with an HMO provider that may subsidize member dues and with a retailer that may carry Life Time's nutritional supplements. These parties wanted to know how long it would take to go live once an agreement is reached. The deals could come as soon as February, Zempel says.

A packaged integration server such as Confluent's lets foreign systems connect regardless of the Web services protocols--such as SOAP (Simple Object Access Protocol) or .Net--used. It also includes security and management functions, such as the ability to set failovers when a Web service fails and track how well the applications are adhering to service-level agreements with outside companies, according to Confluent founder and CEO Rajiv Gupta.The investment-portfolio approach to IT spending encourages this kind of experimentation without commitment while considering factors that a traditional ROI analysis does not. These include risk, such as the possibility that a CRM project might fail, and options, such as the new capabilities that an infrastructure investment creates; this is otherwise known as latent or deferred value. While some projects have a clear payoff, most fall into a gray area where the pros and cons are complex.

Too many IT shops feel obligated to continue projects that may not be a good fit simply because they've made a financial commitment. Say a company invests in a pricey ROI study, for example; if the study does not reveal a clear yea or nay, the company may feel compelled to pilot test, thereby increasing the investment, and companies can feel obligated to roll out the application instead of cutting their losses. Viewing IT projects as portfolio investments brings this pressure into focus, says Wesley Bertch, Life Time's director of software systems. "It's never fun to write off a project," he says, but it's better done sooner rather than later.Of course, this approach doesn't replace ROI analysis. Indeed, only those projects that have been studied in terms of dollars and cents can rise to the level of a portfolio investment, Bertch says.

The investment-portfolio approach is championed by several consulting firms, most notably Meta Group and Giga Information Group. Perhaps the most important component of the strategy is that it forces you to recheck your math before entering each successive project phase. Many IT shops create an ROI analysis at the very start of a project, when the least is known about what results they can expect, according to Giga analyst Alistair Stewart, who is working with Life Time.

"When the universe of knowledge is most imperfect, you're dedicating money to the project," he says. "It's a crude process." Once the business case is made and the funding is in hand, enterprises typically set the ROI worksheet aside and never revisit it. Giga's services in this area range from $40,000 to $100,000 per year and include an analyst who shows the company how to evaluate IT assets and track the rise and fall of that value.

IT executives who shake their heads at such fees might do well to count all those IT projects that remain on life support long after the plug should have been pulled.

Further Updates• Life Time is on track in its mission to grow revenue from sources other than gym memberships. Sales of personal training and spa services, as well as café and nutritional products, will account for nearly 20 percent of the company's sales this year, says CFO Mike Robinson. That's up from 5 percent last year. Overall, revenues will grow some 40 percent this year, to about $196 million, he says.

• At press time, Siebel's CRM package has been rolled out to all 30 of Life Time's sites. Sales, front desk and membership personnel are the main users.

• Xtime, the appointment-scheduling ASP with which Life Time has been negotiating, released a new version of its service in December. Zempel says his team will evaluate the upgrade to see if it overcomes the scalability problems that compelled him to halt a pilot midway through the test phase.

• Life Time still gets a call or two each week from organizations interested in licensing its MMS software. Zempel is awaiting word from CEO Bahram Akradi about plans to license the software and launch a spin-off company, called Averisoft, to market the product.

David Joachim is Network Computing's editor/business technology. Write to him at [email protected]. Dropping an ROI BombshellA Nucleus Research study released in September took aim at Siebel, polling 23 reference customers for real ROI.

61% reported a negative ROI on their Siebel implementations after more than two years of use

78% of reference customers cited "a lack of user friendliness" as a barrier to achieving positive ROI

$18k: Average per user per year cost not including training and hardware

0: Number of companies reporting a positive usability experience$6.6m: Average three-year deployment cost for companies surveyed

The respondents, while admittedly not comprising a statistically significant sample, were customers profiled on Siebel's Web site, according to Nucleus. Access the report at www.nucleusresearch.com/research/c47.pdf.

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