Finding the Money: E-business initiatives don't come cheap, but the long-term benefits far outweigh the early challenges - Savings

Chief Executive, The, Nov, 2001 by Peter Haapaniemi

For more than three years, Unisys Corp. has been working to transform internal systems and processes to take advantage of the tools and technologies of e-business. That kind of journey is now becoming familiar to a growing number of companies, but in launching the Unisys effort, CEO Lawrence Weinbach set the bar a little higher than most.

"He gave us no funding for the project," says Janet Brutschea Haugen, the company's CFO, and head of the executive team that has been overseeing the program. "It all had to be self-funded. We had to find ways to save money equivalent to what we spent."

It was a pretty tall order. Haugen's group was charged with driving change in the IT and finance functions, which meant rethinking the networks, core systems and processes for a global Fortune 500 company -- an effort that topped $100 million, she says.

While many companies have started the shift to e-business by experimenting with Web storefronts and e-commerce sites, Unisys chose to take e-business to the heart of the organization and work from there. With the emphasis on cost-reduction, says Haugen, "we had to take it from a slightly different perspective than a lot of other companies. We decided to find opportunities where we could improve our processes and drive costs out. And we had to find those opportunities in a hurry, because Larry wanted to free up resources to help fund the transformation in other areas.

Tighten Up, Move Ahead

As the program went forward, it was guided by a basic principle: "If we couldn't get a solid ROI to justify the investment, we didn't do it", says Haugen. "We went after very specific things -- supply chain savings, IT costs in every flavor imaginable, administrative costs in every flavor imaginable. We looked under every rock and in every direction we could think of."

The team had considerable success in that search. The effort is now about 80 percent complete, and is scheduled to be done early next year. "The project paid for itself in savings in the first 13 months," says Haugen.

What's more, it freed up a good deal of money that could be devoted to e-business programs in other parts of the company, and to helping Unisys make the human capital and cultural transitions needed to expand its business in information services.

For example, an e-procurement initiative resulted in better information about purchasing and suppliers. This data gave executives a better understanding of the company's aggregate spending, and gave buyers the tools they needed to find better prices and negotiate better deals -- all of which helped reduce the cost of goods the company bought.

"In the first year, we saved $50 million-plus by moving to e-procurement," says Weinbach. "That $50 million was then used to fund a lot of the acquisition of the talent and building of skills so that we could begin to move more into building the service part of our business."

Much of that savings was used to create Unisys University, a six-campus learning center with 10 schools of instruction, including e-business and leadership. Today, the university helps employees keep up to date through hundreds of instructor-led classes and more than 15,500 computer-based courses.

The innovative use of network technology has paid off, as well. Over the years, as Unisys employees became more mobile, the company provided them with remote access to its network via toll-free numbers. Before long, however, the cost of that access "went from basically nothing to more than $15 million a year," says CIO John Carrow.

As part of the e-business initiative, Unisys began using virtual private networking (VPN), which uses encryption software to give employees secure access to the corporate network via their home or branch office Internet connection. In short, the VPN approach replaces the use of private lines with less-expensive public phone lines. "We have introduced that technology across the U.S. and now to Europe, and basically bypassed the need for that 1-800 number access," says Carrow. As a result, the company has lopped about 90 percent off its remote access charges, and eliminated a number of network bottle necks at the same time.

The e-business effort turned up many other areas where new technology and processes could help free up resources. For example, Haugen says:

* A $5 million savings came from increased efficiency in administrative processes in the areas handling supplier payments and customer billings.

* Improvements in the finance and operational analysis functions produced savings of $3 million-plus.

* The standardization of infrastructure software and the processes reduced support, maintenance and other costs by some $20 million.

The Basics and Beyond

The self-funding approach has clearly succeeded, says Haugen: "We've shown that with e-business, you can really increase the efficiency of processes, save money, move your work force forward and get a sizeable return that you can invest elsewhere."

But the benefits and returns used to justify the effort are actually quite conservative, and tell just part of the story. "We measured only the hard costs," Haugen says. "There are a lot of softer benefits that we could have included, and that people urged us to include -- things like the amount of new business that you can get from having better information about your customers. But we didn't want to use those. I think that often, people are disappointed by projects because they put a lot of those benefits in their plan, and then they can't measure them very easily. So we made this thing work on benefits that were really tangible, discernable and controllable. We stuck to the basics."