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Copyright © 2002 John Zipperer unless indicated otherwise.

From and copyright by Internet World:

Leveraging Linux

By John Zipperer

(08/01/02) If you have a mainframe system that has worked adequately for decades and has earned your trust, would you look to replace it? That's one of the questions thrown at Boas Betzler, senior technical staff member with IBM's Linux Technology Center. The 28-year-old Betzler makes the case that a generational shift in mainframe operating systems to the open-source Linux would give enterprise users real benefits.

"I did not tell them I have something better; I told them I have something different," says Betzler. "I didn't take away a function that was fine for the last 30 years. With the operations and functions on the mainframe they had so far, they had difficulties in some things like e-commerce and the Internet." Linux, he argues, can solve those problems for companies.

The German-born Betzler signed up with IBM's European division soon after college in Stuttgart, where he spoke with many American enterprise customers that he supported from his German base. "It's quite an experience to work in service for an operating system that is already 30 years old," he says. "At the same time, these companies have completely different requirements than you are used to after an education at college with a Unix background. You get into an environment where certain applications or functions have been running for five or 10 years, so when one of them breaks down, it's an interesting task to [find] what was wrong."

He says customers were receptive to the introduction of Linux, and "they pretty much knew what to expect from Linux," says Betzler, who had earlier waged his own ultimately successful campaign within Big Blue to prove the utility of the open-source operating system on the mainframe.

One of the reasons for Linux's popularity rise rests in the generation of programmers that now works in IT departments. These people represent a generation that has played with the OS on their laptops for years. A shift to that OS for mainframe work is easy (and they're also pushing it into other areas, such as PDAs and cell phones). But the case for it on the mainframe is still very much being debated.

Betzler tries not to overpromise; he says Linux can't handle huge single-image database duties and mission-critical transaction workloads that run on some systems, and he doesn't expect it to take over those types of jobs from existing mainframe OSs. It also does not match their granularity of management or the scalability of features, but "there I see Linux moving forward really fast" to fix those shortcomings, he says.

Unify and Decentralize
When Major League Baseball Expanded its Retail Sales, it Focused on Content and Outsourced the Back-End Work

By John Zipperer

(08/01/02) How do you get the most leverage out of a world-famous brand? If you are Major League Baseball (MLB), you have to bring an often-times traditionalist fan base onto the newest technology platform, even if the rules for success on that platform are not quite settled.

That may be why MLB looked for a mixture of traditional background with Internet-era experience when it sought a leader for MLB Advanced Media, a company set up in June 2000 to handle the Web sites and online commerce for MLB's 30 teams. Bob Bowman, president and CEO of MLB Advanced Media, brings his experience as treasurer of the state of Michigan, investment banker, president and COO of ITT Corp., and, most recently, president and CEO of Outpost.com, where he still serves as a director to the organization.

As a result, he's critical of the business approach utilized by Internet commerce sites, and he takes a sometimes-maverick approach to cross-selling and marketing to his customers. The goal, after all, is both to increase revenue and to safeguard an established brand.

Internet World: Major League Baseball set up MLB Advanced Media in June 2000. Why did MLB decide to set up a separate organization to do this?
bob bowman: The thinking—and the facts have born out the wisdom of the thinking—is that this is a new media format, one that is accessible by everyone no matter where they are in the world, and that distribution is not an issue like it is with TV or print. Therefore it is something that can be centrally located unlike the other forms of media. This was a way both to control the costs and optimize revenue. By that, I mean creating content that is from either subscriptions, the stores, or its sponsorships. Obviously the more eyeballs you have, the better sponsorships you have, and [MLB Advanced Media] is a way to create a valuable asset that's equally shared by all 30 clubs, which is a smart way of revenue sharing as well.

IW: Is Advanced Media a wholly owned subsidiary of MLB?
BB: No, it's a separate company. It has coincidental ownership [by] the 30 clubs.

IW: What did you learn from your time at Outpost.com about conducting online commerce and building customer relationships?
BB: A lot of things. The most important aspect of e-commerce is commerce—that is, having the product and getting the product to the person. It doesn't do any good to have a great Web site if you don't have what the person wants, and/or if you can't get it. Like in any good situation, fast pay makes fast friends.

Someone orders something from Outpost or now from MLB.com, the faster we get it to them, the faster they become return customers. An element of that is making sure you have on your site and in your warehouse what people want. Those two aspects—proper and timely management of your warehouse, and proper and timely fulfillment—oddly enough are both offline, old-world, customer-centric businesses.

IW: How did you decide to go with a company that outsources, such as Digital River to build and host the site?
BB: First, we think they're the best. They do a great job for us. They host and run our back end for us. I think the decision is—like anything else in life—if you need to have something that is truly customizable, and you can do it cheaper and better, then you ought to build it. But if you're trying to get functionality and scale and extensibility and great performance, then you ought to buy. They can, quite frankly, provide the service at a better cost for our customers. So our decision was relatively straightforward.

We just relaunched the stores. Noah Garden, who runs our commerce effort, inherited a store last year built by consultants—none of whom have ever sold anything—and so we kind of limped through last year and did okay, could have done a lot better. [We] had some interesting situations with customers. We needed to rebuild it to have much better customer service, much better ease of navigation, much better understanding of what we have and much easier ways to get to it, whether it's hats for this club or jerseys for that club. We think they and Noah have redesigned it in a good way and so far the numbers are up there—sales are up 20 percent since we relaunched the store.

IW: How do you use the system to learn more about your customers? Do you track them? Conduct surveys?
BB: We don't track them. We don't dynamically offer for everyone who buys a Cardinal jersey, here's Ozzie's autographed baseball. A lot of online stores do that, and we probably will be doing something like that in the future, but we don't do it yet.
We do, on the other hand, track what they do post-facto. Here's what's selling, here's what's not, here's what's mixing, and what's not mixing. If certain things sell together—a jersey and a hat—we might put them on the same page.

[Dynamic offerings are] not all that great. It's sometimes a long run for a short slide. We do obviously analyze who's buying what, and equally important, what else they're doing on our site. Are people just coming to our site to shop, or are they coming to our site for other things and then going to shop? Do we have dedicated shoppers or do we have dedicated baseball fans who happen to shop? And if they're dedicated shoppers, how do we get them to see other things on the site, and if they just happen to get to the store, how do we get them back when they happen to think of baseball?

IW: How do you take the person who goes there for scores and convert them into shoppers?
BB: We do it the old-fashioned way. We constantly remind them we have a store, we run banners—and those aren't really to get people to click on them, though a small percentage of people do—but those really are like billboards. They're to remind people in the back of their head, as they're thinking about buying a jersey or hat, 'Oh, yeah, I saw MLB.com—or Yankees.com or Redsox.com—let me go there.' It's not for the immediate gratification where someone clicks on it, but rather a longer-impression theory where we try to get our point across the way a billboard does or any advertisement does. Just put it in front and try to get the impression across.

And the other way that we do it is when we're writing about somebody, we'll put "click here to get an autographed baseball" or "click here to get his '75 jersey" or whatever it might be. We don't do contextual links, but we might do [it near] the headline. We don't say, in the middle of the story, click here to get his baseball—we don't believe in that.

IW: How many visitors does your site get on a monthly basis?
BB: Probably somewhere around 50 to 60 million. We do about 1.7 to 2 million a day.

IW: How much does a typical buyer buy in a single visit or on an annual basis?
BB: The average is somewhere between $40 and $50 per order, and the average person shops twice a year.

IW: You've mentioned how you use banners on the site, and you've got a number of sponsored sections, like "Beat the Streak presented by Topps." What about third-party advertising banners?
BB: We'll do them. We have some banner ads up, more on club sites than on our site. It's funny. It's tough to get people to buy banner ads, because they've been denigrated—wrongly so—and yet all TV is is banner ads. It's animated and it's fun and it has an edge, but it's banner ads. They pay hundreds of thousands of dollars for those banner ads, but you try and talk to an agency about putting a banner ad on the Internet, and they say, 'Oh no, we can't do that.' And here, this is one where they can't walk away; it's there in their face.

We think they're terribly effective, and they're almost going to become more effective than pop-ups. Even though pop-ups today enjoy a higher click-through rate, everyone's doing them so much—including all the ISPs—that everyone's going to start clicking to close those things as soon as they start to launch. Banner ads are a marathon, not a sprint. Over time, the message will sink in about what you're selling on the site or what you're doing on the site. That's why we believe in banner ads.

IW: So, in the old argument about whether someone should pay on a click-through basis for banner ads, you're saying no, you're getting value just from people seeing the ad.
BB: Yes, if you go back to the person who [created] the Internet economic system, you just want to take that person and strangle or whip them into shape and say, 'What were you thinking?' It's as if they were on vacation, they missed Business 101 when the Internet was set up. They somehow thought that this medium, unlike all other media, should be free; they somehow got the notion that it should be unique visitors, as opposed to total visitors—and TV is obviously total visitors, they don't look at unique [visitors]. It's beyond me. Someone got the thought that ads had to prove themselves and work by click-throughs or sales, but no other medium does that. It's amazing to me; every wrong decision they could have made, they did. Now those who are still around in 2002 are trying to undo all the bad decisions that were made in the 1990s.

IW: You don't yet have a decade of existence to look back on and evaluate with MLB.com, but are the sites meeting their objectives?
BB: We don't know yet. We are satisfied in some categories and need work in others. We are satisfied in traffic; the traffic has gone up six times as much as it was in 2000. So for those who have criticized the sites for being too homogenous, obviously the fans like it and they're coming in droves. It's easily the No. 1 baseball site in the country today. ESPN has more traffic, but they have 17 sports on their site. ESPN does a great job; they're great competitors and sometimes they're colleagues of ours; sometimes we do joint deals with them. Certainly from a traffic point of view and getting the message out of who we are, we're satisfied. We're satisfied technologically. Last year was a tough year, but we're satisfied that the platform is stable. It could be enlarged and extended to handle the traffic that we might get in the months and years ahead.

We'll be adding a Japanese subsite and a Spanish subsite, and also we'll continue to grow. This year we've more than doubled the traffic. We won't double it next year, but next year we'll probably routinely be getting somewhere north of 3 million fans a day coming to our site.

I think where we admittedly are still learning our way is what people do on the Internet generally with baseball; we know where they go, but are we producing things we shouldn't be producing, or not offering things that we should be offering? One's an act of commission and one's an act of omission. The only way to figure that out is either to keep throwing things up to see what people do—but even that's not satisfactory because they might not have seen it, they might not know it's there—so we are now surveying our customers regularly. We've got 3.5 million registered users on our site, so we have the ability to survey them and ask them what they think.

IW: What kinds of responses do you get to your surveys? Do you survey them all at once or do you do subsets?
BB: We always do subsets, because that way we can do controls. We usually get about 10 to 15 percent response, which is good. I spent 10 years in politics, and that apparently is statistically significant and certainly gives us satisfaction that the data we're getting back are accurate. People are remarkably honest; they take the time and tell you what they really think. And customers are particularly that way, because they think they are—and they are—going to improve the site. Whatever your business is, whether you're running a magazine called Internet World or whether you're running a company called MLB.com, talk to your customers and provide them with what they want. It makes sense.

IW: How do you ensure that online and offline marketing are coordinated?
BB: What we try to do offline is talk to baseball fans. Unless you're a baseball fan, it's highly unlikely we're going to get you to come to MLB.com. You probably will go to ESPN, even if you're not a baseball fan. It's hard to win two battles, one to get online and the other to come to MLB.com. So our offline media is baseball publications and games on the networks—Fox on Saturday, ESPN on Sunday, and the regional sports networks as well.

When it comes to online, we are trying to do a number of things where we will try to take a bit broader brush and say, 'You're already online, come on take a look at MLB.com.' And we're talking to partners that are much broader than sports in this area.

IW: What can you say about baseball customers that might differ from what you would find in customers for other markets? Are they more or less Internet-adept?
BB: I'm not sure we know enough about that. I think it's changing, and it's clear that we are doing two things. One is those people who are my generation, who are not adept at the Internet, are getting adept so they can listen to the games on our Internet audio. Or they are getting adept so they can get live box scores at 11:00 at night. Those in my generation—by that I mean the baby-boom generation—spend a little bit more time on the Internet, as they see their old favorites start to migrate to that platform, and baseball is one of those.

The second thing, and perhaps even more exciting, is for those people under 30 or 25, the Internet has been their only communication tool—period. For that generation we're presenting something that hopefully keeps their interest, and baseball is not the kind of game that some people would have you believe it is—it's hip, it's cool, it's online, it's fun online, there's lots of things to do online. Those people are online two or three hours a day; baseball has to be in front of them.

IW: Talk a little about internationalization, and how much of it is translation and how much is presentation of issues differently to different audiences.
BB: First of all, we've had international fans forever. Baseball is one of the most international sports. Now, with the diversity of the players—about a third of our players is foreign born, and it isn't just Spanish-speaking players, now it's obviously Japan, Korea, Australia, and in due time China. That not only is good for the game, but it's great for the fans, because you know everyone in Korea wants to know how Chan Ho Park pitched. Or when Kim was standing in Yankee stadium in the ninth last week, everyone in Korea was watching if they could, because they didn't want him to fail again, and he did not, happily enough. So I think the players themselves are creating fans in their native countries, and our job is to make sure when those fans want to find out about baseball. Our site is capable of doing that. Both in terms of language and also the look and the feel and how people write things.

IW: Meaning that internationalization is more than just translation?
BB: I think we want to write the stories in their native tongue, I don't think we want to translate. We are working with a couple of companies to launch the Japanese site and the Spanish site, and the thought would be that both would be written in the native tongue, not our stories translated, but actually with an editor-in-chief of the Spanish site.
IW: What do you want to do online in the future?

BB: Our goal is very simple. We want MLB.com to be a habit, an addictive habit that is good for you, as opposed to other habits that are not good for you. We want people to know that this is the place you go to get it fast, deep, and always actively.

We'll solve that with wireless, we'll solve that with e-mail alerts, we'll solve that with [the ability to] download parts of our site and put it on your browser no matter where you are. There are lots of technological answers to that, and some you've seen—more you'll see this year as we roll them out every month or so. But philosophically, we want it to be a habit.

Leveraging the Customer
CRM Packages for Financial Services Firms Ensure the Further Mining of Their Established Customer Value

By John Zipperer

(08/01/02) The financial services industry has changed. It has become more sophisticated throughout the past two decades as well as more demanding. Several events factor into this morphing, one of which is the greater responsibility employees have for their own financial future. Providers have developed a still-expanding line of services and products in an attempt to keep the customers happy. Deregulation of the banking industry has also expanded the list of solutions companies provide, but an increased array of offerings coupled with the multiple touchpoints and identities that a customer may have with a financial institution have created a need for the institutions, their partners, and member brokers to unify their views of the customer and streamline the presentation of products.

It's an almost dizzying array of choices, from investment management products to commercial and residential mortgage applications and beyond. To get a handle on all of this means that the brokers will also end up changing the way they present information to their end customers. Are the makers of customer relationship management products keeping pace with the needs of their financial-services users?

Thomson Financial is a multi-billion-dollar financial-products company serving the global financial industry. It grew rapidly from its origins in the early 1980s as an investment research publisher. As it moved through the following two decades, it expanded and acquired new companies and lines of products, eventually filling out five lines of offerings, which make up the company's five business units: the Investment Banking Group, Investment Management Group, Sales and Trading Group, Corporate Group, and Wealth Management Group.

"A lot of our focus is moving from product-focused organization to a customer-centered organization," says Craig Berkson, who serves the investment-management group as CIO. His group focuses on information offerings for the institutional sales and marketing industry, and it includes the First Call Analyst, Datastream Advance, and Oneva Trade FI divisions. He says the company's customers were asking it to integrate its various product sets so that Thomson could present them with solutions tailored for them; they also didn't want to have multiple Thomson representatives contacting them for the various products, preferring instead that one person offer them a range of products.

Thomson utilized solutions from Vantive—a company later acquired by PeopleSoft Inc. in 2000—in several business units. But to meet its customers' needs, the company began to search for a more-global approach that would draw on information about each customer from wherever it might reside in the company, giving it more of a well-rounded view of that customer. It would also leverage its global abilities to provide more products to those clients.

Thomson now uses a number of CRM products from PeopleSoft that include its CRM eSupport for Customers, CRM Sales, CRM Quality, and CRM Support.

With its global approach still in mind, the company implemented the CRM solution in projects that took eight or 12 weeks each. Berkson says that pace was good enough to let it move quickly to drive value, while at the same time ensuring that it didn't get too far off track.

One of the support groups participated in the first pilot. "We were looking to provide them with some new functionality, because they had some PC-based systems, and we wanted to evaluate the strategy," says Berkson. "You have the ability to link together aspects of the organization that were using e-mail before," he says. Thomson can now go in and track interactions; it can route calls between offices and keep track of what's going on with them.

"Its challenge had been that it basically had, say, 20 different companies, 20 different sales forces, all going after the same prospective customers," says Robb Eklund, vice president of CRM product marketing at PeopleSoft.

Berkson says that Thomson hasn't formally measured its ROI on the implementations so far, but it keeps its eyes on meeting the specific business objectives behind the implementation. Customization was kept to a minimum, mainly devoted to tailoring things to fit Thomson's specific ways of doing business.

PeopleSoft is rolling out a version of its CRM product for vertical markets. The financial services market, with retail bankers, insurance, and brokerages being the likely customers, represents the first verticals to receive a version. "Financial services is probably the richest vertical market for CRM," Eklund says. These are, after all, companies that compete on service, including how they maximize their relationships with their most-valuable customers.

"One of the big challenges of financial services is that there is no other industry that has as many back-office systems," he continues. "The typical bank has something like more than 70 back-office systems to run their business-checking accounts, risk, arbitrage, mortgage systems, etc."

Given the need for financial services companies to keep up with their customers, naturally a number of companies exist that vie with PeopleSoft for a part of the market. Ascential Software, a maker of enterprise data-integration products, puts forth its Integrity product (acquired through its purchase of Vality Technology Inc.), which uses a probabilistic-matching technology for companies to pull together customer information that is managed in legacy mainframe applications. BroadVision is pushing its enterprise portals for distributing personalized information to the company's employees. HNC Software talks about its suite of products for this market, which includes analytic and decision-management software for handling customer interactions. Salesforce.com holds up Wachovia Corp.'s Capital Management Group, which used an online Salesforce.com CRM solution that replaced a bulky database, and in the process let more people throughout the organization access data.

Fleet's Changing Customers
Just looking at consumer-banking, there are a number of big changes in the customer-bank relationship in the last two decades that have required technology investments by the institutions.

When Ann Christensen was at Bay Bank years ago, the customer change was toward using automated teller machines (ATMs). That company saw an opportunity to expand its market share by increasing the number of its ATMs. In the mid-1980s, the bank wanted to expand its relationships with customers, and it took a direct-marketing approach that involved an automated customer-service group. She says its call-center business grew from 0 to 40 percent of its bankwide sales volume.

She then went to Shawmut Bank, a larger bank that Fleet (where Christensen served as executive vice president) eventually acquired. She built her business case there for direct campaigns, streamlining sales and service, and integrating it all with online services. Fleet handled 78 million calls a year (it's now closer to 100 million), and it strived to offload some of those calls to an automated system.

Christensen, who today serves as an independent CRM consultant, has thus seen the evolution of customer relationships in the financial services industry at a time of tremendous upheaval and opportunity. "As banks have tried to integrate their cross-channel delivery options—customers walk in and want to get the same story as they did online or on the phone—that's when CRM started being talked about as a possible solution," she says.

But as we've already seen, this is a moving target; the customer's needs and demands change at the same rate that the number and types of products available change and expand. Banks that have assembled new lines of financial services products by acquiring other companies have also sometimes ended up with their specialized sales forces, each of which handled a specific product—something regulations helped determine.

Fleet responded by investing in a lead-management product from MarketSoft, an implementation that is still in process. "Because of the legacy of acquiring these different organizations, as the strategy became more clear that we would have to move toward growing the customer base and not just acquiring a presaturated marketplace, the cross-sell products that were being sold were those that used a dedicated selling team," says Christensen. The company wanted to make it so those products didn't need a specialized sales person (assuming government regulations permit it).

A pilot project with the mortgage group went well enough to let the company see that customer representatives could take a sales lead and let the system do the work. With its 1,500 branches, Fleet has a vast number of lead generators. "What we're trying to do is cross-sell into the depositor customer base," Christensen says. It will continue to use MarketSoft to deliver centrally managed campaigns out to those field offices.

AFG Sees an Opportunity
AFG could see the change developing for years. The purchasing patterns of customers of financial-services products were shifting, with more consumers going to brokers of the products rather than to banks. That was an important opportunity for a company such as AFG (Australian Finance Group), which had grown from a single office of 20 agents to having 1,500 brokers spread across every province of Australia.

AFG plays the middle-man role, providing the brokers with the products—namely, residential mortgages—of the financial services companies. The brokers individually aren't worth the attention of the product providers, so AFG is able to aggregate their demand through its relationships with the providers. In one recent month, it handled 5,000 mortgage applications.

The changing financial services market offered AFG an opportunity to make itself so valuable to its customers and its suppliers that the firm would be indispensable to both, if it could add the CRM technology to make it all work. It knew that "the need was going to come for more sophisticated systems, especially with the speed the market's been evolving," says Malcolm Watkins, executive director at AFG.

"The only way to ensure protection of our business and our members and also make sure that the consumers are getting what they want is to make sure that you have the systems to follow the correct protocols, pose the right questions, and come back with the right solutions for that customer," Watkins says.

So the challenge was to get information out of back-office systems and into the hands of the brokers. AFG used eFinance (MidMarket Edition) from Siebel Systems, and it appreciated the data integration and data-dissemination aspects of the product.
In practice, it meets the broker's desire to sit down in front of her customers and show them a range of products and a range of scenarios, instead of needing multiple appointments to get the full picture. The customers tell the broker their requirements, she types it into the system, which crunches the data and provides a solution that would meet their needs the best. If the customers agree to buy that product, their broker fills out the application for it, which is transmitted to AFG, which forwards it on to the financial institution that provides that product.

"AFG is capitalizing on the interaction from the mortgage perspective, and then they're looking at how you maximize that with insurance and financial services, and Siebel is looking at how you keep track of that information and customer interaction," says David Carter, general manager of the retail finance product group for Siebel. "It's funny, because if you think about the trends, as they look to define and refine their CRM strategies, a lot of what they're dealing with is how to rationalize the channel and business-line integration." To meet that need, companies need a product that can manage information from legacy systems and can easily feed it up to customer-facing agents.

Those agents can use wireless laptops, too, though they have to wait to sync up with the database before the information can be transmitted into the system. "The idea is to have them all connected via wireless Internet," says Watkins. But he blames the telecommunications companies in his country for slow rollout of their wireless networks and for high prices where they do exist.

Changing regulations require increased compliance issues, and the brokers need to be able to justify why they recommended a specific product to a customer. The Siebel solution helps them show exactly why a product met the customer's criteria.

Watkins says it ends up being a "win-win-win" situation, with brokers, AFG, and the banks coming out ahead. He says the company is expecting a 20 percent increase in productivity for each member, because of its increased speed and the always-available status of the data. Without such a system, he says brokers need to enter the applicant into multiple systems for multiple products, and "for some of the auxiliary products, it becomes too much work, so it doesn't occur." With the Siebel product, the customer information is already stored in the system and is available for multiple applications and for future visits. So the brokers can do their jobs more quickly, get more referrals, and make their customers happy. The banks sell more financial products. And AFG? It's got big plans.

The reason the company invested heavily in this effort is because it thinks the investment will help it leap far ahead of its competitors. "In the next 24 months, the market will rationalize dramatically," says Watkins. "So we're positioning ourselves to be able to absorb a number of companies out there and bring them into our system. It also makes it cost-prohibitive for the other companies out there to match it."

Strategic Advances
The Speed of Information
An Avalanche of Information Speedily Delivered to a Computer Shouldn't Stop Humans From Making the Final Decisions

By John Zipperer

(08/01/02) Today, as I write this, I have spoken to a couple of different business executives who have noted the expensive dead ends into which many companies got themselves. The culprit was overinvestment in the wrong technology, usually at the behest of pseudo-experts. Lots of good money was thrown at white elephant projects that were, frankly, before their time or irrelevant to the real direction of their industry.

Ann Christensen, a former executive vice president at Fleet (now a private consultant), told me that it took the Y2K threat to make some financial services companies acknowledge that their technology investments were seriously wrong. (Her exact words were, "Thank God for Y2K!") Instead of buying stand-alone automation applications, they should have invested in their legacy systems—the back-end information that was to be increasingly important in mining value from their existing customer relationships.

That's the macro-background to one of the promises we've been hearing (and telling) about the business-technology revolution over the last two decades, which is that the increasing speed of information will make business decision-making more efficient. The faster you get information, the faster you can act on it, right? You can stop building up inventory, reduce headcount, adjust pricing, avoid expensive investments in dead ends, whatever. But like all truth, this is true only up to a point, because speed isn't everything.

Consider this example: On April 18, a small airplane crashed into an office building in Milan, Italy. Immediately upon that information hitting the floor of the U.S. stock exchange, the Dow fell by about 150 points. It recovered as more information filtered in indicating that the crash was not a terrorist event.

It was a good example of speed outperforming intelligence. Because whether or not it was a terrorist attack, the market response was illogical. The "attack" really was an unwelcome reminder that we are in wartime, which has economic consequences on corporate investment and consumer spending. (We'll ignore for today the question of how smart those investors or brokers could be who were surprised by such a reminder.)
What did those people gain by having that information at their fingertips? Wouldn't some of them have been better off if they (or their investors) hadn't heard about the plane crash until they got home and flipped on the evening news?

I'm not serious about the latter, of course, because like many of you, I am an information-sponge, checking the news and market sites throughout the day. But as the consumer of that information, I have to decide what is worth reacting to in some way—sell a stock, send an alert to another party, or some other course of action. My ability to make a better decision is increased dramatically (exponentially, perhaps?) by the addition of new information, especially from separate, corroborating sources.

So when I hear companies talk about how they want to react to information in real time, on the spot, I worry that they will root out any wisdom from their decisions. Wisdom, after all, comes from time, experience, and consideration. The value of wisdom is why so many traditional companies exist today and there are so few Internet-only retailers.

The challenge reminds me of a recent conversation I had with an executive of Kalido, maker of the Kalido Dynamic Information Warehouse. He noted that the company's goal was to "manage change and business performance in a very dynamic environment" by giving global enterprises the ability to collect and manage information that exists in repositories in multiple offices and branches around the planet. Yes, speed is still a part of it, because you have to have the information at the time you need to make a report or crunch the numbers.

But speed is not the most important element in getting value from enterprise systems—intelligence is. The valuable technology coming out today and tomorrow will be the applications that help humans receive, prioritize, and understand the deluge of information that comes at them at Internet speed. The executive who uses them will need to bring wisdom, not just further speed, to the equation.

Global Business Monitor
Partnering with the Germans

By John Zipperer

(08/01/02) What's more important for businesses when expanding internationally—low costs or deep talent and infrastructure? Germany, the world's third-largest economy, is making the case that its depth of talent in semiconductors, manufacturing, communications, and other technology is worth more to potential business partners than lower wages in other locations.

Martin Klender, national practice leader of Deloitte & Touche Fantus Consulting, reports that his organization conducted a survey in 2001 to learn about companies' selections of new locations. It found that nearly 80 percent of the companies surveyed had plans to open new operations or facilities in a country other than their own.

The three biggest factors concerning international expansion locations were access to customers, stable social and political environments, and ease of doing business. Though Germany rated highly among respondents, the United Kingdom was the runaway favorite for North American companies—as many of them are interested in the U.K. as in all other European countries put together. Culture and language affinity would be responsible for part of that, but German cities eagerly point out what those companies are missing by choosing the U.K.: direct access into central Europe.

"They thought they would go into Europe, so they go to the U.K., but they realize they're not there yet," jokes Hartmut Schwesinger, chief executive of Frankfurt Economic Development GmbH. "So then we help them really get into Europe."

Schwesinger represented one of 13 German cities that banded together recently for the German Centers of Excellence networking conferences in the U.S. to try to lure U.S. companies into the German market. Their mission was two-fold: evangelize about Germany's markets and business opportunities, as well as let companies know what services are available to help them find German business partners.

When Sunnyvale, Calif.-based semiconductor company Advanced Micro Devices Inc. (AMD) decided to build a new chip fabrication plant, the eventual choice of Dresden in eastern Germany was not a natural winner. "It had me scratching my head when we first even thought about it, especially being in human resources and wondering what that would mean for us," says Reid Linney, AMD's vice president of human resources. But local talent and financial access proved to be the winning combination. The city of Dresden is in the state of Saxony, which helped pull together the bank loan package for the multi-billion dollar plant; and Dresden had already been a high-technology center for the former Soviet block, so there were a lot of highly trained engineers available.

Germany possesses a much more decentralized economy than France or the U.K. cities like Essen that have histories of hosting heavy industry; Stuttgart is famous for its auto industry (a major force in German IT); Berlin and Hamburg are media centers; Munich is a high-tech IT center, and so on. "Companies have very specific needs that will determine where they're going," says Schwesinger.

Michael Karoff, director of economic affairs for the city of Hannover, believes that partnerships between U.S. and German companies are helpful for both parties, and he says the city governments can play match-makers, as he did the morning of the Centers of Excellence conference in San Jose, at which he paired an Indian company with a German company. That hands-on approach can extend to a range of services, such as help with selecting a location, work permits, visas, and getting in touch with the community of other American business in Germany.

Just how successful a high-cost country like Germany ultimately is in attracting businesses from a high-cost country like the United States will be partly dependent upon road shows like the Centers of Excellence. But the pull of being on the ground in the center of Europe will likely continue to attract companies, as it did Hewlett Packard many years ago. Jörg Menno Harms, chairman of the supervisory board of HP GmbH, says the market for information, communications, and technology in Germany is forecast to grow 8 or 9 percent in 2003. Germany is betting that American companies want a piece of that.

Five Questions with neoIT's Atul Vashistha
By John Zipperer

(07/22/02) How does the Fortune 100 approach the outsourcing of its services and projects? The drive to reduce cost has helped develop a large and growing international outsourcing industry, and it can be a matter of significant consequence how much of its operations a company outsources, to whom it outsources, and the type of relationship it sets up with those outsource providers.

Intelligent Outsourcing Strategies spoke with neoIT cofounder and CEO Atul Vashistha, to get his thoughts on the how and why of global outsourcing. Before neoIT was born, he was senior vice president, international, at Cardinal Health, a Fortune 100 company. He also served as vice president of marketing and business development at Rural Metro Corp. He currently sits on the advisory board of the Center for Services Leadership at Arizona State University and the software division board for the Information Technology Association of America.

Three-year-old outsourcing technology provider neoIT, based in San Ramon, Calif., offers products designed to handle the automation of a company's outsourcing lifecycle, and it includes people, projects, and services in that definition. Its software products—such as neoIT Enterprise Buyer Application Suite, neoIT Enterprise Buyer Hosted, and neoIT MarketMaker—target savings in time and cost that are built into collaborative, outsourcing relationships. The company also has a large advisory effort to help companies get the most out of their global outsourcing projects.

Intelligent Outsourcing Strategies: What are the main outsourcing issues for Fortune 100 companies? Saving money? Reducing IT headcount?
Atul Vashistha: I've been on many calls with Fortune 100 CIOs or CFOs, and the number one factor is cost. The reason they want to outsource is to reduce the cost of their infrastructure. They are outsourcing it, so they're getting a lower cost from a supplier, and if they're going offshore especially for application development, they're getting lower cost. Another thing they're doing is taking a shared service center—for example, that manages their call center—and they're selling that piece to a supplier, and then they're doing a 10-year contract with that supplier to provide the service back to them. So it is a cash event for the company.

The other reason for outsourcing is that it's a change in their management philosophy, and they're trying to focus on their core competencies.

Intelligent Outsourcing Strategies: Do they need to make a tradeoff between control of their resources and saving money?
AV: I think the reason that a lot of companies are not outsourcing as fast is because they're concerned they're going to lose control What they find is that by outsourcing, they are not losing control. Let me give you an example of the GE model. They use the 70-70-70 model. They outsource 70 percent of what they do, so 30 percent is being done by them to retain control. The 70 percent they outsource, they use offshore suppliers for a higher level of savings, and 30 percent of the outsourcing is done onsite. They keep control, the oversight, but they get the all the core competency of the supplier and the cost benefits.

Intelligent Outsourcing Strategies: Do companies have (or need) an exit strategy when they get into an outsourcing relationship?
AV: Always. We always recommend it to companies. It doesn't matter if the contract is five years or 10 years; you will almost always be renegotiating it within three years. You may be going through acquisition or divestiture, markets change. Always negotiate an exit clause within the contract itself. When you're doing the deal is the best time to negotiate an exit clause, because it's the time when everyone is most likely to be agreeable.
It needs balance. You have to provide the supplier with a certain amount of business. They have to have some room to maneuver. The GE 70-70-70 model works well, because there's some benefit on the GE side and some on the supplier side.

Intelligent Outsourcing Strategies: Talk about global outsourcing. Are there some things better done in the U.S., or are there skill sets that are superior in other countries?
AV: When you're looking at it from a Fortune 100 perspective, there are only so many suppliers that can really service the Fortune 100. I'd say it's probably less than 50 companies around the world. You start looking at countries and the ones that stand out are India and Ireland. India is definitely the most mature for legacy systems, application development, application support, and application maintenance. If you're doing those, India should be your top choice. They've been doing it for years. If you're looking at packaged software, Ireland is very good at it.

And then you start expanding beyond that, the newly emerging areas like call-center and back-office processing, there are maybe five or six companies in Europe that can handle that, and maybe 10 companies in India that can handle that.

Intelligent Outsourcing Strategies: Just how much of a company can be outsourced?
AV: Depending on how much of a business you outsource, you can secure better deals. I believe the GE model will be followed by a lot of others. It's about maturity. To get to [the GE] model, it takes a lot of time. You have to look at that as a goal and build that core competency. There are other companies that are moving in that direction—JP Morgan, Texas Instruments—as good users of outsourcing. Then there are some companies that are on an 80-20 model—they outsource 80 percent of it.

SPSS Pairs Analytics with Bioinformatics
By John Zipperer

(07/15/02) Out where I live and work—Silicon Valley, Calif. —the business districts and office parks and even some of the strip malls are dotted with biotechnology and medicinal chemistry companies. Inside, scientists develop or improve medicines or other products, and the business managers struggle to provide the right tools to make their companies succeed. It's a business that is booming, despite the tepid economic recovery in many other industries, and it's one where the availability of the right machines and talent for the job can be worth great sums of money and time. It's an obvious mixture of pure science and business technology needs, so it's natural that technology companies that had long focused on other vertical markets would sooner or later look at biotech and medicine as being ripe for leveraging business intelligence tools.

Enter SPSS Inc. the Chicago-based maker of analytics and business intelligence tools. It recently announced an alliance that will help it crack this market using its Clementine data-mining product. SPSS put Clementine to use with the Duke Bioinformatics Shared Resource (DBSR) at Duke University. Under the agreement, set for one year but likely renewable if deemed a success, Duke will use Clementine to help it analyze a vast array of scientific data (and will give SPSS some valuable feedback that will no doubt be helpful for that company approaching other scientific enterprises). DBSR's manager, Dr. Simon Lin, says the huge amount of data researches have to handle—compounded by the successful Human Genome Project—means that data mining will become a central part of bioinformatics, which is the application of computer technology to the management of biological information.

Obviously, SPSS is optimistic about uses for business intelligence and analytics in the sciences. "Clementine is not a domain-specific tool, but rather takes the users' knowledge of their business for a wide variety of needs," says Cathy DeSesa, senior marketing analyst, SPSS science division. "In the sciences, I think that's useful for multiple disciplines, but also other industries as well. In chemistry—cheminformatics, it's now called; they used to call it computational chemistry—the tool is used to predict certain activities of compounds: is it likely to become a drug; is it likely to be useful in a shampoo—a variety of things. In biology, with the Human Genome Project, we now have bioinformatics—or computational biology—and people are using these data sets that are very complex and extremely wide; there are a great number of variables. It's possible now to measure lots of things and determine how these genes are behaving in a person's body. Machine learning tools like Clementine help researchers make sense of this information."

Clementine is SPSS's data-mining "workbench," which is a collection of tools for collecting and analyzing information, modeling data, looking for patterns in sequences of data, and more. Though the temptation might be to present a difficult interface in order to make those biotech employees work off their Ph.D.s, SPSS touts Clementine's ability to handle very large amounts of data as well as offer the end user a simple interface. In fact, users take a visual approach to mapping data, literally dragging and dropping icons. DeSesa says it is an end-to-end product, going from access of data (from multiple data sources) through data manipulation and visualization, rapid modeling, and through deployment.

Digex, Despite Unsteady Market, Rolls out Business Continuity Offering
By John Zipperer

(07/08/02) The outsourcing services market is in a state of ferment unusual even for that rapidly changing market. In recent weeks, there has been a dizzying succession of business sales, leadership changes, and new market strategies announced. How will this affect the services you buy? In the long term, it will probably improve them. In the short term, you should stay in touch with your provider and make sure you have confidence in its strategy going forward.

In June, giant chip-maker Intel Corp. announced its plan to exit the Web hosting business over the next 12 months, due to "market trends and financial projections for the hosting services industry," as Intel Online Services Inc. president Dalibor Vrsalovic put it in making the announcement. Also last month, managed services provider Loudcloud sold its hosting business to EDS, renamed itself Opsware to focus on selling its automated systems-management technology, and promptly got into a no-you're-not/yes-we-are argument with Ernst & Young LLP over whether it remained a "going concern."

Despite all that, Digex Inc. , for one, says it is sure that the outsourcing market is solid and has room to grow, and it is rolling out new services in the business-continuity sector to feed some of that growth. Digex itself has not been without ferment these days. A spokesperson for Digex said it replaced its CEO and president in June because its leaders wanted someone else to take the company forward. One of the first duties of new president and CEO George Kerns was to announce layoffs of 7 percent of his company's workforce. And then there's that little thing with its alliance with WorldCom, which should serve to give Kerns no end to his headaches.

In such an environment, enterprises can be forgiven for wondering what is happening to the hosting services market. The move to outsourcing obviously continues to be a notable phenomenon in businesses, especially as they look to offload work from shrunken internal IT departments. But if their outsourcers can't stay in business, are any outsourcers worth the risk?

Digex's senior manager for strategy and products, Steve Keifer, acknowledges the challenge of the market, and that's part of the reason he's taking time to talk to Intelligent Outsourcing Strategies. "We're trying to get out in front here and explain what we're doing," he says. "One of the big reasons we think we're going to be a survivor in this market is [our] strong concentration of enterprise clients. They are doing a wide variety of things from a simple Web site to online commerce."

What Digex stresses is its understanding of Internet strategy for traditional enterprise clients—not an unusual commitment for a vendor to make in these post-dot-com days. One area where it hopes to get some significant traction is with a layered services offering focused on disaster recovery, ranging from a low end of putting up a static notice on a Web site to a high end where it would partner with telecom giants to provide affordable replication-and-recovery services.

It's the lowering of the costs on the high end of that spectrum that is the biggest part of Digex's announcement, something that Keifer says government and finance enterprises in particular have struggled with in the past. In fact, he says that government is an important vertical for it to find customers.

If it can successfully mine that vertical and attract other industries to its customer base, Digex in future years may well look back on this time of significant change in the outsourcing industry as the point at which it took a path that led it to success. "We've seen this consolidation coming for some time, though I was surprised that the announcements all came at one time," Keifer says. "We think this has really gotten to be survival of the fittest. A couple of the advantages we think we have are scale, our focus, and also we haven't relied on subcontractors at all.".