The Cultural Key to Net Gains

Greater efficiency isn't gained simply by buying the latest software. Real improvements require top-to-bottom embrace of change

Peter Foss, president of a General Electric unit called GE Polymerland, arrives at the office each day at 7 a.m. Waiting on his computer are up-to-the-minute reports on sales, orders, and cancellations for Polymerland products -- including engineering resins, custom compounds, and colorants. Foss can look at overall sales figures or sort by regions and accounts, tasks "that used to take three to four hours for a team of people to put together in the morning," he says. "Now, the information is real-time. That means I can efficiently pester the heck out of people," Foss jokes.

Polymerland is the earliest and most successful example of GE's Net initiatives -- projects the company says saved the industrial behemoth $1.7 billion in 2001 alone. The Polymerland Web site was introduced in 1997 as a research tool for customers looking into its products and pricing. In January, 1999, Foss added e-commerce. Initial sales were only about $10,000 per week, but today 60% of orders come in via the Net -- generating $50 million to $60 million in sales each week.

As important is what selling via the Internet saves. Polymerland customer service receives 200,000 to 300,000 fewer calls per year. That, along with a vast reduction in paperwork, has cut the unit's costs 35% over five years. (Foss declines to put a dollar value on the savings.)


  Such success is as much the result of a company's culture as it is of technology. Polymerland's restructuring was a top-down order from then-CEO Jack Welch, who wanted to make the division a showcase for how to apply the company's Six Sigma quality-improvement process to a service business.

Foss was encouraged to bring in new, process-oriented managers to instigate change. And over the course of 1999, nearly all of GE's division managers spent a few days with the Polymerland management team. One result from the discussions that ensued: Foss created a nine-person swat team that fanned out across the country to educate customers on the advantages of Web ordering, a tactic that had worked well for sister division GE Appliances.

Why is it that 45% of companies aren't satisfied with CRM results?

Polymerland's success highlights a salient fact as companies nationwide try to replicate its model: Creating an atmosphere in which change becomes the norm is often more crucial than the technology itself, analysts say. As large corporations have learned the hard way, simply buying the latest technology, such as customer relationship management (CRM) software, is of itself no panacea.

In fact, a recent Merrill Lynch survey of top CIOs revealed that 45% of companies aren't satisfied with CRM results. According to research firm Gartner, 75% of CRM projects that fail do so because of bad management. "I wouldn't say GE is world-class in the ability to implement technology," says Bob Parker, an analyst with AMR Research. "What it does have is an organizational structure that embraces change."


  To understand how important culture can be, look at where technology hasn't delivered. Take the case of GenRad, a maker of testing instruments that's now owned by Teradyne. By 2000, it had spent tens of million of dollars on CRM software from SAP. But even with a dozen engineers working to integrate it, something just wasn't clicking.

CEO Bob Dutkowsky, who has since become CEO of software firm J.D. Edwards, went to the stockroom to find out why products weren't being released onto the shop floor in a timely manner -- a primary bottleneck. "What I found was Myrtle," he remembers. Myrtle had worked at GenRad for 37 years and instead of switching to the new software, she still used handwritten inventory sheets and 5x8-inch cards to keep track of what came in and went out. "We hadn't got Myrtle to use SAP, and therefore SAP wouldn't work," recalls Dutkowsky, who adds: "Companies have to change the way they do business."

Another lesson of the Net is that change often comes easier to small, new companies than to old, established ones. Web-based technologies grabbed corporate attention in the late 1990s, but, at least initially, virtually all of the successful implementations were at startups. They didn't have aged computers -- called legacy systems -- or customers who were set in their ways. And they certainly didn't have Myrtle. Making these technologies work in Corporate America, with its hierarchies and rigidity, has proved a challenge. That's where culture becomes so important.


  The right corporate culture not only embraces change but encourages managers to set focused, reasonable goals. "We always ask one question: 'How will this new technology reduce costs?' If it doesn't, we ain't doing it. It's a simple game of follow the money," says Polymerland's Foss.

What impresses CIOs? Cost savings

At GE, that mantra applies to projects large and small. The Global Exchange Services division runs GE's Global Supply Network (GSN), through which all GE businesses trade with more than 36,000 suppliers. In 2000 and 2001, the network handled more than $20 billion in purchases by holding 25,000 online auctions, making it the largest private Web marketplace in the world.

However, that isn't what impressed GE CIO Gary Reiner. What he looked at were cost savings. Procurement costs related to GSN purchases dropped 7% to 9% over the two-year period as suppliers lowered prices to attract GE business. In 2001, GE says, it saved $650 million through Web-based auctions.

Reiner also reins in costs on the little things. Using his "digital cockpit," a piece of software that provides real-time electronic access to "mission-critical jobs," Reiner can monitor how quickly the help desk is responding to calls. If the response time exceeds a prescribed standard, the system automatically fires off an e-mail to the appropriate group of people asking that the situation be addressed. If the problem isn't fixed, more e-mail goes out to an ever-wider number of people until the response time is brought back to normal levels.


  While GE spends more time boasting about its digitization process than almost any other company, it's hardly alone in the effort. In January, competitor Dow Corning launched a new Web business called Xiameter that takes aim at the commodity market for silicone. In exchange for following strict guidelines, Xiameter lets industrial manufacturers bid on silicone at special prices. Think of it like an airline, where customers agree to stay over a Saturday night or change planes at least once in order to get a cheap price. With Xiameter, customers must be willing to buy a truckload of silicone and sacrifice customer service to get the lowest prices.

Although it's too early to report results, Executive Vice-President Stephanie Burns estimates that customers are getting price breaks of up to 10% to 15%. In exchange, the company has lowered costs -- 80% of orders are processed without any human intervention -- and has the opportunity to attract new customers who primarily buy on price.

The lessons from GE and the others are two-fold, analysts say. Keep technology projects focused on the task at hand. And be ready to alter your practices. "Unless businesses change their operations, they lose productivity. Too often, companies just spend money on software systems that aren't useful," says Jim Walker, a Forrester Research analyst who covers business-to-business applications integration.

The 18th century German philosopher G.C. Lichtenberg had it right when he wrote: "I cannot say whether things will get better if we change; what I can say is they must change if they are to get better."

By Jane Black in New York

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