It's a piece of cake to pick tech companies that have figured out ways to use tech gear to stay ahead of rivals. Just think of Dell Computer (DELL ) Corp. and how its pioneering build-to-order system propelled it to No. 1 in PCs. Or eBay Inc., which dominates the online auction market with 1 billion in listings. But companies outside of techdom are also using technology to claim a competitive advantage for themselves and their stockholders.
These companies aren't tech fetishists. They just make technology work to accomplish their business strategies. Instead of big, bet-the-farm investments, they use tech to chip away at business problems, looking for incremental improvements year after year that add up to a major advantage. It's a long-term commitment that typically comes from the top. The CEOs of insurer Progressive (PGR ), trucker Yellow (YELL ), and auto-equipment maker Gentex (GNTX ) have long stressed tech and have kept IT spending steady even during the downturn. The formula is working. In the past three years, these three stocks are up an average of 110%, vs. a 31% drop in the Standard & Poor's 500-stock index.
Progressive Corp. has spent years using technology to raise the bar in car insurance. In 1997, the company pioneered selling online and using digital cameras and wireless Net links to process accident claims -- sometimes writing checks in under 20 minutes. It built a Web site for its 30,000 independent agents that dishes up sophisticated pricing tools, paperless filing, and policy updates to improve productivity and loyalty. Since starting its Net initiatives, Progressive's revenues have jumped from $3.4 billion in 1996 to $9.5 billion in 2002 -- an average increase of almost 20% annually, vs. 5% for the overall auto-insurance industry. Analysts expect revenues to hit $11.8 billion this year.
Using tech effectively often means being more demanding than the average customer. William D. Zollars, Yellow Corp.'s CEO, set tough standards for tech projects in 1997: They couldn't take longer than a year to implement, and they had to have a 15% rate of return. Such guiding principles have helped the 325 employees in the company's Yellow Technologies lab automate most of the trucker's operations -- quickly and profitably. Two years ago, the $2.6 billion company installed software that lets Yellow change staffing on its loading docks daily based on predictions of labor demand. The result? The staff averages 90 workers per week, down from 100 before, even as the number of shipments has increased.
Even in industries with many tech-adept players, it's possible to stand out. JetBlue Airways Corp., which only started operating in 2000, was the first airline to allow pilots to carry laptops that automatically update flight manuals. And it was the first to have a virtual call center, with 700 reservation agents working from home in Salt Lake City. Meantime, 72% of its tickets are booked through JetBlue's own site, saving on agent commissions and other travel sites' fees. Add it all up, and in the second quarter, ended June 30, JetBlue posted 19% operating margins, vs. Southwest Airlines (LUV ) Co.'s 12%. And its stock? Shares have surged 156%, to $46, since the company's initial public offering in April, 2002.
Small companies often use tech to offset the economies of scale of bigger rivals. Gentex Corp. is the pacesetter in car mirrors. It has achieved 40% gross margins by cutting costs 4% to 5% annually through IT. Gentex keeps adding more automation and monitoring systems in its factories that pinpoint problems before too many faulty products are made. That has upped manufacturing yield 30% in the past three years. Gentex's revenue is expected to jump 19.5%, to $472 million this year, says analyst Alexander P. Paris of Barrington Research Associates Inc.
Investors looking for promising stocks could learn a lesson from these companies: A long-term commitment to technology can mean a leg up on the competition.
By Heather Green
Contributing: Wendy Zellner in Dallas