Redefining IT's Value to the Enterprise

Good afternoon. If there's anyone present from the Las Vegas Chamber of Commerce, I want you to know I'm doing my best to jump-start the local economy. My luck in the casino is one reason why I tend to focus on the shows when I visit here.

You know, when it comes to entertainers and Vegas, a few seem to be a perfect fit of personality to place. Go back to Frank Sinatra and the Rat Pack... Recently, there was the five-year run of Celine Dion and of course, there's Mr. Las Vegas - Wayne Newton - who even has a street named after him leading from the airport.

I thought IT might have its own Vegas entertainer in the making when Steve Wozniak made his debut on "Dancing With the Stars." I know a lot of IT people watched the show because there were a number of electronic voting schemes at work to keep Steve dodging the weekly eliminations.

But Steve might have overreached when he decided to reveal his rendition of the worm on national TV. Fortunately, Steve has done very well in his day job!

Now... believe it or not, my observations of entertainers and Vegas stages do get to a point. It brings me to my discussion topic today. And that is what makes a good fit when it comes to linking IT with a company's business growth objectives?

In that regard, I think UPS has a pretty good story to tell.

Over the next few minutes, I want to share some of that story with you. I want to explain how it unfolded, and I want to offer a few technology development examples that I hope will provide a useful take-away or two for you.

This slide shows you how far we've come in our IT journey over the past 25 years.

Our early history is very important to today's story. Back in the day, our drivers used clipboards. We used a McCormack and Dodge ledger system. And then it cost $2 to handle a customer tracking request by 800 number. A few of you may even remember the old Trash 80 computers that some of our engineers were then using to build a database of loading dock activity.

The first thing I'll admit about our IT history is that UPS did not become an early technology adopter.

Why the hesitation? UPS's industrial engineering experts had built and refined UPS internal operations efficiency over generations. In fact, by the mid-1980s, IE (Industrial Engineering) had done such a good job of developing an efficient manual system of handling customer orders, there was serious consideration of not abandoning it.

Our drivers were happy with their clipboards except when it rained. And an investment to go digital on such a large scale would require complete redundancy, and an investment of billions of dollars. Was it worth it?

Such a question may seem hard to imagine in today's hindsight. Especially when you consider that technology powers every UPS service and all our operations. But it was real at the time. I was there. I came on board to the IT team in the Orwellian year of 1984. Much of my background had been in finance and accounting.

What ultimately influenced the decision to go digital was that our customers demanded it. One of our early technology success stories was a customs clearance solution in Europe that used electronic package tracking to move goods across European borders much more quickly than the old manual process. This was in the pre-European Union days when crossing European borders was cumbersome. Our customers loved the service.

So the pendulum began to swing toward seeing the benefits of technology not only as an internal tool, but as a valuable customer growth resource as well.

Once the decision had been made to embrace technology, the expectation was that IT would have to prove its worth in advancing the business strategy. Could we do our part in delivering return on investment?

Put another way, there would be no IT strategy. There would only be a business strategy with IT challenged to show it could play a role within it. And IT would be held accountable. There's a saying at UPS that "In God We Trust. Everything else we measure."

Fear was a motivator for us then! But we also learned we could gain credibility at the decision table if we could deliver.

Another point to note is that IT took root at UPS when we were a privately-held company. So balancing short- and long-term priorities was an intrinsic part of the culture. That would serve us well. And it's endured, even after we went public in late 1999. The best evidence is this year. Even in this difficult economy, we continue a $1 billion annual investment to advance our long term goals. We intend to emerge from the downturn in a stronger-than-ever position.

The key point in this journey slide is the extent to which UPS culture influenced the way IT developed from early on. It led to the development of a rigorous, multi-faceted process that connects IT closely with business strategy.

Here's a snapshot of the multi-faceted process UPS has developed to engage IT in achieving business goals.

Everything flows from our mission to "synchronize global commerce" and our four strategic imperatives: value-added solutions, customer-focus, enterprise excellence, and winning team. Within the confines of our mission and strategy, several levels of IT functional groups achieve different purposes. But all are linked to our mission and strategy objectives.

This structure has allowed us to achieve several key goals:

• It establishes that the business is the driver for technology;
• It points IT toward UPS's number one priority – driving revenue growth; and
• It's a careful blending of people, process and technology at each step of development and execution.

Let's take a closer look at each element.

In our early developmental years – an executive steering committee consisting of senior leaders from key functional areas – set strategic direction for IT. This group included strong participation by our then CEO, Oz Nelson, along with the Chief Financial Officer, International Operations leaders, the heads of Business Development and Industrial Engineering, and the Chief Information Officer.

This committee established initial priorities and funding levels for IT projects.

Among them was the package tracking infrastructure that underpins so many of our customer technology applications.

Package tracking is a great example of how we developed a common technology foundation and built upon it to improve services for our customers.

One specific technology the steering committee spearheaded was the Package Level Detail Program, or PLD. This technology has spawned a number of innovative solutions for our operations and our customers.

PLD contains a host of information embedded in bar codes and a unique UPS "maxi-code" that ensures a package gets to its ultimate destination on time.

Its development was spearheaded by the CEO and CIO and brought together sixteen senior executives from functions across the company. PLD has enabled end-to-end, real-time tracking and tracing information. It's led to customer benefits such as guaranteed delivery, new products, and automated processes. It's also saved our drivers up to a half-hour a day in productivity.

By bringing together most of our business groups toward a common purpose in developing PLD, we were able to leverage the technology for many purposes.

The executive steering committee team met regularly during the late 1980s and early 1990s to shape UPS's IT capability in its formative years. It provided the leadership to develop a broad infrastructure early on.

The company reorganized in the mid-1990s from a functional design through the build-out years to an end-to-end process oriented design linking teams of process and product managers. At this point, the Program and Project Oversight Committee was formed.

Its mission is to set business priorities for IT investments and funding, and to evaluate results. It also sets the tone at a high level that the business drives technology.

I head this team that includes senior executives across key customer and operating functions.

The group meets monthly. It establishes a disciplined process of reviewing and approving all significant systems development initiatives. The PPOC only considers end-to-end process proposals with all elements bundled into a single cost set. The Committee decides which of these end-to-end initiatives will yield the best return on investment and funds them accordingly. In the execution stage, we dispatch fulltime business managers to work directly with IT to develop the systems.

The role of the CIO in this model is to act as a business manager. When proposals are made, my role is to ask, is it technically feasible? Also, can IT deliver on all aspects of the process? I believe one of the most important roles the CIO plays in this model is to deliver evaluations in non-technical terms. The CIO must address issues in ways businesspeople find meaningful.

It's not the time to flaunt what you know. It's to become a trusted advisor and to create shared understanding. Speaking in English goes a long way!

Today – as many of you well know – there's a lot of discussion about the role of the CIO. Should that individual's focus be that of a manager of technology, or that of an executive of the company? At UPS, it's definitely the latter. When I was appointed CIO, the CEO called me in and said I was expected to be a leader of the business. My part-time job would be technology. That's because technology – and creating an understanding of technology – is just too crucial to business success today – for it to be a stand-alone specialty. As part of a group of high-level functional heads, the CIO also has a distinct perspective that is above the fray – if you will.

You are in the position to be the big-picture analyst, and to offer counsel on the implications of an initiative across all functions.

With that in mind, how does the PPOC establish priorities on proposals?

The test is the strength of the business case. Obviously, service to our customers and financial metrics like return on investment rank high.

Also key is how closely an initiative is linked to three priorities: our enterprise strategy, our key global markets, and revenue growth. Driving revenue growth trumps driving efficiencies. As an illustration, an international project may be given a higher priority than a more financially-attractive domestic project because of its growth potential.

Proposals incubate up to the PPOC from a Process Management development team that at every step includes a working collaboration between a business project manager and an IT representative.

In each developmental step, the technology application is linked to the business benefit, which is in turn linked to the company's four strategic imperatives and critical initiatives supporting those imperatives.

An example of a technology linked to our strategy is telematics and sustainability. Technologies including telematics have been at the forefront of helping UPS to operate in a more lean and green focused way.

Telematics works by capturing data on our delivery package cars via global positioning systems. More than 200 engine measurements are made – from speed to starts to oil pressure. We've also gathered data from sensors put on seat belts, cargo doors and reverse gears.

Combining the data with mapping software has helped us improve safety and save nearly $200 per vehicle a day in fuel. Multiply that times 90,000 U.S. package drivers and the savings and reduced footprint on the environment are significant.

Following a pilot program, we've now expanded telematics to nearly 2,000 vehicles in a dozen U.S. markets this year. We're doing similar kinds of technology applications with our air fleet that is also producing lean and green results.

While the PPOC authorizes funding and follows up on results of specific initiatives like telematics, another cross-function team serves as a technology intelligence unit for the business. It connects the dots between emerging technologies and possible business opportunity. That group is the Information and Technology Strategy Committee (ITSC).

The ITSC was formed to further connect fast-emerging technologies to business objectives. I call this the fun group because they get to look at some wild ideas and brainstorm about them. ITSC is represented by four core segments - Customer Information Management, Package Management, Product Management and Customer Relationship Management, along with other experts.

We started ITSC because we realized that technology was evolving faster and faster. There was a need to advise the business of new, disruptive technologies and how they might lead to business opportunity, and also the emergence of possible new competitors. An Atlanta-area professor who's plugged into the technology community facilitates and creates a topic list for many of the team's meetings. Start-ups and technology sources participate and make presentations. Brainstorms on possible UPS applications among our business managers often ensue.

One example of how this has worked is social networking and Twitter. What could a technology used to follow the musings of celebrities like Shaquille O'Neill and Britney Spears have to do with UPS? I think the key for all of us is not to dismiss a new application without seeing where it might head. In that regard, the ITSC connected the possibilities of Twitter with customer service. We now have a customer service manager -- Bob the UPS guy – who is assigned to monitor and send tweets on service matters initiated over Twitter. It's won a lot of respect, credibility and understanding by the growing segment using this social networking channel.

As we consider social networking innovations, I'm sure we've brought up a question many of you have considered. And that is how to balance the desire to support new channels with the business need for security? It's a bit of a dichotomy. That discussion has led us to look carefully at leading trends in security and to develop strong security initiatives to protect the integrity of our wireless and data communications. We've developed intrusion detection safeguards that detect and protect against inappropriate access.

Perhaps a more difficult question is what about that which you can't control? Of course, we can't control customer-to-customer communication on Twitter. But if we don't participate, we leave a void, along with unresolved issues. Perhaps Dostoyevsky had it right a few years before Twitter when he said, "Communication is the beginning of understanding."

We will continue to approach social networking with an open mind. The possibilities for an organization of our size and scope - 427,000 employees in 200 countries and territories - to encourage sharing of resources and ideas through internal social network channels is enormous. We've set up sites that encourage our employees to seek out skills within the business (Brown Book) and to submit innovation ideas. Bottom line, everything is fair game for the ITSC. It's all about applying what's evolving in technology to what could be in our business. Connecting the dots is really the secret sauce to staying ahead of the game.

To further connect the dots between technology and business, an element of our process that serves as an important complement to the ITSC is our own efforts within IT to develop new ideas.

To keep up with technology trends, we meet with a cross-section of technology vendors. With the exception of the ITSC, we in IT are the eyes and ears of what's going on in the technology world. We have the primary relationships with technology vendors. We also challenge ourselves to look at how parallel industries are using technology. In fact, any company that uses a Web site could be considered to have a parallel technology relationship to UPS.com.

We meet with industry groups as I'm sure many of you do. We benchmark against each other. And it pays off. For example, in doing an encryption project for our laptops, the time estimate internally to complete the job was nine months. In talking with peer companies that had done the same thing, we learned from their experience we could take two to three specific steps that would greatly speed the project along. A nine-month job wound up taking 30 days to complete!

I call this best neighbor advice. If your neighbor has built a deck and you want to build a deck, learn from his or her experience.

How have we used this knowledge gained from technology sources, industry groups, and best neighbors?

One example is our efforts to prevent credit card fraud. We took what we had seen developing in the IT industry and within industry group users and linked a best practices application with our own business development and Security group objectives.

In doing so, we connected the dots to insure the business against lost credit card revenue due to fraud.

A final facet of our technology/business partnership is our IT Governance Committee, which I also chair. It was formed to oversee day-to-day IT operations. That includes our budget, cost management, benefits, technology evolution, strategy, and production excellence. Any spend outside the PPOC must be approved by IT Governance.

While PPOC concentrates on business systems, IT governance focuses on how to improve the internal operation of the IT function.

IT governance is a formal way to handle setting priorities for projects and for managing budgeting processes. IT has established standards and designed a structure to police itself to ensure that all work is in tune with business requirements and direction. We strive to provide full transparency to the company of all IT costs. Leaders across the business are aware of the IT spend. There are no secret budgets. So, technology governance at UPS is really self-governance. It's a way to be proactive - day in and day out - in self-directing our actions to integrate them with business direction.

My predecessor as CIO, Ken Lacy, who also had a finance background, was a big believer in moving the needle on the priorities. He launched the IT governance committee. It makes UPS IT priorities crystal clear to everyone in what is now an organization of more than 5,000 employees.

So far I've provided a snapshot of our multi-faceted process to link IT to business. The emphasis as I've said is on cross-functional cooperation. How has that worked in the real world? Here's an example:

Earlier if you'll recall, I talked about the early days and the executive steering committee's collaboration in developing package level detail. That proved to be the springboard for a technology called package flow that's had a major impact in streamlining our operations. In turn, package flow has set the stage for an industry exclusive customer service offering called Delivery Intercept.

It's a great example of a customer technology benefit that's been built upon the backbone of our operations technologies.

In a nutshell, package flow optimizes "the last mile" in our delivery network.

That includes our package distribution centers and delivery to the customer by our drivers. We've used the smart labels to capture information about a package before it even gets to the sorting center.

Using historical, forecasted and exceptions information, we can create a dispatch plan for every driver working out of a distribution center to ensure the drivers are not over-dispatched and that last-minute load changes to a driver's package car are minimized.

Package flow enables our "no-left turns" mapping, less waiting at lights, and less distance traveled to get the job done. It's resulted in 100 million miles not driven - a tremendous boost to our environmental sustainability efforts.

With package flow as the power source, we were also able to develop UPS Delivery Intercept. It's the industry's only web-enabled package interception service. Shippers can access Delivery Intercept on a 24 by 7 basis to request UPS to intercept packages being shipped from and to anywhere in the U.S. and Puerto Rico. They then can receive notification of successful intercepts allowing customers to avoid mistakes that could cost money or impact customer service.

One jewelry customer, for example, asked us if we could help them with a fraud detection solution. We devised a way to monitor the customer's entire life cycle movement to detect fraud, and to recover their packages right up to the point of delivery through Delivery Intercept. By the way, this fraud application is now in use by a large number of customers. There are probably many applications for the service we haven't even yet considered. Through our continuing dialogue with customers, we continue to gain insight on how evolving technology can address their needs.

What's been the payback of our rigorous efforts to develop an airtight process to fuse technology initiatives with business direction?

For one, we ensure we spend our money on the projects that produce the best results for UPS. We also ensure that the business is directly engaged with IT and everyone is a business partner in delivering systems and producing results.

The process has helped us avoid several missteps. One is developing solutions outside the business. Another is not staying in touch with the business and the competition.

When this occurs, IT is viewed as the data police rather than as an innovation partner. We also avoid poor project structure that results in projects going over budget and that are delivered late.

An example of this approach's ability to grow revenue is found in our international business development. One of the great things about technology is that it can cut across language barriers.

When international and U.S. customers use our shipping technologies, they're much more likely to stay with us and grow their business with us. We've measured and verified that!

Of course, Delivery Intercept is a great example of how customer innovation has sprouted from an operations technology like package flow that came out of the package level detail work that dates all the way back to our early-days executive steering committee.

How do we apply our technology and business development process to what lies ahead?

At UPS, we continually ask ourselves - as exemplified by the work of the ITSC - where technology is going next and how can we improve upon the current generation of technology.

Where, for example, are Web site visibility systems headed to produce more customer benefit? How can we re-think the way we project our Website as a customer facing channel in light of emerging video applications?

In terms of package tracking, when should it start? When the customer call is made? In our operations, how can we process an ever higher volume of data at lower cost?

What's really important ahead? Is it extracting more value out of the current package database? Is it integrating supply chain systems with small package? In terms of product development, is it focusing on the recipient, rather than the sender of packages?

Who will be our competitors five to 10 years from now? Will it be other carriers, or companies that excel at managing information?

A lot of questions. We don't have all the answers yet. But we're looking into them from the point of view of a business manager with technology expertise.

That's a look at how IT at UPS has worked to enable business strategy in general and to drive growth in particular.

We've gone from becoming a company that was not an early adopter of IT to one that now sometimes works years with vendors to influence development of long-term technology business projects.

Much of IT's development within UPS has been due to a company culture that demands and rewards a team approach to achieving business goals.

Thanks for your attention.