Technology in NEVRLand
MIT's Media Lab is renowned for cutting- edge technology. Can the "Value Lab" figure out what it's all worth?
With a wealth of whiz-bang information systems and a dearth of profits, New Economy firms are measured by traditional financial yardsticks about as well as Jell-O is nailed to a wall. The Massachusetts Institute of Technology, however, hopes to change that with its nascent New Economy Value Research Lab (NEVRL), which was born earlier this year thanks to a $10 million, five-year commitment from Arthur Andersen's consulting division.
NEVRL will test valuation and performance measures with data from New (and Old) Economy firms, along with business modeling and systems design research. For example, says Barry Libert, partner at Arthur Andersen and one of the founders of NEVRL, "How do you report the value of eyeballs?" The question, of course, refers to the difficulty of documenting the value of a Web site's customer base, but Libert, who co-authored Cracking the Value Code, a book proposing a new accounting framework that considers customers and employees as assets rather than expenses, hopes the question won't remain rhetorical.
"Our thesis is that the measurement system is broken, and we wanted to get some empirical evidence on this," says Libert. He cites the disparity between America Online Inc.'s whopping $114.7 billion market cap and the relatively modest $1.2 billion it recorded as net income in 1999 as one example. Seen through today's lens, Libert says, the stock valuation is "ridiculous." But AOL's customer base, acquired at enormous expense, is a huge asset. "Traditional measurement systems obscure that," he says.
While the quest to quantify intangibles is not new, Andersen's advocacy was "a crystallizing agent" for previously disparate research efforts, says lab head S.P. Kothari, a professor of accounting at MIT's Sloan School of Management. The lab, which is really just a suite of offices, boasts 16 affiliated faculty members to date. One of them, Erik Brynjolfsson (along with Lorin M. Hitt at University of Pennsylvania's Wharton School and Shinkyu Yang of New York University's Leonard B. Stern School of Business), recently studied 1,031 large firms over a period of eight years, and found that every dollar a company invested in computers yielded at least a $5 increase in the company's market valuation. More important, the research correlated IT investments with changes in organizational structures and found even greater increases in valuations.
FOCUS ON FINANCE
One of NEVRL's challenges will be to maintain a focus on finance and accounting outcomes versus more general research on the Internet. Besides its own E-business center, MIT faces competition from such places as Stanford, where Ebay and The Charles Schwab Corp. helped found the Center for Electronic Business and Commerce, and The Wharton School, buoyed in its E-business initiative by Big Five firms and other consultancies.
Efforts to measure value aren't limited to academe. For example, Holt Value Associates began capitalizing research and development costs and treating them as a depreciating asset in its cash flow ROI analyses earlier this year.
New Economy CFOs, however, still seem spooked by the idea. None of the CFOs contacted for this article was willing to comment. But that won't stop the experts at NEVRL and elsewhere from trying to pick their brains. "We've got the economics and accounting expertise," says David Larcker, an accounting professor at Wharton. "Now we're looking for playmates."
SAP's Web Venture Clicks
The news that third-quarter revenue had fallen slightly below Wall Street expectations didn't much dampen the spirits of SAP AG executives; they were busy celebrating the fact that more than half of the $1.91 billion they raked in came from mySAP.com, the E- business software venture that is essentially the company's future.
Launched in May 1999 to yawns and outright derision, the Web-based version of the company's flagship R3 product suite, expanded to include a number of "customer-facing" applications, such as customer relationship management and E-procurement, now seems well on its way to meeting the company's goal of accounting for half of all license revenue in 2000. The turnaround stems in part from bolstering the product's capabilities, but it may owe more to savvier marketing that clarifies how the product meets business needs. "We didn't do a good job of articulating just what mySAP.com is when we launched it," says Chris Larsen, president of SAP America. "And, in truth, it was little more than a portal at first."
Over the past 18 months, however, SAP has brought more core enterprise resource planning (ERP) functionality to the Web, and has partnered with CommerceOne and others to offer a broader set of E-business applications. The company also simplified its licensing terms, which analyst David Boulanger of AMR Research in Boston says has helped improve sales. "They've been low-key about the technological improvements," he says, "but have done very well in communicating just what the product can do for customers."
Alan Weiss, vice president of E-business for Osram Sylvania's general lighting division, based in Danvers, Mass., says that by moving its R3 technology into a Web environment, SAP has given clients new options for how to use it. "We created a portal for our customers, called mySylvania.com," says Weiss, "that lets us provide online ordering and other services, and because of mySAP.com we can integrate our portal with our ERP system very easily."
The portal is more than simply an extension of Sylvania's ERP environment: it also offers marketing information, training courses, and other forms of interaction. But because SAP has brought its products to the Internet via mySAP.com, extending the traditional foundation of a company's internal operations to its external relationships is now much simpler.
SAP is not alone, however. Oracle Corp., J.D. Edwards & Co., and PeopleSoft Inc. are all aggressively marketing Web-enabled, browser-based versions of their product suites. J.D. Edwards rolled out its OneWorld product four years ago, in fact, and now boasts more than 1,000 customers worldwide. The company differentiates itself from the other major ERP players by emphasizing collaboration. "While we can't claim to have seen just how the Internet would play out," says Dave Hill, vice president of industry solutions for J.D. Edwards, "we've designed our product so that companies can integrate best-of-breed solutions from any company. Other players in this space want customers to buy as many applications from them as possible."
Not without reason, if SAP's success is any measure. Larsen says 90 percent of mySAP.com revenue comes from either customers that are completely new to SAP or existing customers buying new applications or functionality. Out- of-the-box integration has been a major selling point for SAP, Oracle, and PeopleSoft, but Hill believes that the nature of E- business will validate J.D. Edwards's approach. "Flexibility and agility are critical today," he says, "and by redesigning our products into easily integrated components, we provide that, and let you use any other products as well."
SAP has also broken its monolithic suite into components, and has opened a new technology development center at its U.S. headquarters in Newtown Square, Pa. With 24,000 existing customers, it can do a booming business simply by moving them to mySAP.com. But it also has its sights set on the tens of thousands of mostly midsize companies that have never opted for ERP.
Whether these new Web-enabled versions offered by the major players can tempt them remains to be seen, but if SAP's recent quarter is any indication, there is life left in ERP yet. As Philip Carnelley, an analyst with Ovum, in London, puts it, "ERP was virtually dead, but by using the Web to turn its focus toward customers and suppliers, it has become a platform for just about everything you could want to do with your business."
Reporting for Duty
Karen J. Bannan
Web-based reservations systems and E-mail flight alerts have brought business travel into the 21st century. And now slowly, but surely, companies are also starting to embrace online expense reporting.
One reason is the capabilities of products such as Concur Technologies's Concur Expense, which is completely Web-based, so it requires little integration with a company's existing IT infrastructure and can be accessed from just about anywhere. One of the program's main draws is its ability to link to corporate credit card billing, so employees don't have to keep track of paper receipts. Instead, the expense details are downloaded automatically into the system, so reports can be submitted and processed more quickly. Since everything is automated, once reports are filed, expenditures can be sliced and diced by vendor or category so that companies know exactly where their money is going, which helps them negotiate volume discounts and other deals.
These features should prompt businesses to consider T&E software, says Tim Tow, a senior analyst with Gartner Group Inc., a Stamford, Conn.-based research firm. "Adoption has been slow because most companies have a fairly rigorous expense-approval process to eliminate fraud," he says, "but as employee satisfaction becomes more important and companies look for more places to trim fat, expense reporting software will become invaluable."
WHERE THE SAVINGS ARE
Charles Stahl took the first steps toward T&E enlightenment in the early 1990s when his company, DuPont, developed its own T&E system. Stahl, a global manager of the Wilmington, Del.-based company's Employee Reimbursement Department, says the system was good, but didn't provide enough data or reporting capabilities. The company switched to Concur last year. At the time, Concur was the only player to have a Web-based product, but today smaller companies, including Captura and Extensity, and software giants, such as Oracle, PeopleSoft, and SAP, all offer Web- based T&E applications.
If DuPont's experience is any indication, the software is a worthy investment. Since installing Concur's product nine months ago, more than 40,000 DuPont employees have used it, saving the company more than $20 million. That's four times the savings Stahl expected. "We've managed to save $1 million just in the cost of express mail and another $500,000 in the operation of archiving receipt envelopes," he says.
He's also been able to cut costs on a range of expenses, from cellular phone calls to parking. With aggregated data in hand, Stahl went to one airport parking facility and bargained for a contract that saves DuPont more than $500,000 each year. "It's great being able to see exactly what you're spending money on beyond hotel and airfare and rental cars. There's a lot of gold out there to be mined," he says.
Non-T&E expenses, including those for educational costs, have also been integrated into the system. Concur manages documentation requirements, so employees can submit their grades and receipts directly to accounts payable and be reimbursed through payroll.
To reap the benefits, however, companies must be willing to invest. Concur's software, like most others', is available either through a traditional license (about $150 per user) or in an application service provider model (roughly $5 to $10 per user per month). DuPont says that implementation and training took about eight months. Those companies moving to Web-based T&E software from traditional paper-based systems can expect an even longer learning curve, says Katherine Jones, a managing director at Boston-based Aberdeen Group. But ultimately, she says, even though "customers believe the cost of ownership is quite large, it's not." That's because Web-based applications are proving relatively easy to use, and "result in much better records with sounder data." It's been a long flight, but T&E software may finally have arrived.
Some key players in T&E software.
|Acceleron||Boomerang||www.acceleron.c om||(514) 856-1933|
|Captura||Captura Expense||www.captura.com||(800) 547-2223|
|Concur Technologies||Concur Expense||www.concur.com||(425) 702-8808|
|Extensity||Extensity Expense Reports||www.extensity.c om||(510) 594-5700|
|Gelco Info. Network||ExpenseLink/Direct||www.gelco.com||(800) 444-6588|
|IBM||Lotus Notes||www.ibm.com||(800) 426-4968|
|InterPro Bus. Solutions||Expense Express||www.interproinc.com/tec hnology.htm||(800) 290-2010|
|Necho Systems||Necho NavigatER||www.necho.com||(905) 501-4800|
|PeopleSoft||PeopleSoft Expenses||www.peoplesoft .com||(416) 227-3000|
|SAP||Travel Management||www.sap.com||(610) 661-1000|