QVC: The Bottomline Per CIO Rob Cochran
QVC's chief information officer talks about the metrics he uses to pick projects.Sixteen years ago, Rob Cochran joined the then-fledgling retailer hawking jewelry, apparel, electronics and other merchandise on television. The company, recently acquired by Liberty Media Corp. from Comcast Corp., reeled in $4.4 billion in net sales, handled about 150 million phone calls and shipped more than 107 million items to nine million customers in 2002.
What metrics do you use to measure bottom line results? We use a simple internal rate of return (IRR). We take the initial costing of the project and treat that as year zero. Then, we use the operating costs over the next three years balanced against the benefits received by the corporation during those three years. We measure all of our projects on a three-year useful life. So if they are going save money, obviously, they have a higher percentage of IRR. If they are neutral, it turns out to be zero. If its something thats going to cost us more, it comes out as a negative IRR.
Are there exceptions?
We are careful not to use internal rate of return as the sole judge and jury of our project priority process.
How do you select projects?
We maintain a rolling project list. We have the philosophy that people are going to come up with good ideas throughout the year, not just during budget time. We take all the projects and rank them each week based on the need for the business, strategic imperative and IRR. In the initial phase, both the cost and benefits are just estimates. We test them to be reasonable, but we dont try to quantify them in too much detail. We then have a five-step methodology. The first is feasibility, which verifies the estimates of the costs and benefits. Then we have a functional phase where we identify all the business rules, and at that point, we then commit to a fixed cost to develop the project and the clientthe sponsorcommits to a certain level of benefit. At that time, we determine whether or not the project goes forward and at what priority.
Can you give an example of a business rule?
It would be the logic we might want to use for processing orders paid by check. A business rule would be something that would be: We want this process to hold all orders for checks for 17 days. At the end of the 17 days, if the check has not been received, well send a letter to the customer, well release the inventory and cancel the order. How is QVC using customer relationship management technologies? Were very huge in our customer focus and achieving excellence. We maintain, in real-time, the status of every order. We keep two years of order data for every customer so that at any given time, we can easily process returns. We give customers multiple choices to find out the status of their order. They can call a representative at a call center; they can use [automated] voice response They can also use our Web site. We dont dictate the ways they can interact with us.