At ChevronTexaco, the impact of IT on the business is measured right down to the person and the penny. The company's activity-based cost accounting system is being used to boost IT's credibility and cut millions from the bottom line.
When Dave Clementz first became president of Chevron Information Technology Company (CITC) in 1997, the job came with strict orders: Make IT pay for itself.
Thanks to a woolly and overgrown tangle of multiple platforms, software, servers and networks stretched around the globe, the San Ramon, Calif., oil giants information technology subsidiary was consistently 10 to 15 percent over budget, and Chevron Corp. headquarters was tired of picking up the slack. "I had a mandate from the chairman of the board to do a couple of things," Clementz says, "mainly, to make the IT division more relevant to the business and to stop the bleeding."
It was a tall order, but during the next six years, Clementz and his team did all of that and more, hacking through Chevrons thorny IT with a combination of reorganization, standardization, outsourcing and zealous cost-accounting. In the first three years alone, annual enterprise IT costs were cut from $400 million to $320 million.
Then, in 2001, following Chevrons 2001 merger with Texaco Inc., Clementz got to pull an even larger rabbit out of the IT hat. Under orders, he cut IT costs by an additional $230 million a yearand this time, company-wide.
For a Q&A with former ChevronTexaco CIO Dave Clementz click here
The size of the cuts sought reflected more than concern over redundancies stemming from the merger. According to Haim Mendelson, Codirector of Stanford Universitys Center for e-Business and Commerce, the requests signaled further evidence of a yawning credibility gap between IT and business-side executives: Oil companies live or die by how well they contain costs and achieve economies of scale. In the oil industry, cost is an important driver of profitability. Yet with 53,000 employees, operations in 180 countries and hundreds of thousands of contractorseach wanting their own type of IT system or suite of equipment, Chevrons IT budget was bloated and its IT department reactivetoo overwhelmed, at times, to proactively push new ways for information to benefit the business.
What to do? First, Clementz declared war on complexityand on the IT departments credibility problem. There was resistance. While the rationale for a single platform was obvious to Clementz, it was less so to those on the receiving end. "The challenge of standardization is that you take away the ownership of a technology from a specific location or business unit," says Robert Miller, CITC Manager in Product Management, Global Technology and Strategy. "Setting standards dictates an answer to people that they have to live with."
In order to convince the rest of Chevron that standardization would be better, faster and cheaper than the status quo, the IT team did it the hard way and piloted its PC standardization in one of the companys most problematic locationsthe frigid Tengiz oil field of Kazakhstan. Because of the areas far-flung locale and unforgiving climate, the installation of 1,000 computers had to be done early and at a breakneck pace before the onset of the harsh winter. With that done successfully, the IT team now had the means to effectively combat company skeptics. "It really became a very convincing argument that standardization was a valid concept," says Pete Brown, Planning Manager for Global Strategy and Planning at circ.
Next, Clementz declared war on bloated costs within his own department. He cut his 2,000-person staff by about 400 workers, eliminating those whose skills were no longer up to par or who exhibited resistance to change. Then, Clementz began outsourcing less critical tasks, such as the management of the mainframe, telecom, help desk and network operations, mostly to Electronic Data Systems Corp.
But by far Clementzs most important, though bloodiest, battle was to make both IT workers and technology strategy more directly accountable to business goals. How? He created what he called an "activity-based" accounting system, whereby the companys more than 60 individual business units would be billed for precisely the technology and IT services they usedrather than the arbitrary fee of the past, which was based on how many employees worked in each business unit. This, Clementz knew, would do more than force IT to figure out exactly what the business units needed. It would also force whole new levels of communication between IT and business managers that hadnt existed before and create a basis for improved IT-business alignment throughout the company.
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