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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Money must be able to flow freely between mortgage banks, savings institutions, brokerages, financial planners, investment advisers, insurance companies, agents, leasing companies, ATM machines, large moneycenter banks, small local banks, and the point-of-sale credit card machineKeeping the Money Flowing The commerce of the twenty-first century economy crosses continents, cultures, and time zones. The traffic of financial transactions cannot become tied up in knots. Its integrity cannot be compromised. Money must be able to flow freely between mortgage banks, savings institutions, brokerages, financial planners, investment advisers, insurance companies, agents, leasing companies, ATM machines, large moneycenter banks, small local banks, and the point-of-sale credit card machine. That this process has never bogged down and that it runs so smoothly that no one questions how it all works or who makes it work are a tribute to the companies that are indispensable to Americas productivity and the new business culture that supports it. Fiserv We are to financial institutions what electricity is to a home, says Les Muma, president, CEO, and visionary, about the company he cofounded with George Dalton in 1984. Muma is a theoretical mathematician who ran the data processing unit of Freedom Savings and Loan in Tampa, Florida, in the 1960s. About to lose his position when Freedom Savings no longer saw the need for a data processing department, Les, as he says, bought his job. He automated the operations of his new acquisition, turning it from solely a data center into a business that could provide a variety of services to financial institutions. After meeting Dalton, who ran his own data processing firm, the two decided to pool their talents, and Fiserv (see Figure 7.3) was born. They made their first acquisition in 1985 and went public in 1986. Today Fiserv provides products and services the company has more than 200 distinct offerings to more than 13,000 financial services companies in over 90 countries. Some key products and services include: Muma correctly anticipated that the modernization of the financial services industry would occur through mergers and acquisitions. When the Glass-Steagall Act was repealed in 1999, the regulatory walls prohibiting interaction among commercial banks, investment banks, and insurance companies came down. Coupled with the necessity for these institutions to upgrade their systems to operate in a customized, online world, an $80 billion per year market opened up. Financial institutions are eager to outsource their operations to Fiserv rather than face the time and costs associated with establishing their own account processing and information management systems. A passionate belief that clients make paydays possible and that the most advanced technology is worthless without service means that Fiserv has a 99% client retention rate. Fiserv contracts with its clients for periods of three to five years. Coupled with the high client retention rate, a very attractive stream of recurring revenue results. Fiserv uses this for acquisitions and product development. Superior customer service can be delivered only by contented employees, and Fiserv needs 18,000 of them to deliver their unusually broad range of products. By offering superior benefits, including sabbatical leaves, employee turnover is below 20%. It is significantly less among the ranks of management, helping to ensure continuity in the delivery of services and product development. A point was reached early in the twentieth century when electricity turned from being a luxury to a necessity that was taken for granted. The modernization of capitalism has created another such turning point. This time we have become dependent on financial utility companies like Fiserv. Just as before, we take all that this new utility offers us for granted. From an investment point of view this is a mistake. Where twentieth century utility companies served only a section of the country, a financial utility like Fiserv has customers around the globe that depend upon it. Free from regional restrictions, Fiservs strong reputation and global reach mean that it can easily continue to add to its customer base year after year. Empowering Intelligence The communication technology needs of the federal government are so vast that meeting them is like integrating every profession, institution, corporation, or utility in New York City under one system. The situation is made more complex because the government was among the first to develop and utilize information technology. Its different branches military, executive, and administrative must now upgrade old systems and get them to interact. To do this the proposed budget for information technology in 2003 is $52.1 billion, up from $37.6 billion spent in 1999. Like many corporations, the job of modernizing the governments communications systems will be outsourced to a great degree. Acompany that is experienced in managing data flow for scientific, legal, military, engineering, and commercial institutions would be a major beneficiary of the governments need to expand and upgrade its networks. Intelligence and homeland security are most often mentioned as areas in desperate need of improved networks and upgraded systems. It has been made abundantly clear that it does not matter how much information can be collected; if it cannot be organized, analyzed, and shared, it is worthless. The science of semiconductors offers the tools to make better use of military and intelligence agency data. But this sensitive area requires more than technology skill from any company that intends on winning government contracts. The company must demonstrate an understanding of military and intelligence community culture and have employees that have already met high security standards. CACI International (see Figure 7.4) qualifies on all counts. CACI International When we asked Jack London how he was able to turn CACI, a small and highly specialized computer consulting firm, into such a dynamic leader in providing information technology and network solutions needed to prevail in todays new era of defense and noted that Forbes magazine lists CACI among the top 200 Best Small Companies, he sheepishly offered, I guess I always had a kind of knack for being a little ahead of the curve. Indeed he does. Jack London has transformed CACI into a company with diverse capabilities, one of which is the maintenance of databases for the U.S. Department of Justice. CACI provides the event databases that allow attorneys to access technical data and develop case points in an automated format allowing for the global sharing of insights and information. This tool was invaluable in the Exxon-Valdez oil spill case and the Challenger explosion. We can only guess at the scientific data in areas of physics, chemistry, the environment, and engineering that must be organized when these kinds of cases are investigated. The General Dynamics A12 lawsuit was really a big one, said London. Litigation was the result of the governments cancellation of the A12 Stealth aircraft contract. This case exhibits another important dimension to CACI, the ability to address situations complicated by security issues. A majority of CACI personnel have security clearances at a variety of levels permitting them to solve problems relating to highly classified material. CACI, formerly known as the California Analysis Center Inc., was originally founded in 1962 by Herb Karr, whom London described as a visionary businessman, and Harry Markowitz, a programming genius, who has also made significant contributions to the investment community. These are discussed in the next chapter. Karr and Markowitz developed Simscript, a computer language for the U.S. Air Force that addressed inventory problems and analyzed weapons capabilities. They recognized that their new software language had other applications that led them to the creation of a consulting company to train and support its new users. London graduated from the U.S. Naval Academy in 1959, began his military career as a Naval aviator, and then joined a Navy HunterKiller Task Force the kind of antisubmarine unit made famous in the movie Hunt for Red October. He finished his full-time Naval career as an engineer and joined CACI in 1972. He remained in the Naval Reserves and retired as a Captain in 1983, all the while moving up the CACI ranks from vice president to division president in 1982. He became president and CEO in 1984 and chairman in 1990. Jack London watches trends. A decade ago he saw the need for special-purpose networks at agencies like the Federal Aviation Authority and the intelligence community, where passwords and firewalls were critical to its operation. CACI built a seismic detection system, for example, for the U.S. Air Force to monitor nuclear tests by rogue nations. The momentum of attacks and threats against the United States that had been building for over a decade was not lost on him either. He recognized that national security would require the integration of government networks across a diversity of agencies from the Border Patrol to the CIA. CACIs expertise has always been instrumental in helping to protect the nations security, but in the post-World Trade Center attack environment it has become even more of a necessity. Significantly, however, Londons first response to the question of how homeland security should be addressed was to stress the importance of people. Well-trained operatives are a necessity. Everything cant be done by technology, he said. While that most certainly is true, he has crafted CACI into an entity that is especially qualified to assist those welltrained people in being more productive. CACIs core competence has been augmented by 18 astute acquisitions over the last nine years, adding powerful new capabilities and talented employees. Like every other Digital Dow2 company, CACI lays its success at the feet of its 5,600 employees located in 90 offices around the world. They helped CACI to post record revenues during the economic slowdown of 2001 and maintain a contract retention rate of over 90%. The companys reputation for quality, efficiency, and accountability will no doubt result in new contracts as the federal government develops its security initiatives. Even without the federal governments new focus on intelligence gathering, CACI would have been likely to continue its 40-year track record of revenue growth. The enormity of the federal landscape makes it an entire planet unto itself that must be connected by information systems. A hardworking company grounded in the issues of defense, law, engineering, and science as CACI International is can be counted on to get the job done. Humanizing Human Resources with Technology The burden of employment regulations that falls on corporations in America today is staggering. Just to ensure that an employee gets a paycheck, these tasks need to be performed: file with the Equal Employment Opportunity Commission (EEOC); comply with Social Security Administration regulations; set up tax filing and reporting; meet medical and insurance requirements for medical savings accounts, flexible spending accounts, and the Family Medical Leave Act; and set up 401(k) deductions and, when applicable, the deduction of insurance and nonqualified plan contributions. A single violation of any of these functions could result in considerable fines. The paycheck is just the beginning. Employees need to be found, recruited, and trained. Then they need help in filing insurance claims, staffing, relocation services, travel and expense reimbursement, administration of retirement and postretirement benefits, performance reviews, and career development. This short list becomes more complicated by the need for companies to deal with different regulations in a variety of states and foreign countries. It gets worse when companies have several divisions that they may have acquired that will have different insurance carriers, benefits, and corporate policies. All of these tasks fall to human resources (HR) departments whose chief responsibility is to maintain equilibrium between corporate and regulatory policy and employee motivation and morale. Where companies of 10,000 or more employees are concerned, it is becoming an impossible and costly task. According to data from the Saratoga Institute, Hackett Group, and Gunn Partners, human-resources costs per employee can average $1,200 per year but can range as high as $4,400 per year, and the employees level of satisfaction is not rising with those costs. A new level of corporate productivity can be added by lightening the administrative burden carried by HR departments. The company that takes the lead in providing such HR solutions to other companies will become as indispensable as office furniture. Exult, Inc. There are 300 companies in the United States and the United Kingdom, averaging 60,000 employees each, that spend $1,600 per year on administration, operational, and technological HR functions that we can do for them cheaper and better, says Jim Madden, chairman, president, and CEO of Exult (see Figure 7.5). And he has proved it. Under his guidance Exult has not only created an important new service but also met or exceeded the performance standards the company has guaranteed its clients. The niche Exult has found is enormous. The 300 companies that are Exults target market represent $290 billion of business. Studies have revealed that companies are ready to outsource this business. Indeed, one of Exults first clients, BP PLC (formerly BP Amoco), had wanted to outsource much of its HR work for some time but could not find the right provider, until Exult came along. Like many companies of the new investment culture, Exult could not accomplish what it does if the science of semiconductors had not enabled the storage and delivery of data. But providing employee benefits is not accomplished with technology alone. A complete understanding of the universe of HR issues with which a company must deal on a daily basis is critical to keeping employees happy in a field steeped in bureaucratic regulation. There are bigger companies than Exult that can throw money and technology at HR problems, but none that are as grounded in employee services. The companys innovative Advisory Council includes HR thought leaders such as David Ulrich, professor at the University of Michigans School of Business Administration, who has been described by BusinessWeek as the Best Educator in HR. Lynda Gratton, another council member, directs the London Business Schools Human Resource Strategy Program and is recognized as a global authority on HR issues. The combination of HR intelligence and technology means that Exults clients can not only outsource their root HR functions but also get advice on how HR can function at its highest level, and then customize these functions according to the companys special needs. Exult does not insert itself into its clients decisions about which benefits vendors they should use. The client can employ whichever insurance company it wants, for example, and Exult will do all the enrolling and claims processing. Their expandable platform has eliminated boundaries and can accommodate any client preference. The list of services shown in the box does not do justice to the value Exult adds to the efficient management of a workforce. An example of a unique benefit is a system that maintains a skills inventory for each employee. When a new team is needed for a project, the manager can filter out people with the required skills, schedule, and personal goals that would make an effective group. Getting the right people involved benefits the company as well as the new team members. Services like this make Exults clients more employee-friendly. This atmosphere is further enhanced by relieving HR departments of mundane chores so that they can spend more time in contact with employees. Typical of the companies of the new investment culture, the proper use of technology is bringing people closer together, not sending them further apart. Exult signed the worlds largest global outsourced HR contract when it was selected by BP. Since then it has signed on Bank of America, Unisys Prudential Financial, and International Paper, which alone represent 400,000 employees and $3.7 billion in revenue. Revenue growth in 2002 is 50%. The company has plenty of new client capacity and requires only six to nine months to get a new client up and running. With a $290 billion market waiting, Exult will have plenty to keep it busy. Getting the Right Item, at the Right Time, to the Right Consumer A supply chain is made up of manufacturers, suppliers, carriers, distributors, retailers, and consumers, as well as the pipelines between them through which products are moved. Consumers expect that when purple tennis shoes are in vogue, they will be able to buy them. One does not think about . . . (1) It takes weeks to make the millions of new shoes. (2) It may take weeks more to get them from the distant part of the planet where they were made to the people who want to buy them. (3) How does a smart retailer make sure that their stores have just the right amount of shoes to sell before the fad is over? To be profitable a retailer must control the intricate network linking the supply chain together. Four elements have converged to create Haddrills perfect storm and change retailing in the twenty-first century. Goods are now manufactured all over the globe. This lengthens the lead-time for delivery and increases transportation costs. There has been a proliferation of product lines. Where there was Coca-Cola, there is now Diet Coke, Caffeine-Free Coke, Vanilla Coke, Cherry Coke, and so on, all of which take up more shelf space and complicate the decision of how much to purchase, how much is selling, and so on. Where there used to be two fashion cycles per year, now there are four to six. This short product life cycle means that there is no margin for error in the timeliness and quantity of goods received by a retailer. Internet shopping adds a complex new link. Suppose a Polo shirt is purchased from Macys Web site. That shirt will be sent to the customer from Polos warehouse, but the billing will come from Macys. If the shirt is to be personalized with someones name, that adds another link in the chain along with the billing for the extra service. What if the customer does not like the shirt and wants to return it? Now the process must be reversed. The new reality of retailing has created a new sort of company that is indispensable to Americas consumer economy. |
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