High Tech: Spending To Save

Bollinger Shipyards of Louisiana, a major marine-construction and repair company with a global clientele, was mired in the steamboat era when it came to information management. Each of Bollinger's nine facilities was buying its own materials and generating a hefty paper trail. For every part they ordered, employees had to fill out an eight-section purchase order. Those orders added up fast. Each patrol boat Bollinger built for the U.S. Coast Guard contained about 4,000 parts.

Then Bollinger decided to leap into the information age. It paid $3 million to Oracle, based in Redwood Shores, Calif., for a suite of e-business software that promised to impose order on almost all its operations, including inventory, purchasing, project accounting and payroll. Most companies that buy an office suite start slowly, first installing the financial piece and then gradually adding new software. But Bollinger took what it calls the "big-bang" approach. It had nine shipyards working on old-fashioned systems on a Thursday and had them switched over in every area by the following Tuesday.

The impact on Bollinger's bottom line was almost as dramatic. After two years of using the software, the company says its purchasing system--which aggregates orders for all the shipyards and buys in bulk--has saved $5.9 million. The payroll system has saved $700,000 more in staffing expenses. And Bollinger has identified an additional $450,000 in savings throughout the company attributable to the new software. Total savings: $7.05 million. Not bad for a $3 million investment. Bollinger spent the money during flush times, but CFO Michael Ellis says he would do the same thing today. And plenty of other companies are following his lead.

The rallying cry of the old economy was "Spend it while you have it." In good times, companies rushed to build plants and invest in R. and D. Then when the economy cooled, they froze their budgets and tried to slog through. But the New Economy has rewritten the rules. Even in the midst of the current slump, companies are showing that carefully targeted spending on new technology--from business software to computer-storage hardware--can boost the bottom line, often within just a few quarters, by increasing efficiency and lowering costs. In today's economy, there's a new rallying cry: "Spend to save."

It's a management strategy that General Electric CEO Jack Welch is applying. "You won't see one ounce of slowdown in tech spending from us," he declared in a TV interview this year. "We are driving the hell out of IT spending."

To be sure, what Welch and other savvy CEOs are defending is not just any old information-technology spending. Nobody believes anymore, for example, in unlimited demand for fiber-optic cable and switches and bandwidth. And even among makers of efficiency-enhancing software, spending is slowing. Oracle, for example, was predicting 30% growth in earnings this year but revised that to announce that first-quarter growth would be less than 10%. Says Katrina Roche, chief of marketing for i2 Technologies, an e-business software maker based in Dallas: "Nobody is willing to blindly invest in technology the way they were 12 months ago."