USG Corp. and Others: Evaluating the ROI of IT Investments

1
USG Corp. and OthersEvaluating the ROI of IT
Investments

• Dirk Lange
• Eric Gosselin
• Lucas Duffner
• Ashley Elinburg
• Charlotte Prevost

2
USG OVERVIEW

• Worlds leading producer of gypsum wallboard,
  joint compound and a vast array of related
  construction products.
• Global leader in the manufacture of ceiling
  suspension systems and are recognized as the
  acoustical panel and specialty ceiling systems
  innovator.
• Their products are used in everything from major
  commercial developments and residential housing
  to simple home improvement projects.
• Nations largest distributor of drywall and
  related building products through its subsidiary
  LW Supply.
• 14,000 employees working in over 30 countries.

3
USG OVERVIEW Cont.

• 452 in Fortune 500
• USG offers a complete family of Wall, Ceiling and
  Floor solutions.

4
CEO

• William C. FooteWilliam C. Foote is Chairman,
  President and Chief Executive Officer, USG
  Corporation.

5
COMPETITORS
6
USG HISTORY

• 1902 30 independent gypsum rock and plaster
  manufacturing companies merged to form the United
  States Gypsum Company, consolidating their
  resources across the continent. The new company
  combined the operations of 37 mining and
  calcining plants producing agricultural and
  construction plaster.
• 1960s diversification was the theme with
  horizontal moves into cement, paint, and mica.
  The company expanded further into international
  markets with the acquisition of a new subsidiary
  in Mexico, and with the establishment of an
  International Division with operations in Europe.

7
USG HISTORY - Cont

• 1970s the company expanded into the
  distribution business with the creation of LW
  Corporation. Within 10 years, it operated 86
  building material supply centers, distributing
  wallboard and other building materials in 31
  states.
• 1980s recession led to restructuring the
  company. In 1984, USG Corporation was formed as a
  holding company-a reverse merger in which USG
  became one of just nine operating subsidiaries.
• 1990s a new headquarters building and the USG
  Interiors Solutions Center in Chicago showcased
  USG products and innovations.

8
FINANCIAL ELEMENTS
USG Annual Net Income (in million)
USG Annual Sales (in million)

• 2004 figures
• Price/Earnings Ratio 5.70
• Basic EPS 3.19
• Current Ratio 3.62

9
Bank One

• Bank One is one of the nation's leading financial
  institutions. Our growth allows us to focus on
  continuing to innovate and enhance customer
  service.
• Headquartered in Chicago, Bank One Corporation is
  the nation's sixth-largest bank holding company,
  with assets of 326 billion.

10
Ranking

• 6th largest bank holding company in the U.S.
• 5 lender to small businesses
• One of the top 3 banks in the U.S. in selling
  annuities
• 2 in retail and wholesale lockbox processing
• 3rd largest provider nationally of treasury
  management
• services to corporations
• 3rd largest credit card issuer in the U.S.
• 3rd largest bank-sponsored mutual fund group
• 4th largest active domestic fixed income manager
• 2nd largest farm and ranch management firm in the
  U.S.
• 4th largest trustee of private foundations

11

• BACKGROUND
• Assistant to the CEO of American Express
  Company.
• President of Citigroup Inc.
• Chairman and co-chief executive officer of
  Salomon Smith Barney Holdings Inc.
• TODAY
• Chairman and chief executive officer of Bank One
  Corporation in March 2000.
• The last 3 Years
• He strengthened the management team.
• He fortified its balance sheet,
• He improved customer service

James Dimon Chairman of the Board and Chief
Executive Officer BANK ONE CORPORATION
12
Main Competitors

• Bank of America
• Citi group
• U.S. Bancorp

13
Some Key Figures
14
Case Summary

• At Computerworlds annual Premier 100 conference
  (which honors outstanding IT achievements by
  companies) they asked how many companies
  measure the ROI of IT projects six months after
  completion 68 said rarely or never!
• 65 of respondents said they do not have the
  knowledge or tools to calculate ROI
• 75 said their companies do not have formal
  processes or budgets in place to measure ROI of
  IT projects
• USG Corp. CIO said when times are tough, costs
  are important, when things are good, customer is
  king and less ROI measurement takes place.

15
Case Summary Cont.

• Some companies at the conference that do perform
  some measurements of ROI
• USG breaks long-term projects into bite-sized
  chunks so deliverables can be measured conducts
  monthly assessments of project milestones
• Wesco Distribution create a simple, one-page
  benefit analysis
• Tellabs Inc. CIO works with the companys chief
  financial officer and the controllers from all
  business units to examine costs and returns
  group ties work to a balanced scorecard ROI
  generated by the project is tied to the bonuses
  of team leaders who are responsible for them

16
Case Summary Cont.

• HVB America Inc. COO pushed the banks business
  units to take responsibility for calculating ROI
  key step was requiring business managers to
  make their cases for IT investments to peers who
  sit on an IT management board
• Bank One Corp. require business units to prove
  the value of IT investments the Technology
  Program Director encourages business managers to
  include IT projects within their own budgets,
  including calculations of anticipated ROI some
  acceptance is occurring
• Garner Inc. says that savvy business managers
  push for technology projects and should be
  responsible for demonstrating the value that
  such projects could yield.

17
Question 1

• Why do many companies fail to evaluate the
  return on investment of their IT projects? Is
  this good business practice? Why or why not?
• 68 of the interviewed companies measure the
  return on investment (ROI) of their IT projects
  rarely or never
• companies tend to focusing on costs and cost
  savings only when business and the entire
  economical conditions are tough
• 65 of the interviewed companies said they dont
  have the knowledge or tools to do ROI
  measurements
• Good Business practice? NO! The goal for each
  company is profit maximization

18
Question 2

• What are some of the ROI measurement and
  incentive practices of the companies in this case
  that might help other companies evaluate the ROI
  of their IT investments? Explain how several of
  these might work.
• Break long-term projects into smaller, measurable
  chunks
• Perform a benefit analysis
• Have the IT people (CIO) work with CFOs and
  controllers, tie the work to a balanced scorecard
  tie bonuses of team leaders responsible for
  projects to the ROI of the projects

19
Question 2 Cont.

• Put the responsibility for justifying IT projects
  on business managers force them to prove the
  value of IT investments
• Require business managers to make their case for
  IT investments to peers who sit on an IT
  management board
• Have business mangers include IT projects within
  their own budgets

20
Question 3

• Should business managers be responsible for
  justifying the ROI of IT investments that will
  benefit their business units? Why or why not?
• By requiring managers to justify their ROI it
  will provide them with insight into cost savings
  and profit.
• Managers should justify the ROI of their IT
  investments because their decision will affect
  the entire company.
• Any project that is part of their unit will
  either contribute in a positive or negative way
  to the business success. Therefore, a business
  manager should have to justify why a project is
  chosen and implemented, why a project would not
  be appropriate for implementation, or why a
  currently used project is no longer valid.