APPENDIX I: Harnessing the Internet to Save From Tens of Millions to Billions in Operating Costs
This nine page paper is a review of how Oracle and others, including
GE, have used the Internet to save billions in operational costs.
Hence the papers appropriate title:
How to Save $1 Billion in Internal Operational Costs Using the Internet
The focus is not on how to use the Internet for commerce but how to use it internally as a tool to significantly reduce operational costs. Larry Ellison of Oracle says it saved $1 billion last year and expects to save that or more this year. Jack Welch of GE states they have saved $2-3 Billion and expect to save even more this year.
This is why, in Appendix H, the 2nd listed component for evaluation for competitiveness is Have all be Internet proficient from CEO to shop floor.
Included in some of the tangible savings and benefits, are: hiring 250 fewer IT staffers and 2,000 fewer servers, which will yield an 80% reduction in leased space for computer operations when it gets down to the two data centers. A key statistic: $200 million saved in IT costs which is the equivalent of producing $1 billion of sales at a 20% operating margin. Indeed, in this year along, Oracles Sr. VP believes global operations costs can be cut in half to $300 million, down from $600 million. In addition, Oracle will reduce its desktop computer staff support nearly 90%, from 450 to 50.
The Internet also enabled a savings of $550 million in cost of supporting customers. Using the Internet to handle expense accounts saved $11 million saved in expense account handling. Before Internet, operating costs increased 15% a year. Last year it was held flat, which was a saving of an additional $980 million. Another favorable increase: operating margin accelerated, from 1.5% increase in the first quarter to 13.8% jump in the final period. This double-digit increase contributed to a jump in net income for the first quarter to $501 million, a performance driven by a double-digit increase in the companys operating margin. Productivity, measured by sales, rose 22%. In addition, they were able to reduce almost their entire headquarters staff, at a savings of another $100 million.
Computing power doesnt have to reside in the desk top. What is at work here? Vision.
While it is common lore that IBM essentially handed over the PC system-software business to Microsoft, it is less known that Big Blue also took a pass on what would become Oracles business.
Ellisons summary of the salient points about business: First, the Internet provides execution with incredible access to information. Second, you can take huge chunks of cost out of your business using that information.