Cultivating profit: B2E the new growth sector?

With the economy struggling, many companies are putting the brakes on noncore information technology projects. One area that seems to be bucking the trend is the field of business-to-employee applications.

With the economy struggling, many companies are re-evaluating corporate priorities, and in some cases are putting the brakes on noncore information technology projects. That simple reality has resulted in a steady stream of profit warnings from just about every corner of the tech sector.

But one area that seems to be bucking the trend is the field of business-to-employee applications. Companies servicing this sector are reporting healthy revenue and, in fact, a number of firms are making new investments in B2E ventures.

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Last month, for example, American Express announced that it would partner with Infosys Technologies, Tibco Software and WestBridge Capital Partners to form a venture called Workadia, which will offer a wide range of B2E applications on a hosted basis. Consulting firm iXL also announced that it was forming a new division targeting B2E, and appointed IBM veteran Janet McAllister to head the division.

B2E's favored status comes from the simple fact that companies, big and small, have reported significant gains — both in cost reductions and productivity improvements — from implementing B2E applications. They cover the gamut from self-service access to employee benefits — such as pension plans, health care and vacation time — to portals aimed at improving collaboration and communications among staff. What they have in common is a relatively low cost of implementation and a high return on investment (ROI).

"B2E has been like a breath of fresh air, because what it shows is that the Internet is not worthless — it provides significant value," says Kurt Schlegel, a senior analyst at research firm Meta Group. "In no way, shape or form are the Global 2000 slowing their investments [in B2E]. If anything, we're seeing more emphasis."

Companies involved in the B2E space include relative newcomers such as Epicentric, Intranets. com, Plumtree Software and Viador, but there is increasing competition from large Enterprise Resource Planning companies, such as Oracle, PeopleSoft and SAP. The benefits resulting from the implementation of B2E applications have been highly touted, with companies such as Oracle boasting $1 billion in annual savings, and Delta Air Lines predicting that it can produce $300 million annually by 2003.,/span>

While some benefits, such as reductions in personnel as a result of employee self-service, are easy to evaluate, it is much more difficult to place a hard dollar value on benefits such as productivity improvements, increased collaboration and better access to corporate data.

Communications firm Ketchum, a unit of Omnicom Group, has attempted to do just that, participating in a detailed ROI study with Meta and employee portal vendor Plumtree.

The results of that study have been impressive. By investing a total of $13.79 million in an employee portal from 2000 to 2003, Meta estimates that Ketchum will achieve benefitsotaling slightly less than $30 million. The straight ROI is $15.5 million.

"The staff loves it," says Paul McKeon, chief e-business officer at Ketchum, in reference to the employee portal called myKGN that went live nine months ago. "The internal benefits have been enormous, but they have also extended beyond our organization. We have had a number of clients hire us over other firms as a result of this technology."

To that point, McKeon says myKGN has helped win $5 million in new contracts so far in 2001, by helping employees get at information and present it to clients in a more comprehensive form than Ketchum's competitors can.

Meta's study focused on eight key benefits of the employee portal. The most significant was tied to increased sales as a result of providing clients with faster, smarter service.

Ketchum, based in New York, has about 1,000 employees nationwide. The myKGN portal features applications for storing and sharing documents, e-rooms for collaborating on projects and an expertise locator to help find capabilities within Ketchum.

Meta estimates that the technology, combined with other features, such as client pages that allow customers to view project summaries and review billing, could help Ketchum achieve $18.4 million in additional sales over the next three years. Another big benefit is predicted in productivity gains through improved information access. A third major benefit is seen in getting new employees up to speed faster. Ketchum estimates that it generally takes about six months before a new employee begins contributing effectively. But by providing access to online training programs and case studies through the corporate portal, that new employee could be brought up to speed 10 percent faster — a savings of $4.28 million over three years, Meta estimates.

There is a clear danger in trying to document such benefits and savings. In almost every circumstance, companies count on employees actively using and contributing to the system. According to iXL's McAllister, employee adoption is probably the biggest challenge facing corporations.

"There are a lot of people that can build portals," McAllister says. "The question is: How many are building them from the perspective of the employee? That's the primary reason why the technology is not effective — because it wasn't built from the perspective of the employee that has to use it."

Rob Flaherty, a senior partner at Ketchum, says the firm went into the project knowing that it had to address that challenge. Ketchum implemented a carrot-and-stick approach: Employees are offered financial incentives, according to the number of contributions made to the knowledge base; the Plumtree software tracks contributions, as well as the most-accessed documents, to provide a sense of their value. Contributions to the employee portal are also factored into performance reviews.

"People want to share knowledge, but they don't always want to contribute it," McKeon says. "Sometimes they believe their value is based on what they know, instead of what they share. All of this digital strategy won't work without a culture of collaboration. It's more important than the technology."

Portal Makes Dollars and Sense For Ketchum

Investment in employee portal can be substantial . . .
Expenses over four years (2000-2003)

Labor $7.33 million

Consulting and training $3.43 million

Content $1.24 million

Software $860,200

Network $790,000

Servers $137,600

Total $13.79 million

But benefits are impressive . . .

Increased sales $18.35 million

Improved information access $5.35 million

Employee productivity increases $4.28 million

Travel savings $1 million

Expertise location $123,750

Streamlined publication process $123,750

Total $29.23 million

Return on investment

$15.46 million over four years

$12.12 million when dollar depreciation (net present value) is taken into account

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