Q3 2005

Alinean Quantifies the Business Value of HP-UX11i

	IN THIS ISSUE: FEATURE STORY: Alinean Quantifies the Business Value of HP-UX11i» Is CIO Compensation Driving Shareholder Value?  » Alinean and IDC Offer Certification Courses »
	WHAT'S NEW! New Partnerships Alinean has signed on eight new partners including Accenture, Bain, Birchman Group, North Highland Group, Hyperion, LRWA, PMO SIG and PTY. Details here »» ROIAnalyst™ - Enterprise Version 2.5 Now Shipping ROI Analyst™- Enterprise delivers tools to make ROI and TCO analysis easy for the non-financial savvy, but able to withstand CFO scrutiny. The ROI Analyst- Enterprise solution provides the standard platform for Enterprise collaboration on IT project ROI, TCO and budget analysis. » Largest content library with 35 Additional templates for analyzing the costs, benefits, risks, ROI and TCO of key IT and business projects » ROI lead generation and marketing program – creating a simplified ROI Calculator view for customers and prospects from the ROIAnalyst-Enterprise » Anti-spam analysis » Redesigned user interface » Enhanced report builder Alinean is Moving Alinean has continued to grow over our four year history. We are moving into new office space in  Downtown Orlando to better serve our customers. Effective November 1, 2005, our new address will be: 201 S. Orange Ave, Suite 1210 Orlando, FL 32801 Ph: 407-382-0005 Fax: 407.382.0906
	Did you know...? “Forrester recently surveyed IT executives at U.S. enterprises as they entered budgeting season for 2006. Overall, 53 percent of them will spend more on IT during 2006 than during 2005, led by firms with between 5,000 and 19,999 employees, compared with only 7 percent expecting to decrease their spend. These execs expect budgets to rise, on average, by 4.3 percent.”  – Forrester Research, September 2005
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Business Situation
Customers of HP-UX 11i understand that consolidating servers and taking advantage of the increased power and performance of the operating environment would lower the Total Cost of Ownership (TCO).

Financial justification is important for customers in the Adaptive Enterprise. Customers need to know how IT Infrastructure changes would save budgets, provide the infrastructure to improve business agility, adapt quickly to changing business needs and improve the bottom line profit. HP strives to help customers decide IT infrastructure trade-offs that are factual and data impartial.

HP chose to partner with Alinean, the market-leading provider of IT benchmarking and ROI measurement tools. The Alinean ROIAnalyst was selected to implement a formal TCO/ROI analysis program for the Business Critical Servers business unit starting with the HP-UX 11i Operating Environment and the HP-9000 AND HP Integrity Servers it powers.

Alinean is an independent and respected third-party supplier of TCO/ROI analyses systems, unbiased and credible business value selling software, models, research and training. Alinean has a unique and exclusive relationship with IDC to research costs and supply the third-party data so important for unbiased analysis.

Solution
Alinean developed a tool that could analyze any customers current server opportunity, uncovering trouble spots in hard costs such as administration, maintenance, support, upgrades, facilities and overhead, and soft costs such as those caused by availability and security issues.

The ROIAnalyst can be used to model and suggest compatible configurations from HP and the competition. The model includes workload and cost of ownership information for 500 different servers, eight operating systems, eight databases, and over 40 different business applications. “What-if” analysis can be performed to highlight the advantages of different virtualization settings, platform selections, operating system, database and application configurations, consolidation strategies, and fault tolerant configurations. For each scenario, the team can quickly configure and quantify the costs, benefits, TCO and ROI of each proposed option in order to help the customer decide the best option.

The ROIAnalyst proved beneficial for other HP business units who decided that application and business process analysis is also valuable data for customers. Since HP offers multiple operating environments, often on the same hardware servers, TCO data for the operating environments can be added to the depth of details in the ROIAnalyst. The ROIAnalyst is structured to provide analysis for not only HP-UX 11i on HP Integrity servers, but to also show financial trade-offs with Windows, Linux, or OpenVMS on the same HP Integrity server.

Customers not only want TCO trade offs with HP supplied systems and services, but also with competitive systems. The ROIAnalyst supports more than 1,000 TCO and ROI analysis combinations with the addition of specific templates that are user selectable. New templates are created by HP or Alinean to support the analysis needs of customers. Field training is easier with one system and multiple templates.

In the ROIAnalyst-Enterprise toolset licensed to HP, Alinean has delivered ROI and TCO analytics for almost 40 different business value selling models, covering everything from business process reengineering, technology practice improvements, outsourcing data center and network management and server TCO. In its initial phase, almost 1,000 HP consulting and sales professionals have been trained on using the tools in over 45 different countries.

“Alinean support of HP’s TCO/ROI effort is exemplary,” say Don Jenkins, VP Marketing of HP’s Business Critical Systems. “Alinean updates ROIAnalyst regularly with industry benchmark data and logic to keep abreast of ever changing pricing, services and features. While customers can and do undertake TCO/ROI studies on their own, the use of ROIAnalyst with its independent data, system, logic and benchmarking capabilities encourage customers to partner with HP in these studies as a trusted advisor.”

	Using the tool’s analytics, three white papers were created by Alinean to highlight the value of HP-UX 11i in typical sales situations, and aid in the sales process: » The Business Value of HP-UX 11i, HP-IX 11i vs. Sun Solaris 9 »» » The Business Value of HP-UX 11i, HP-IX 11i vs. IBM AIX »» » The Business Value of HP-UX 11i, HP-IX 11i vs. Linux »» These case studies establish the business value of HP-UX 11i v2 on Integrity servers then compare HP's enterprise UNIX TCO to that of either SUN Solaris, IBM AIX, or Linux. » Savings of up to 13% over Sun Solaris 9 on SUN Fire 15 k servers can be expected with HP-UX 11i on HP Integrity Intel® servers, with incremental agility and adaptability benefits providing additional upside for a total savings of 15% or more » Savings of up to 12% over IBM AIX on p6902 servers can be expected with HP-UX 11i on HP Integrity Intel® servers, with incremental agility and adaptability benefits providing additional upside for a total savings of 14% or more » HP-UX 11i, a true mission critical computing environment can offer overall savings of 16% over a Linux solution on IA-32. This includes reducing downtime costs by 61% and reducing security related business losses by almost 16%

Is CIO Compensation Driving Shareholder Value?

Corporate executive compensation is almost always newsworthy, not only for the new heights that Cx level compensation packages seem to reach, but more often for the misalignment between pay and performance.

The Compensation Gap
Forbes recently reported that the CEOs of America's 500 biggest companies received an aggregate 54 percent pay raise in 2004, compared to a mere 8 percent increase in 2003. In 2004, the average public company CEO received $9.84 million in total compensation, according to The New York Times, demonstrating the widening gap between the pay workers and executives receive.

The same issue applies to IT staff and chief technology executives. The most highly-compensated CIOs experienced lofty gains in 2004 pay: while the average IT staff member received a 4.2 percent annual pay increase. According to Baseline, the pay for leading CIOs increased by an average of 45 percent from 2003 levels, with the highest paid CIO receiving more than $5.9 million in 2004 compensation.

The table below shows the top nine highest-paid CIOs that work for well-known financial, telecommunication and transportation companies. Within this group, there’s a mix of companies that are performing very well and others that are struggling.
 

CIO Pay for Performance?
Alinean has identified some of the most successful companies that have well-managed IT groups that contribute to their company’s success by driving profit, improving productivity, and lowering operating expenses - based on Return on IT (ROIT™) rankings. At the same time, these groups are effectively managing IT spending in relation to net business value.

To measure the relationship between IT spending and shareholder value, Alinean uses a metric called ROIT, which is a measure of company financial performance divided by overall IT spending. ROIT links Stern Stewart’s well-respected Economic Value Add (EVA®) metric as an indication of the management’s team ability to create shareholder value with its ability to run a tight IT ship. ROIT is stated as:

ROIT™ = EVA / IT Spending

Where EVA = net profit – cost of capital (assets – liabilities) and,

Total IT Spending = formal IT spending + business unit IT

Several of the highest-paid CIOs are driving their companies to the top of the IT rankings. These include ROIT industry leaders delivering consistent performance such as Fran Dramis at BellSouth and Jeffrey Fox at Alltel (with two-year average ROIT scores of 143 percent and 109 percent respectively.) Other ROIT leaders include Donald Monks at Bank of New York and Timothy Theriault at Northern Trust, and those whose agility are enabling successful turnarounds, including Hossein Eslambochi at AT&T, Philip Haan at Northwest Airlines, and Jeffrey Freimark at Beverly Enterprises.

The list of high-paid CIOs also includes companies like Cablevision and Lehman Brothers, which are destroying shareholder value.
 

Factors Driving CIO Pay
Alinean research has found that overall performance and CIO pay are not correlated and that CIO pay, instead, tends to be driven by the following:

1. The peer effect - CIO compensation packages have more to do with what the other CIOs at similar companies are making, as opposed to value creation or performance. When turnover is high, these comparative salary increases accelerate.
2. More pain, more gain – Companies that are in troubled industries have a harder time recruiting and retaining good executives. As a result, these companies often need to pay much higher compensation to CIOs. Often CIOs collect regardless of whether they successfully increase shareholder value.
3. Big projects net big rewards – CIOs who are ambitious with their IT projects often run greater risks, but reap bigger rewards.

Time for Action - Board Governance of IT Spending
Alinean’s research on 2004 IT spending shows that overall correlation for U.S. companies with at least $100mm revenue is only 2 percent. This suggests that the relationship between IT spending and shareholder value is random, which is completely unacceptable for an expenditure that typically represents 50 percent of a company’s annual capital budget.

Conclusions
CIO compensation should be based on value-based performance measurement and must be a requirement that is demanded by shareholders and governed by compensation and technology committees. Using performance metrics like ROIT can link pay to performance and help the organization drive greater alignment between IT spending and shareholder value.

Alinean and IDC Offer Certification Course

Business Value Selling Certification Course for IT Vendors Vendors learn how to use IT alignment, ROI and TCO analysis to help improve and speed the sales process through business value selling. For more information and a schedule of upcoming classes, click here »

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About Alinean Alinean’s helping CIOs, consultants and vendors align IT spending and business performance through research methodologies and customized software tools, which quantify the value of technology investments. Its new certification courses help IT executives measure and communicate the ROI of IT, and equip vendors with the ROI-driven selling skills and tools to close deals faster. For more information on Alinean, its tools and its new certification courses, please call 407.382.0005 or visit  www.alinean.com.