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

1. USG Corp. and Others:Evaluating the ROI of IT Investments Dirk Lange Eric Gosselin Lucas Duffner Ashley Elinburg Charlotte Prevost

2. USG OVERVIEW • World’s 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. • Nation’s largest distributor of drywall and related building products through its subsidiary L&W 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. • 1960’s: 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 • 1970’s: the company expanded into the distribution business with the creation of L&W Corporation. Within 10 years, it operated 86 building material supply centers, distributing wallboard and other building materials in 31 states. • 1980’s: 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. • 1990’s: a new headquarters building and the USG Interiors Solutions Center in Chicago showcased USG products and innovations.

8. FINANCIAL ELEMENTS USG Annual Sales (in million) USG Annual Net Income (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 DimonChairman 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 Computerworld’s 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 company’s 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 bank’s 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 don’t 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 CFO’s 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.