Q&A: UPS CIO Ken Lacy

UPS' IT chief Ken Lacy recently sat down with silicon.com to discuss the importance of technology to delivering better customer service, why he undertakes projects even if there's a negative ROI and the possibility of commercialising his company's technology.

With a $1bn annual budget and a staff of 4,700, Ken Lacy, CIO of parcel carrier UPS, has one of the biggest jobs in IT. Lacy is currently overseeing home-grown projects worth $200m that will create wireless networks linking some 125,000 handheld devices by 2007.

silicon.com caught up with him in Frankfurt where he was hosting a two-day media conference showcasing his company's technology. Announcements included the rollout of wireless systems across Europe.

silicon.com: Why did UPS decide to hold a conference dedicated to technology?

Lacy: Let me say straight away that our business drives technology rather than the other way round. The wireless technology UPS is deploying today is laying the groundwork for the company to develop better operational software applications, which will allow us to offer new customised solutions to our customers while reducing our operational costs.

How will customers benefit from this new technology?

The most prominent application is the DIAD (Delivery Information Acquisition Device) IV, a wireless data entry terminal designed for use by UPS drivers. This particular tool is unmatched in our industry. It provides real-time data acquisition and a richer presentation. It will help us in our aim to treat every UPS customer as though that customer was the only UPS customer. The tracking job has been done. The emphasis is now on giving information about exceptions. Our customers say: "Give me a view of things that are coming to me so I can plan for their arrival."

Many IT users have been looking for more from their suppliers recently. How do you approach yours?

We look for a well-rounded relationship with mainframe, mid-range and desktop vendors. However, we always want more. Hardware costs have bottomed out and software is the main cost centre now. We are looking for less upgrades and software that is more compatible. We have Linux and standards such as XML but we still can't move applications seamlessly from, say, Sun to Hewlett-Packard. To my mind, if you know what you want you can drive your vendors that way.

How do you measure return on investment (ROI)?

We build most everything in-house because we are customer-focused. Every project has a ROI, although some projects may have a negative ROI because they are a cost of doing business. With other things such as introducing real-time systems, there is a competitive advantage. Overall, we have no number for ROI. The returns from technology can be greatly varied from eliminating a department, for example, to providing better customer value.

Your annual budget of $1bn is pretty hefty. Do you benchmark your IT spend against other companies? If so, how do you compare?

Our 3 to 4 per cent of revenues is a good industry average. The question is, what do you put in that? A big piece of what we do is driven by our need to replace systems. If you are growing the business as we were in the late 80s and 90s, the proportion was greater. Now that we are in a replenishment and replacement phase, it is not as large.

Are you considering commercialising your technology?

No. Our systems are designed specifically for us and usually involve relationships with many vendors so they are hard-wired. We are looking for technology that best fits our needs. DIAD V, for example, could be off the shelf.

Are you already thinking about DIAD V?

That's a year or so away. But we work on nine-year development cycles that involve a couple of years research, three years development and three or four years rolling out new systems.