With revenue of $8 billion, Owens & Minor, Inc., ranks as one of the country's top distributors of disposal medical and surgical supplies and a leader in healthcare supply chain management. The company serves some 4,500 customers, including hospitals, integrated healthcare systems, alternate care locations, group purchasing organizations, and the federal government. The company's 51 distribution centers service these customers. With roots dating back more than a decade, Owens & Minor provides its customers with products from major healthcare manufacturers such as Johnson & Johnson, Kimberly Clark, and 3M. Rick Mears, CIO of Owens & Minor, says that the company's technology and consulting services help customers to improve their inventory management and streamline logistics across their medical supply chain. "By continuing to improve alignment between IT and the business, we've been able to use make use of innovative technology to provide exceptional customer service." In fact, Owens & Minor has received several awards from Information Week for innovative customer-facing initiatives.

Enterpriseleadership.org recently sat with Mears to discuss how his IT organization carries out the corporate strategy.

EL. Can you briefly describe your IT organization?

RM. We outsource most of our IT services to Dell Services, which acquired Perot Systems. We have had a relationship with Perot Systems for 12 years now. We have a small data center in the home office. Dell's Plano technology center outside of Dallas, Texas, hosts most of our technology.

Our corporate IT team makes sure that the company gets what it needs from technology and bridges the gap between business needs, technology, and our services. To this end, we make sure IT aligns with the business and that we support the strategy and the vision of the company.

EL. What is the overall corporate strategy and how does the IT strategy fit into it?

RM. Our overall strategy is to be the best supply management services company in healthcare. Our customers range from a variety of healthcare providers. They rely upon us every day to get the right products at the right place, at the right time, at the right price, and at the right unit of measure. We refer to this process as our Bill of Rights. We warehouse supplies locally and typically make same-day deliveries when a customer places an order. We also represent the sales and distribution channel for a couple of 1,000 manufacturers that have decided to go through wholesale distribution to move their items. We view our customers on both ends of the supply chain. We sit in the middle servicing both manufacturers and hospitals, and other healthcare providers that buy from us every day. That has been our strategy for decades.

If you look at our current vision and strategy, we want to continue to be great in terms of our Bill of Rights. Our strategy going forward will focus on expanding our services to manufacturers beyond those that have typically gone through wholesale distribution. We also want to expand our services to healthcare providers well beyond the acute hospital facilities.  In these areas, we would focus on all healthcare facilities outside of hospitals, such as physicians' groups.

EL. Can you describe some of the key IT investments you have made, why you had to make them, and what they returned to the business?

RM. Our focus has been to extend our technology and our services to our customers via the Web. We have invested much in e-commerce technology and Web-based technology to connect our business with our customers. Specifically, we have extended our supply chain capabilities to our customers to allow them to manage their own supply chain better. By leveraging our technology, our customers can take advantage of our decades of expertise in healthcare supply chain services. We have also done this on the manufacturer side as well. As a result, our technology investments have been to extend our capabilities to our hospital customers and manufacturer partners. We also have looked internally and have invested in our infrastructure. During the past year, we invested heavily in our voice recognition system for our 51 distribution centers across the country. Our pickers no longer use paper or a hand-held device to locate and select the appropriate products. Instead, voice recognition directs the picker to the proper location and tells them how many items to pick.

EL. Did you have to make changes to your enterprise architecture to carry out the voice recognition system?

RM. We have absolutely done that. We just completed a migration of our primary enterprise systems from a mainframe legacy environment to a Microsoft Windows environment. A few years ago, we decided not to take on a major systems replacement approach to our modernization. Instead, we worked with Microsoft and Dell to migrate our systems to a more modern platform. We have opened up many new opportunities. For example, we have created a modernization approach that funds itself. It leverages the operations on a less-expensive HP/Microsoft platform to fund a number of our application modernizations. We also rolled out a new customer service system that will have a dramatic impact on how we serve our customers, and how our customer service people are positioned using technology to serve our customers.

EL. Can you describe the governance process for making and measuring these technology investment decisions?

RM. We go through a capital investment review process. Our capital investment review committee includes our senior management team who evaluate the return on any major investment. The team also goes through the strategic investment process to look at whether or not the investment fits with the company strategy and our anticipated future direction. On the larger investments, we work with the board of directors.

We use an internal rate of return calculation. We put the business owners through a rigorous process. Specifically, they need to look at what is the value of the investment we are going to get, what are the benefits to occur, and how would we measure those benefits doing forward. We try to link the benefits to one of several things: new sources of revenues, improvements in employee productivity, or improved business processes. The return could also be reduced cost or increased revenues. We also make sure that the project is a strategic fit.

This governance process really is what links IT to the business and creates that alignment. The process we go through as we consider IT investments forces IT and the business to sit down and come up with real, actionable impacts of the investments, and to use these impacts to defend the need for these investments. We have to collaborate effectively before we bring the investment to the committee. We have to make the case, explaining how we are going to track the internal rate of return that has been set up (whether it is based on sales or expenses or operating profits). The next step in the process involves coming back as a team during post-implementation of the project to show the actual results that we have achieved. It is not only a governance process, but the way we force alignment between the business and IT.

EL. What did it take to achieve this type of alignment between IT and the business?

RM. It took a while to achieve this type of alignment. When I came on board, I put much discipline in place for the governance process.  I said that the business had to end up driving the rate of return. As a result, IT developed a close connection to the business. In fact, in many cases, the business owners are the ones who represent these enhancements or these investments that we need to make.

EL. Since you outsource most of IT, what type of cost savings are you realizing?

RM. We would not say that cost reduction has been the motivation for our partnership with Dell. Dell is the expert in technology with a great deal of resources. We can pull from those resources as we need them. We can swap out people based on the projects we need to do. We just tap into that pool. It forces us to not hire and fire people. Our relationship with Dell enables us to continue to be the best and most innovative in our business relative to when it comes to technology. Dell has an ability to not only bring us the expertise, but help us to get that technology implemented and supported quickly and effectively. It also gives us the ability to shrink and swell as we need to as projects are in place or not in place.

EL. What is the process to update the business strategy and the role IT plays in it?

RM. Because we want to extend our systems and technologies to our customers and our suppliers, IT is an important part of the strategic planning process. That is where we see synergy with IT, in addition to the investment in our infrastructure.

Our senior management team has always held the belief that truly innovative technology can have a great impact on business operations. Of course, IT has to deliver collaboratively with the business. Our CIO is included at the management table during every step of a technology initiative - from initial discussion to post implementation.

The management team meets quarterly to update the business strategy. We also have a formal strategy process with our board of directors. We meet with the board's strategic planning committee at least twice a year and then we have an annual meeting with the full board once a year. Because no one is sure of the status of healthcare, we want to stay current with where and how care it is going to be delivered, and how technology is going to impact healthcare.

EL. What challenges have you faced because of the economic downturn and the Obama healthcare legislation?

RM. It is very difficult to comment on it until the Obama healthcare legislation gets carried out in 2014. The economy has forced our customers and our suppliers to look across their entire organization for efficiencies. That is where we come in. Our value is helping our customers and suppliers to be as efficient as they can be with their supply chain. It goes back to our Bill of Rights. If you look across those things, we have proven that we bring great value, drive efficiencies, and drive cost out for our customers and our suppliers. That has created many opportunities for us.

EL. What about growth?

RM. Our growth rate has been on target for the past couple of years. There are some acquisitions tied to this. I can only give you a historical viewpoint of it. We have been where we thought we would be for the past two years. This is from a revenue standpoint too.

EL. What new technologies are you looking at?

RM. Now that we our enterprise systems operate in a Microsoft environment, we will continue to extend our technology to our customers and suppliers via the Web. We are focusing on better user interfaces for all of our users and a better experience using our enterprise systems. We are focusing on business intelligence and effectively presenting our information in support of decision making, for our company, our customers, and our partners. We have had great success replacing our warehouse interfaces with voice recognition technology. We expect to do more of that.

EL. How do you work with the CFO and CIO to prioritize technology investments?

RM. Again, it comes back to the capital investment review process. Our CFO has laid out some easy-to-use tools for us to present internal rate of return and to show how we are going to monitor the achievements of each project. Our CFO is involved in helping us to put this stuff together, as well as holding us to some tight requirements of approving these capital investments. We meet regularly with the capital investment review committee to demonstrate how we doing against those measurements.

Elizabeth M. Ferrarini is a technology writer from Boston, MA. Reach her at Elizabethferrarini@yahoo.com.