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t should come as no surprise that Intel,
the world’s largest chip maker and
technology pioneer, is also a leader in e-
business. Chairman Andy Grove decided
in 1998 that Intel would transform itself
into a “100 percent e-corporation.” Since then, each of the company’s new business applications
has been based on the Internet or on e-commerce. Leading the Internet initiative was CFO Andy
Bryant, whose responsibilities were expanded to include enterprise services.
Bryant was an unlikely choice to lead the company’s transformation, because he was skep-
tical about the value of e-commerce. He quickly changed his tune when he learned that Intel
receives over one-quarter of its orders after hours. The flexibility of online ordering added value
for customers. Intel has launched more than 300 e-business projects since 1998. In 2001, the com-
pany generated 90 percent of its revenue—$31.4 billion—from e-commerce transactions.
Ironically, Bryant’s skepticism about e-commerce turned out to be a good thing. He devel-
oped methods to analyze e-business proposals to make sure they added value to the company,
applying rigorous financial discipline and monitoring returns on investment. “Every project has an
ROI,” Bryant says. “It isn’t always positive, but you still have to measure what you put in and what
you get back.”
The difficulty comes in deciding what to measure—and how. Like most companies, Intel
already had expertise in evaluating new manufacturing facilities and other capital projects. But
technology projects also have intangible benefits that aren’t easily quantified. One of Bryant’s
challenges was formalizing financial accountability for e-business applications.
The company’s track record has been quite good so far. E-business projects have reduced
costs in many areas. For example, an electronic accounts payable (A/P) system was devised to
take over many routine transactions so that employees could focus on analysis. Bryant esti-
mates that the present value of this project’s cash inflows, less the initial investment, is $8 mil-
lion. And the company no longer misses opportunities to take advantage of discounts for prompt
payments.
Like Intel, every firm must evaluate the costs and returns of projects for expansion, asset
replacement or renewal, research and development, advertising, and other areas that require
long-term commitments of funds in expectation of future returns. Chapter 8 introduces this
process, which is called capital budgeting,and explains how to identify the relevant cash out-
flows and inflows that must be considered in making capital budgeting decisions.INTEL
CHIPPINGAWAY
ATE-BUSINESS
INVESTMENTANALYSIS