And Now For the Heavy Lifting

"Sometimes it felt like a belly flop," Bertch says with a hesitant laugh.

This is the inside story of a midsize fitness club operator that continues to overhaul its application infrastructure to help the company grow 50 percent per year. At the center of that activity is the two-year-old, custom-developed MMS, which Life Time uses to track customer demographics, provide daily field reports for operations managers and finance executives, conduct electronic funds transfer for bill collection, and offer one-second check-in for club members. The system also takes advantage of a Web services platform--built on Java 2 Enterprise Edition tools, a BEA Systems application server and SOAP (Simple Object Access Protocol) interfaces--to connect member records with an ASP-provided online scheduling application.

Life Time's developers define Web services as cross-enterprise application integration in which one application has permission to make calls and pull data from another. This kind of integration will be extended further as the company expands into ancillary markets.

Already a 4,800-employee company headed toward the $200 million revenue mark this year, Life Time aims to become a billion-dollar company in the next few years, not only by adding six clubs each year, but also by selling nutritional supplements, fitness apparel, health magazines and related products to its members, whose numbers grow by some 15,000 per month. Web services let Life Time give partners access to specific data and applications, whereas a VPN (virtual private network) provides all-or-none access to systems behind a firewall, systems architect Gary Lien says. (For a technical walk-through of MMS, see "MMS: The Muscle Behind the Life Time Fitness Machine.")

In many ways, Life Time's risk-taking culture is the ideal setting for one of the first documented trials of cross-enterprise Web services technology. The company isn't overly burdened with legacy systems, so it doesn't have much to lose by tapping Web services to connect with partners. Yet it desperately needs to develop these connections, and fast, to support its aggressive growth plans.

"Everything in the press says Web services isn't ready for prime time," Lien says. "Do you think that Wells Fargo and Chase are going to say, 'Hey, I'll use Web services?' We're willing to take the risk and try this because we're not invested in something old like EDI."

In other ways, building MMS was out of character for Life Time. The $25 million the company spent to develop the system is more than it has spent to open any of its lavish clubs. Most of that expense went to hiring development consultants when, in the middle of MMS' creation, Life Time switched from a Microsoft architecture to Java, even though it had no Java expertise in-house.

Microsoft spooked Life Time's development team early on when it declared that it would no longer support Web forms in Microsoft Commerce Server. "We said, 'OK, Microsoft has done this how many times before?' " Lien says. Worried that Microsoft would take away support for other underlying technologies Life Time planned to use, the development team decided to switch to Java, which they deemed more predictable over time.

The company's frugality is renowned in the industry, which helps explain how it can charge as little as $40 per month for access to state-of-the-art fitness facilities equipped with basketball, squash and racquetball courts, indoor and outdoor swimming pools, cavernous weight rooms, locker rooms with marble treatments, and day care centers that are Apple Computer iMac-equipped and fully secured.

But Life Time wants to be more than an upscale gym operator. It wants to extend its brand to other fitness categories and wring more revenue out of its existing membership base. A big motivator is the company's plan for an initial public stock offering (IPO) in the next 18 months. Wall Street likes to see consistent, aggressive growth, and a revenue model that isn't dependent on any single source."It's very labor-intensive and cash-intensive to evolve 120,000-square-foot buildings into a nice cash-producing engine," says vice president of operations Mike Brown. "If we could leverage that same membership population that is coming through our facilities at an average of $60 per month and get an additional $60 of revenue off that same population, at probably a 60 percent margin, that's where our growth opportunity is."

Sales of ancillary products represent only 5 percent of Life Time's revenue today, but the company plans to push that number as high as 20 percent in the next 12 months, Brown says.

When Life Time hit the $150 million revenue mark last year, it was a turning point for the 10-year-old company, whose executives realized that aggressive growth beyond that size would require a massive investment in automation across all operations.

"Everything was a paper and pencil shuffle," Brown says. "We had all we could do just to keep up with our dues business, and many days we failed miserably. The technology now is allowing us to look at launching new programs and new services, and creating more interactive ways for our members to get information from us."

Beyond MMS, IT projects under way include a new Siebel CRM (customer relationship management) system that primarily will handle data about prospective members who use the clubs as guests. The CRM system, slated to enter production by the end of July, also will track club usage and demographic patterns among existing members.IT is also enhancing the payroll system to allow for earlier reconciliation and adding a "geo-coding" application to study demographics for new club locations, while fortifying systems with antivirus and denial-of-service protection tools and installing QoS (Quality of Service) software. On the team's wish list is an entirely redundant hot site that could take over in the event of an outage. Last year, local construction crews cut Life Time's fiber connections six times.

Also on the wish list is an entirely new accounting system. Some executives complain that the current Solomon system tracks only individual purchase orders and can't group the orders by project. Will Sullivan, Life Time's new vice president of marketing, says the current system hinders his ability to create for his department an agency model, under which other departments are treated as clients and are billed for services.

"I'll exaggerate the process," Sullivan says. "If you want to buy a pencil, you need a PO. If you want to buy a pen, you need a PO. If you want to buy a piece of paper, you need a PO. There are three different POs. If you want to know how much you are spending on office supplies, you can't figure it out. I need accounting to move from a PO system to a project system."

The current accounting system also relies on paper approvals. Sullivan wants electronic POs to be generated automatically as work orders are created, and he wants to approve POs online.

'House Got Cleaned'Sullivan is one of several new executives brought in to help expand Life Time faster. Sullivan spent many years in marketing at 3M and founded his own agency, which he later sold to Saatchi & Saatchi. CFO Mike Robinson, a 17-year Honeywell veteran who most recently served as CFO of electronic billboard marketer Next Generation Network, was hired in March. Hard-charging CEO Bahram Akradi plans to bring on a chief operating officer within the next six months.

"We hit the $150 million mark, and the house got cleaned," CIO Zempel says.

This period of rapid growth--revenue has grown about 35 percent each of the past few years--has endangered not only Zempel's job but also the jobs of all 48 Life Time IT staffers. Zempel has no formal IT training--he started in the gym business at age 18, "handing out towels and scrubbing toilets" at U.S. Swim and Fitness, where Akradi was a part owner. The CIO was nearly squeezed out in July 2000 at the urging of a venture capital investor.

"The VC was unimpressed with the talent we had, inasmuch as it wasn't the traditional coding types of guys," recalls Shaun Nugent, who was Life Time's CFO and Zempel's boss for six years before leaving last fall. "We didn't have anyone on the staff who had 'been there and done that.' It was a hodgepodge of local people we had pulled together."

The investor also expressed shock at how much Life Time Fitness was spending on MMS, calling it a "misuse of funds," Nugent says. Nugent hired his own auditor, Les Wanninger, the former top IS exec at Pillsbury and now a University of Minnesota computer science professor, who ultimately sided with Zempel and his team."My opinion was, 'They're doing the right thing and going about it the right way,' " Wanninger says now. The company's biggest problem was that it wasn't tracking costs in a way that could be easily understood by all stakeholders, he says. For instance, the $25 million figure includes infrastructure upgrades that were necessary even if MMS didn't exist--things like network buildouts and new servers. So when officials cite that figure for MMS development, it sounds like an irresponsibly large number.

Zempel's job would be challenged again, in December 2001, and this time he would have to fight for his whole team. In a meeting between Akradi and Oracle CEO Larry Ellison to discuss a possible deal for Oracle to resell the MMS software, Ellison offered to take over Life Time's IT operation, promising a 5 percent annual savings by using Oracle software. Ellison's offer was a surprise not only to Zempel but also to Oracle's sales team, Zempel says.

Perhaps more surprising was Akradi's reaction: He began to seriously consider the offer. "Now it was me against Larry," Zempel recalls.

Over the next 45 days, Zempel and his software development chief, Bertch, met with Akradi weekly to discuss whether Ellison's plan was feasible. Zempel detailed how Oracle's plain-vanilla software was not an equal replacement for Life Time's customized business systems and that any savings would be offset by having to overhaul the company's processes to comply with Oracle's out-of-the-box software.

Akradi ultimately told Oracle he didn't want to throw away Life Time's systems, he was keeping his team, and Oracle would have to customize and integrate its software into Life Time's existing infrastructure. Talks broke down, and the IT staff was spared.Zempel now faces what could be an even stiffer challenge. He and his team must continue to support Life Time's growth with no additional staff or funding. Today, IT represents 25 percent of Life Time's corporate G&A (general and administrative) costs--a high percentage for a company in an industry not considered to be technology-oriented.

"The direct mandate to Brent is, not one more dollar per year," Akradi says.

Still, the challenge could turn into a rare opportunity for Zempel. Following a demonstration of MMS at an International Health, Racquet and Sportsclub Association conference last year, Life Time executives say they were flooded with requests from competitors to license the software. Life Time is developing a packaged version of the software through a venture called Averisoft--it claims to have several promising customer prospects--and it's considering spinning off the unit as a separate company that would sell to any business that needs to track member rolls.

But Life Time executives say they're not quite ready to commercialize the MMS software. Akradi likens MMS as it stands now to "a very capable and strong chassis" but adds: "A CEO isn't going to spend $20 million to buy the chassis."

Even so, Akradi and Zempel describe the prospect of a spinoff in similar terms--as a consulting firm, modeled on the Sabre reservation system company American Airlines started, that would customize MMS for other companies and build their innovations back into the software for the benefit of the entire industry. Such a plan would also convert IT to a revenue-producing consulting unit rather than a corporate budget line.

The plan also might lead to faster payback for the $25 million investment, a number that surpassed even the highest estimates early in the project. Says Nugent, the former CFO: "Bahram was an incredible critic of our spending. He thought we were from Mars. He was angry at us for doing it. He wanted to go back to bookkeepers at each of the clubs."

Indeed, $25 million may seem like a reckless expense for what was a $100 million to $150 million company. But Akradi is betting that, like an expensive Ivy League education, the investment will pay off when Life Time Fitness grows up and is operating 100 clubs in dozens of metropolitan markets instead of the current 26 in six states.

"We are going to have $1.5 billion of assets deployed in bricks and mortar," Akradi says. "At that point the $25 million in infrastructure will not be a big number at all."

David Joachim is Network Computing's Editor/Business Technology. Send your comments on this article to him at [email protected].

Welcome to version 1.0 of On Location, a series of documentary-style technology case studies from the editors of Network Computing. Our On Location series debuts with the inside story of Life Time Fitness, a $150 million health club operator overhauling its application infrastructure to help it grow fast.On Location features will follow leading-edge IT projects from conception and planning through implementation and usage. We'll tell it like it is, reporting on the setbacks as well as the triumphs while providing detailed technical and organizational analysis that leverages our editors' real-world IT experience.

Ongoing coverage will include progress reports and updates, both in print and online. We're also planning lots of complementary interactive features, with participation from the IT and business principals at each company we profile. To find out how you can take part with questions, comments and suggestions for Life Time Fitness, see the Life Time Forum.

We plan to run several of these ongoing case studies a year, so keep an eye out this fall, when we'll be profiling another intriguing company and technology project, and then following up with more print and interactive online coverage down the road. Meantime, we hope you enjoy reading about Life Time Fitness and will follow along online and in coming issues as the company's IT exploits unfold.

• $200 million: Revenue run rate for 2002

• 50%: Projected revenue growth for 2003• 0%: budgeted IT spending growth

• $95 million: Venture capital dollars raised since 1992 founding

• $25 million: Amount spent to develop Member Management System

• 25%: percentage corporate G&A costs spent on IT

• 26: Number of fitness clubs nationwide• 400,000: Number of club members

• 4,800: Number of employees

• 48: Number of IT staffers

• 0: Number of in-house Java developers when MMS was switched from Microsoft to Java environment