What's a CIO's top asset? The IT architecture? The relationship with the CEO? The corner office with the great view? Nope. Most CIOs will say it's their people. And how do they make sure those people stay qualified and satisfied? Pose that question to CIO Cecil Smith, and he'll tell the story of how he turned to the HR organisation to transform IT for global energy company Duke Energy Facing the specter of deregulation in the power industry, officials at the Charlotte, N.C.-based company hired Smith to turn around an IT department plagued with rising costs,staffing problems and an inability to deliver on a number of projects. In just less than five years on the job, Smith solved these problems and then some. Today Duke's IT department has delivered a bevy of critical systems to its internal customers, reduced base spending by more than 10 per cent and achieved operational benchmarking on par with programs 10 times its size. IT turnover is up, but so are job satisfaction, employee efficiency and technical proficiencies. What's more, at a time when many utilities are losing money, Duke's overall profits are rising.
And the effects of Duke's IT transformation go far beyond the quantifiable.
Members of the IT department say that office morale has improved and the culture has changed for the better. Employees are leaving some of Duke's business units for the IT group, and some of the department's internal customers have considered applying for transfers to IT. In addition, other department heads want to know how they can use HR to help solve problems in their departments.
MAKING ORDER OUT OF CHAOS
Smith came to Duke after 20 years as a technologist for a local banking company. During the course of his career, he weathered major systems integration projects as well as the arrival of client/server technology. But nothing compared to the situation he walked into at Duke.
Duke was just Duke Power then, a local utility that provided electricity to 1.6 million customers around the Charlotte area. It was by far the largest utility in the region, but company officials were preparing for increased competition as a result of industry deregulation in the early 1990s. They wanted to ensure that IT ran more smoothly and more cost-effectively than ever before.
Those changes wouldn't come easily. Since the mid-1980s, the department had been spread out over application development organisations in each of the company's business units. The IT department had no CIO and purchased whatever technologies customers requested, with little regard for cost. The few standards that existed were largely ignored. As a result, the IT department spent nearly $160 million in 1996, and decade-old projects languished.
Stagnation added to the woes. Prior to 1995, Duke's IT department had enjoyed less than 1 per cent attrition. Because of an attractive retirement plan, few employees left the company. More than half of the department's 1,200 employees had been there for at least 12 years, and many department managers had been around since the 1970s. As a newcomer among stalwarts, Smith was the only hope for a fresh beginning in IT.
When he arrived at Duke in February 1995, Smith took some time to examine what he had inherited. His diagnosis: gravely ill. His prescription: In order to turn things around and improve overall efficiency, IT needed to establish standards, upgrade skills and refocus the workforce. Smith went straight to Christopher Rolfe, vice president of corporate human resources. For two hours, the men spoke freely about Smith's plan. When they were through, they agreed to work together.
"He wanted to make all these changes, but he realized that at the core of it all were the same basic staffing issues that face every CIO in the world," notes Rolfe. "Performance, retention, you name it, [Smith] had it on his list.
He couldn't tackle those things without [HR]." "I knew people would be an integral part of this transformation, so I wanted to put them at the center of it," Smith agrees. "I wanted to do whatever I could to keep my best people here at Duke." During a series of meetings in 1995, Smith and Rolfe hashed out the specifics of an all-out transformation. One morning in January 1996, Smith called a general meeting for all Duke IT employees. From a lectern in the front of the company auditorium, he announced that he was going to formally change the department's name to Information Management and distributed digital desk clocks emblazoned with the new moniker. He told them the new name perfectly described his vision for the future-a department that managed information on behalf of the entire enterprise, not on behalf of itself.
But Smith didn't stop there. He dimmed the lights and detailed a plan to transform Duke's IT efforts for the deregulation age. When he finished, Smith was greeted with only mild applause. Many staffers appeared confused and unsure. Their reaction was no big surprise; for years, few if any decisions were made unless everybody in the department felt good about them. Smith was now making major changes without consulting anyone but Rolfe. The situation made a few employees particularly uncomfortable.
"[Smith] made it clear that IM was not going to be a democracy," says Brad Davis, one of the department's general applications managers. "That was refreshing for some of us but disconcerting to others. A lot of people resented the fact that they were left out of the process." Employees weren't the only ones worried about the future; Ruth Shaw, Duke's executive vice president and chief administrative officer, says that many of the company's senior officers were skeptical that Smith would be able to follow through on his promises. Smith remained sensitive to these doubts; he implored the staff to be patient, continuously vowing to reduce overhead and prepare the department for the future. Then Smith began the most exhaustive IT transformation in Duke history. The plan was supposed to span nearly three years and cost approximately $2 million.
PUT THEM TO THE TEST
Atop Smith's agenda was to snuff out inefficiency, an issue he tackled by determining if he had the right people in the right jobs. Together with Stan Land, a business applications division manager, and Gayle Long, a human resources consultant and manager, Smith drew up a self-assessment process for employees who worked with applications on a regular basis. The assessment listed more than 20 categories of project management and technical skills, and encouraged employees to note their level of experience in each. Employees were instructed to evaluate themselves, then review the completed tests with their managers. Managers made independent assessments of each employee, and the manager and employee discussed any differences and arrived at a final assessment.
Over the course of six weeks, more than 250 employees took the tests. Once managers had reviewed them, the information was entered into a database, which generated a blueprint for each employee's professional development. The forms provided employees with a list of required skills and target proficiencies for every job available to them in the applications area. With these documents, Long says, employees were able to sit down with their supervisors and plan for future development opportunities.
"This was our way of telling people they were important to us," Long says.
"Instead of evaluating them and telling them they didn't have the right skills, we evaluated them and worked with them to make sure they acquired the skills they needed to move forward." After his HR team evaluated these employees, Smith turned his attention to the managers who had been coordinating the organisation before his arrival. He evaluated these people himself and almost immediately moved some of them into other positions. Smith hired replacements for those he moved, then set up a plan to bring in 12 new, next-level managers. But instead of hiring only from outside the company, Smith established a program to groom candidates from within Duke. More than 40 employees applied; Smith selected four of them for promotions. Smith considers this one of the most critical parts of his HR improvement plan. Not only did the program reward Duke staffers for their accomplishments, but it also showed employees that Smith was committed to including them in the changes.
"If I had just gone outside [the company] for talent, I would have alienated everyone," Smith says. "It was a deliberate move to select internal people who wanted to be part of the new IM structure." COMMUNICATE, COMMUNICATE,COMMUNICATE Next Smith launched an aggressive internal communication campaign. He initiated monthly meetings during which employees could bring up anything from current projects to questions about benefits. In addition to these monthly meetings, Smith made annual all-hands gatherings a tradition for IM. He instituted biannual manager meetings and sponsored periodic manager retreats to improve camaraderie. He hired a full-time assistant to help with communication among Duke's internal customers and organisations, including publishing a newsletter.
He started publishing his own set of personal reflections on the company intranet once or twice a month. With all of these meetings and publications, Smith was now bombarding employees with honest information about the changes at hand. The result was incredible.
"They were all really into it," Smith says of his staff. "With all this attention, they really felt they were part of something special-which they were. People started working later and working better because they appreciated the respect we were giving them." Many employees who hadn't bought into the plan by then became believers after Duke implemented a new appraisal system. First Land and Long were part of a team that reviewed the department's job classifications, changing the hierarchy from three broad titles to 11 more job-specific titles. Next they looked at whether they had the proper rewards in place to retain the best people. The pair set out on a benchmarking effort to analyze how Duke's compensation packages compared with packages at similar local and national companies. They found that Duke's base salaries for IM employees were consistent with what other companies were paying their IT staffers but that Duke did not offer its employees comparable incentives. In response, they adjusted salaries of a few employees that were found to be out of line with the market. They established incentive plans for mission-critical projects, a performance-based incentive plan for noncritical endeavors and a tuition reimbursement program.
Land and Long followed their incentive programs with nonmonetary offerings as well. Among these benefits were casual dress, employee recognition and in certain cases flexible work schedules. They also experimented with job swapping, enabling certain IM employees to try business-side jobs and technically skilled business-side employees to spend some time in IM. Even after Duke adjusted its IM salaries and benefits packages, Land says, Duke staffers could have gone elsewhere and earned substantially more. But the company's attention to employees and to the "little things" convinced people to stick around.
"Compared with other companies, our totals were still peanuts," says Land.
"Why'd they stay? I'd say it was the fact that we helped them plot their careers and recognised them for their achievements. In the end, I probably spent more money on doughnuts and meals than on [monetary] incentives." Once Duke completed skill assessments, compensated contributors accordingly and understood the mix of skills in IM, Smith began to make corresponding adjustments. About 60 employees with inadequate or unneeded technical computer skills were transferred either to another IT position or to a business unit or laid off. These were difficult decisions but necessary components of Smith's transformation strategy.
"When you're trying to trim the fat, downsizing is always something you've got to deal with," Long says. "It's not like we fired our top people. We got rid of only those people who failed to meet a certain level on their assessment exams.
Many of the people who were laid off expected it after taking those tests." Layoffs weren't all that contributed to a rise in turnover. A few IT employees took off at the very beginning of the transformation. Others left toward the end of 1996, when they were passed over in the search for new managers. Still others departed after the assessment procedure proved to them that they knew more about technology than they realized. Despite Duke's best efforts, a handful of employees left Duke for better jobs at different companies, and an additional 30 or so left to do the same jobs elsewhere for more money.
Duke counteracted these losses with some aggressive hiring tactics, including taking on people with new skills like PeopleSoft and SAP, focusing on college recruiting and hiring a recruiter specifically for IM. Since 1997 Smith has hired more than 65 employees.
DEREGULATION, HERE WE COME
Duke's HR transformation ended in late 1997, about a year earlier than originally intended and just months after the company merged with PanEnergy to form Duke Energy. After all the layoffs and resignations, all the new hires and new recruits, IM had shrunk from 1,200 employees to just over 1,000. In 1995, before Smith came aboard, only 1 per cent of Duke's IT employees left each year. This year turnover is expected to be about 10 per cent. According to Rolfe, the vice president of HR, this figure is still significantly lower than the utility industry average of 15 per cent.
But while turnover rose, operating costs plummeted. Records show that Smith used HR to lower IM's annual budget nearly $20 million-from about $160 million in 1996 to about $140 million last year.
Executives aren't the only ones pleased with the results of the transformation.
Nearly all of Duke's internal customers agree that both service and performance have improved dramatically since the transformation ended. Jim Hicks, senior vice president of Duke's Retail Services, says a more efficient workforce has enabled him to lower his customer service costs by $2 million to $3 million a year. Because Hicks' technical support representatives understand the computer system better, they spend less time with each caller. The less time these customers spend on the phone, the happier they'll be with Duke. The happier they are with Duke, the more Hicks appreciates the changes in IM.
"The degree to which this transformation has turned things around is really unbelievable," says Hicks, who briefly ran IT before Smith came aboard in 1995.
"The fact that [Smith] created such a sense of vision and believability, that he could do this through HR, inspires all of us. The fact that he actually pulled it off-that's even better." While most employees applaud the transformation, some demur. As Smith has increased expectations across the board, some employees say he has also increased pressure on them to perform. Chuck Beam, a telecommunications manager, says that since the transformation he's worked longer days than at any other time in his career. "With the higher expectations and us having to become more involved with the day-to-day leadership, the hours just went through the roof," Beam says. "I don't mind it because the job is a lot more satisfying now than it was six years ago. But I think some of the turnover that we've seen is because some of the folks are struggling with these expectations." Whatever the spin, one can't argue that Duke has come a long way since 1995, when it was just a local electric company. Now the company is an international provider of electricity and natural gas. Back then, the company had the technology of a small, regional shop. Today, thanks to Smith, Duke's IT department is aligned like few others in the industry. Company officials are no longer afraid of the competition that deregulation might bring. Instead, they're excited to see how Duke uses technology to measure up against some of its new, global competitors and help its internal customers.
Smith, for one, could use a bit more time to perfect some processes before the company is seriously challenged from the outside. Deregulation is on its way, and when it arrives, he wants to be ready.
"It's great for everyone to see how this hard work in HR resulted in competitive advantage for us here in IM," he says. "Now we're turning our attention to the future." Rules of the Road to Transformation Thinking about using HR to change your IT organisation? Read this first.
Be honest. Make sure that what you tell your people is true. Don't promise job security if you know you've got to make layoffs.
Communicate. Employees will believe in your plan only if you tell them what's happening.
Deliver. Promises are just promises unless you follow through. Be sure you can perform what you say you will.
Incite. Find a "burning platform" as a call to action. Set your goals and repeat them so that employees will catch on. Pretend you're a politician campaigning to the masses.
Stay current. Don't use technology for technology's sake. Build your plan around the latest technologies that apply to you.
Upgrade. The best way to eliminate inefficiency is to constantly work to make your staff better. The better they are, the better you are.
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