An increasing number of CEOs realise that their relationship with IT doesn't have to be adversarial.
When Carl Pascarella was offered the top spot of president and CEO at Visa USA in 1993, friends and business associates alike advised him to pass on the prestigious job. They warned that Visa had become complacent in its position as the preeminent credit card company. It had been slow to embrace industry trends like corporate co-branding and was consequently losing market share to arch rival MasterCard International And with the credit card market becoming increasingly saturated, the inside scuttlebutt was that there was nowhere for Visa to go but down.
However, seeing opportunity where others see only obstacles is a trademark of Pascarella's career and character. His 10 years spent heading up Visa's Asia-Pacific operations had taught him that the strength of Visa's global brand and the company's solid systems infrastructure were unmatched in the marketplace. The challenge for Pascarella was to turn Visa USA's focus back on those two core assets, and under his watchful eye a reinvigorated Visa has flourished. The number of cards in circulation grew to 322.5 million in 1998 from only 157 million in 1993. And as of 1998 Visa USA's share of the highly competitive credit card market was a whopping 52.8 per cent.
Pascarella is one of a growing number of CEOs who appreciate the fundamental importance of information technology to a company's success (see Page 42 for more on Pascarella). As you'll hear from Pascarella and three other CEOs, developing a technology-friendly leadership style doesn't mean learning how to crunch code. In most cases it has more to do with building relationships with other corporate executives, having a strategic view of the role that technology plays in the business and rethinking the role of the CIO.
Nader F. Darehshori
Chairman, President & CEO,
Houghton Mifflin is a major educational publisher based in Boston. It produces textbooks, instructional technology and assessments for the elementary, secondary and college markets. In 1998 it had sales of over $860 million.
As Nader Darehshori likes to tell it, his entrance into the text-book business was, in the beginning, little more than a lifestyle choice. He enjoyed campus life so much at the University of Wisconsin that when he was offered a job in 1966 as a college textbook salesman for Houghton Mifflin he grabbed it.
Thirty-three years later, Darehshori sits atop the venerable publishing house and, regardless of how he got into the book business, a love of the written word has kept him there.
Publishing has become increasingly technology-oriented in the past decade, which has motivated Darehshori to keep pace with advances in IT. Enhancements in customer call centers, order entry and automated warehouse distribution systems have improved the customer's experience. On the other side of the seesaw, technology has enabled the company to put out books faster and with less expense, which allows it to update content more frequently.
With eight separate divisions, maintaining the alignment between business and technology is of perennial concern to Darehshori. He encourages each division to take ownership of its technology initiatives. If a business unit wants to implement a new system, it draws up a business plan and brings it to Darehshori and CTO Mark Mooney. The first question that unit executives are likely to hear from the two is, "If you are able to do this, what do you think the business possibilities are four or five years down the road?" Another way that Darehshori fosters business and IT alignment is through the liberal use of pilot programs. "I think the major difference between us and other companies," he says, "is that with almost everything we have done here, we have experimented in a small way, watched the results and then moved on it aggressively." Prior to Darehshori's appointment as CEO in 1990, Houghton Mifflin didn't have a CTO. Darehshori views the creation of the executive-level CTO position as clear proof of the significant change the corporate leadership has undergone in its appreciation of technology. Mooney now sits on the executive committee and has open access to Darehshori's office, which Mooney points out he takes advantage of on almost a daily basis.
Unlike most CEOs, Darehshori takes a surprisingly philosophical stance on the subject of IT investment. While Darehshori understands that IT investments should have concrete business objectives, he also recognizes that they can provide intangible benefits that often are just as important. He compares the choice of investing in a new technology to buying a new car. "You can't always justify the economic value of the new car versus the old car," he points out.
Many of the benefits derived from a new car are hard to quantify, like the peace of mind of knowing you can rely on it to get you to work in the morning.
Darehshori carries over the comparison to e-mail. "If you had asked me, 'Can you justify the economic value of e-mail?' it would have been very difficult, especially in the beginning, to justify how it would help us economically," he says. Now everyone in the company has e-mail, and they can communicate with each other far better and exchange information more actively. Putting a price tag on that is tough to do. According to Darehshori, the key to making good technology choices is an open dialogue. "You can achieve that only by having a group of executives who communicate and discuss things openly and say, 'Yeah, maybe we can't justify the economic value of this, but it really makes sense to be able to do the job.'" William S. StavropoulosPresident & CEO,Dow Chemical The Dow Chemical is a world leader in the production of chemicals and the biotechnology research field. Its sales in 1998 exceeded $18 billion.
William Stavropoulos has two main goals for Dow's information technology systems. The first is to use IT to serve customers better, and the second is to use it to improve the company's productivity. "If we can use IT to do these two things better than our competition," says Stavropoulos, "then IT can be a source of competitive advantage for Dow." According to Stavropoulos, the company's IT goals and business goals are locked in step. For example, when the company was making an effort to develop a global standard for its work processes, the IS group was simultaneously putting an SAP system and a global reporting environment in place. Corporate culture changes like delayering the organisation and giving employees a greater sense of empowerment were also enabled by IT in the form of the Dow workstation, a standard PC and software package that gives employees online collaboration capabilities as well as access to virtual training seminars.
Though Dow didn't appoint its first CIO, David Kepler, until February 1998, he has quickly been given a spot on or access to all of the top executive groups within Dow. Kepler is a member of the Corporate Leadership Team (CLT), which comprises the top 35 executives in the company. Kepler also runs the company's Global Information Management Team (GIMT), which is made up of the IT experts from each of Dow's businesses and functions. The team studies the technology needs of each business group and then makes recommendations to the CLT. Kepler also has a place on the agenda at most CLT meetings to discuss the status of IT projects.
Kepler is the filter through which Stavropoulos gets most of his technology information, and Stavropoulos feels that their relationship has been an educational one. Kepler regularly updates his boss on the activities of the GIMT as well as general technology issues and trends. "Any CEO's time is in high demandso any help that Dave gives me on condensing information and focusing me on critical decision points is greatly appreciated." In addition, Kepler has convinced Stavropoulos of the long-term value of establishing investment plans for IT.
Stavropoulos keeps up on technology issues through meetings with senior leaders at Andersen Consulting, including CEO George Shaheen. Stavropoulos also stays current on the issues by serving on the boards of two high-tech companies: NCR and BellSouth Like many other companies, Dow's future IT investments will be focused largely on e-commerce and knowledge management. Stavropoulos believes that more intriguing than the actual technologies will be the changes that they enable within the business units, such as improving relationships with customers and encouraging employee innovation.
Chairman and CEO,
Office Depot is the largest (by revenue) office supplies retailer in North America. In 1998 it had sales of nearly $9 billion.
"We often get accused of being the 'Ready, Fire, Aim' people," jokes David Fuente, referring to the rapidity with which his company went from setting its sights on e-commerce to going live with officedepot.com in January 1998. A mere five months earlier, Paul Gaffney, senior vice president of commercial sales at Office Depot, had walked into Fuente's office laden with projections and plans detailing the possibilities of a foray into online retailing. Never one to let the grass grow under his feet, Fuente swiftly approved the plan, a move indicative of both his strong faith in his people and his willingness to take gambles.
Fuente's intense involvement in technology issues reflects the experience of a CEO who has seen his company grow from zero to almost $9 billion in sales since the company's founding in 1986. "A lot of it has to do with being a small company that grew rapidly," muses Fuente. "You had to be involved; it was just that simple." He sees his continuing role in the company's IT development as a set of four responsibilities. The first is to make sure that the hardware the company has in place is high quality and consistently reliable. Fuente learned this when Office Depot was experiencing growing pains in the early 1990s. "I wasn't happy with the reliability of our systems," says Fuente. "We were having constant crashes and problems, and we had to deal with some very difficult questions centered around the basic issue of whether to stick with midsize computing systems or switch to mainframes." The company eventually chose the latter. His second responsibility is ensuring that a consistent philosophy underlies decisions about database architecture and applications. Third, Fuente looks at current applications projects through the critical lens of strategic business priorities, enforcing a strict alignment between IT and business. Last of all, Fuente requires employees from the business and IT sides to be cross-literate, ensuring a high level of communication between the two units.
Bill Seltzer, Office Depot's CIO and executive vice president, helps Fuente stay on top of these issues. Every Monday, Fuente meets with Seltzer and other executives to discuss corporate strategy and current business initiatives, including IT projects. The IS group usually has 8 to 10 projects going on at any one time; two of its current initiatives, for example, involve supply chain management and warehouse quality control. "We generally look at one or two projects per week," says Fuente. "Every eight weeks or so we review every major [IT] project going on in the company." In addition to his in-house resources at Office Depot, Fuente draws information about technology from a multitude of sources, including business contacts, conferences, books and magazines. "[CEOs] are surrounded by technology these days," says Fuente, "and if you are not willing to get involved, I don't think there is any way you can lead your company." Carl PascarellaPresident & CEO,Visa USA Visa USA operates the world's largest consumer payment system. Total spending on Visa cards in 1998 was over $610 billion.
Visa USA's advertising motto of "It's everywhere you want to be" provides a very telling glimpse into the technology challenges that Carl Pascarella and his executive team face. The credibility of Visa products rests entirely on the shoulders of the company's information systems. With more than 7 billion transactions being processed in the United States each year, systems have to be up 24/7 and 99.9 per cent of the time. "If your card doesn't work because our systems don't work, it's a brand failure, and it's a corporate failure," says Pascarella. "We are at the very underpinnings an IT company." Unlike many CEOs, Pascarella comes from a technology background. He worked as a systems manager and jokingly refers to himself as "a programmer of little note" from the old assembler language days. Despite his experience and keen interest in technology, Pascarella faces the same challenge that other CEOs do: judging technology by its business benefits rather than its intrinsic merit. The example that he uses to illustrate this is Visa's transformation from a credit card company with a single product line to a multiline, multiservice company that offers check cards and operates as the second largest automated clearinghouse in the country (second only to the Federal Reserve). The key to this achievement, according to Pascarella, is that Visa uses technology as an enabler rather than a driver.
Not surprisingly, Pascarella believes strongly in maintaining a close working relationship with the IS group. That relationship is so important that when he took the CEO job at Visa USA he brought Bill Stewart, executive vice president of IS, with him from the Asia-Pacific group. "We think alike," Pascarella says of Stewart, which frees him to focus his attentions on the strategic-level IT decisions rather than the more mundane IT issues.
Both Stewart and Scott Thompson, executive vice president of systems development, support and customer service, are members of the senior management group that meets each week. Having the technology people take part in the business decision making is important to Pascarella because he sees the two groups as inextricably linked-a decision made in one area necessarily affects the other.
Pascarella also looks to nearby Silicon Valley for enlightenment on technology issues. Friends like Craig Barrett and Paul Otellini of Intel and Scott McNealy of Sun Microsystems offer Pascarella insight on open networks, the Internet and future technology trends. "To use them as a sounding board and to get an external, objective point of view is very important to me," says Pascarella.
Much of Visa's future plans are tied into the promise of e-commerce, and Pascarella is focused on ensuring that Visa has the infrastructure, the connectivity and the flexibility to reap its benefits. The future challenge for Visa will be the move to a point-of-convenience model, which will allow customers to make transactions with a smart card or chip card from any device they want to use, whether it's a PC, a handheld PDA or an ATM. Pascarella also notes that Visa is working on an open platform that will allow consumers to configure their cards to activate a PC or other device and make purchases or conduct financial transactions. When e-commerce and the new chip-card technology collide, Pascarella will continue to play a leadership role in integrating Visa's technology and business strategies. "We cannot afford as CEOs to shy away from the technical side of the business," Pascarella says. "We have to be able to embrace it and understand strategically why it's important, where it's taking us and what the market needs are from IT."