Trouble at the Top

Trouble at the Top

Few traditional brick-and-mortar companies still deny that the Internet will change the way they do business, and the smart ones have figured out that they need people with both business and technical skills to survive the change. So why do so many companies still exhibit the behaviour of pre-e-business when it comes to IT management? The problem, says Beverly Lieberman, president of executive recruiter Halbrecht Lieberman Associates Inc. in Stamford, Conn., is that companies say they want to change, but most stay mired in the traditional way of doing things. That doesn't bode well for their ability to attract the kind of help they need.

"Lots of companies are going to get burned in the next year or so," Lieberman says. "Maybe half of those looking for quality candidates won't get them.

They'll have to settle for the B players because the A players won't want to go to them." Marvin Langston is an A player. The first-ever CIO of the Navy Department, he ended his government stint as the deputy CIO of the entire U.S. Department of Defense. Langston was courted by a number of big companies for traditional CIO spots, but he decided instead to go to Salus Media in Carpinteria, Calif.--a new Web-based health-care company that offered him the COO spot--mainly because he no longer wanted to battle the old corporate mind-set.

"There is a dearth of talent available to the brick-and-mortars now," he says.

"[Top CIOs] have the ability to move to places that give them the capability to do what they feel needs to be done. They just won't go to those outfits [that bog] them down with bureaucracy." The sense of urgency is palpable. By 2005, investments in e-business applications and infrastructure will drive average IT spending beyond 10 percent of revenue in North America, compared with 5 percent today, according to a recent study by Gartner Group in Stamford, Conn. Leading-edge adopters of IT will boost their spending to an average of 16 percent of revenue, compared with 12 percent today. But these leading adopters make up only 15 percent of all enterprises. The rest will still be spending only 1 percent to 5 percent of revenue on IT by the middle of the decade.

Regardless of spending, many brick-and-mortar companies will be marginalized in their industries by their inability to reinvent themselves and their threatened business models. Their old-style culture will still prevent them from taking advantage of whatever IT investments they do make.

"Many companies still haven't realised that information resources are central to their business future," says Frank Goldschmidt, business development director for RHI Consulting, a Menlo Park, Calif.-based IT consultancy.

Goldschmidt estimates that less than half of the companies with more than US$50 million in sales really understand this.

Traditional CIOs are expected to be technically knowledgeable and to know how to fit the current IT resources to their companies' business base. It's basically a reactive position, however, since the executive decisions that influence changes in IT are usually made at a level removed from the CIO's office. The CIO traditionally reports to the financial side of the business, and IT is viewed as a cost burden rather than as a strategic asset.

It's a mind-set that's been hard to shake, even for companies with business tightly linked to technology. For example, Fingerhut, based in Minnetonka, Minn., is a 52-year-old, US $2.5 billion database marketing company that already invests between 8 percent and 9 percent of its revenue annually in information technology. Even so, says President and Chief Operating Officer John Buck, only in the past five years has Fingerhut management realised the power of IT and how it can influence the position the company occupies in the marketplace. The CIO's power in the company has grown along with that understanding, Buck says, to where the CIO is now a critical position. "We certainly need somebody who knows information systems and has administrative abilities. But [the CIO] must also be able to sit at the same table as the company's business leaders and be able to provide a vision for where the company's business should be heading." The task for Fingerhut is "leveraging our technology assets," Buck says, by bringing together all of the systems, technology and direct-marketing capabilities that were developed for the company's catalogue business to support other direct-to-consumer business channels. The Internet will likely be the biggest part of that, but the company's management is also looking at channels such as wireless communications, interactive TV and others.

The strategy for making that happen rests with Fingerhut's new CIO, Gary Bledsoe, and key members of his organisation. Bledsoe sits on the company's executive committee, as did former CIO Alan Bignall, who left recently to work at a dotcom.

Indeed, raising the clout of the CIO within the organisation is a key ingredient in quickly coming to grips with the needs of the new technology age.

At the Chicago Mercantile Exchange (CME), for example, Jim McNulty, who took over as president and chief executive officer in February, has boosted the CIO's position into the top ranks of management under a total revamp of that venerable institution's executive structure. Scott Johnston, the new CIO, is now one of a nine-member slate of managing directors who report directly to McNulty.

McNulty says he intends to work so closely with Scott "that he will be able to describe the exchange's business plan to me [as if he were CEO], while I should be able to describe the plan to him as the CIO." The skills an IT executive needs to bring to this elevated role are far more extensive than those required of a traditional CIO. If companies still look at IT simply as a cost centre then they can always find someone to fill the slot, says Linda Pittenger, CEO of People3 (people cubed), a Gartner Group IT human resources consultancy based in Somerset, N.J. But it's a different matter if they want to transform themselves into "e-capable" organisations. Then a different set of competencies are needed.

To start, she says, technical knowledge has to go beyond simply knowing how to maintain current IT resources. These new-style CIOs must know what emerging technologies are and how to apply them to a company's business operations, which also means knowing and understanding what the competition is doing with those technologies. They must know how to design architectures that use those technologies and how to build systems based on those designs.

These CIOs must also have a broad set of business skills, including a knowledge of business processes, the ability to do competitive analysis, and an understanding of how to prioritise their actions against the business portfolio of the company. They must have good negotiation skills, since there's no way they'll be able to do everything that's needed on their own and will have to convince the business side of the company and others to help.

Pittenger expects CIOs to display broad agility and adaptability in pushing their agendas, to display a sense of urgency in doing so and to be an energetic advocate for change, something that's not easy to do on a consistent basis in an environment where there might be resistance to change. It's these and other behavioural competencies that are often the hardest for people to develop, she says.

Experience in the company's industry is also important, particularly given the speed at which organisations will be trying to shift to e-business. McNulty chose Johnston for the CME in part because Johnston had traded on the floor of the CME and intimately knows the ins and outs of how exchanges operate.

Up to now, the CME has focused wholly on its own membership, McNulty says, but the future focus will include many clients outside of the exchange as the world moves to electronic and online trading. Given the pace at which the trading world is moving, in order for the CME to be competitive, "I feel a great sense of urgency to get things moving," he says. "If the CIO doesn't know the financial world and trading, even if all other things are equal, it would still take a lot of valuable time to bring [that person] up to speed." Given all of that, it's no wonder that people who meet these requirements are in short supply. But demand doesn't just flow one way. Those who fit this "uber-CIO" description have their own list of requirements for companies that want to employ them. If it boils down to any one thing, it's the level of commitment companies show in putting IT at the focus of their business strategy.

When Tom Lesica, former CIO at Pepsi-Cola, was considering the job of senior vice president and CIO at New York City-based clothing retailer J.Crew in November 1998, he eyed a list of things to gauge J.Crew's commitment. He looked for a clear description of what the technology agenda was at the company and whether that agenda had been formally recognised at both the board and investor level. He judged that partially by what technology had been funded on the operations side of the business and by what commitment had been laid down for IT against the capital and expenses side of the ledger. But perhaps the most important indicator was the positioning of the CIO within J.Crew's management structure. From Lesica's point of view, since the role of the CIO has shifted from taking orders from higher-level executives to a strategic partnership function, that has to be confirmed by the CIO being a full member of a company's operating committee, reporting to the CEO, and actively participating at the board level.

"If those things are there, then I know I can start getting involved in the technology itself and working out the balance of technology execution alongside working with the operations side in laying out the business strategy," Lesica says. "That's the value I want to bring to the organisation." (Lesica took the job at J.Crew but left in May to join Greenwich, Conn.-based NewRoads, formerly CyberGistics--a company that handles call centre management and online order fulfilment for other organisations--as executive vice president of business process and technology and CTO.) Having the executive power to make decisions was definitely the swing factor behind Langston's move to Salus Media. Though he has a CTO under him to handle the daily side of the company's IT operations, as COO, Langston is charged with designing the technology infrastructure and building the product that supports the company's business strategy. Being a CIO in a traditional company and having to go through either the CFO or COO above him to get decisions made was not something he wanted to deal with.

"My experience from seeing what happens in both government and commercial companies is that CIOs don't have much power unless the COO has some understanding of technology," he says.

Langston recently used his influence on decision making to convince the rest of the Salus management team to pull most technology development work in-house.

Although this was a major investment involving expanding the infrastructure and hiring new people, he convinced them the trade-offs were worth it. As a traditional CIO, having to work through other layers of management, Langston says he would not have been able to exert the same influence.

If this is as hot an issue with leading CIO candidates as they and the recruiters say it is, it's also one of the major problems for brick-and-mortar companies looking to hire this calibre of CIO. While recruiters say they are seeing unprecedented demand for CIOs from the brick-and-mortars, the savvy behind that demand often leaves something to be desired. Bridging the gap between what the companies say they want in a CIO and what the top candidates say they will accept will be a long job.

"Brick-and-mortar companies know they need a CIO, but they are not particularly sure of what it is they need," says Rich Brennen, managing director of the IT practice for recruiter SpencerStuart in Chicago. "They need a CIO and they need to build an e-business, but they also want the CIO to report to the CFO. That doesn't cut it in the recruiting market today. The very best of the CIO candidates absolutely require that they report to the top of the business." Pettinger agrees, "but there are not that many companies that have that kind of outlook yet. [Many CEOs believe that] the current CIO isn't working, so they'll go and get some bigwig as a replacement. But it's the same problem if all they've got to offer is the traditional CIO role." As a result, recruiters are spending a lot of time educating CEOs about what a CIO can do for them, how the role has changed, and just what it will take to attract quality candidates. And if they don't get the message? At least in Lieberman's case, they will lose the chance of hiring through her since "I only undertake a search if I think the company has the ability to attract someone of quality." The situation is likely to get worse before it gets better. The available pool of highly qualified e-conomy CIO candidates "is very, very tiny," says Kazim Isfahani, a senior industry analyst with the Cambridge, Mass.-based Giga Information Group, and he expects the situation to continue for as long as the next five years or so. The good news for CIOs is that even less-experienced candidates will find organisations willing to take a chance on them in the hope that they will grow into the role. "On the other hand," he says, "you can have the title of CIO, but that doesn't mean you necessarily know anything." The recent decline of the dotcoms, which recruiters say have been a large draw for CIOs, could also loosen the supply. But it may not be enough. Once the good CIO candidates have a taste of the freedom that the smaller companies offer, he says, they won't accept the old brick-and-mortar ways of doing things. One way or another, the old economy companies will have to change or get left behind.

What is the most effective way to attract a top CIO? Let us know at Brian Robinson is a freelance writer based in Portland, Ore.

The CIO of 2000

Do you fit the mold of an All-Star CIO? See if you could answer the following ad.

Wanted: Executive with broad experience in managing enterprisewide IT, as well as extensive experience in developing and implementing strategic IT plans that will form the basis of the company's expansion into e-commerce and e-business.

The successful candidate will have broad knowledge of emerging technologies and how to apply those technologies successfully to further the company's competitive position. Further, the candidate will have proven experience in implementing a wide range of business processes and in conducting competitive analyses, and an ability to balance investments in technology against the demands of the company's various business areas.

As a member of the company's operating committee, the candidate must have excellent interpersonal and communication skills in order to persuasively detail technology investment plans to the CEO and the board, as well as to outside observers, such as investment analysts and the press. Since the CIO will need to gather support for the technology strategy from across the company's various divisions, the candidate must also have well-developed negotiation and diplomacy skills. As the executive in charge of technology strategy, the CIO is expected to be an energetic leader for change throughout the company as it moves into the world of e-business.

Dividing Lines

There's a disconnect between what top CIOs want in a job and what some companies are willing to offer What All-Star CIOs want - CIO reports to the CEO and has a place on the company's operating or executive committee.

- Top CIOs, knowing the complexities of technology decisions, want a direct say in how technology is used in a company and how it can be used to further the company's business.

- Technology is a strategic focus of the company, and funding for IT reflects that.

- If companies are serious about using technology to build their business, that will show up in the investments they commit to it.

- The company is committed to the use of the Internet as a basis for an e-business future.

- All top CIOs expect the companies they work for to understand that the Internet is important and their future is in e-business.

- Remuneration (salary plus stock) reflects the true worth of the CIO role in the company.

- While money is not the first reason most All-Star CIOs go to a company, they are well aware of their worth in a tight market.

What Old Economy Companies Offer

- The CIO will be a major player but will report to the CFO.

- Reporting to the CFO, it's tough for the CIO to have the influence necessary to get the job done. And politics and bureaucracy can get in the way.

- Technology is important to the company, but IT is considered a cost of operations rather than a strategic asset.

- If IT is still considered a cost centre, then the company probably still views it as a support function.

- The company has a website and an intranet but no plans yet to expand that to e-business.

- Companies that view the Web primarily as a marketing venue won't land top talent.

- Pay is competitive with what CIOs in similar companies are getting.

If a company is not willing to pay top executive compensation, chances are they are not committed to empowering the CIO.

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