P&L Management 101
- 04 February, 2008 13:09
CIOs often yearn for new worlds to conquer. For many, the first step on that journey is to earn the right to manage a P&L. In order to achieve that goal, executives listen to their external customers, engage with the business, focus on innovation and look for new revenue opportunities. These CIOs build new business models and sell them to their CEOs. In return, they receive the keys to P&L management.
But getting a job and then keeping it are often two different affairs. For those of you who now find yourself in charge of a revenue line, it is time you started thinking about how to manage your new business. To help you prepare for this next stage of your career, I spoke to three CIOs who simultaneously managed IT and a line of revenue about what it takes to be successful at both.
In 1997, Steve Holt joined auto parts manufacturer Accuride as director of IT. He became CIO in 2002. In 2004, Holt recognized that the company would benefit from an enterprise-wide strategic planning function, so the company's president added the title VP of strategic management to his CIO role.
Once in that role, Holt investigated new revenue ideas for the company. One was a plan to work with independent engineers to develop new technologies and then offer them as new products to Accuride's customer base. In January 2007, he was formally given the reins to the new business and was promoted to SVP of strategy, growth and technology. In addition to running IT, Holt now manages a P&L and the functions (product development, sales and marketing) that will allow Accuride to commercialize new product technologies. His advice?
Let go of IT. Chances are, your first P&L management role will take place during your CIO reign since the company for whom you have delivered first-rate IT service is more likely than a brand-new organization to take a chance on your revenue management skills. While you might be tempted to maintain the same level of IT oversight as before, you will have to let go if you're going to give your new business the attention it deserves.
"I let go of IT immediately," says Holt. "I had people ready to continue the good work of our IT function while I focused on my new responsibilities. In order to do more, you have to let someone step into the void you create. If you attempt to maintain the same grip on IT, you will fail."
Leave emotion out of it. For obvious reasons, most CIOs' first P&L management role involves a technology product. The good news is that CIOs know a thing or two about technology, its product development lifecycle and what customers want out of new purchases. The bad news is that many CIOs, no matter how business-oriented they are, have a deep and abiding love of technology that can get in the way of objectivity.
"When you are in the position of deciding what new technologies to bring into your product line, you need to avoid getting emotionally caught up in a deal," says Holt. "Otherwise, you can fall in love with a technology and what it offers the world before you have constructed a business model that provides the appropriate amount of earnings."
In January 2003, Tim Wright became CIO and CTO of Geac, an enterprise software company. A year later, he was promoted to CEO of Geac's Asia-Pacific, Europe and Middle East operations while keeping his CTO title. Now, as general partner of VC firm GrandBanks Capital, Wright worries less about his own business plan and more about the revenue potential of his portfolio companies, but he remembers well the challenges of running a business. Wright's suggestions?
Use your own customer experiences as a guide to selling. "Selling a licence to software was the toughest thing I've ever done," says Wright. "Our customers, CIOs and CFOs, are incredibly risk-averse and I was selling products that could have been considered more of a luxury than a must-have; the sales cycle could be between nine and 18 months."
If your business involves a technology product (and even if it doesn't), Wright advises using your own customer experiences as a guide to what makes a sales approach successful. "Think about the salespeople you've bought from and figure out if there is a pattern to the people who have been effective," he says. And while you're reflecting on the best salespeople you have known, keep your eye out for opportunities to bring them on board. Wright was so impressed with one of his vendor reps that he hired him into his own sales force.
Stay on top of product development. As CIO, you manage an array of professionals and are all too aware of the conflicts that can erupt between, say, your project management office (PMO) leaders and your head of applications. This is nothing compared to the tensions between sales and product development, says Wright. "The sales guy will tell you the product doesn't work; the product guy will tell you the sales guy is making unrealistic promises to customers just to close the deal, and the service guy will tell you that they're both full of it," he says.
Wright advises new P&L managers to get into all aspects of the product lifecycle to be sure customer satisfaction doesn't fall prey to the classic tension between sales and product development.
In 2005, Steve Beason joined Scientific Games, a lottery systems supplier, as CTO responsible for developing new products for the company's current customers. He quickly saw the need for IT leadership and picked up the function of MIS along the way. In 2007, he added sales and marketing to his product development role and was named president of the Lottery Systems group. Beason offers the following tips.
Get an MBA. "Earlier in my career, I would sit in a meeting with finance guys and hear them using terms like EBITA and internal rate of return (IRR)," he says. "I knew that if I wanted to run a business, I would have to do some homework."
Steve took an executive MBA program while he was working a full-time job. "It was two years of no family and no fun," he says, "but it was worth it. I cannot fathom performing in my current role without that education." Beason also found that his having an MBA positioned him well when he started at Scientific Games. "The fact that I had pursued an MBA showed my boss that I was serious about running a business, not some geek who thought it would be fun and easy."
Bring in your own finance person. Even with an MBA degree, Beason knew he needed a finance person to help him with the finer points. "What really helped me in the first six months of running this business was sitting down with my finance guy and having him look over my shoulder at the numbers," says Beason. "He would tell me how he thought we should be treating the revenue or calculating IRR. Before I went out publicly with any statements, I needed an internal person to tell me when the king had no clothes."
Martha Heller is managing director of the IT Leadership Practice at ZRG, an executive recruiting firm in Boston. Reach her at email@example.com.