Is Your Top Technology Guy Up to the Job?
from
March/April 2007
by Randy Myers
To lure him away from Dell Inc. in 2005, Hewlett-Packard Co. signed chief information officer Randy Mott to a long-term contract that paid him $10.8 million in cash, stock, and other perquisites—in just his first year. Most industry observers think Hewlett-Packard got a good deal. Before streamlining the supply chain at Dell, Mott had spent 22 years helping Wal-Mart Stores put together a computer-based system that allowed the company to figure out what customers wanted and when, to provide it, and to set the prices with previously unfathomed efficiency. Mott, and the system he built, are why Wal-Mart knows whether customers in a particular area are in the mood for plain M&M’s or M&M’s with peanuts.
Is your tech guy that good? More to the point, how would you know? You’re probably no technology expert, and unlike past directors at Wal-Mart you’re unlikely to have the luxury of watching an IT chief’s genius unfold over two decades. The average tenure of a CIO today, says executive recruiter Richard Spitz, global managing director of the technology practice at Korn/Ferry International, is three to four years. Hey, it could take longer than that for your company to fully implement an enterprise-wide software system.
Yet figuring out how to evaluate your technology honcho’s chops—whether it’s the chief information officer overseeing your internal information systems or the chief technology officer deciding which technology will drive your new-product development (see the box on page 46 for more on the difference between the two jobs)—is a big deal. Bet on the wrong technology or botch the implementation of a just-right system, and your company could find itself dangerously uncompetitive. While Wal-Mart was leveraging database technology to redefine retailing, for example, onetime discount king Kmart was clinging to its old ways and drifting toward obsolescence. By the start of this decade, it was reduced to gimmicks like reviving its cheesy “blue light special” in-store promotions, a move that quickly flickered out. By 2002 the company was in bankruptcy court. It left Chapter 11 in 2003, only to merge less than two years later with another fading retail icon, Sears Roebuck & Co. Today the market capitalization of the combined company, Sears Holdings Corp., is less than one-seventh that of Wal-Mart.
The point is, not only does your CIO or CTO have to understand technology, he or she needs to understand your business and what drives its profitability. “This person,” Spitz says, “is the lead connection between your business and the systems and processes that enable it. Board members should be asking them straightforward business questions. How does the choice of Blu-ray affect our distribution? How does it affect our alliances? How does this fit into our next generation of product? What does our product road map look like? These are questions that aren’t inherently technical.”
What about your company? Is your CTO pursuing the technology that customers will want five years from now, or is it building the next Betamax? Behind the scenes, is your CIO erecting the sales, finance, and supply-chain systems that will keep you in the race, or are you en route to becoming another Kmart?
Even nonfatal missteps can be painful. In 1999, just before the critical Halloween selling season, chocolatier Hershey Co. tried to roll out a new order-taking and distribution system built on three separate pieces of software, each an installation challenge in its own right. The effort spectacularly failed, causing Hershey to announce that it would be unable to deliver more than $100 million of holiday candy. This was bitter news for its stock, which fell almost 10% in one day. More recently, regional carrier Comair, a unit of Delta Air Lines, was forced to shut down over the Christmas 2004 season after a failure in the software that scheduled its flight crews. That fiasco cost $20 million.
Whether the technology boss at either of those companies was at fault is not clear. Hershey has consistently declined opportunities to discuss the details of its tech crackup, long since corrected, but it’s tough to think that the CIO would have decided unilaterally to put such a complex new system to work right before a crucial selling season. At Comair, as detailed in a lengthy case study in the May 2005 issue of CIO magazine, top management knew its outdated scheduling software was stretched to capacity but continually postponed the installation of an updated system until it was too late.
Still, CIOs and CTOs are paid to see that such mistakes don’t happen, and so are other top managers. Your job as a director is to make sure the folks running your company know what they’re doing.
This doesn’t mean you should be hiring and firing CIOs or CTOs. That’s still a top-management job, and properly so. But the more technology-dependent your company’s business model, the more important it is for you and your colleagues to make your own assessment of the head tech executive. And if your company’s product line or service model is actually defined by its technological prowess—maybe you make hardware or software, manufacture sophisticated goods like autos or aircraft, or sell financial services—you may at the least want to vet the CEO’s hiring decisions in this area, much as you probably would if he were hiring a chief financial officer. “Five years ago CIOs were invisible within their organization,” notes executive recruiter Paul Groce, head of Christian & Timbers’s CIO practice. “Today many make regular appearances before the board, delivering a quarterly or annual report on IT spending or presenting their three-and five-year plans.”
You don’t need to be a propellerhead to evaluate technologists. Wendy Lane, 55, has a degree in math and once knew how to write COBOL, a programming language still used in some computer systems. But that was long ago, she says. After college she went to Harvard Business School, became an investment banker, and now chairs Lane Holdings Inc., a private equity investment firm in Needham, Massachusetts. Still, her layman’s limitations in technology don’t stop her from lauding the capabilities of Jeanette Scampas, 46, the top technology officer at London-based insurance broker Willis Group Holdings, where Lane serves on the board. “She’s terrific,” Lane says.
To make up for her lack of current technical expertise, Lane draws on a wide range of sources to inform her view of Scampas, whose formal title is executive vice president for global operations and global information technology. Scampas is responsible not only for choosing the right technologies to drive the company’s business plan but also for overseeing a CIO who reports to her and is in charge of the company’s internal technology infrastructure. Lane judges her performance by various measures, not least the way she routinely furnishes financial details, client data, and all kinds of other information to the directors when they want it and in the format they’ve requested. Willis Group’s auditors have also given Lane favorable feedback on how Scampas helps keep the company in compliance with the internal controls mandated by Section 404 of Sarbanes-Oxley. In addition, Lane considers both her own conversations with Scampas during breaks at board meetings and Scampas’ performance during the board’s annual IT review.
“Just talking to her about the things I’d like to see, strategically and operationally, she’s right there,” says Lane, who also serves on the boards of Laboratory Corp. of America Holdings, an operator of clinical laboratories, and UPM-Kymmene Corp., a Finnish paper company. “She has the answers, or she has plans for getting the answers.”
Simple communication plays a big role in evaluating your technology chief. For her part, Scampas applauds directors like Lane who ask questions that zero in on the benefits a particular technology can provide for the business, rather than technical arcana. “If your CIO or CTO is coming to the table and talking about whether you’re using Voice Over Internet Protocol or some other trendy technology, that’s not what you should be looking for,” Scampas cautions. “You want to hear what they’re doing to enhance the business. If you’re on the audit committee, you want to ask what the company’s financial controls are and how they’re being implemented, and how the company is satisfying the requirements of Sarbanes-Oxley or the Health Insurance Portability and Accountability Act.”
Unfortunately, some CIOs and CTOs are too geeky to communicate with the board. While most C-level executives follow career paths that prep them for working with corporate directors, that’s often not true of technology types. “By the time a finance executive makes CFO, he’ll understand about boards—the role they play, how board members think, what they care about, what kind of language they use,” says Kenneth Porrello, a principal with Deloitte Consulting LLP. “They can walk into a boardroom and be very confident and effective. CIOs do not grow up in environments where that is the case.” A solution, he suggests, is to give the CIO or CTO some on-the-job training. “One large institution has the CIO report at every single board meeting,” he says. “This gives the CIO a chance to get comfortable being in the boardroom, and also lets the board get comfortable with the CIO.” To cement the relationship, the CIO always attends at least one of the dinners that accompany each board meeting.
Ultimately, your assessment of a CIO or CTO becomes a search for evidence not just of technology know-how but of good business and management skills too. Paul Hobby, 46, managing partner of the private equity investment firm Genesis Park LP and a member of the board at freight forwarder EGL Inc., power producer NRG Energy Inc., and title-insurance company Stewart Information Services Corp., has his own ideas about this. Although he’s a lawyer by training, Hobby started out in media businesses and in 1994 created and executed a strategy for using information technology to integrate television- and radio-station operations. Drawing on his experience in that field, he likes to see CIOs come from a systems-integration background instead of a code-development one, ideally with experience in project management rather than consulting.
That points to a person with a broader business background and more varied hands-on experience than a pure technologist might have. Hobby also argues that a CIO should be just as stimulated by the business challenges of vendor management and cost optimization as by finding new ways to apply technology. “If the guy is burbling about Java because Java’s such a cool programming language or software platform, he’s not your guy,” Hobby says, echoing Scampas. “If he comes in burbling about Java because you’re going to be able to rip out some huge cost center or enable some new revenue source, he is your guy.”
Lane’s approach to evaluating a technology officer shows that even if you don’t understand how a particular piece of technology works, you can still assess how well it performs and, by inference, how well your CIO or CTO is doing. You can ask yourself, for example, whether your company’s information systems generate the information you and the management team need to make timely business decisions and whether vendors are satisfied with your order and payment processes. You can ask management whether customers are happy with the technology embedded in your products or services, and if not why. You can also watch to see whether your IT department meets deadlines for new system implementations. “I think the real test is whether the systems a CIO chooses are delivered on time and on budget, and whether clients are satisfied,” says Trevor Fetter, 47, president and CEO of Tenet Healthcare Corp., which operates hospitals. “It’s challenging, because the software vendors sell very hard and yet they often are not accountable for installing their software or making sure it works as advertised. That accountability lands on the CIO’s desk.”
Apart from considering how well CIOs meet deadlines and produce promised results, you can also look at how much they spend as a gauge of how efficient they are. Wall Street analysts and industry trade groups are potential sources of spending data that you can use to benchmark your IT spending against peer companies’. Just don’t assume that a lower number is necessarily a better number. A recent study by the Hackett Group, a consulting firm, found that companies with world-class IT organizations spend 7% more than typical outfits, but that the extra spending pays for itself in more effective finance, procurement, human-resources, and other back-office operations. Of course, a free-spending IT chief isn’t necessarily good either. “You can spend a lot of money on technology and not get a lift from it,” Scampas warns, “if the technology is not focused on delivering benefits to the business.”
To round out your assessment of a CIO or CTO, compare notes with the most tech-savvy members of your board. According to the
Corporate Board Member
/Deloitte Consulting survey, 56% of boards have at least three such folk. If yours doesn’t, consider recruiting some. (For more, see “Techies on the Board” above.)
William Raduchel, 60, who’s served as CTO of media conglomerate Time Warner and CIO of computer maker Sun Microsystems, suggests that directors also look for evidence that their CIO or CTO has the backbone to stand up to those pushy vendors, misguided officers and directors with favorite programs to promote, and other pressures, such as resistance to change on the part of business units or labor. “You want somebody who has the independence and character to sit there and tell you when a project doesn’t make sense or is falling behind the technology curve,” says Raduchel, a director of four high-tech companies: Blackboard Inc., Chordiant Software, Opera Software, and Silicon Image. “That’s one of the biggest dangers any company faces. You start a project, you don’t do it as fast as you expect, and by the time you get it done it’s going to be a failure anyway, because that’s no longer the way things are done.”
David Nagel, 61, learned all about the importance of backbone and perseverance at the former AT&T Corp., where he served as chief technology officer from 1998 through 2001. At the time, the long-distance carrier’s vast network was carrying about as many calls as it could handle and the company needed to make a decision about how to boost capacity. The default option would have been to add more of the circuit switches AT&T was already using, big mainframelike devices the size of a small room that cost about $25 million each, recalls Nagel, now a director of Tessera Technologies Inc., a San Jose, California-based licenser of semiconductor technology, and Leapfrog Enterprises, an Emeryville, California, provider of educational software and other products. A more radical alternative—but one that he and later his successor would finally persuade AT&T to pursue—was to begin installing packet switches, a new technology that was already being used to convey data efficiently over the Internet. Back then packet switches capable of handling the same volume as a circuit switch cost about one-tenth as much, but they weren’t yet as reliable as the older technology and were viewed skeptically by AT&T managers in the field. Nonetheless, it was clear to Nagel that packet switching was the technology of the future, and the board did not interfere as he pushed the company in that direction. In 1999 AT&T announced that it would stop buying traditional switches for its core network. “It was a wrenching change,” Nagel recalls. “It can be difficult for a company that has been extremely successful to react to new technology that is faster, cheaper, and more powerful than what they’ve been using.”
Difficult, yes. But that’s the way to go for a board that has watched its technology chief in action and come to see that he knows what’s best for the company.
