Midmarket IT Standing in the Middle

Mark Lindquist is president of a small metals fabrication company. Founded in 1926, Rapid-Line has 78 employees and churns out automotive parts and office furniture components in a single 46,000 square-foot facility in Grand Rapids, Mich. How rust belt can you get? Sounds like the kind of shop where IT capabilities might consist of Quickbooks running on a hand-me-down 486.

Surprise: Rapid-Line sells its contract manufacturing services based on its "flexible, technology-driven resource base and modern information systems," according to the company website (www.rapid-line.com). Must be a reference to Rapid-Line's enterprise resource planning (ERP) system and advanced planning and scheduling (APS) software from Symix, Windows NT/Citrix servers, workflow/messaging system, three CAD packages, business intelligence software and extensive intranet. Each of the company's employees, from Lindquist to the newest shop-floor machinist, has Internet access and an e-mail address. Not too rusty at all, especially for a business that boasts a total of two full-time IS workers.

Why is Rapid-Line so wired? Lindquist boils it down to that most basic motivator: pain. "We recently lost a job to a competitor in Hungary--supplying [parts] to another company here in Michigan," he recounts. The pervasiveness of the Internet means that even small companies like Lindquist's are suddenly up against competitors around the world--many of which, he says, don't carry the same overhead as U.S.-based companies that must comply with rigorous quality standards. Then tack on the trend for large customers to push assets, inventory and risk down their supply chains to suppliers like Rapid-Line. "The small manufacturer has no real choice; it's automate or die," says Lindquist.

Information technology is no longer the sole province of the corporate leviathan. Medium-size and even small companies, from silver-spoon startups to bootstrap-and-elbow-grease centenarians, are increasingly dependent on IT to keep them efficient and competitive. Folks who head up IS at midmarket companies, whether they carry the CIO or some other title, frequently find themselves struggling to balance the rising demands for strategic systems quickly implemented against the need for appropriate doses of foresight, planning and rigor. Higher expectations don't necessarily go hand in glove with additional resources. It's an exciting--or perhaps enervating--time to lead a midsize IS function.

What exactly is the midmarket? ERP vendors brought the importance of IT in these companies into the spotlight when SAP AG, PeopleSoft and others announced plans to target the midmarket for future sales--but each company's definition of the term seems to differ. As a general rule, those software providers define small and medium-size businesses as running up to US$200 million or $250 million in revenue. Janie Tremlett, a former midmarket CIO-for-hire who now directs a rent-a-CIO service at consultancy Breakaway Solutions, extends the upper limit of the midmarket to $1 billion. However, there's more to it than mere size. Some very small companies have extremely complex IT requirements akin to those at larger enterprises--think, for instance, of capital management boutiques that track the stock market and portfolio values in real-time with all the attendant calculation and communication. And, of course, today's dotcoms build their e-commerce infrastructures from Day 1 in anticipation of hypergrowth of page views and transactions.

From the CIO's chair, what defines a midmarket company is more a question of resources. Big IT operations have the money and man power to experiment a bit with new technologies and to absorb the occasional project failure, and the CIO can usually separate herself from daily operational issues enough to do some strategic thinking. That's a luxury that becomes more and more rare as you move down the size spectrum.

Sounds like life in the midmarket means long days and fast burnouts. However, veterans who have worked in companies both large and small say it ain't all bad--not by any means. The beauty of midmarket life includes a greater sense of empowerment and the ability to decide, plan and execute quickly. And streamlined decision making might make a nice change of pace for CIOs accustomed to big-company life. At a smaller organization, "the number of people you have to get into a room to decide what to do is much smaller," says CIO John Kostal, who spent a decade at Travelers Insurance before moving to head up IT at the company's Massachusetts auto insurance spinoff, Premier Insurance. Compare that to the Fortune 100 experience, of which Tremlett says, "I can't bear to recall all the meetings I sat through with the flip charts, the PowerPoint slides and the business sponsor begging for funding [for a proposed IT project]--almost like a courtroom scene."

In fact, midmarket companies are frequently guilty of failure to apply enough rigor to the process of analyzing options and choices. Decisions can be made so quickly that they lack some of the foresight that would save pain down the road. David Reid is the director of information technology for Fazoli's Restaurants, a 370-location chain based in Lexington, Ky. "We have a couple of pretty sharp guys in our IT group who have made some great systems, but those systems were never made to talk to each other," he says. "We've put in interfaces, and it works pretty well, but it's a pain to maintain." With a bit more planning time such systems could have been designed from the ground up to share data. This is a common cry from small company IT operations that often say they just aren't afforded the time to proceed with caution.

Richard Hays, vice president of IT for apparel manufacturer The North Face, agrees that a lack of rigorous decision making is one of the characteristic corporate habits that CIOs in midmarket operations must wrestle with. Hays came to The North Face (revenue: $250 million) from Columbia Sportsware (revenue: roughly $500 million). The North Face, headquartered in San Leandro, Calif., was acquired this year by Greensboro, N.C.-based giant VF Corp. but maintains its own IT operations. Hays says that in his experience, documentation of processes, policies and decisions is rare in smaller operations. "In larger companies you have glossaries, data dictionaries and so on, whereas in a smaller company it's more like tribal history," he says. On his arrival at The North Face, Hays instituted the use of seven standard documents to bring some consistency to project and change management. The challenge, he says, is to bring the appropriate level of discipline to a growing IS organization without inducing paralysis.

Regardless of how tightfisted or loose with the reins, once the work begins, CIOs at midmarket companies usually feel more acutely strapped for staff than their kin at larger organizations. This has several effects.

First, it makes for a lot more hands-on work for the CIO. "The person managing IT at a smaller company has to wear more hats, more often," says Michael Dortch, a senior research analyst for the market analysis company The Robert Frances Group, based in Westport, Conn. For that matter, everyone in the IS department typically handles many responsibilities. Specialization is rare in smaller companies.

Next, CIOs need to get creative to staff significant IT projects. The most common tactic: Business-line employees become application owners. IS supports rollouts and makes networks work, but the business has to put a considerable amount of skin in the game to define requirements, provide training, monitor results and deliver benefits.

Lastly, choosing software and hardware vendors is a thorny issue. Service and support become an even more critical part of the selection process than it is for larger companies. Small players tend to select from a completely different list than do their larger counterparts. In financial and ERP software, for example, the little fish tend to name providers like Macola Software, Great Plains and Solomon. Those packages offer quite a bit less functionality than SAP's R/3--and for a small IT operation that doesn't have time to fiddle with endless function tables, that's a good thing. Midmarket users commonly move up a tier or two from those small vendors, according to The North Face's Hays, but still report some reluctance to sign on with the big guys. Second-tier providers, he says, are frequently hungrier for success and more flexible in responding to customer needs. The North Face selected an ERP software package called Movacs from Swedish vendor Intentia--against the recommendation of their Big Five consultants, who were recommending Baan or J.D. Edwards. "You can always go with a big name for the credibility, but it may be hard to get your sales rep's attention when you're calling on line 1 and their Fortune 5 customer is on line 2," says Dortch.

Naturally, with fewer resources, just financing this kind of IT expenditure can be taxing; instead of just writing a check, small companies sometimes have to be creative in their financing efforts. Rapid-Line, the small metals fab in Michigan, took an industrial revenue bond of $3 million, about $120,000 of which was used to finance its purchase of ERP and APS modules from Symix, among other equipment upgrades. While the company doesn't cite a hard-dollar return figure for the investment, it does have some impressive stats to show; its percentage of projected late orders, for example, dropped from a frightening 90 percent down to less than 5 percent, and Rapid-Line has cut lead time on the shop floor by more than half. "Our big customers are mainly interested in a handful of things: reliability, speed to market and cost," Lindquist says. Rapid-Line has benchmarked its own operations against others for roughly a decade. "A more current and more automated asset base is a characteristic associated with more profitable concerns," he notes, so the company bit the proverbial bullet on cost for the new systems.

The cost of IT and the lack of resources give application hosting huge appeal. When Travelers Insurance created its separately capitalized subsidiary, Premier Insurance, to handle its operations in the difficult Massachusetts auto insurance market (a state where seemingly everyone has a bad back from some bygone fender bender), Kostal's job came with a CEO edict for creating a low-cost IT service infrastructure. "He basically said, 'Build the best IT environment you can, but don't buy anything and don't hire anyone,'" Kostal says. A cornerstone of Kostal's solution was a contract, paid on a per-policy basis, for vendor CGI to handle Premier's policy processing. (CGI is a Montreal-based company that acquired the original holder of Premier's processing contract.) The per-policy pricing meant that IT costs would fluctuate in accordance with the state of the business, whether it flourished or floundered.

All this is not to say that every midmarket business regards IT as mission-critical. "There's a constant drive on our part [to raise awareness of IT's capabilities]," says Reid of Fazoli's. "The folks here recognize that IT is important, but we struggle with 'how important.'" Companies that are growing in size, or simply face constantly increasing competition, go through a natural progression, says Reid, who has worked for a number of companies going through those growing pains. What starts out as "a couple of computer guys" turns into an IS department, and these days an organization that needs an IS department likely needs that department's leader to help craft the company's strategic direction.

What to do for the IS directors at companies that don't eventually buy into IT's strategic importance? Everyone is free to beat their heads against the wall as long as they like, of course, but the most common word of advice is this: quit. For starters, executive resistance is a surefire recipe for frustration for the CIO who is constantly shoveling water uphill, trying to persuade top management that good information--which comes only from good information systems--really matters. Furthermore, with very few exceptions, it's also a sign of a company headed for trouble. "It hearkens back to the days when IS managers were jumping on the PC and local area network bandwagon," says analyst Dortch. "Some [executives] continued to dismiss those technologies as being inadequate for corporate needs. I would suggest that those people were part of the evolutionary fallout."

Does your midmarket management get it? Share your experiences with Executive Editor Derek Slater at dslater@cio.com.

Upon his January 2000 arrival as vice president of information technology at The North Face, Richard Hays instituted seven methodologies to bring some discipline to the company's IT projects. "You must not go overboard; this is about as much rigor as an organization our size needs," he says. The North Face's lucky seven are standardized documents that help create a structure for evaluating and implementing projects. Sometimes they're four pages long, sometimes 20, depending on the nature and complexity of the proposed project, Hays says.

1. Business requirements A statement of what the business needs from IT 2. Business case document A justification for the money to be spent. Concrete return-on-investment figures if the company can pin them down.

3. Conceptual design document A functional specification 4. Technical design document A programming spec 5. Test scripts and documentation Includes step-by-step tests for both the programmers and the business-side personnel to make sure the application works and that people can use it 6. Business implementation plan When the project will go live, when end user training will occur and so on 7. Technical implementation plan.

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