The Art of the New Deal

FRAMINGHAM (08/02/2000) - Do you like to play poker? Think you understand the rules? Imagine sitting down to your regular Thursday night game and finding that, suddenly, the rules are all different. A flush ain't a flush. Straights are crooked. Three-of-a-kind loses to a solitary ace. For seasoned business executives, with corporate success as your table stakes, the new, technology-driven economy is upending the game you knew and loved. Now that just about everything you know is wrong, how do you manage to do what's right?

Well, you might begin by acknowledging that technology decisions increasingly belong in the boardroom, not the back office. In fact, says Mel Bergstein, chairman of Chicago-based Diamond Technology Partners Inc., "technology is in many ways synonymous with business strategy." Most CEOs realize, he says, that "technology is the single biggest force of change in their environment."

"We cannot afford as CEOs to shy away from the technical side of the business," agrees Carl Pascarella, CEO of Visa USA Inc. "We have to be able to embrace it and understand it strategically and from a policy standpoint. If you don't," he says, "you will fail."

And failure is the operative word. Nobody wants to be the next poster child for technology ineptitude. For instance, a certain famous name in sweet-tooth products lost an estimated US$100 million last Halloween because a poorly managed technology installation screwed up the company's candy distribution.

Awareness is one thing. The ability to do something about it is quite another.

So, how fit are senior business executives to take on a technology leadership role? Can they spot the next disruptive technology to threaten corporate profits? It's not easy to do. Even legions of technology-literate high-tech CEOs (Digital Equipment Corp. founder Ken Olsen comes to mind) failed to understand the ramifications of the fledgling personal computer. That technology eventually upheaved the entire computing paradigm. It also knocked Digital--which itself was based on revolutionary technology--for a market-busting loop.

Trouble is, although many CEOs and their direct reports are achingly aware that they need to actively explore IT-driven business change and make mission-critical technology decisions, they don't know how to do it. A fall 1999 study by The Concours Group found very little evidence of meaningful technology leadership at most organizations, according to Jim Ware, vice president at the Kingwood, Texas-based consultancy. He says that most executives today are more concerned with managing the day-to-day logistics of technology--Is this project on budget? Has that upgrade occurred?--than serving as technology leaders.

Perhaps it would be easier to face such a comprehensive learning mandate armed with a handy list that breaks the whole overwhelming mess into bite-size chunks. Darwin herewith offers the top 10 requirements for technology leadership.

1. Assess the it literacy of the organization, starting with your own. What assessing senior executives' technology literacy does not mean, says Concours's Ware, is enrolling the executive committee in a class to learn Microsoft Excel.

Instead, he says, "You're learning about broad concepts, such as the business dependence on IT, information and technology architectures and IT investments."

For starters, he suggests these questions:

Do key executives understand the impact of IT on the company's competitive position?

Do they understand what is possible with current (and forthcoming) technologies?

Do they know how the capabilities and economics of IT will change the way the business is operated and managed?

Does the company have the right balance between innovation and managing scarce technology resources?

2. Know the difference between technology management and technology leadership.

Chris Hoenig, president and CEO of consultancy Exolve, defines this as the difference between reactive and proactive thinking. Most CEOs, he believes, manage technology and get caught up in logistics and budgetary arguments.

Concours's Ware agrees. "If you're talking about things like funding decisions, resource allocation and priority setting, that's more [about] technology management; that's what people tend to do now." Instead, he recommends that executives think about what leading technology means, what kind of leadership style best fits the company and its organizational culture. Ware identifies three categories of technology leadership:

Managing supply and demand: This form of leadership generally amounts to deciding which, among competing alternatives, are the technology projects most deserving of funding. Ware says this style of leadership deals primarily with management, finance and the politics of decision making. It is seen most often in the steering-committee model and tends to produce initiatives rooted in the automation of existing processes with the goal of cutting costs.

Technology-driven business innovation: This is what Ware calls the technology-literate CEO, a species most often found in technocentric companies.

"They're able to take a look at new technology and see what it can do for them," he says. Examples include Jeff Bezos of Amazon.com, and FedEx's Fred Smith, "who recognized very early the potential for information to do logistics," says Ware.

Business-vision-led innovation: The CEO has articulated a business vision that he or she can readily connect to supporting technology initiatives. This type of leader will not necessarily dream up the technology vision but will see the potential of certain technologies and visibly champion important projects. Ware says GE's Jack Welch, and his massive e-commerce push, is a good example of this. One important requirement for this type of leadership: a strong, credible CIO to translate business vision into technology action.

One technology governance tool to beware of, says Cisco Systems CIO Peter Solvik, is the steering committee, which can have the unintended effect of ghettoizing technology. "When you create a steering committee, that gives executives the excuse to wash their hands of technology," says Solvik. He points out that there are no HR or marketing steering committees; executives are expected to incorporate those functions into their managerial responsibilities. So, "Why not IS? [All executives] should be accountable and responsible for how to make technology decisions as well," he says.

3. Build a technology component into your general leadership development programs. Technology is just as big a part of general management and leadership agendas as are marketing, finance and sales--a fact that is increasingly acknowledged. "When I talk through the steps of business planning, technology is considered throughout," says Neal Bibeau, president of Rosenbluth Interactive in Philadelphia. "All the disciplines have to be represented."

That's especially true in the online world Bibeau inhabits, where "a lot of elements of technology literally define our products and services." Visa's Pascarella agrees: "We can't make a business decision without understanding what the ramifications are on the systems; and we can't make a systems decision without understanding what the ramifications are on the business. They're so closely intertwined that it's impossible."

Achieving a truly integrated approach sometimes calls for a formal program--along with a mandate from the top. For example, Cisco CEO John Chambers set a core goal whereby each of his senior executives must use Internet technology to create a competitive advantage in their respective business areas. "It can't always be the head of e-business or the CIO who stands up and gives the presentation on how to get a competitive advantage from technology," says Solvik. "It's the job of every senior VP in the company"--even for areas such as PR and legal. "Technology has to be completely integrated into planning, strategic thinking, operational reviews, budgets--what they do every day as they do their jobs."

As part of the project, which started in October 1999, each corporate function came up with between six and 15 areas of comparison, benchmarking its own Internet capabilities against those of outside organizations known for stellar performance within that particular function. For example, the legal department would look at such areas as self-service tools to assist in contract generation and approval, and assess whether Cisco lagged behind, was even with or ahead of the benchmarked competition. Solvik says each function then came up with an action plan "designed for us to become best in class in that capability for that function."

The 12 senior executives spent a day late last winter with Chambers presenting their plans, and the CEO expects an extensive update every quarter. Solvik adds that the project is part of each executive's performance evaluation. "It's one of the top five or six goals of the company. This isn't about e-business; it's about using technology or the Internet in every functional area. We may already lead in areas like e-commerce or customer self-service, but maybe not in legal or HR. If we can extend ourselves to excellence in all areas, we can create a pretty impenetrable wall against our competition."

4. Get to know your CIO -- closely. Chances are, the extent of your relationship with the CIO is a hello in the hallway or an occasional budget update. In fact, Warren Bennis, a professor of business at the University of Southern California in Los Angeles, cites a recent Korn/Ferry study that shows that only 15 percent of CIOs interact with the CEO more than once a month.

"Most don't," says Bennis, "They just don't have the green card."

"I can't tell you how many people I hear about who put a layer between themselves and the CIO because they can't talk to him," says Rosenbluth's Bibeau.

The lack of communication is at least partially a case of self-intimidation, according to Peter G.W. Keen, chairman of Keen Education in Great Fall, Va.

This can lead CEOs to hire Atilla the Geek. "CEOs are frequently scared of the subject of technology, so they often choose a CIO who scares the hell out of them, figuring that he or she must be good," he says.

Fear is never a good springboard for leadership, however. Trust and credibility are at the heart of technology leadership.

Hiring a CIO "is like choosing a financial adviser or therapist," says Keen, who cosponsored the Concours study. "You have to think, 'Would I be willing to spend three weeks on a desert island with this person?' Chemistry matters."

Both Bibeau and Pascarella, for example, personally hired their CIOs and believe that their good relationship is based on the ability to communicate well together. "We can speak the same language," says Bibeau, who had worked in the past with CIO Don Otterbein. Pascarella is even plainer: "We think alike," he says, adding that this relationship was so important to him that he brought CIO Bill Stewart with him when he moved from Visa Asia to the helm of Visa USA.

Once hired, don't hold the CIO at a distance. Cisco's Solvik reports directly to CEO Chambers and meets with him regularly. This close relationship is mandatory to Cisco's business success, says Solvik.

5. Use technology personally. Don't let the PC rot on your admin's desk. Use it. "One thing that surprised me when I started working for Hal [Rosenbluth, the company's CEO] was that I'd get e-mails from him at funny times," recalls Justin Shaw, vice president and general manager for Rosenbluth's website, Biztravel.com. "To get the occasional broadcast e-mail from a CEO is one thing, but to get personal e-mails asking opinions suggested to me that this is a company where the leadership gets it."

Use of the Web is particularly helpful. If senior executives want to have a glimmer of understanding about the Web's business implications, they have to surf it. In fact, according to executive search firm Christian & Timbers, about 30 percent of traditional companies are looking for CEOs with Internet expertise--a number that should grow to 100 percent inside of three years.

To bone up on new media, GE has instituted what it calls a "reverse mentoring program" to help senior executives drive e-business initiatives. The program, instigated by CEO Welch, matches the top 600 or so GE managers with young, Internet- literate subordinates. Welch even has his own mentor: Pam Wickham, who runs GE.com. The executives meet with their teachers for a couple of hours every other week or so. Classes range from analysis of a competitor's site to brainstorming about e-business issues.

Cisco helps employees surf as comfortably at home as at the office. "We pay to install and maintain broadband Internet access for 10,000 employees," says Solvik, who compares the service to recent programs instituted by Ford Motor Co. and Delta Airlines that subsidize employees' home PCs. "If you use Internet technology at home, you'll be more valuable at work."

6. Examine your infrastructure. Most people who build a house worry more about visible details such as granite countertops and copper gutters than about the foundation and framing timbers. But the latter are vital to structural integrity, and granite countertops are not. The same is true of corporate technology infrastructure: You need a foundation that can adapt and support future technology expansion. "From a CEO perspective, you have to be sure your systems have resiliency and adaptability," says Visa's Pascarella. "If you don't have those attributes, you are going to fail."

Visa's system is among the world's most intensive transactional workhorses. Its 24/7 uptime rate is in the 99.9 percent range. Last year the company processed more than 9.6 billion transactions in the United States alone, accounting for about $721 billion in spending. "That [level of] availability, and the credibility that it brings to our products, is based on the infrastructure of that system," says Pascarella. "If your card doesn't work because our systems don't work, it's a brand fail and ultimately a corporate fail. And, so, while we are a brand company and a payment systems company and a relationship management company, we are at our very underpinnings an IT company. Because without that we can't fulfill our promise to the marketplace."

Infrastructure will get only more important as the wiring of the world progresses. As communications technologies converge, consumers will increasingly buy through any combination of computers, TVs, telephones, cell phones, PDAs and, eventually, smart appliances such as Web-ready refrigerators.

So infrastructure must both support legacy information systems and seamlessly integrate with new kinds of interfaces, order fulfillment systems, external suppliers and expedient ad hoc alliance partners.

Companies have a ways to go before achieving this level of integration, says Bill Dauphinais, a partner at PricewaterhouseCoopers (PWC). "By our measure, only 7 percent of websites that take orders actually have order-management systems that are hooked together throughout the entire company--like a Cisco or a Dell."

7. Look outward. Your next competitive threat may not come from within your industry. In fact, a late 1999 survey of 1,000 CEOs by PWC, directed by Dauphinais, shows that 55 percent of the respondents have developed a healthy flinch in anticipating competition from nontraditional, Internet-based startups. Executives have to be attuned to the earliest sonar ping from the next new technology breakthrough. As already noted, this isn't easy. One key is to sample a huge variety of sources, ranging from the predictable to the quirky.

Michael C. Ruettgers, CEO of the red-hot storage company EMC Corp. in Hopkinton, Mass., spends a lot of time scanning for new, interesting applications. He does it through constant customer conversations and a relentless outward focus. In fact, he says, he got his first glimmer of the possibilities of e-commerce while visiting a French insurance company several years ago. It intrigued him enough to commission a focus group, which then caused him to immediately rejigger EMC's business strategy to include e-commerce.

But if you hearken only to your existing customers or your internal research capability, that may not wash. In a recent interview in Context magazine, no less an eminence than Gen. Colin Powell recommended cultivating an informal network of trusted friends to share news from outside organizations. He noted that company insiders may be captives of the entrenched culture and thus lack objectivity. "You have to have informal networks that are constantly sensing the outside environment."

John Glaser, CIO at Partners Healthcare System in Boston, recommends having "at least one serious IT talent" in residence at the board level. He also advocates forming what he calls a "rump group" of people at that level. "Have dinner with them, maybe quarterly," he advises. "Talk about IT and what it means to your business."

Pascarella, who does have a systems committee on his board of directors, also cultivates personal relationships with technology company honchos--like Sun Microsystems CEO Scott McNealy and Paul Otellini at Intel Corp. "I'm able to go in and talk to folks and find out where they see things going," he says. "To use them as a sounding board and to get an external, objective point of view is very important to us."

8. Hire Internet revolutionaries--preferably really young ones. It may sound ageist, but, as GE's Welch said in a February Wall Street Journal article, "E-business knowledge is generally inversely proportional to both age and height in the organization." Several experts advise senior executives to get the youth corps up and running, and do it fast. "Get some twentysomethings in a position of significant influence quickly," says PWC's Dauphinais. "Virtually every company that's making progress has some vehicle to bring in the new generation. You need to get them heard." What youth brings to the table, Dauphinais says, is freedom from the old business dogma that tends to trap executives of a certain age.

EMC's Ruettgers says that when it comes to strategic e-business applications, "The person you bring in to do that is never more than 30 years old." Ruettgers likes to build small groups of young people leavened with "one--or no--people over 50, and perhaps two or so over 40." The elder statesmen basically have the task of keeping the project on track and the communications lines unclogged.

The whippersnappers do the strategic work. Why? "There's a real decline of computer awareness in people over 50," says Ruettgers.

9. Talk to customers all the time. Not just calls disguised as friendly chats, but real, honest-to-goodness conversations about what customers want and need.

Solicit opinions about proposed new features and services, but don't leave it at that; take the opportunity to find out what business challenges customers face, how their competitive landscape has changed, the stuff that keeps them awake in the small hours. Then use the gleanings to analyze how your company can deploy technology to meet some of those needs. Rosenbluth CIO Bibeau recommends that senior executives from every function spend at least some time in the field (in fact, Bibeau himself goes out on customer calls). Other companies have special facilities set up at company headquarters for visiting clients. EMC's Ruettgers says that his company hosts eight to 19 customers a week at headquarters, and another five or six weekly visits at its facility in Ireland. He estimates he personally talks to 600 or more customers annually.

The result? EMC gets a better handle on what its marketplace is looking for--and what it's not. It can also help in spotting prospective new markets.

Ruettgers says that he first grasped the disproportionately large storage requirements of dotcoms on a chat swing through the West Coast. EMC now dominates the storage market in that space.

10. Never stop learning. Clich alert! No, it's probably not what anybody wants to hear in these days of truncated cycle time and first-to-market mania. But if you bet the farm on the Internet or any so-called strategic technology--you'll need a fairly sophisticated comfort level with the stuff. That takes both time and a commitment to learning, says Partners Healthcare's Glaser. "You need to lay a basic foundation over a period of time and continue to learn and evaluate what you want to do." So while it's smart to head out to a three-day conference on technology and the new economy, be very clear: That's the beginning, not the end. "How long will it take you to get there?" says Glaser. "The answer is years. You can say, 'God, I don't have the time.' But the point is, it takes time."

Senior Editor Carol Hildebrand can be reached at cjh@darwinmag.com. Senior Writer Daintry Duffy (dduffy@darwinmag.com) contributed to this story.

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