Business and Information Technology
The Adventures of an IT Leader invites readers to “walk in the shoes” of
a new CIO, Jim Barton, as he spends a difficult year learning IT leader-
ship at the IVK Corporation, sidestepping the pitfalls that make the
CIO job the most volatile, high-turnover job in business.
Although this book is based on the authors’ years of firsthand experi-
ence with diverse companies and managers, the IVK Corporation and its
staff are fictional. As the story begins, the midsize growth company is at-
tempting a turnaround following a period of slowing business perform-
ance. The stock price has fallen substantially as investors have adjusted
their expectations of the firm’s growth. An aggressive new CEO, Carl Wil-
liams, takes over and assigns a new management team. In the process, CIO
Bill Davies is fired and Jim Barton, former head of Loan Operations and a
talented general manager, is appointed CIO. Barton has no background in
IT—none at all. The story follows Barton as he figures out what effective
IT management is all about and deals with issues and challenges of the
job. The financial and other information about IVK in chapter 1 provides
a cogent snapshot of the company’s situation as the story begins.
The Main Characters
In order of appearance . . .
Jim Barton: The new CIO of IVK. A talented and ambitious general manager, Barton knows little about IT. He sets out to learn quickly
and to lead the IT department toward renewed growth, stability,
and strategic partnership within the company—but not without
facing serious challenges.
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Carl Williams: This bold turnaround CEO is high on ambition and short on patience.
Maggie Landis: A savvy management consultant and Barton’s girl- friend, she often provides Barton with valuable insight, references,
and perspectives.
The kid: Wise beyond his years, this twenty-something tech nerd, whom Barton mysteriously meets only at Vinnie’s Bar, proves a use-
ful sounding board and source of surprisingly good advice.
Bill Davies: Former CIO at IVK, Davies was fired in part because he struggled with management-level communication. He tells Barton
that he “won’t last one year” in the job of CIO.
Bernie Ruben: As the director of the Technical Services Group and longtime IVK employee, nearing retirement and thus mostly im-
mune to concerns about risk to his career, Ruben frequently pro-
vides Barton with the candid advice, knowledge, and context he
needs to make key decisions.
Raj Juvvani: As director of Customer Support and Collection Sys- tems, Juvvani is part of Barton’s core IT team.
Tyra Gordon: As director of Loan Operations and New Application Development Systems, worked closely with Barton when he
was head of Loan Operations and takes the lead on several new IT
projects under his management.
Paul Fenton: As director of Infrastructure and Operations, Fenton manages a large and important domain, including IT security, and
is part of Barton’s core IT team.
Gary Geisler: As director of Planning and Control, Geisler works closely with Barton on IT financials.
John Cho: IVK’s outspoken resident security genius, Cho has a dis- tinct fashion sense and provocative musical talent.
Jenny: Barton’s ever-dependable executive assistant.
Several additional characters populate the story, but are described in
context.
Introduction
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part one
The Hero Called to
Action
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chapter one
The New CIO
Friday, March 23, 11:52 a.m. . . .
Jim Barton sat motionless in a blue leather chair, one of several posi-
tioned around an elegant glass table at one end of the CEO’s expansive
corner office. At the other end, Carl Williams stood looking out a win-
dow. The silence grew long. Finally, Williams turned to look at Barton.
“Speechless” was not a word most people could imagine applying to
Jim Barton. His energy and outspokenness as head of the Loan Opera-
tions department made him one of IVK’s most dynamic executives, a
key player and a likely CEO someday—of a different company, if not
this one.
But the news Williams had conveyed moments before had left Bar-
ton silent, dumbfounded.
A few minutes earlier Barton had rushed to William’s office, sum-
moned for his turn with the new chief. All morning, leadership team
members had marched down that hallway one at a time, each after re-
ceiving a phone call, each on a journey to discover his or her fate. As the
executive assistant greeted him courteously and waved him in, Barton
allowed himself some optimism.
Most likely, he thought, he was about to receive a promotion. He’d
done a good job, been a big contributor as the company had grown to
its present size. Something like “Chief Operating Officer” would fit him
quite nicely.
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On the other hand, to hear that he was being asked to leave would not
have enormously surprised him. He hadn’t done anything to warrant
such treatment. But unexpected things happen when companies are in
crisis. The logic behind executive appointments, retirements, resigna-
tions, and firings was rarely transparent. Sometimes, Barton thought
there was little logic to it at all.
The timing of his meeting gave Barton reason for hope. According to
word going around, firings, resignations, and forced retirements had
been handled in the first meetings of the day. Since midmorning, he’d
heard mostly about reassignments. Executives involved in early-morning
meetings had departed as soon as they’d finished, but for a while now
people emerging from meetings with the CEO had been staying. It was
late enough in the day that he might just be in line for that plum job.
But his mood darkened when Williams, standing by the window, not
looking at Barton, began to speak. The CEO’s words struck Barton with
near-physical force.
“Jim, I don’t think you’re going to like this very much.”
Barton’s mind raced. Why would he wait this late in the day to fire me?
What have I missed or misunderstood? He pulled himself together well
enough to answer: “Just tell me, Carl. We’re all grownups here.”
Williams chuckled. “It’s not what you think. We’re not asking you to
leave or anything like that. But when you hear what I have to offer, your
first inclination may be to think along those lines yourself. Though I
sincerely hope not.”
To Barton, William’s gestures, standing across the room, staring out
the window—the entire scene—appeared overly dramatic. Although
the view from the thirty-fourth floor was enticing, Williams wasn’t
simply lost in admiration, he was avoiding eye contact. Barton glanced
around the room, seeking additional clues to what might be going on.
The office, he noticed, had been completely transformed, all signs of
the previous occupant vanquished. That was too bad. Barton had got-
ten along well with Kyle Crawford, the former CEO. There had been
rocky moments, but suddenly, looking back, those didn’t seem too awful.
“As you know,” Williams continued, “the board is determined to get
things on track. They want us back on our earlier, steeper growth tra-
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jectory. They believe, and I agree, that the controversy that has dogged
us for the last eight months has been a damaging distraction. When
they brought me in from outside, they asked me to take a look at the
company and to formulate a recovery plan.
“As you probably suspected, the board asked me to reconstruct the
leadership team, to clear away the ‘rot’ that might remain from the way
some things were done in the past. To recommend the composition of a
team that could rise to the challenges we are facing in the coming
months. I’d like you to be on that team.”
Relief. It didn’t sound like a demotion. Williams continued.
“It has been a difficult process. I haven’t told anyone else this, but the
first time I went to the board with my proposed team, they balked. They
asked for additional changes. I had originally proposed a very different
role for you than the one you’ve ended up in.”
An unusual assignment. I can live with that. Spirits lifting, Barton
made a constructive noise: “I’m willing to do whatever will help,” he of-
fered. “You know me, Carl. I’m a team player.”
“I’m delighted that you are taking that attitude,” said Williams, who
smiled but maintained his place at the window.
“You see, after a considerable amount of shuffling and reshuffling,
and having discussed this with the board extensively, we’ve . . .” Here
Williams drew in a deep breath, “Well, we’ve decided that you should
be our new chief information officer.”
This was the news that had knocked the air out of Jim Barton, reduc-
ing him to his unfamiliar wordless state. After allowing Barton a mo-
ment for thought, Williams finally turned away from the window. Barton
felt the boss’s gaze burn into him. Finally, Barton managed to babble:
“CIO? You want me to be the CIO?”
“Davies has been overwhelmed in that role. You’ve been one of his
most outspoken critics.”
“I know, but . . . I’ve got no background in information technology.”
“By all accounts, you have a lot of thoughts on how IT should be
run. A lot of people think you have pretty good thoughts about this. I
think you’ve said a few things along those lines to me, even in my short
time here. Unlike Davies, you’ll report directly to me.”
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Not yet able to unpack a tangle of additional objections all crammed
together in a ball at the top of his mind, Barton simply repeated him-
self: “But I’ve got no background in IT.”
“And Davies has a lot. That clearly doesn’t work, so we’ve decided to
try something else.” Williams moved to the table and sat down. The
CEO learned forward, now locking eyes with his subordinate. “You’re a
good manager, one of our best. You may not know much about IT, but
we think you’ll figure it out.”
“I’ll figure it out?”
“Yes.” He nodded and leaned back in his chair. “It’s very important,
you know.”
“I know it’s important. I’ve been saying that myself.”
“A lot of people have heard you, loud and clear. The members of the
board of directors agree. We’re not a small firm anymore. Haven’t been
for a while. Increasingly, we’re more of a financial services factory. But
we don’t come close to running the company that way yet. That’s got to
change. And a huge part of the change will be IT.”
Barton was helpless to disagree. Williams was paraphrasing argu-
ments that Barton himself had made many times. When he’d made
these arguments, though, he’d never imagined that it might become his
job to act on them. The sobering thought that he might need to figure
out how to implement his own recommendations helped him recover.
“What’s going on with Davies?” asked Barton.
“Gone,” said Williams. “This morning.”
So there would not even be a transition period. Just as well. Barton
had never gotten along with Davies. Davies didn’t like Barton, and who
could blame him? Barton had been very critical of IT. He wasn’t proud
of it, but he’d even occasionally stooped to making fun of Davies’s
weird taste in neckties.
“Carl,” said Barton, “I just don’t think I’m the right choice. It’s not
the place I can add the most value. Can I ask you to reconsider?”
Williams stood, strode to his desk, ready to move to his next meet-
ing. “It’s done,” he said. “I know it’s a shock, but I think this is a funda-
mentally sound choice. Think about it. If you can manage a modicum
of objectivity, I think you’ll see that it’s a good idea. As unexpected as
this may seem, it’s not a punishment. IT is a problem area. You are a
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highly regarded fixer. It’s going to be hard, but if you succeed, it will be
very good for this business.”
“I just can’t see it at the moment,” said Barton.
“Give it time,” said Williams, impatience creeping into his voice,“but
not too much time. I sincerely hope you won’t do anything stupid, like
walking out. Let me know what you decide.”
The meeting was over. Williams still had many others to talk to be-
fore his day was finished.
Barton stood and shuffled toward the door, but turned back as he
approached it.
“Thanks, Carl,” he said, automatically.
Williams looked up, trying to determine whether Barton intended
sarcasm, deciding that he did not. “You are most welcome,” he said.
Then he looked down at a sheaf of papers on his desk, to remind him-
self who was next on the day’s meeting schedule.
Friday, March 23, 2:41 p.m. . . .
A small crowd was forming outside Barton’s office. All day, eager IVK em-
ployees had been working on a big whiteboard in the back of a storage
room to create a chart showing the new management team for the com-
pany, as well as they could discern it. It was detective work, following clues
to possible scenarios and likely conclusions. All of it would be announced
soon enough, of course—probably as soon as Monday—but curious
souls could not wait that long. Besides, it was fun, in a fatalistic sort of
way, this sleuthing for facts that might have implications for all, their jobs
and careers. Certainly more fun than fretting or doing their desk jobs.
Much was known. Some executives had told people of their new as-
signments. Others’ roles had been determined by mysterious, undis-
closed means. Still others had been escorted from the building and
were presumed gone for good.
Jim Barton remained the biggest puzzle. He was still present, but had
said nothing to anyone about what Williams had offered him, and he
was an obvious fit in none of the remaining slots. When inquisitiveness
overwhelmed them, people gravitated to the corridor outside Barton’s
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office. The bold ones squinted through glass and half-closed blinds to
try to see what he was doing.
Barton was oblivious to their attention, lost in a thick fog, oscillating
between anger and excitement, as unsure as he had ever been about any-
thing. One minute he’d decided to resign, the next he was jotting notes
for improvements to IT processes. He’d skipped lunch, a bad idea he re-
alized now. At 1:35 p.m., he’d swiveled his chair around to the computer
screen and had begun searching the Web. Now his eyes were locked at a
focal distance of about sixteen inches, on the surface of the computer
monitor. From within his sphere of intense concentration he could not
have seen people peering in at him even if he’d looked right at them.
The first thing he had typed was “IT Management.” Google informed
him that it had located 1,240 million Web pages on that subject. He
clicked on the first of these; what looked like a table of contents for a
magazine appeared. He scanned it.“Outsourcing to India.” That seemed
like a legitimate management issue. The next few items, reviews of new
devices, not so much. Then came stories about companies that had suc-
ceeded with things that had techie-sounding names: “Virtualization.”
“Managed services.” Acronyms lay strewn about the page: SaaS. SOA.
PLM. ITIL. SSL. VPN. Most of it didn’t look like “management” at all.
This was one of Barton’s pet peeves. He used to say it to Davies, all the
time: “IT management has to be about management. Talk to me about
management. Profit. Risk. Return. Process. People. Not Trojan this or
blade server that.”
He stood up, moved to his whiteboard, and erased everything on it.
Then, at the top, in big, green letters he wrote, “IT management is
about management.” He underlined the second occurrence of the word
“management” and looked around unsuccessfully for a pen of a differ-
ent color that he could use to emphasize the word even more.
For a while, he just stared at what he had written. Then he rolled his
eyes and slapped the green pen back onto the whiteboard tray. “That
helped a lot,” he said sarcastically.
The Hero Called to Action
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He moved back to his chair and started surfing from link to link, not
pausing to read most pages. In the blur of passing pages, a sentence
caught his eye, prompting him to stop: “More than any other group
within a company, IT is positioned to understand the business end-to-
end, across departmental boundaries; no other department interacts
with as many different parts of the business as IT.” What a bunch of crap,
he thought. As he’d seen again and again, IT people did not understand
the business. That was one of his big problems with them. But as he read
the sentence again, as he thought about it carefully, he realized it didn’t
say “IT understands the business better than any other group.” It said IT
is positioned to see better into more corners of the company. IT people
have an advantage in gaining a deep understanding of the business.
Doesn’t mean they do a good job in seizing that advantage. The potential,
though, interested Barton. He had never before thought of it that way.
He surfed. Pages and more pages filled with gibberish. He stopped
on a page with a pair of diagrams. The first claimed to portray the usual
state of affairs in IT management situations. It showed business knowl-
edge (“smarts” in the diagram) and technical knowledge having no
overlap, but needing to be pushed together:
The text that accompanied this diagram suggested that one of the
top responsibilities of the IT manager, one of the most useful things
that he or she could do, would be to take actions that pushed the two
circles closer together. If this effort was successful, that would then re-
sult in a changed diagram:
Va lu
eBusiness smarts
Tech smarts
Business smarts
Tech smarts
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Hmm, thought Barton. Overly simplistic, maybe, but consistent with
my understanding of the situation and the problem. He wasn’t sure what
actions might push the two circles together—he’d think more about
that. Education, training, came to mind, but there had to be more to it
than just that. This way of thinking about the problem suggested, at
least implicitly, that communication issues were a big deal. That, too, fit
with Barton’s IT-related experiences. If business people and technology
people shared more knowledge—more understanding—the end result
of that would be an improved ability to communicate with each other,
which should result in getting work done more smoothly. The discus-
sion that accompanied the diagram also suggested—helpfully, he
thought—that people able to operate in that area of overlap where
“Value” was created were a resource to be hired, retained, and cher-
ished. You could keep track of how many people you had who were like
that, whether they were business-savvy types in the IT department or
tech-savvy people from business units. And you could try to increase
their numbers.
Again, Barton surfed. Not far from the circle diagrams, he found a
picture that he liked even more:1
Something about this diagram better captured the anxiety he felt as
he considered accepting the CIO job. He believed he resided at the top
of the “Executives” hill in the picture, near the peak of understanding
the company’s general management, business strategy, and operations
issues. Moving across to acquire understanding of IT strategy and op-
erations would, according to this depiction, involve crossing a threat-
ening chasm. If he accepted the position, he’d need to come up with a
way of building a bridge between the two hills, or crossing from the top
Expert
IT leaders Executives
The capability gap
Skill level
Novice
Technology: IT strategy and operations
General management: Business strategy and operations
Discipline
The IT leader/general manager capability gap
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of one hill to the top of the other. He had no interest in spending a lot
of time down in the valley between the two disciplines. But that wasn’t
the only source of his anxiety. The idea of tiptoeing across a rickety
bridge between the two summits held little appeal. It would be all too
easy to fall through a crack in the bridge and plummet to his (career’s)
demise. Even thinking of hanging out there in the middle of such a
bridge called forth in Barton an acrophobic surge of adrenalin. The
words to an old Elton John song, “Rocket Man,” floated through his
mind: it would be lonely for Barton out in that space.
The text that accompanied this diagram argued that the valley could
be spanned from either direction. A career technical employee could
acquire enough understanding of the business to be an effective IT
leader. Or a career business employee could acquire enough under-
standing of technology. It suggested, even, that it might be a bit easier
and more viable for the career business leader to work the problem
from that side. The rationale: technical knowledge, as much as you
needed to know as an IT manager, was relatively explicit and learnable,
whereas a lot of the understanding that made managers effective was
tacit—mastery of relationships, understanding of political factors, and
so on. This argument also rang true. It was in those softer, tacit areas
that Davies had repeatedly had problems. Half the time, the guy could-
n’t even dress himself to be taken seriously in a business group. No one
would’ve even thought of taking him to a meeting with customers, al-
though he had suggested exactly that on numerous occasions.
Barton returned to Google and typed “CIO.” This time only (only!)
134 million entries resulted. He began clicking through them. CIO mag-
azine and CIO Insight were the biggest hitters among the first ten entries.
After working his way through a few more pages of entries, glancing
quickly at some, he came across a PowerPoint presentation called “A
Short History of the CIO Position” and clicked on it. It looked like a pres-
entation prepared by a professor from a school Barton had never heard
of. Some of the content was cryptic, but the gist of it was clear.
The presentation described the last decade of the CIO job as a “roller
coaster ride.” In the late ’90s, the Internet explosion made tech start-up
companies glamorous. This created difficulties for CIOs as some of their
best employees left for possible IPO riches. But these events also raised
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the prestige of the average CIO. Established firms looked to their own IT
managers to acquire some of that start-up magic. Technologists, keepers
of the magic, became cool. In annual reports, blue suits and white shirts
gave way to khakis, neat haircuts to ponytails, b-school types to nerds.
IT managers rode enthusiasm for the Internet to new heights. Higher
status meant bigger budgets. IT practitioners throughout corporate hi-
erarchies became vital consultants to business-area partners. Compa-
nies reorganized, extracted IT departments from beneath finance, where
they often resided (for historical reasons—“data processing” started
with payroll and accounting), granting them equal stature with organi-
zational areas such as finance, marketing, and operations. According to
the statistics in the presentation, by 2002 barely 10 percent of compa-
nies continued to house the IT department within finance.2 With reor-
ganization came a seat for the CIO at the senior management table. In a
few companies, CIOs ascended to CEO, seemingly altering the histori-
cal career path for IT managers.
But the story ended badly.
The NASDAQ peaked in March 2000, then plummeted. Within a year,
former high-flying companies crashed. IT workers, accustomed to set-
ting their own salaries, suddenly couldn’t find jobs. People took notice of
how few Internet companies seemed capable of generating profits. Estab-
lished firms whose strategies had evolved vigorously under threat from
the IT “revolution”tossed out the new strategies and reverted to old ones.
Revenge of the nerds gave way to revenge of the cost accountants,
dot-com to “dot vertigo.”3 With consummate bad timing, large IT proj-
ects, such as ERP and CRM implementations, stumbled.4 Costs over-
ran budgets; benefits undershot expectations. IT project failure was
nothing new, but as technology lost its luster such failures earned re-
newed scrutiny. Projects were cancelled, budgets slashed.
By 2003, IT managers were living in what one consultant phrased a
“hunt-kill-eat” climate. Grand visions and strategies that had seemed
so important a few years earlier now elicited disapproval. Executives
who had been eager to discuss IT-enabled futures were no longer in the
mood. These harsh realities descended on IT managers and put them
into basic survival mode: hunt, kill, eat.
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Cost savings became the project mantra du jour. Subject to tightening
budgetary control, the typical IT organization became reactive, with few
new applications being developed. Press accounts in 2003 traced the CIO’s
fall from grace. Old organizational arrangements, such as having the CIO
report to the CFO, reappeared.5 The need to comply with new legislation
such as the Sarbanes-Oxley Act of 2002 once again made the CIO job seem
closely aligned with finance. The number of CIOs reporting to CFOs dou-
bled, and the average CIO salary dropped.6 CIO magazine ran a cover
story called “The Incredible Shrinking CIO” (“Their budgets have been
cut, their work’s been outsourced, their staff ’s been downsized, and
they’ve been pushed off the executive team”).7 The roller coaster that
once carried IT managers so high now hurled them earthward.
By 2006, the presentation concluded, many CIOs had lost seats at ex-
ecutive tables. Their organizations were increasingly being shipped off to
vendors, both domestic and overseas. On the other hand, the emphasis
on IT as purely a cost-cutting tool was easing a bit. Improved economies
had CEOs looking for ways to increase revenues again, turning their at-
tention from bottom to top lines. In some companies, IT was enjoying a
mild renaissance as a possible enabler of new growth. A few companies
drew senior IT executives closer into corporate governance by establish-
ing IT oversight committees on their boards of directors.8
Barton thought back through the history of IVK. During the dot-
com craze, IVK had been very small, one of a breed of corporate crea-
tures that was rare in those days, a non-tech startup company. When
the bottom had fallen out of the tech market, it was a very good thing
that IVK had never quite gotten on board the Internet express. Through-
out much of the crash-and-burn period for Internet startups, IVK had
managed to grow.
The part about IT being a potential source of growth for a firm ex-
cited Barton. He wasn’t quite sure what it meant, but he wasn’t ready to
discount it either. He remembered Davies arguing that superior techni-
cal features that could be effectively demonstrated to clients could be a
factor in closing deals. That’s why he’d wanted in on meetings with cus-
tomers. The idea of Davies and his weird neckties sitting down with
customers had obscured serious consideration of this argument.
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Surfing just a bit more, thinking about wrapping things up and tak-
ing his decision home for the weekend, Barton stumbled across a senti-
ment that he appreciated. It proposed that IT managers try a thought
experiment:
Imagine your day-to-day work. How much would be left to do in a
day if a moratorium were declared on discussions about specific
technologies? In how you think about IT management, how much
would there be—principles, philosophies, practices—that could be
said to be independent of the underlying technologies?
Because the world was still reeling from the aftershocks of the Inter-
net crash, this article said, it was essential that IT managers understand
and demonstrate to others that the need for shrewd IT management
does not vanish when over-hyped technologies do. If the field of IT man-
agement was to mature, to take its rightful place in the pantheon of
management ideas, it must have substance beyond the specific objects
of its actions. The article finished with a flourish:
The core of IT management—the management content—is not
transitory. Just as the fundamentals of, say, finance or marketing,
remain relatively stable at their core, so are the fundamentals of
IT management.
If this was true, Barton thought, then there was hope for him in the
CIO job.
He shut down his browser and stood up, reaching for the coat on the
rack behind his chair. Finally, looking toward the door, he noticed the
sizeable group of people gathered outside his office.
“What is it?” he asked them, as he emerged with coat on and brief-
case in hand. No one said anything. He looked from one to another of
their sheepish expressions. Then he singled out someone who worked
for him—or who had worked for him—in Loan Operations.
“Jackie, what’s going on?”
Jackie gathered her courage and told him:“We’ve been trying to figure
out where you fit in the new management team. We’ve figured out pretty
much everyone else, but you’re a puzzle. And,” she quickly added, “of
course those of us who work for you hope you’ll continue to be our boss.”
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Barton laughed. “I’m afraid you’re out of luck.”
Perplexed faces told him that no one had the slightest idea what he
meant by that. He looked around, gathered his own nerve, and tried on
a phrase that had never before passed his lips: “I’m the new CIO.”
Several people in the room gasped. Barton did not wait for further
reactions. He headed for the elevator, leaving stunned silence in his wake.
REFLECTION
Why would Carl Williams ask a non-technical manager to assume the CIO position?
If you were Jim Barton, would you take the job?
What do the IVK Corporation exhibits (1-1 through 1-6) tell you about the cur- rent state of the company? Given this information, what does IVK need from a new management team under CEO Carl Williams?
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IVK Corporation Organization Chart
Market Share of IVK Corporation Versus the Two Leading Competitors
The Hero Called to Action
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Human Resources
Financial Management
Corporate Planning
Information Technology
Board
CEO
Legal
Capital Markets
Business Development
Customer Service
Collections Loan
Operations
Competitor A: 36%
Competitor B: 15%
IVK: 16%
Other: 33%
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IVK Corporation Statistics for the Fiscal Year
• 2.2+ million customer inquiries
• 530,000+ applications processed
• 180,000 loans funded
Financial Statements—Consolidated Balance Sheet
June 30
Year X Year X–1
Assets Cash and other short-term investments $152,551,539 $17,175,191
Total cash and cash equivalents $152,551,539 $17,175,191
Service receivables: Advisory fees 34,835,164 10,785,983 Residuals 107,795,378 43,617,465 Processing fees 6,352,356 2,539,735
148,982,898 56,943,183
Other receivables 438,934 155,833 Property and equipment 15,336,144 6,255,447
Less accumulated depreciation and amortization –4,227,745 –1,877,339
Property and equipment, net 11,108,399 4,378,108
Goodwill (People’s VK acquisition) 3,229,497 3,347,697 Prepaid and other current assets 23,031,274 478,634 Other assets 1,800,990 0
Total assets $341,143,531 $82,478,646
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continued
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Financial Statements (continued)
June 30
Year X Year X–1
Liabilities and stockholders’ equity Liabilities:
Accounts payable and accrued expenses $26,343,374 $13,333,047 Net deferred tax liability 41,143,125 14,365,987 Notes payable and capital lease obligations 9,723,003 283,864 Notes payable 6,233,853 6,374,320
Total liabilities $83,443,355 $34,357,218
Commitments and contingencies Stockholders’ equity:
Preferred stock, par value $0.01 per share; 20,000,000
Shares authorized at June 30, Year X; no shares authorized At June 30, Year X–1; no shares issued or outstanding At June 30, Year X or June 30, Year X–1 0 0
Common stock, par value $0.01 per share; 100,000,000
Shares authorized; 63,543,662 and 56,731,054 shares issued and outstanding at June 30, Year X and Year X–1, respectively 639,780 531,954
Additional paid-in capital 183,572,199 13,269,353 Retained earnings 73,488,197 34,320,121
Total stockholders’ equity 257,700,176 48,121,428
Total liabilities and stockholders’ equity 341,143,531 82,478,646
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Financial Statements—Consolidated Income Statement
Years ended June 30
Year X Year X–1 Year X–2
Service revenue: Advisory fees $89,194,767 $69,346,698 $14,761,226 Residuals 74,894,813 61,027,105 11,834,993 Administrative and other fees 4,113,746 2,814,617 474,888 Processing fees 65,456,570 39,566,486 14,191,953
Total service revenue $233,659,896 $172,754,906 $41,263,060
Operating expenses: Compensation and benefits 54,879,252 26,805,902 11,488,553 General and administrative 65,695,724 31,062,928 10,651,614 expenses
Total operating expenses 120,574,976 57,868,830 22,140,167
Income from operations 113,084,920 114,886,076 19,122,893 Other expense:
Interest expense 717,392 1,563,305 1,824,493 Interest income –814,894 –116,983 –91,220 Other income –2,412 –2,200 –130,447
Total other expense, net –99,914 1,444,122 1,602,826 Income before income tax expense 113,184,834 113,441,954 17,520,067
Income tax expense 43,539,727 42,214,388 5,106,933
Net income 69,645,107 71,227,566 12,413,134
Net income per share, basic $1.18 $1.33 $0.24 Net income per share, diluted $1.10 $1.26 $0.23 Weighted-average shares 59,047,914 53,699,115 52,632,000 outstanding, basic Weighted-average shares 63,543,662 56,731,054 54,574,266 outstanding, diluted
Stock price (at year-end) $30.74 $60.22 $25.10 Market value (stock price × shares, $1,953 $3,416 $1,370 in millions)
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Stock Price for IVK Corporation
The Hero Called to Action
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chapter two
CIO Challenges
Friday, March 23, 9:48 p.m. . . .
By late in the evening, a sense of foreboding had settled over Barton. He
wandered from one room to another through his upscale condo, stop-
ping to flip TV channels, sound muted, without perceiving the images
that flashed on screen. Several times he tried to telephone Maggie, the
woman he’d been dating for the past several months. Barton was frus-
trated that, on top of the day’s events, he was stuck home alone on a
Friday night because Maggie, a management consultant, was on tem-
porary assignment in another city. She was probably with clients, but it
was odd that she was not answering her mobile phone. Given his over-
all state of mind, Barton was inclined to assume the worst.
He thought about going for a run, but he preferred mornings for
that. Logging on to his computer, he discovered that his nephew, a tech-
nology, music, and video game buff, had “gifted” him some music. Jack
often sent Barton things via e-mail, like videos or links to interesting
Web pages. Barton and his nephew had a special relationship, although
they didn’t see each other very often (Jack lived in the suburbs, which
might as well have been in another country as often as Barton made it
out there).
Delighted with the distraction, he downloaded music by a band
called Black Box Recorder. Barton hoped for something that would lift
his spirits, but he could see immediately from the song titles that he was
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out of luck: “Girl Singing in the Wreckage” and “It’s Only the End of the
World” didn’t sound upbeat. Barton cued up the new tunes and tapped
on the remote to channel the music to his high-end sound system,
cranking up the volume. About halfway through the album, the lead
singer offered some breathy advice that struck Barton as useful: Life is
unfair, the singer whispered, against a stark backdrop of percussion and
bass, Kill yourself or get over it. It made Barton laugh. Seizing the energy
in this burst of levity, he decided to get out of the condo for a while,
take a walk, find something else to lift his spirits. Grabbing a coat, he
left without turning off the music.
Forty or so minutes later, hitched up to a bar, he found himself in a
serious conversation with a kid who, Barton assumed from his looks
and the way he talked, did some kind of computer work for a local
business or university. The guy was in his late twenties, Barton guessed,
just a decade or so younger than Barton himself, but total kid and total
nerd in the way he interacted. In the time it took to drain a martini,
Barton had unloaded his story, told his sad tale of career misfortune.
The kid had advice. He kept repeating a phrase that Barton couldn’t
quite follow:
“You’ve got to know what you don’t know.”
“Huh?” responded Barton.
“What you don’t know. You’ve got to know it.”
“How can I know it if I don’t know it?”
“No, I don’t mean you should know the things that you don’t know. I
mean that you should know the things you know, and know what you
don’t know.”
Barton shook his head, perplexed.
“How are those things different?”
“The things you know and the things you don’t know? Because you
know one and you don’t know the other.”
“Yeah, but you think I should know them both. I see how to know
the ones I know but it’s that know-things-you-don’t-know bit I’m trip-
ping over.”
“Let me start over,” the kid said.“In taking on a new assignment, such
as the one you’ve been given, you have to . . . you have to realize that
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there are some categories of things that you know, and some things that
you don’t. And you have to know what is in which category.”
“Oh, I see. I think. I don’t have to actually know things I don’t know,
I just have to know what they are and realize that they’re in the don’t-
know category.”
The kid drained the last of a mug of Coke and slammed it down hard
on the bar. “That’s it!”
Despite himself, Barton felt proud. He took a sip of his own drink, a
second martini not nearly as good as the ones he sometimes made for
himself.
“So, what about it?” the kid asked.
“Huh?” said Barton.
“What about it? Do you think you . . . you realize what categories of
things you know and what categories of things you don’t know?”
Barton thought about this.“Yes,” he said.“I definitely don’t know the
techie stuff. I definitely do know the management stuff.”
“Hmmm,” the kid said.
“What?” asked Barton.
“You sure about that?”
“About what? I’m sure I don’t know the techie stuff.”
The kid raised his eyebrows, a gesture that suggested wisdom Barton
thought he could not possibly possess. “So what about the ‘manage-
ment stuff,’ as you put it?”
Barton was indignant.“Of course I know that stuff. I’m the best man-
ager they’ve got. That’s why they’ve chosen me for this job.”
“Okay,” said the kid. He motioned to the bartender, ordering another
Coke. The bartender shouted down to Barton,“You want another too?”
Barton shook his head. He was still fixated on the kid and what he was
saying.
“You don’t seem convinced.”
“Are you?”
“Yes.”
“Hey, fine. Whatever.”
“But you don’t believe me. Even though you don’t know me and
have never seen me manage anything,” observed Barton.
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“It’s not that,” said the kid, receiving a new, frosty mug from the bar-
tender and taking a sip. “It’s nothing to do with you personally.”
“What is it then?”
The kid shrugged. “I’m a technical guy, what do I know?”
“I’m not asking you what you know; I’m asking you what you think.”
“It’s just,” he said, now turning to Barton with a slightly vindictive
tone, “that I’ve worked for a lot of people who think they’re good man-
agers, and what they don’t know is that they don’t know a rainforest
from a desert. So nothing personal. I just think most people who think
they ‘know the management stuff ’ probably don’t really. You might be
an exception.” He shrugged again.
Barton thought about this. It sounded like the kind of thing one
should keep in mind when taking on a new job. The boundary between
technical and management stuff might not be clear-cut. “Fair enough,”
he said to the kid.
The kid seemed surprised. “You might be an okay manager after all,”
he said.
“So if you were me,” Barton asked, “what would you do on Monday?
What would you do on your very first day?”
“Easy,” the kid responded. “Start trying to figure out who on your
team is really good. You don’t know the ‘techie stuff,’ as you put it, so it
won’t be easy for you to tell who in the department is really good and
who isn’t all that good. Lots of managers never really know that. And, to
pick up on our earlier conversation, they don’t know that they don’t
know it. Which makes them do stupid things, like reward dolts and un-
derappreciate genius. Put people on the wrong projects. Insist on objec-
tives that make no sense. Everyone realizes it when a manager doesn’t
know what he or she doesn’t know. It’s a state of blissful management ig-
norance. There’s definitely a talent in it, don’t get me wrong. Some peo-
ple get paid quite a lot of money not to know a rainforest from a desert.
They succeed mostly by managing the appearance of success rather than
actual success.”
Just then, Barton’s phone rang. It was Maggie.
“Hi Jim, looks like I missed several calls,” she said.“Everything okay?”
“Not really,” he answered, “but nothing dire or life threatening. If
you’ve got some time, I’ll tell you about it.”
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“I’ve got time now,” she said. “We had a team meeting that went late
or I’d have called you back sooner. Where are you?” She’d heard back-
ground noise.
“I’m at Vinnie’s.”
“Uh-huh. And how many drinks have you had?”
There was no use feigning innocence; she could tell that he hadn’t
been drinking coffee. “A couple,” he admitted.
“How about,” she said, “if we talk while you walk home?”
This was fine with Barton. He was eager to tell her about the day’s
events. He and Maggie chit-chatted while he paid the bar tab, then he
turned to go, nodding to the kid. A few steps toward the door, he sud-
denly stopped and turned around.
“Hold on a minute,” he said into the phone. Then, out loud, to the
kid: “Hey, kid. Want a job?”
The kid laughed. “Not right now. But ask me again in a few weeks.
Maybe then. And you can tell me how it’s going.”
“Fair enough.” Barton exited the bar, returning to his phone call and
pouring out his sad tale to Maggie while she made satisfyingly sympa-
thetic noises at the other end.
Sunday, March 25, 8:15 a.m. . . .
Barton sat on cold pavement, legs outstretched, reaching for his toes,
prepping for a long run around the park. He needed it. His late-night
activities Friday had caused him to skip running on Saturday. Having
missed the daily ritual, he’d felt unsettled all afternoon, as he hit the dry
cleaner and drug store, stopped in a grocery to grab some ready-to-cook
dinner. He’d spent Saturday night watching TV and listening to the
music that Jack had sent him, and then he’d gone to bed early.
The relatively mindless Saturday pursuits had left him with plenty of
capacity to think about his first day as CIO on Monday. The obvious first
thing to do would be a meeting of his direct reports. He’d have sent out
notice of the meeting on the weekend, but he realized that he wasn’t even
sure who the direct reports to the CIO were. Sending the notice on Mon-
day wouldn’t be too much of a problem; they would all be expecting it.
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At the meeting, Barton intended to propose a day or two of off-site
meetings sometime in the next two or three weeks; he would ask his
managers to present the current status of the activities within their
areas, the challenges that needed to be met in the coming months, and
opportunities to create value for the company. Using the current situa-
tion as a basis, he then wanted them to work together to construct a fu-
ture vision for the role of IT in the business. Before too long, they’d
need to hold an all-hands department meeting, the first for Barton as
their new leader; they could begin to plan that also.
That would be the morning. In the afternoon, he wanted to spend
some time with the Planning and Control guy. Gary Geisler was keeper of
the financial information that pertained to IT budgets and expenditures.
Barton expected to field questions from the CEO’s office about how
much IVK spent on IT. Right now, he didn’t even know the right cate-
gories for analyzing IT spending (but he knew he didn’t know, right?).
As Barton began to jog down a path, he suddenly had a disturbing
thought. Sometimes, he recalled, Bill Davies jogged around here. Bar-
ton had occasionally encountered him on this very route. Davies surely
knew by now who his chosen successor was, but Barton was unsure how
Davies might react to the news. There was more than a little irony in
the fact that his most vocal critic had been stuck with his job. Davies
might relish that. But it couldn’t feel very good to get fired; Barton had
never experienced that, didn’t care to.
A few minutes later, two paths converged and—to Barton’s horror—
he found himself running almost side-by-side with Davies, who didn’t
seem to notice at first. If Barton stopped suddenly, he would just have
drawn attention to himself. Worse than that, it might have conveyed to
Davies a message that Barton was intimidated or embarrassed, and he
was deeply averse to communicating either sentiment. Instead, he felt
inclined to reach out to Davies. Not to apologize exactly, although that
might have been appropriate, especially for some of the wisecracks he’d
made about Davies’s “benevolent dictator” leadership style and rather
quirky wardrobe. But maybe to say “no hard feelings,” to convey some
respect for the work the other man had done. And maybe—just maybe,
Barton realized—to create the option of consulting Davies about things
in the future. This was not something he would be inclined to do at
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first, but there might come a time when it would be useful. Barton did
not believe in burning bridges.
So when Davies slowed down and stopped to rest and stretch, Bar-
ton did also.
“Hi, Bill,” said Barton.
“Hello, Jim,” responded Davies.
“Nice day.”
“A bit cold for March.”
A pause grew uncomfortable. Barton broke it: “I guess you heard . . .”
“I did.”Said too quickly, to cut off whatever else Barton was about to say.
Barton waited to give Davies time to say more, but he didn’t. Barton
opted for brevity to fill the new silence: “Ironic, huh?”
“I laughed for about half an hour when I heard.”
Davies said this in a monotone. Barton looked closely, trying to dis-
cern whether the remark was a friendly joke or a hostile gesture. The
guy’s social skills had never been great, so Barton figured this might
just be awkwardness. He might not mean anything at all by it. Maybe it
was just poorly calibrated candor.
Barton made a peace offering: “Hey, I just want you to know—we
had some disagreements.”
“We sure did.”
Again, Barton could not read the sentiment behind the words. He
continued: “I was out of line at times, and I feel bad about that.” Davies
shrugged. Barton pressed ahead: “I guess I just want to say ‘No hard
feelings,’ not on my part.”
Confusingly, Davies began to laugh. Soft at first, the laughter gained
volume and power until Barton began to wonder if the guy might be
coming unhinged. Barton looked around to see if anyone else was
nearby, embarrassed for Davies, a little worried what he might do. Just
when Barton thought the laughing could grow no louder, it stopped.
Davies turned to Barton, looked him in the eye and said: “What you
don’t realize, Jim, is that you’ll be gone soon too. That company is a
madhouse. Nobody could succeed running IT in that place. You won’t
last a year.”
Barton started to answer, but Davies wasn’t finished: “Don’t feel bad
for me,” he added. “I start a new job on Monday. I even got a raise. And
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you’re going to need all that feeling-bad capacity for yourself when you
get tossed out on your butt.”
Without waiting for a response from Barton, Davies sprinted away,
making it clear that he didn’t want to be followed.
Barton couldn’t have followed anyway.
The offer of the CIO job had provoked many strong reactions in
Barton. He’d felt put-upon. He’d patted himself on the back for being a
good guy, willing to “take one” for the team. He’d supposed himself the
most flexible member of the senior management team, imagined how
grateful his CEO and management peers must be, seeing him act in
such a selfless manner. He knew that the job would be hard and had
considered that he might even fail at it. But until this moment—until
Davies had said what he’d said—Jim Barton had not once considered
the possibility that the company might unceremoniously boot him if
they didn’t like what he did with the IT department. But how could
they? It would be like spitting in the face of a hero.
But as Barton contemplated Davies’s words, he knew they contained
truth. In business, memories were short. Nine months from now, no
one would remember what a great guy he’d been to take the job. They’d
just know it was his job, and if they thought he was doing it badly, they’d
feel no more loyalty toward Barton than he had felt toward Davies. A lot
could—and would—change in a short time.
So if he was going to take this job—if Jim Barton was going to become
the CIO of IVK—he would need to expect to be judged on his perfor-
mance, regardless of the deficit of experience in the area that was his start-
ing point. It was obvious, really—the kind of point he might have made
to Davies in a past discussion. He’d been deluded to think otherwise, and
the sudden “shoe on the other foot” reversal shook him to his core.
Sighing deeply, he set off down the path in the direction Davies had
not taken.
Sunday, March 25, 3:15 p.m. . . .
By early afternoon, Barton had gotten over Davies’s challenging asser-
tion and reverted to a more helpful mode of thinking about concrete
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first steps in his new job. One obvious idea would be to meet with CIOs
of other companies who might be willing to confide in Barton how
they thought about their jobs. But he wasn’t sure how to go about this.
He’d never been a CIO and did not have a network of CIO associates.
Maggie was his ace in the hole, however. She worked closely with many
IT managers and knew many CIOs. It would be a matter of telling her
the CIOs, or the companies, he’d like to approach.
He wasn’t sure what to tell her when she asked about this, however.
Competitors wouldn’t do. They couldn’t be counted on to be forth-
coming, and there might even be legal issues. On the other hand, he’d
have to be careful about whether the way very different kinds of com-
panies used IT would be relevant to IVK. To some extent, of course,
which companies he met with would be determined by the willingness
and availability of the people he approached.
After a few minutes of thinking about this, Barton phoned Maggie.
“Hey there,” she said. “I was just about to call you. How are you feel-
ing today about the fast-moving events in your life?”
Barton laughed. “A little whiplashed, but okay, I guess. How about
you—you spend a lot of time with CIOs already—sure you want to be
involved with one?
“You mean, will I still love you if you turn into an IT nerd? I’m not
sure. But I think I can handle it.”
“Gee, I sure hope so,” said Barton trying on a nerd voice, realizing he
was no good at it, then reverting to normal tones:“Seriously though, I am
getting more practical about it, thinking about how to do it. If I do it.”
“That sounds like a good thing.”
“I think so. I was wondering if it might make sense for me to meet
with some other CIOs, others who might know a lot about how to do
this job. But I don’t actually know anybody helpful—”
“Ah, but you’re thinking maybe I do?”
“Yep.”
“Yet again, you want me for my knowledge.”
“Among other things.”
“Well,” she sighed playfully, “okay. But it’ll cost you. Want me to set
up some lunches?”
“That sounds about right.”
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“It’s a terrific idea. But what you get out of it, Jim, I’ll tell you right
now, is going to be highly variable.”
“Okay, Maggs. Why’s that?”
“Because to get to the level of discussion that will be really helpful, you’re
going to have to get to know these people. Surface-level stuff will help some,
but to get into the next level of discussion, you’ll have to have a relation-
ship. So I think you should meet with some of them not just once, but pe-
riodically. The most valuable guidance will come in time, not right away.”
“Makes sense. How about if we set up some first meetings, then we
can figure out who seems promising for repeat engagements?”
“Yeah. I’m thinking local metro area, but you’d probably be willing
to fly an hour or two for the right lunch date, right?”
“Absolutely.”
“Any thoughts,” she asked, “on which companies, which CIOs?”
“I don’t really know any CIOs,” Barton answered. “And I’m not sure
how to think about which companies.”
“How soon would you like to start?”
“Not sure about that either. I’m tempted to say ‘as soon as possible,’
but maybe you think there’s some level of expertise I should acquire be-
fore I start this process?”
“No, I don’t think that’s the issue, unless that would make you more
comfortable. Tell you what, why don’t you think about it some more
and send me an e-mail? Tell me how you want to choose companies or
CIOs, when you want to start, how often you want to meet, any other
details important to you. I’ll probably vary from your guidance where I
think it’s a good idea, but this would give me a basis to start.”
“Thanks, Maggs. I’ll do that as soon as I can, next couple of days. I’d
do it today, but I’d like to get a bit of a read from some of my new man-
agement team.”
“Doesn’t sound like you’re thinking about this assignment hypo-
thetically anymore. Decided to take the job?”
“Let’s just say that I haven’t decided to leave, so I guess maybe that’s
the same thing as deciding to accept.”
“You okay with me setting up some meetings with other industry
folks, not necessarily CIOs?”
“I think so. Who do you have in mind?”
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“Some industry analysts, the ones who have a clue, and maybe some
key people who work for IT vendors or service firms, people who I
know are smart. Maybe some industry movers and shakers, people who
are involved as investors, or who have other reasons to want to keep
track of where they think things are headed in the IT industry.”
“Wow. That’d be great. I might find it particularly helpful to talk to
people who have a business view into IT.”
“Have you thought about whether there are other strategic lunch en-
gagements you should seek out? How about meeting with customers?”
“I know all our customers pretty well. I was head of Loan Ops until
about forty-eight hours ago, you know.”
“But you don’t know them as the IVK CIO. You might be surprised
by what you don’t know that they might tell you if you present yourself
as the new CIO and ask questions about how well IVK is meeting their
business needs with IT.”
“I see. That’s a good idea,” said Barton, though privately he was less
than fully convinced. If his customers had been having trouble with IT,
he’d have known about it.
“By the way, Jim, I saw a presentation the other day about how the
CIO’s position is changing. I took some notes to send to a couple of my
staff. I can send them to you, if you like.”*
“I’ll look forward to seeing them. Thanks, Maggs,” said Barton.
“Anyone else you want to meet with?”
“With all these ideas you’re coming up with, I’m going to have to pri-
oritize a bit. Can’t meet with them all right away.”
“You give it some thought, I’ll give it some thought. We’ll formulate
a plan.”
“Right. Let’s figure out what to do.”
“Then do it.”
“Right.” Barton shifted gears, “So, how are things there? That hand-
some banking client behaving himself?”
“Jim, Jim, Jim,” Maggie said, feigning disappointment, an exasper-
ated headshake conveyed in the rhythm of her words: “Is that your way
of saying that you miss me?”
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*See “Maggie’s notes on ‘The New CIO Role’” at the end of this chapter.
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REFLECTION
How do you interpret the kid’s advice, “You’ve got to know what you don’t know”?
Why do you think Davies got fired? How likely is it that Barton will be fired within the year?
What kinds of questions should Barton be asking of CIOs, analysts, investors, customers, and other IT movers and shakers? How should he prioritize and organize these meetings?
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Maggie’s Notes on “The New CIO Role”
Gap in CIO’s “Strategic Aspirations”
• According to an IBM survey of 176 CIOs worldwide, the number- one barrier that impedes the CIO in becoming a business leader:
– Misperceptions of the CIO role: 31%
– Lack of business skills and competencies: 26%
– Failure to understand importance of IT: 12%
– Lack of time to spend on strategic issues: 12%
– Poor collaboration with lines of business: 8%
– Lack of support from CEO/Board: 7%
– Insufficient authority or responsibility: 4%
• 86% of CIOs said they wanted a more strategic role, a greater role in making or shaping strategy.a
Global Trends Affecting the CIO Role
• Majority of companies have become more focused on increasing market share, moving past emphasis on cost cutting
• Increasing options for outsourcing IT services: financial benefits, increasingly sophisticated offerings from service providers
• CEOs expect IT managers to manage people, finances, and mate- rials, not just technology
• CEOs expect IT to contribute to a firm’s strategy flexibility; they must be able to absorb change
• In many firms, CIOs fall short of going beyond operational focus; in many firms with progressive IT capabilities, enlightened CFO, COO, or CEO is the real driver, not the CIO
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• CIOs called on to take a broader role in corporate leadership
Some Key Factors in Future CIO Success
• Enhancing and maintaining relationships with other business leaders
• Ability to develop an organization of talented technologists who understand the business
• Ability to educate CEO and peer executives on new possibilities enabled by IT and on key business trade-offs implicit in technol- ogy choices
Some Possible “Next Steps”
• Work systematically to develop (or rebuild) the business credibil- ity of the IT organization
• Position IT as a strategic and competitive necessity; make sure IT plans, actions, and capabilities are clearly linked to company ob- jectives and goals
Imperatives
• Speak the language of business, inside IT and especially with business partners
• Keep a strong connection with the CEO and business peers
• Don’t lose sight of efficiency; be a relentless cost reducer
• Understand impacts of IT on the revenue and cost sides of the in- come statement
• Invest in agility of systems and IT architecture
• Establish a robust governance framework; manage the project portfolio to maximize return
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• Manage sourcing and partners
• Manage talent; build a smart organization
• Enable innovation; enable change; be competitively relevant
• Safeguard the information assets of the organization; maintain robust infrastructure and assure business continuity
Source: This exhibit is loosely and partially based on S. Sadagopan, “Meet the New CIO,”Opinion, November 19, 2007, http://www.sandhill.com/opinion/editorial.php?id=161.
a. “The CIO Profession: Driving Innovation and Competitive Advantage,” October 2007, IBM Center for CIO Leadership in collaboration with MIT Sloan Center for Information Systems Re- search (CISR) and Harvard Business School, http://www-03.ibm.com/industries/education /doc/content/resource/thought/3387462110.html.
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chapter three
CIO Leadership
Monday, March 26, 10:43 a.m. . . .
“I think it’s a question of whether the five of us working alone will be
able to accomplish what you have in mind,” said Bernie Ruben, director
of the IT department’s Technical Services Group. The others around
the table controlled their movements and facial expressions, but Bar-
ton could tell that they agreed. Ruben, at least twenty years Barton’s
senior, near enough to retirement to feel safe or simply old enough not
to care, was the bravest of his direct reports. Ruben’s voice contained no
fear as he spoke, which differentiated him from the others in the con-
ference room: Raj Juvvani, director of Customer Support and Collec-
tion Systems, Tyra Gordon, director of Loan Operations and New
Application Development Systems, and Paul Fenton, director of Infra-
structure and Operations; all younger, with more to lose.*
The meeting had not gone according to Barton’s plan. First thing
that morning he’d asked Jenny, his assistant, to find an IT department
organization chart. With that in his possession, he’d ascertained who
reported to him and summoned them via e-mail to a 10 a.m. meeting.
He chose to assemble only his operating managers, not including Gary
Geisler, a more junior manager with whom he planned to meet later in
the week.
39
*See “IT Organization Chart” at the end of this chapter.
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Once they had all assembled, exchanged greetings, and submitted
brief status reports, Barton had floated his idea of an off-site manage-
ment meeting to set direction for the department. Before the meeting,
Barton would have been hard-pressed to imagine any reasonable ob-
jections to his plan. He’d expected quick acceptance followed by a ses-
sion of planning for the event.
But he’d been wrong. No more than three or four minutes into his
explanation of what he had in mind, Fenton interjected a question:
“You want just the five of us at this off-site?”
“That’s what I was thinking,” said Barton. Fenton and Gordon ex-
changed knowing looks. Barton had not understood the question; he
tried for clarification: “Why not just the five of us?”
Fenton shifted uncomfortably. He glanced in the direction of the
others and saw that no help would be forthcoming.
“It’s just that we’ll only be able to go so far in certain discussions
without other people involved,” said Fenton. “For example, if we want
to talk about security, I’d want to involve John Cho.”
“John Cho?” said Barton.
The others nodded, their movements synchronized. Ruben spoke
up: “Cho. You know him. Wild hair, purple streaks. Boots. Black tee
shirts adorned with human skulls. Piercings.”
“That guy,” said Barton, nodding. “Been in meetings with him. Not
sure I’ve been formally introduced.”
“He’s what’s standing between this company,” said Ruben, “and the
armies of hackers who’d love to loot a financial services firm.”
“Are we sure Cho is on our side?” Barton intended this as a joke, but
it fell flat.
Fenton, speaking up for his employee, said: “Oh, John is definitely a
white hat.”
“A white hat?”
They all nodded, again in sync. Ruben smiled, said, “Although he
wouldn’t be caught dead actually wearing one.”
Everyone laughed, which shattered the tension in the room. It was
the effect Barton had been going for when he’d tried his joke. Ruben
had realized it, done Barton a favor.
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“What if we wanted to talk about security at a management or policy
level? Would we need John Cho then?”
“John’s really a nice guy, despite his attire . . .”
“It’s not that,” Barton interjected. “I’m not trying to avoid having
John Cho in the meeting. I just think it makes sense as a starting point
to have the five of us reach consensus on some things before we expand
the circle.”
“It really depends on what you want to talk about,” said Ruben.
“I’d hoped we might talk about how things are going, challenges we
see in the present and future, risks, and our vision of how we think IT
ought to contribute to the success of the company. I also want to figure
out where IT is being prevented from doing its best work by impedi-
ments in the way the rest of the company works. IT is more important
now than it ever has been.”
Barton stopped talking to avoid making a speech. He looked around
the room, saw more deer-in-the-headlight looks. That’s when Ruben
made his “whether the five of us working alone will be able to . . .” remark.
It seemed to Barton that they were all making this situation much
more difficult than it needed to be. He knew nothing about IT; these
guys had been doing it their entire careers. Shouldn’t they have enough
expertise to hold a high-level planning meeting without involving their
tech nerds? Shouldn’t Fenton know a thing or two about security by
now? Barton wondered if he was getting insight into the weak perform-
ance of the IT organization over the years. Maybe his managers were
not very good. At the very least, they seemed to have fallen into some
bad habits, such as unhealthy reliance on people whom they surely
couldn’t supervise properly if they didn’t understand the details of the
work well enough.
Barton recalled a definition of supervision that he’d liked well
enough to memorize, although he couldn’t remember now where he’d
first heard it: A supervisor’s job is to encourage employees to engage in ap-
propriate actions, habits, and behaviors, and to direct changes in those ac-
tions, habits, and behaviors when business conditions shift in ways that
necessitate such changes. How could these guys do this if they couldn’t
even hold a management conversation without consulting technical
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specialists? Did they, Barton wondered, have any idea what was going
on in their own organizations?
“What do you think the five of us alone could accomplish?” asked
Barton.
Eventually they settled on a tentative plan that met Barton’s objec-
tives of making his direct reports responsible for the activities within
their own groups, but at the same time tapped external expertise where
his managers thought they would need it. They would hold their meet-
ing off-site but nearby. They would begin a discussion with just the five
of them, then pull in three more key people from each area with whom
to continue the discussion. Barton insisted that they finish the meeting
with just the core five.
Thus ended the first gathering of the management team under Jim
Barton, the new CIO of IVK, at 11:24 a.m.
Barton let the group disperse, then set off in the direction of Ruben’s
office. He found Ruben listening to his voice mail. He waved Barton
into his office, but finished listening to the current message before
hanging up the telephone.
“Have a seat,” said Ruben, motioning to a chair stacked with paper.
Barton moved the paper to an edge of Ruben’s untidy desk and sat down.
“What can I do for you?” Ruben asked, flashing an accommodating, ap-
parently sincere smile.
“You seem to be the one in this group willing to stand up to me,” said
Barton, “so I was hoping you could help me understand a few things.”
“I’ll do my best.”
Barton thought for a minute, at first trying to formulate his words
carefully to avoid the possibility of offending anyone, then finally jetti-
soning that idea and deciding to shoot straight: “I guess I don’t see why
the IT department heads need to have their sidekicks present before
they can have a productive discussion. I’ve done this lots of times in
other organizations, and I’ve never run into this objection before.”
Ruben seemed to gather his thoughts before answering. “Well,” he
said, “possibly we are simply wrong or don’t understand what you have
in mind. But possibly, just possibly, IT is different.”
Barton snorted. “Everybody thinks they’re special. Is IT really differ-
ent or do IT managers just think it’s different?”
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“I don’t know,” answered Ruben. “But maybe I can suggest some of
the reasons why it might be special, if, in fact, it is.”
“Love to hear it,” said Barton, sitting back in the chair and folding his
hands on his lap to signal open-mindedness.
“You’ve been heading up Loan Operations for the past few years,”
Ruben said. “I suspect that makes you the most expert person in the
building about the intricate details of Loan Operations.”
Barton nodded.
“I suspect,” continued Ruben, “that you can do the job of anyone in
Loan Operations as well, if not better than, they can do it. Or if not, you
could probably get back to doing it that well within just a few minutes
or hours of starting to do it again.”
“I suspect you’re right about that.”
“Well,” said Ruben,“none of us in IT can say that. Technology moves
fast. Our people, many of them, are specialists. I was once a program-
mer, but the kind of programming I did bears little resemblance to
what our programmers do now. I get the gist of it, but the details left
me in the dust a long time ago.
“Moreover, some of our people are quite a bit more talented in their
specialty than any of us managers ever were. These are people who, in
terms of absolute intellectual horsepower, are probably a good bit
smarter than you or me, but who have little or no interest in doing the
jobs you and I do. They like the deep details, and they work with them
expertly in a way that we, as managers, can’t see into very well. So we
have to depend on them to tell us what’s going on in the details. Our
ability to independently verify what they tell us is rather limited. We
can tell the big things, like ‘are we done?’ or ‘does it work?’ at least to
some degree, but most of the things that go on from day to day are not
those big things. The interim stuff is a lot harder to observe and evalu-
ate. These are the simple facts of our daily reality.
“This would all be merely interesting if it weren’t for the additional
fact that in IT, the details often matter. There are all kinds of business is-
sues floating around within IT, but they are generally wound around
and in between technical issues. As managers we have to tease them
apart, so we can make the kinds of trade-offs we need to make—like
‘Should we spend more money to reduce our risk of exposure to hackers
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by a certain amount?’—knowing full well that we can spend an infinite
amount and never completely eliminate that risk. To put dimensions
on this trade-off and others like it, we need to see into the details better
than any of us still can. It would be nice to think we can all keep up with
the technical stuff, and a few remarkable individuals probably can
manage it, but most of us mere mortals can’t. So we depend on side-
kicks to help us tease apart business and technical issues, and to put di-
mensions on trade-offs. Make sense?”
Barton nodded thoughtfully, said nothing.
“Even with the sidekicks, it’s really hard,” Ruben added.
Barton wasn’t completely buying this explanation, but he didn’t say so.
“Any chance,” asked Barton, “you could give me a little primer on
who does what around here? Obviously I don’t understand what goes
on in the IT organization, down inside it. I mean, I realize John Cho is
an important guy here, but everyone seems to have a sidekick. I’m
guessing you’ve got some in your own organization.”
“Yes, in the database group, most notably Gita Puri. She’s a whiz,
though probably not quite as hard to replace as Cho.
“So, okay, let’s see. Let me try to do a high-level walk through of the
department, see where these people might live. Starting with my de-
partment: I have three groups that perform mostly staff functions of
one kind or another. One group is all about process improvement, new
IT approaches, and so forth. Think of this as a sort of internal consult-
ing group. A group of very smart people, a couple with sky-high poten-
tial, but no one with such mission-critical smarts that they’d provoke a
crisis if they left the company.
“The database group is a different matter. They specialize in making
sure we have robust database designs underlying all of our systems.
They have really technical expertise in database management systems.
This kind of expertise is rare, and it’s not just a matter of understand-
ing the technology. There’s a talent to database design. Gita is our
reigning expert; easily the key person in my department. She’d be very
tough to lose. Part of what makes people like Gita valuable, too, is their
knowledge of the database designs already in place, and the history of
decisions that determined why they’re designed as they are.
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“Finally, I have a group that focuses on infrastructure and vendor
products, making sure that as new vendor products appear—a new
model of laptop computer, a new server, that sort of thing—they all
work with our existing architecture. This group works with vendors to
make sure we have the information we need to support new equipment
or software versions, and they pressure vendors not to drop support of
installed, old technologies too quickly. Think of this as a vendor man-
agement group. That’s what they do mostly. No irreplaceable assets in
that group, although there are a lot of established relationships between
our people and vendor personnel that would take time to rebuild.
“Take Raj’s group next. As you know, they primarily support cus-
tomer service systems, really important stuff because of the way it im-
mediately cripples us if the systems go down. We can’t process new
applications or deal effectively with customer phone calls without those
systems. His is primarily a business applications systems group, focused
on the corresponding customer service–oriented business units. Unlike
my group, say, which has the luxury of taking a longer and overall busi-
ness view, his group is very closely tied to day-to-day business concerns.
He has about three application developers, super coders or architects,
although none of them quite as good as Ivan Korsky, the best in Tyra’s
group. Nevertheless, they’d probably be very difficult to replace; any one
of them leaving would have serious consequences to our ability to de-
liver on promises to business partners and customers. I’m probably a bit
out of date on Raj’s area, so you should consult with him to be sure I’ve
got this right.
“Tyra’s group you know, because it faces off to Loan Ops the same
way Raj’s faces off to Customer Service. Hers is the biggest application
group in the company, bigger than Raj’s because it has become where
we develop platforms for institutional clients—not just Loan Opera-
tions but a lot of related Web-based management services that clients
really care about. You know all about this, though, because you man-
aged the business side not so long ago. Ivan Korsky is her heaviest hit-
ter, but I’d bet she has another five or so it would really hurt to lose.
“Finally, we have Fenton’s group, the Infrastructure Management gang,
also quite large. Paul’s group is, in a way, an odd mix of very technical
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talented guys, and relatively low-tech guys with a lot of familiarity with
existing ways of doing things but not deep skills. The very high-tech
guys are the ones like Cho, or the very technical network engineers.
Top-flight talent, very hard to replace. At the other end of the spectrum
are the guys who every day schedule batch jobs—or rather make sure
the jobs complete successfully, since scheduling is mostly automated—
or who do other sorts of moving things around. Care and feeding of
testing environments, moving an application from one place to an-
other, that kind of thing.
“Fenton also has the facilities guys, the ones who make sure we don’t
run out of power when we add another server to one of the racks in the
data center. That’s mostly technical real estate work, making sure we
have floor space, climate control, connectivity, power, physical security,
and so on. I’d say Fenton has maybe five employees with deep dark tech-
nical talent. The risk of them leaving is a bit moderated because he’s
pretty technical himself. Of all of us managers, he’s the guy who retains
the most technical know-how that is still relevant. He’s stunningly com-
petent in what he does, so much so that we pretty much abuse him by
making him work too much. But as you’ll notice, he’s probably, of the
four of us, the least managerial in his orientation. Took him a while
when he first landed the job to become a good manager, but I think he’s
got it down pretty well now.”
Ruben stopped, having traversed the entire organization in rapid de-
scription. “That’s pretty much it,” he said. “Does that help?”
Barton nodded. “It helps. All those key people happy here at IVK?
Like their jobs? Their bosses?”
Ruben looked at Barton quizzically, as if trying to discern what he was
really asking. Then the older man shrugged and ventured what seemed to
Barton an overly cautious remark: “They’re all different; some of them
grumble their fair share, but I doubt anyone’s on the verge of leaving, if
that’s what you’re concerned about.”
“That’s what I’m concerned about,” Barton acknowledged. “How
about Cho?” he asked, picking as a “for instance” the person who came
most easily to mind.
Ruben’s expression flashed surprise before returning to normal.
“John? His talent for grumbling rivals his technical talent, but I don’t
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think he’ll leave us any time soon. Ask Fenton. But I think we’ve proven
more willing to accommodate Mr. Cho’s unusual working hours than
another company might be.”
Barton smiled. He suspected Ruben knew more than he was telling,
but made a mental note and decided not to press.“I really need to think
about all this.”
“Indeed,” said Ruben. “I would guess you have quite a bit to think
about.”
Barton smiled, added a diplomatic chuckle that wasn’t very heartfelt
and probably didn’t seem so. He stood and moved to the door.“Thanks,
Bernie,” he said, transitioning to an entirely genuine sentiment.
“No problem. Come back any time, we’ll talk more.”
“I’m pretty sure,” said Barton, “that I will.”
Monday, March 26, 12:12 p.m. . . .
Back in his office, Barton held his green pen aloft, contemplating the
statement on the whiteboard: “IT management is about management.”
Beneath this lone statement he began constructing a list, adding a first
entry: “Skill and talent mgmt/key skills, key contributors.” He had no
idea how to create a solution or system in this area yet, but after the mor-
ning’s meeting and the discussion with Ruben, he believed this was an
important subarea of IT management. He wasn’t sure yet whether the
problems Ruben had described—knowing who your key people are and
being able to supervise them and know what they are doing—were sepa-
rate and needed different solutions, or whether they were part of the
same issue. At this point, the new item on the whiteboard was a place-
holder. He’d have to trust and hope clarity would emerge in this area.
Before putting the pen down, he considered writing something
about his encounter with the kid at Vinnie’s Bar on Friday night, and
maybe something from his subsequent encounter with Davies. But he
didn’t think those things were part of a system of management he might
come up with. They were more like challenges, things to remember. Up
in the corner of the whiteboard, Barton wrote: “KWYDK,” his own pri-
vate code for “Know what you don’t know.” Then, at the bottom right
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corner of the whiteboard he wrote Davies’s challenge: “YWLOY.” “You
won’t last one year.” Good things to keep in mind, but not for others to
understand.
Wednesday, March 28, 7:35 a.m. . . .
Stuck in traffic and running late for a 7:30 a.m. meeting with his execu-
tive assistant, Barton leaned over to fiddle with his Audi’s sound system.
The traffic started to move just as he landed the radio on a business story.
Interestingly, it was about a CIO who’d had a major problem at a large
hospital.1 Barton listened attentively, but he’d come in at the middle and
wasn’t sure he understood what had happened. The story digressed into a
mini-biography of the CIO, which made Barton feel incredibly inade-
quate. The guy was amazing. A critical care physician who still took his
turn in the ER; PhD from MIT in bioinformatics; former entrepreneur
who had started, grown, and sold a company (while completing medical
school); and former student of a Nobel Prize–winning economist. He
was also the author of four books on computer programming, and had
written the first version of many of the hospital’s software applications
himself. Barton marveled, I bet he doesn’t need three technical experts
with him to talk about IT management issues.
Breaking free from traffic congestion, Barton guided his car into the
IVK parking structure, which promptly interfered with his radio reception.
Between crackles, he gathered that the hospital’s computer network had
been down for some days and required heroic intervention by a network
equipment company. The CIO had earned kudos for the transparency
with which he dealt with the crisis and, in an interview, highlighted his
lack of networking expertise as the reason he’d failed to foresee the prob-
lem. He listed the areas of his expertise—a formidable list—but then
pointed to a hole in his command of networking technology.
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KWYDK
YWLOY
IT management is about management → Skill and talent mgmt/key skills, key contributors
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About that time, the radio completely lost the station.
Barton emerged from his car and walked toward the elevators, mak-
ing a decision as he did it. Right after work he’d head to a bookstore,
buy some books on IT subjects. There was no way he could become an
expert like the guy on the radio, but he could do some reading, surprise
some people, ask questions he already knew the answers to, just to see
how people would interact with him.
He stepped into the elevator and pushed the “Up” button to begin
his day.
Wednesday, March 28, 11:43 p.m. . . .
Barton sat on the floor beneath the halogen glow of a crane-necked
lamp, amid piles of books opened and strewn randomly. Two dirty
plates and several takeout cartons lay discarded at the periphery of the
circle of light. He held one book on his lap, his eyes fixed at midpage.
But it had been a while since he’d actually read anything.
He’d left work early to visit the huge bookstore nearby. He wandered
through the vast computer section, picking up books, reading their
back and front material, leafing through them, choosing many of them,
and setting them aside in a pile for purchase. Books on TCP/IP, on router
protocols, on firewall design. Java programming, Java servlets, PGP,
PERL, Oracle DBA certification, Linux, Apache, SOA. Thin clients, proj-
ect management, the “capability maturity model,” Extreme Program-
ming, and EAI.
After charging more than $1,200 to his credit card and recruiting two
bookstore employees to help him get his purchases to the car, he set out
for home with a plan to judge for himself the theory favored by his di-
rect reports—that you can’t know enough about technology to manage
without a crew of nerd sidekicks. He picked up Indian food on his way
home and called Maggie to warn her against calling him later that night.
He intended to be busy.
A few minutes later, he was on the floor of his condo, forking food into
his mouth and studying the basics of IP addressing in subnets. When he
began, the bright light of afternoon was streaming through the windows.
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As daylight faded, Barton realized that his lamp alone burned amid the
darkness, but he didn’t mind. It would help him concentrate.
In retrospect, the first signs that his plan was ill-fated appeared in
the earlier phone conversation with Maggie. He had expected her to be
incredibly impressed, but she had been reticent.
“TCP/IP? BGP?” she said, after he read her a couple of the titles on
top of the pile in the passenger seat.
“You betcha,” he said.
“Well,” she said. “Don’t spend too much time on it. I think a general
idea of what all that is all about will suffice.”
“Don’t try to protect me, babe,” joked Barton, “I’m up for it.”
“Okay,” she said. But she didn’t sound so sure.
By 9:00 that night, he perceived a problem. His mind was swimming.
There were so many different layers. He had a book on data communi-
cations that talked about types of wire and voltage and stuff. There
were seven “OSI layers”—except when there were only six—and each
layer was complicated as hell. Most of them had nothing to do with de-
livering direct functionality to system users. He’d had no idea so much
complexity resided “below the floorboards” of IT systems. By 10:30, no
dots had even begun to connect: he’d learned a lot but he couldn’t see
any way that most of it would help him manage, except by accident.
Maggie called him just before midnight.
“How’s it going?” she asked, but he could tell from the sound of her
voice that she knew. She’d known how this whole thing would go from
the moment he’d told her of his plan.
“I think I’m going to need to think a lot more about my assump-
tions,” he said.
“Which ones?”
“The big ones. I think I might need to rethink my ideas about how
management works. Who can know what. I thought I knew what I did-
n’t know. I had no idea.”
“How does that make you feel?”
“Horrible. It’s a huge job, Maggs. I don’t know if I can do it.”
“If it helps any, I think you’re reaching the right conclusions. And
you’ve gotten there a lot faster than most. Some managers never get there.”
“Whatever you say.”
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“I’m right about this.”
“Yes, Maggie.”
“Get some sleep.”
“Yes, Maggie.”
“I’m coming home this weekend. I’ll make it all better.”
Barton had forgotten that. Not everything was horrible, then.
“Yes, Maggie,” he said, smiling.
REFLECTION
Do you think IT management is different from management of other functions?
What did Barton learn from his trip to the bookstore and late night of studying?
What depth of IT understanding must a CIO leader have to be effective?
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IT Organization Chart
The Hero Called to Action
52
Ellen Ripley Network
Operations team leader
Tyra Gordon Director of Loan Operations and New Application
Development Systems
Bernard Ruben
Director of Technical Services Group
Jim Barton CIO
Paul Fenton Director of
Infrastructure and Operations
Rebecca Calder
Loan Operation Systems
John Cho Security
Gary Geisler Director of
Planning and Control
TBD Infrastructure
Jorge Huerta Customer Service Systems
Raj Juvvani Director of Customer
Support and Collection Systems
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part two
The Road of Trials
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chapter four
The Cost of IT
Thursday, March 29, 1:30 p.m. . . .
When Barton had been in his new position as CIO for four days, an
e-mail arrived from the CEO to announce a series of meetings of the
leadership team. They’d begin with a kickoff meeting of one hour and
continue indefinitely with meetings of two-plus hours every Tuesday
and Thursday afternoon. The stated subject of the meetings: Review of
costs and business operations, formulation of a plan to recover IVK growth
trajectory.
Different departments, the e-mail explained, would take the lead in
each meeting. IT had been assigned Tuesday, April 17. This gave Barton
some time to get his act together. He’d need, the e-mail told him, answers
to a few questions. The key questions: “How much are we spending in
your area?” and “How does the spending fuel growth or contribute to the
bottom line (and how are we measuring this)?” Barton had expected the
e-mail—and these questions. It was exactly how he would have begun if
he were the new CEO.
In anticipation of just these questions, Barton had planned to spend
the afternoon with Gary Geisler, the IT department’s financial guru.
Despite his modest rank (the most junior manager level at IVK), Geis-
ler’s importance was clear from the location of his office. Other man-
agers at his level worked in cubicles in the open office area, but Geisler
had a private office right next to the CIO’s (empty since the departure
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of Davies—Barton had not moved into that space yet and wasn’t sure
that he would). Geisler reported directly to the CIO; unlike the other
CIO direct reports, however, no one reported to Geisler.
Barton didn’t know Geisler well, but had been present in meetings
when Davies had turned to the financial wizard for explanations. Bar-
ton read the guy as a bit of a know-it-all; he spoke with a silent “of
course” implied, as if expecting that no one should ever contradict him.
Barton didn’t relish the thought of dealing with the guy, but he was
looking forward to diving into the numbers, to get a management han-
dle on how things were going in the IT department.
Right on schedule, Geisler stepped into Barton’s office and scanned
the unfamiliar space for an appropriate seat. Gesturing to the chair op-
posite his desk, Barton started their conversation simply; he asked: “So,
Mr. Geisler. How much are we spending on IT?”
Barton’s question was the last simple thing to happen in the meeting.
“What do you mean by ‘we’?” said Geisler.
Barton laughed, then realized that Geisler was not joking. He tried
again: “How much does IVK spend on IT?”
“Ah,” said Geisler, “that ‘we.’ It depends on how you count.”
“Why,” said Barton, impatience rising, “does it depend on how you
count? It’s a simple question.”
“Well, as you know, the IT department formally controls none of the
budget that gets spent on IT. The business units get budget allocated to
them for IT expenditures, then we charge them for our services, using
an internal pricing system.
“In some cases, they are also free to use IT budget to obtain services
from external providers, although there have been limits placed on that
in the past, to make sure that we offset all of the fixed costs associated
with IT salaries and infrastructure. Basically, as long as our IT staff re-
mains fully ‘billed out’ to business units, the business units can also
choose to go outside for services.
“In addition, there are IT-like services, such as PDA service and sup-
port, which each individual department has procured on its own, some
using non-IT budget. Your predecessor, Bill Davies, thought he ought
to have some influence over those services, but he was unsure how to go
about reining in the business units. Each unit has a preferred PDA tech-
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nology, and in some units there are multiple technologies even within
the unit. Of course, the fact that the services are not provided by IT and
don’t use IT budget doesn’t stop the business units from seeking IT
support when their PDA e-mail stops working.”
“Okay,” said Barton, processing this rapid-fire explanation. He was
thinking about Loan Operations, realizing that his former group was
one that had multiple PDA technologies, each from a different vendor.
That hadn’t seemed like a big deal when he was in charge of Loan Ops.
But, as CIO, he would be held responsible for maintaining e-mail serv-
ice to the business units, just as he had held Davies responsible for it. As
more people relied on PDAs, the IT group would have less control over
e-mail service. An outage at a service provider could shut down e-mail
to PDAs as easily—even more easily—than a problem internal to IVK.
“Anyway, I assume you’d ultimately like to include all of that IT
spending from non-IT budgets when you ask for a total spent on IT,”
said Geisler, returning to the original question. “We can always break
things out into categories if that’s helpful.”
Barton nodded. He would, later, want things in categories, but he
was still trying to understand the basics: “So give me a number, any one
of those numbers,” said Barton. “What ballpark are we talking about?”
Geisler removed a sheet of paper from the file folder he’d been clutch-
ing and handed it to Barton.* “Without the money being spent on IT ser-
vices that is not from the IT budget—in other words, not including those
PDA services and the like that aren’t acquired using IT budget—that’s the
number I have here at hand—we spent just over $29 million on IT last
year on a cash flow basis, about $18.5 million on an accrual basis.”
Barton did a quick mental calculation. “About 8 percent of sales.”
“Yes, although historically we have run lower than that. As you
know, we’ve had trouble lately with revenue growth leveling off. The
former rapid growth rate was causing us to spend more on IT each year
to provide new services and the same old services to more and more
customers. But we were always playing catch-up. Our spending lagged
demand for services, and we were scrambling to add service capacity.
The Cost of IT
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*See “Project IT Capital and Operating Expenses for Fiscal Year X” at the end of this
chapter.
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When the growth rate leveled off, IT spending on a catch-up trajectory
couldn’t level off as fast. Davies was working on ways of slowing down
spending when—well, you know what happened to him. It’s not going
to be easy to bring costs back down. The percentage will probably go up
before it goes down. We’re not caught up in terms of modernization of
the IT infrastructure. Others are more expert on this than I am, but I
think we are in the middle of some major projects that won’t be easy to
cut back.
“Historically, I’d say we’ve run closer to 5 to 6 percent of sales on IT
spending. Which, by the way, Davies thought wasn’t enough to keep IT
assets from degrading over time, in terms of general robustness.”
“Hmm,”said Barton.“So the IT department has no budget of its own?”
“That’s right. We are essentially a service provider to the business
units. Some hours we directly bill to them via the chargeback system;
others, like expenditures on shared infrastructure or costs less directly
related to services for a particular area, we charge out as general over-
head, also within the chargeback system. We ultimately charge back all
of our costs to the business units.”
Barton remembered being puzzled by a largish item called “IT and
telecom services” on his Loan Operations monthly budget reports. He’d
paid little attention to it because his actions didn’t seem to influence it.
It went up a bit when he started major projects, but mostly it seemed not
to change over time.
“The overhead component is pretty big, right?” Barton asked. “I
don’t recall having a lot of control over the amount I was charged for IT
services when I was in Loan Operations.”
“That’s right. It varies by department, but I’d say most departments’
overhead chargebacks are between 70 and 80 percent of their total
amount. I can find out the exact number for Loan Operations if you
like . . .” He began leafing through the pages of an imposingly thick
black binder.
“No, never mind,” said Barton. “Tell me more about the chargeback
system. How does it work?”
“The direct billing part is just straight billing for hours—”
“I get that—”
“—but the overhead calculation is pretty complicated. It’s a formula.”
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“Where did the formula come from?”
“It came to IVK with CFO Mark Lundy, who isn’t here anymore . . . ”
“Yes, I remember him,” Barton said. Lundy had come to IVK from
the financing division of an established manufacturing company. He
hadn’t stayed with IVK long. The theory in hiring him, Barton recalled,
had been something about IVK needing someone who could bring
more systems and controls to the company. But Lundy never had been
a good fit; the fast-growing company’s immune system had rejected him.
“In the original version of the chargeback system,” continued
Geisler, “we just added up all of the overhead costs and allocated them
to departments equally, based on the number of telephones in use in
that department. In that system, the only way you could, as a business
unit manager, reduce the biggest portion of your IT chargeback was to
take a telephone away from someone.”
“Telephones?”
“Yes, it was an imperfect system to say the least. But that was the way
they had done it at Lundy’s old company.”
“But we don’t do it that way anymore.”
“No. The number of telephones is still in there, but we’ve gotten much
more sophisticated in recent years. The formula now includes things like
number of e-mail accounts, number of accounts on various other sys-
tems, average number of concurrent users per business unit logged on to
various systems at any point in time during the work day, number of new
records generated in various databases per day, and so on. It’s a much
closer approximation to charging back the ‘real cost’ of resource used.”
Barton felt a little dizzy. He considered asking Geisler to walk him
through the details of the formula, but decided against it. “Where did
the new formula come from?” he asked. He was imagining some sort of
a committee commissioned to come up with the formula, itself an awk-
ward compromise between business units. It would have been brutal,
not a committee Barton would ever want to serve on, nor had he ever
heard of such committee at IVK. But, as it turned out, a committee was
not the source of the formula. Geisler explained the formula’s origins
with a broad smile and a single word:
“Me.”
“You?”
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“Yes. I’ve been working on it and adjusting every year for the last
several. I feel that it’s really getting good now.”
Barton shook his head.
“Anybody else involved in determining this formula?”
Geisler became uncomfortable. “Uh, no.”
“Anybody else know and understand the formula?”
Geisler thought, then answered: “Probably not, actually. Of course,
I’ve designed the formula to represent economic reality, within the lim-
itations of our ability to measure usage of IT services.”
Barton made a snap decision not to fight the battle of where the for-
mula came from right now. It didn’t seem to be on anybody else’s radar,
and it probably made more sense as Geisler’s invention than it would
have if it had been the result of committee work.
“I’m going to need a one-page summary,” said Barton,“that gives me
the total cost number, including IT spending from non-IT budgets,
broken out in major categories, and that explains in terms as simple as
possible how those costs are being charged back to the business units.
The formula, in other words.” If he could get his peers to understand
the formula—if he could understand it himself—then maybe later he
could get them involved in checking and changing it.
“Sound doable?” asked Barton.
“Yes, it does. When will you need it?”
“When can you have it?” responded Barton.
Thursday, March 29, 4:25 p.m. . . .
Barton stared at his whiteboard, trying to figure out what he ought to
include there about IT costs. He’d spent all afternoon either talking
with Geisler or studying his cost numbers, but there remained huge
gaps in what Barton understood.
He rose from his chair, walked to the whiteboard and wrote three
things in a rough triangle: “IT costs,”“IT services” and “chargeback.” He
drew an arrow from “IT costs” to “IT services” then wrote “mapping?”
above the arrow. Then he drew an arrow from “IT services” to “charge-
back” and another from “chargeback” to “IT costs.”
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He assumed that if his department could make that mapping accurate
and explicit enough—so that costs could be assigned clearly to services
and departments could be charged for the services they used in a way that
made sense to them—this would be a good thing. But the earlier session
with Geisler had demonstrated just how complex the mapping could be.
Recalling Geisler’s explanation of the Byzantine structure of the evolved
chargeback system still made Barton’s head swim.
A mapping too complex for managers to understand would be a
poor input into decision making. Really, it would be a useless, needless
complexity to manage. But Barton had no idea whether it had to be that
way, or whether there might be a way of abstracting usefully to provide
a business description of the mapping that was neither misleading nor
too complex. Barton knew he suffered from huge gaps in his own un-
derstanding of what the IT budget paid for. He could read the names of
projects in the budget documents provided by Geisler, but he didn’t, he
now realized, understand what the projects were acting on or adding
to. He had no sense of the accumulated IT assets of IVK—the systems,
software, databases, hardware, and other forms of assets.
Barton wrote a large “?” in the middle of the triangle he’d just drawn,
then for the second time that day wandered down the hall to talk with
Bernie Ruben.
“Me again,” said Barton.
“Sure, sure, come in,” said Ruben. Barton sat down and explained his
problem.
“Well,”said Ruben,“let me see if I can help some. Let me tell you a story
about the evolution of the IT applications portfolio and infrastructure
The Cost of IT
61
KWYDK
YWLOY
IT management is about management → Skill and talent mgmt/key skills, key contributors
mapping? IT costs
chargeback IT services
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This document is authorized for use only by Lawrence Awuah at HE OTHER until August 2014. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or
617.783.7860.
at IVK. To some extent, this is a general description. Most companies
evolve their IT assets in a way much like this.”
Ruben rose, moved to his own whiteboard, erased a big part of it,
and began to draw a picture.*
“When we were a small company, back in the early days, we put to-
gether applications when we needed them for specific business reasons,
without much of a sense of an overall application portfolio or underly-
ing infrastructure. We didn’t have much going on in IT relative to
today, so that was just fine for that time and for that scale of operations.
Most of our IT spending was on applications related to creating specific
IT functionality in support of the business. The ability to originate a
loan, to input loan request information, to process a loan decision, that
kind of thing.
“This company was lucky to have been founded at a time when Web-
based technology was becoming important. Because of that we don’t
have huge investments, as many other companies do, in older technol-
ogy. Nevertheless, most of our operational systems run in overnight
batches, rather than in real time. We outsourced payroll at first, so that
helped us avoid some old technology investments in that area. We used
a lot of e-mail from the beginning, and quickly jumped on using e-mail
as a way of moving information, a sort of primitive workflow system
for moving files around.”
“Then,” said Barton, trying to move the story forward faster, “we
started to grow.”
“Oh, yes,” said Ruben, “did we ever. We grew, as you know and re-
member, quickly. As our IT operations gained scale, it made sense to
invest in ‘infrastructure,’ common services that everyone could use. A
robust database technology, security systems common to all our appli-
cations, and a big chunk of what gets called ‘middleware’ to manage in-
teractions between different systems. We brought payroll in-house, and
we acquired solid and robust systems for managing our call center op-
erations. As we did all this, the distribution of IT spend shifted. We
spent more on infrastructure, which meant less, as a percentage, on
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62
*See “Ruben’s Explanation of the Evolution of IVK’s Applications Porfolio and Infra-
structure” at the end of this chapter.
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