The Adventures of an IT Leader invites readers to âwalk in the shoesâ of
Here's What You'll Learn
Togglea 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 authorsâ 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 firmâs 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
ITânone 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 companyâs 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 companyâbut 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 Bartonâs 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 Vinnieâs 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 âwonât last one yearâ 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 Bartonâs 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 Bartonâs core IT team.
Gary Geisler: As director of Planning and Control, Geisler works closely with Barton on IT financials.
John Cho: IVKâs outspoken resident security genius, Cho has a dis- tinct fashion sense and provocative musical talent.
Jenny: Bartonâs ever-dependable executive assistant.
Several additional characters populate the story, but are described in
context.
Introduction
2
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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 CEOâs 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.
âSpeechlessâ 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 IVKâs most dynamic executives, a
key player and a likely CEO somedayâof 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 Williamâs 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. Heâd
done a good job, been a big contributor as the company had grown to
its present size. Something like âChief Operating Officerâ would fit him
quite nicely.
5
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On the other hand, to hear that he was being asked to leave would not
have enormously surprised him. He hadnât 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, heâd
heard mostly about reassignments. Executives involved in early-morning
meetings had departed as soon as theyâd 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 CEOâs words struck Barton with
near-physical force.
âJim, I donât think youâre going to like this very much.â
Bartonâs 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: âJust tell me, Carl. Weâre all grownups here.â
Williams chuckled. âItâs not what you think. Weâre 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.â
To Barton, Williamâs gestures, standing across the room, staring out
the windowâthe entire sceneâappeared overly dramatic. Although
the view from the thirty-fourth floor was enticing, Williams wasnât
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 didnât seem too awful.
âAs you know,â Williams continued, âthe 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.
âAs you probably suspected, the board asked me to reconstruct the
leadership team, to clear away the ârotâ 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. Iâd like you to be on that team.â
Relief. It didnât sound like a demotion. Williams continued.
âIt has been a difficult process. I havenât 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 youâve ended up in.â
An unusual assignment. I can live with that. Spirits lifting, Barton
made a constructive noise: âIâm willing to do whatever will help,â he of-
fered. âYou know me, Carl. Iâm a team player.â
âIâm delighted that you are taking that attitude,â said Williams, who
smiled but maintained his place at the window.
âYou see, after a considerable amount of shuffling and reshuffling,
and having discussed this with the board extensively, weâve . . .â Here
Williams drew in a deep breath, âWell, weâve decided that you should
be our new chief information officer.â
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 bossâs gaze burn into him. Finally, Barton managed to babble:
âCIO? You want me to be the CIO?â
âDavies has been overwhelmed in that role. Youâve been one of his
most outspoken critics.â
âI know, but . . . Iâve got no background in information technology.â
âBy 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 youâve said a few things along those lines to me, even in my short
time here. Unlike Davies, youâll report directly to me.â
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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: âBut Iâve got no background in IT.â
âAnd Davies has a lot. That clearly doesnât work, so weâve decided to
try something else.â Williams moved to the table and sat down. The
CEO learned forward, now locking eyes with his subordinate. âYouâre a
good manager, one of our best. You may not know much about IT, but
we think youâll figure it out.â
âIâll figure it out?â
âYes.â He nodded and leaned back in his chair. âItâs very important,
you know.â
âI know itâs important. Iâve been saying that myself.â
âA lot of people have heard you, loud and clear. The members of the
board of directors agree. Weâre not a small firm anymore. Havenât been
for a while. Increasingly, weâre more of a financial services factory. But
we donât come close to running the company that way yet. Thatâs got to
change. And a huge part of the change will be IT.â
Barton was helpless to disagree. Williams was paraphrasing argu-
ments that Barton himself had made many times. When heâd made
these arguments, though, heâd 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.
âWhatâs going on with Davies?â asked Barton.
âGone,â said Williams. âThis morning.â
So there would not even be a transition period. Just as well. Barton
had never gotten along with Davies. Davies didnât like Barton, and who
could blame him? Barton had been very critical of IT. He wasnât proud
of it, but heâd even occasionally stooped to making fun of Daviesâs
weird taste in neckties.
âCarl,â said Barton, âI just donât think Iâm the right choice. Itâs not
the place I can add the most value. Can I ask you to reconsider?â
Williams stood, strode to his desk, ready to move to his next meet-
ing. âItâs done,â he said. âI know itâs 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 youâll see that itâs a good idea. As unexpected as
this may seem, itâs not a punishment. IT is a problem area. You are a
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highly regarded fixer. Itâs going to be hard, but if you succeed, it will be
very good for this business.â
âI just canât see it at the moment,â said Barton.
âGive it time,â said Williams, impatience creeping into his voice,âbut
not too much time. I sincerely hope you wonât do anything stupid, like
walking out. Let me know what you decide.â
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.
âThanks, Carl,â he said, automatically.
Williams looked up, trying to determine whether Barton intended
sarcasm, deciding that he did not. âYou are most welcome,â he said.
Then he looked down at a sheaf of papers on his desk, to remind him-
self who was next on the dayâs meeting schedule.
Friday, March 23, 2:41 p.m. . . .
A small crowd was forming outside Bartonâs 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 courseâprobably as soon as Mondayâbut 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. Othersâ 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 Bartonâs
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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 heâd decided to resign, the next he was jotting notes
for improvements to IT processes. Heâd skipped lunch, a bad idea he re-
alized now. At 1:35 p.m., heâd 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 heâd looked right at them.
The first thing he had typed was âIT Management.â 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.âOutsourcing to India.â 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: âVirtualization.â
âManaged services.â Acronyms lay strewn about the page: SaaS. SOA.
PLM. ITIL. SSL. VPN. Most of it didnât look like âmanagementâ at all.
This was one of Bartonâs pet peeves. He used to say it to Davies, all the
time: âIT management has to be about management. Talk to me about
management. Profit. Risk. Return. Process. People. Not Trojan this or
blade server that.â
He stood up, moved to his whiteboard, and erased everything on it.
Then, at the top, in big, green letters he wrote, âIT management is
about management.â He underlined the second occurrence of the word
âmanagementâ 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. âThat
helped a lot,â he said sarcastically.
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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: âMore 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.â What a bunch of crap,
he thought. As heâd 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 didnât
say âIT understands the business better than any other group.â 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.
Doesnât 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 (âsmartsâ 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 wasnât sure what
actions might push the two circles togetherâheâd 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 Bartonâs IT-related experiences. If business people and technology
people shared more knowledgeâmore understandingâthe 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 suggestedâhelpfully, he
thoughtâthat people able to operate in that area of overlap where
âValueâ 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 âExecutivesâ hill in the picture, near the peak of understanding
the companyâs 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, heâd 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 wasnât
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 (careerâs)
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, âRocket Man,â 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
tacitâmastery 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-
nât even dress himself to be taken seriously in a business group. No one
wouldâve 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 âCIO.â 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 âA
Short History of the CIO Positionâ 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 âroller
coaster ride.â In the late â90s, 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 reasonsââdata processingâ 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 couldnât 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 ârevolutionâtossed out the new strategies and reverted to old ones.
Revenge of the nerds gave way to revenge of the cost accountants,
dot-com to âdot vertigo.â3 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
âhunt-kill-eatâ 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 CIOâs
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 âThe Incredible Shrinking CIOâ (âTheir budgets have been
cut, their workâs been outsourced, their staff âs been downsized, and
theyâve been pushed off the executive teamâ).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 wasnât quite sure what it meant, but he wasnât 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. Thatâs why heâd 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 beâprinciples, philosophies, practicesâthat 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 managementâthe management contentâis 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.
âWhat is it?â 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 himâor who had worked for himâin Loan Operations.
âJackie, whatâs going on?â
Jackie gathered her courage and told him:âWeâve been trying to figure
out where you fit in the new management team. Weâve figured out pretty
much everyone else, but youâre a puzzle. And,â she quickly added, âof
course those of us who work for you hope youâll continue to be our boss.â
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Barton laughed. âIâm afraid youâre out of luck.â
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: âIâm the new CIO.â
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
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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 StatementsâConsolidated Balance Sheet
June 30
Year X Year Xâ1
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 â4,227,745 â1,877,339
Property and equipment, net 11,108,399 4,378,108
Goodwill (Peopleâs 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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Financial Statements (continued)
June 30
Year X Year Xâ1
Liabilities and stockholdersâ 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 Stockholdersâ 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 Xâ1; no shares issued or outstanding At June 30, Year X or June 30, Year Xâ1 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 Xâ1, respectively 639,780 531,954
Additional paid-in capital 183,572,199 13,269,353 Retained earnings 73,488,197 34,320,121
Total stockholdersâ equity 257,700,176 48,121,428
Total liabilities and stockholdersâ equity 341,143,531 82,478,646
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Financial StatementsâConsolidated Income Statement
Years ended June 30
Year X Year Xâ1 Year Xâ2
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 â814,894 â116,983 â91,220 Other income â2,412 â2,200 â130,447
Total other expense, net â99,914 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 Ă shares, $1,953 $3,416 $1,370 in millions)
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Stock Price for IVK Corporation
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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 heâd been dating for the past several months. Barton was frus-
trated that, on top of the dayâs 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 âgiftedâ 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 didnât 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: âGirl Singing in the Wreckageâ and âItâs Only the End of the
Worldâ didnât 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 couldnât
quite follow:
âYouâve got to know what you donât know.â
âHuh?â responded Barton.
âWhat you donât know. Youâve got to know it.â
âHow can I know it if I donât know it?â
âNo, I donât mean you should know the things that you donât know. I
mean that you should know the things you know, and know what you
donât know.â
Barton shook his head, perplexed.
âHow are those things different?â
âThe things you know and the things you donât know? Because you
know one and you donât know the other.â
âYeah, but you think I should know them both. I see how to know
the ones I know but itâs that know-things-you-donât-know bit Iâm trip-
ping over.â
âLet me start over,â the kid said.âIn taking on a new assignment, such
as the one youâve 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 donât. And you have to know what is in which category.â
âOh, I see. I think. I donât have to actually know things I donât know,
I just have to know what they are and realize that theyâre in the donât-
know category.â
The kid drained the last of a mug of Coke and slammed it down hard
on the bar. âThatâs it!â
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.
âSo, what about it?â the kid asked.
âHuh?â said Barton.
âWhat about it? Do you think you . . . you realize what categories of
things you know and what categories of things you donât know?â
Barton thought about this.âYes,â he said.âI definitely donât know the
techie stuff. I definitely do know the management stuff.â
âHmmm,â the kid said.
âWhat?â asked Barton.
âYou sure about that?â
âAbout what? Iâm sure I donât know the techie stuff.â
The kid raised his eyebrows, a gesture that suggested wisdom Barton
thought he could not possibly possess. âSo what about the âmanage-
ment stuff,â as you put it?â
Barton was indignant.âOf course I know that stuff. Iâm the best man-
ager theyâve got. Thatâs why theyâve chosen me for this job.â
âOkay,â said the kid. He motioned to the bartender, ordering another
Coke. The bartender shouted down to Barton,âYou want another too?â
Barton shook his head. He was still fixated on the kid and what he was
saying.
âYou donât seem convinced.â
âAre you?â
âYes.â
âHey, fine. Whatever.â
âBut you donât believe me. Even though you donât know me and
have never seen me manage anything,â observed Barton.
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âItâs not that,â said the kid, receiving a new, frosty mug from the bar-
tender and taking a sip. âItâs nothing to do with you personally.â
âWhat is it then?â
The kid shrugged. âIâm a technical guy, what do I know?â
âIâm not asking you what you know; Iâm asking you what you think.â
âItâs just,â he said, now turning to Barton with a slightly vindictive
tone, âthat Iâve worked for a lot of people who think theyâre good man-
agers, and what they donât know is that they donât know a rainforest
from a desert. So nothing personal. I just think most people who think
they âknow the management stuff â probably donât really. You might be
an exception.â 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. âFair enough,â
he said to the kid.
The kid seemed surprised. âYou might be an okay manager after all,â
he said.
âSo if you were me,â Barton asked, âwhat would you do on Monday?
What would you do on your very first day?â
âEasy,â the kid responded. âStart trying to figure out who on your
team is really good. You donât know the âtechie stuff,â as you put it, so it
wonât be easy for you to tell who in the department is really good and
who isnât all that good. Lots of managers never really know that. And, to
pick up on our earlier conversation, they donât know that they donât
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 doesnât
know what he or she doesnât know. Itâs a state of blissful management ig-
norance. Thereâs definitely a talent in it, donât 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.â
Just then, Bartonâs phone rang. It was Maggie.
âHi Jim, looks like I missed several calls,â she said.âEverything okay?â
âNot really,â he answered, âbut nothing dire or life threatening. If
youâve got some time, Iâll tell you about it.â
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âIâve got time now,â she said. âWe had a team meeting that went late
or Iâd have called you back sooner. Where are you?â Sheâd heard back-
ground noise.
âIâm at Vinnieâs.â
âUh-huh. And how many drinks have you had?â
There was no use feigning innocence; she could tell that he hadnât
been drinking coffee. âA couple,â he admitted.
âHow about,â she said, âif we talk while you walk home?â
This was fine with Barton. He was eager to tell her about the dayâs
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.
âHold on a minute,â he said into the phone. Then, out loud, to the
kid: âHey, kid. Want a job?â
The kid laughed. âNot right now. But ask me again in a few weeks.
Maybe then. And you can tell me how itâs going.â
âFair enough.â 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, heâd felt unsettled all afternoon, as he hit the dry
cleaner and drug store, stopped in a grocery to grab some ready-to-cook
dinner. Heâd spent Saturday night watching TV and listening to the
music that Jack had sent him, and then heâd 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. Heâd have sent out
notice of the meeting on the weekend, but he realized that he wasnât even
sure who the direct reports to the CIO were. Sending the notice on Mon-
day wouldnât 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, theyâd
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 CEOâs office about how
much IVK spent on IT. Right now, he didnât even know the right cate-
gories for analyzing IT spending (but he knew he didnât 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 couldnât feel very good to get fired; Barton had
never experienced that, didnât care to.
A few minutes later, two paths converged andâto Bartonâs horrorâ
he found himself running almost side-by-side with Davies, who didnât
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 heâd
made about Daviesâs âbenevolent dictatorâ leadership style and rather
quirky wardrobe. But maybe to say âno hard feelings,â to convey some
respect for the work the other man had done. And maybeâjust maybe,
Barton realizedâto 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.
âHi, Bill,â said Barton.
âHello, Jim,â responded Davies.
âNice day.â
âA bit cold for March.â
A pause grew uncomfortable. Barton broke it: âI guess you heard . . .â
âI did.âSaid too quickly, to cut off whatever else Barton was about to say.
Barton waited to give Davies time to say more, but he didnât. Barton
opted for brevity to fill the new silence: âIronic, huh?â
âI laughed for about half an hour when I heard.â
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
guyâs 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: âHey, I just want you to knowâwe
had some disagreements.â
âWe sure did.â
Again, Barton could not read the sentiment behind the words. He
continued: âI was out of line at times, and I feel bad about that.â Davies
shrugged. Barton pressed ahead: âI guess I just want to say âNo hard
feelings,â not on my part.â
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: âWhat you
donât realize, Jim, is that youâll be gone soon too. That company is a
madhouse. Nobody could succeed running IT in that place. You wonât
last a year.â
Barton started to answer, but Davies wasnât finished: âDonât feel bad
for me,â he added. âI start a new job on Monday. I even got a raise. And
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youâre going to need all that feeling-bad capacity for yourself when you
get tossed out on your butt.â
Without waiting for a response from Barton, Davies sprinted away,
making it clear that he didnât want to be followed.
Barton couldnât have followed anyway.
The offer of the CIO job had provoked many strong reactions in
Barton. Heâd felt put-upon. Heâd patted himself on the back for being a
good guy, willing to âtake oneâ for the team. Heâd 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 momentâuntil
Davies had said what heâd saidâJim Barton had not once considered
the possibility that the company might unceremoniously boot him if
they didnât 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 Daviesâs words, he knew they contained
truth. In business, memories were short. Nine months from now, no
one would remember what a great guy heâd been to take the job. Theyâd
just know it was his job, and if they thought he was doing it badly, theyâd
feel no more loyalty toward Barton than he had felt toward Davies. A lot
couldâand wouldâchange in a short time.
So if he was going to take this jobâif Jim Barton was going to become
the CIO of IVKâhe 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, reallyâthe kind of point he might have made
to Davies in a past discussion. Heâd been deluded to think otherwise, and
the sudden âshoe on the other footâ 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 Daviesâs 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 wasnât sure how to go about this.
Heâd 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, heâd like to approach.
He wasnât sure what to tell her when she asked about this, however.
Competitors wouldnât do. They couldnât be counted on to be forth-
coming, and there might even be legal issues. On the other hand, heâd
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.
âHey there,â she said. âI was just about to call you. How are you feel-
ing today about the fast-moving events in your life?â
Barton laughed. âA little whiplashed, but okay, I guess. How about
youâyou spend a lot of time with CIOs alreadyâsure you want to be
involved with one?
âYou mean, will I still love you if you turn into an IT nerd? Iâm not
sure. But I think I can handle it.â
âGee, I sure hope so,â said Barton trying on a nerd voice, realizing he
was no good at it, then reverting to normal tones:âSeriously though, I am
getting more practical about it, thinking about how to do it. If I do it.â
âThat sounds like a good thing.â
âI 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 donât actually know anybody helpfulââ
âAh, but youâre thinking maybe I do?â
âYep.â
âYet again, you want me for my knowledge.â
âAmong other things.â
âWell,â she sighed playfully, âokay. But itâll cost you. Want me to set
up some lunches?â
âThat sounds about right.â
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âItâs a terrific idea. But what you get out of it, Jim, Iâll tell you right
now, is going to be highly variable.â
âOkay, Maggs. Whyâs that?â
âBecause to get to the level of discussion that will be really helpful, youâre
going to have to get to know these people. Surface-level stuff will help some,
but to get into the next level of discussion, youâll 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.â
âMakes sense. How about if we set up some first meetings, then we
can figure out who seems promising for repeat engagements?â
âYeah. Iâm thinking local metro area, but youâd probably be willing
to fly an hour or two for the right lunch date, right?â
âAbsolutely.â
âAny thoughts,â she asked, âon which companies, which CIOs?â
âI donât really know any CIOs,â Barton answered. âAnd Iâm not sure
how to think about which companies.â
âHow soon would you like to start?â
âNot sure about that either. Iâm tempted to say âas soon as possible,â
but maybe you think thereâs some level of expertise I should acquire be-
fore I start this process?â
âNo, I donât think thatâs the issue, unless that would make you more
comfortable. Tell you what, why donât 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. Iâll probably vary from your guidance where I
think itâs a good idea, but this would give me a basis to start.â
âThanks, Maggs. Iâll do that as soon as I can, next couple of days. Iâd
do it today, but Iâd like to get a bit of a read from some of my new man-
agement team.â
âDoesnât sound like youâre thinking about this assignment hypo-
thetically anymore. Decided to take the job?â
âLetâs just say that I havenât decided to leave, so I guess maybe thatâs
the same thing as deciding to accept.â
âYou okay with me setting up some meetings with other industry
folks, not necessarily CIOs?â
âI think so. Who do you have in mind?â
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âSome 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.â
âWow. Thatâd be great. I might find it particularly helpful to talk to
people who have a business view into IT.â
âHave you thought about whether there are other strategic lunch en-
gagements you should seek out? How about meeting with customers?â
âI know all our customers pretty well. I was head of Loan Ops until
about forty-eight hours ago, you know.â
âBut you donât know them as the IVK CIO. You might be surprised
by what you donât 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.â
âI see. Thatâs a good idea,â said Barton, though privately he was less
than fully convinced. If his customers had been having trouble with IT,
heâd have known about it.
âBy the way, Jim, I saw a presentation the other day about how the
CIOâs position is changing. I took some notes to send to a couple of my
staff. I can send them to you, if you like.â*
âIâll look forward to seeing them. Thanks, Maggs,â said Barton.
âAnyone else you want to meet with?â
âWith all these ideas youâre coming up with, Iâm going to have to pri-
oritize a bit. Canât meet with them all right away.â
âYou give it some thought, Iâll give it some thought. Weâll formulate
a plan.â
âRight. Letâs figure out what to do.â
âThen do it.â
âRight.â Barton shifted gears, âSo, how are things there? That hand-
some banking client behaving himself?â
âJim, Jim, Jim,â Maggie said, feigning disappointment, an exasper-
ated headshake conveyed in the rhythm of her words: âIs that your way
of saying that you miss me?â
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*See âMaggieâs notes on âThe New CIO Roleââ at the end of this chapter.
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REFLECTION
How do you interpret the kidâs advice, âYouâve got to know what you donât knowâ?
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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Maggieâs Notes on âThe New CIO Roleâ
Gap in CIOâs âStrategic Aspirationsâ
⢠According to an IBM survey of 176 CIOs worldwide, the number- one barrier that impedes the CIO in becoming a business leader:
â Misperceptions of the CIO role: 31%
â Lack of business skills and competencies: 26%
â Failure to understand importance of IT: 12%
â Lack of time to spend on strategic issues: 12%
â Poor collaboration with lines of business: 8%
â Lack of support from CEO/Board: 7%
â 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 firmâs 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 âNext Stepsâ
⢠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
⢠Donât 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, âMeet the New CIO,âOpinion, November 19, 2007, http://www.sandhill.com/opinion/editorial.php?id=161.
a. âThe CIO Profession: Driving Innovation and Competitive Advantage,â 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. . . .
âI think itâs a question of whether the five of us working alone will be
able to accomplish what you have in mind,â said Bernie Ruben, director
of the IT departmentâs 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 Bartonâs
senior, near enough to retirement to feel safe or simply old enough not
to care, was the bravest of his direct reports. Rubenâs 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 Bartonâs plan. First thing
that morning heâd asked Jenny, his assistant, to find an IT department
organization chart. With that in his possession, heâd 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 âIT Organization Chartâ 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. Heâd expected quick acceptance followed by a ses-
sion of planning for the event.
But heâd been wrong. No more than three or four minutes into his
explanation of what he had in mind, Fenton interjected a question:
âYou want just the five of us at this off-site?â
âThatâs what I was thinking,â said Barton. Fenton and Gordon ex-
changed knowing looks. Barton had not understood the question; he
tried for clarification: âWhy not just the five of us?â
Fenton shifted uncomfortably. He glanced in the direction of the
others and saw that no help would be forthcoming.
âItâs just that weâll only be able to go so far in certain discussions
without other people involved,â said Fenton. âFor example, if we want
to talk about security, Iâd want to involve John Cho.â
âJohn Cho?â said Barton.
The others nodded, their movements synchronized. Ruben spoke
up: âCho. You know him. Wild hair, purple streaks. Boots. Black tee
shirts adorned with human skulls. Piercings.â
âThat guy,â said Barton, nodding. âBeen in meetings with him. Not
sure Iâve been formally introduced.â
âHeâs whatâs standing between this company,â said Ruben, âand the
armies of hackers whoâd love to loot a financial services firm.â
âAre we sure Cho is on our side?â Barton intended this as a joke, but
it fell flat.
Fenton, speaking up for his employee, said: âOh, John is definitely a
white hat.â
âA white hat?â
They all nodded, again in sync. Ruben smiled, said, âAlthough he
wouldnât be caught dead actually wearing one.â
Everyone laughed, which shattered the tension in the room. It was
the effect Barton had been going for when heâd tried his joke. Ruben
had realized it, done Barton a favor.
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âWhat if we wanted to talk about security at a management or policy
level? Would we need John Cho then?â
âJohnâs really a nice guy, despite his attire . . .â
âItâs not that,â Barton interjected. âIâm 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.â
âIt really depends on what you want to talk about,â said Ruben.
âIâd 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.â
Barton stopped talking to avoid making a speech. He looked around
the room, saw more deer-in-the-headlight looks. Thatâs when Ruben
made his âwhether the five of us working alone will be able to . . .â 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. Shouldnât they have enough
expertise to hold a high-level planning meeting without involving their
tech nerds? Shouldnât 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
couldnât supervise properly if they didnât understand the details of the
work well enough.
Barton recalled a definition of supervision that heâd liked well
enough to memorize, although he couldnât remember now where heâd
first heard it: A supervisorâs 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 couldnât
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?
âWhat do you think the five of us alone could accomplish?â asked
Barton.
Eventually they settled on a tentative plan that met Bartonâs 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 Rubenâs
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.
âHave a seat,â said Ruben, motioning to a chair stacked with paper.
Barton moved the paper to an edge of Rubenâs untidy desk and sat down.
âWhat can I do for you?â Ruben asked, flashing an accommodating, ap-
parently sincere smile.
âYou seem to be the one in this group willing to stand up to me,â said
Barton, âso I was hoping you could help me understand a few things.â
âIâll do my best.â
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: âI guess I donât see why
the IT department heads need to have their sidekicks present before
they can have a productive discussion. Iâve done this lots of times in
other organizations, and Iâve never run into this objection before.â
Ruben seemed to gather his thoughts before answering. âWell,â he
said, âpossibly we are simply wrong or donât understand what you have
in mind. But possibly, just possibly, IT is different.â
Barton snorted. âEverybody thinks theyâre special. Is IT really differ-
ent or do IT managers just think itâs different?â
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âI donât know,â answered Ruben. âBut maybe I can suggest some of
the reasons why it might be special, if, in fact, it is.â
âLove to hear it,â said Barton, sitting back in the chair and folding his
hands on his lap to signal open-mindedness.
âYouâve been heading up Loan Operations for the past few years,â
Ruben said. âI suspect that makes you the most expert person in the
building about the intricate details of Loan Operations.â
Barton nodded.
âI suspect,â continued Ruben, âthat 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.â
âI suspect youâre right about that.â
âWell,â said Ruben,ânone 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.
âMoreover, 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, canât see into very well. So we
have to depend on them to tell us whatâs going on in the details. Our
ability to independently verify what they tell us is rather limited. We
can tell the big things, like âare we done?â or âdoes it work?â 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.
âThis would all be merely interesting if it werenât 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 makeâlike
âShould we spend more money to reduce our risk of exposure to hackers
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by a certain amount?ââknowing 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 canât. 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?â
Barton nodded thoughtfully, said nothing.
âEven with the sidekicks, itâs really hard,â Ruben added.
Barton wasnât completely buying this explanation, but he didnât say so.
âAny chance,â asked Barton, âyou could give me a little primer on
who does what around here? Obviously I donât 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. Iâm
guessing youâve got some in your own organization.â
âYes, in the database group, most notably Gita Puri. Sheâs a whiz,
though probably not quite as hard to replace as Cho.
âSo, okay, letâs 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 theyâd provoke a
crisis if they left the company.
âThe 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 itâs not just a matter of understand-
ing the technology. Thereâs a talent to database design. Gita is our
reigning expert; easily the key person in my department. Sheâd 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 theyâre designed as they are.
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âFinally, I have a group that focuses on infrastructure and vendor
products, making sure that as new vendor products appearâa new
model of laptop computer, a new server, that sort of thingâthey 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. Thatâs 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.
âTake Rajâs 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 canât 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 serviceâoriented 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 Tyraâs
group. Nevertheless, theyâd 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. Iâm probably a bit
out of date on Rajâs area, so you should consult with him to be sure Iâve
got this right.
âTyraâs group you know, because it faces off to Loan Ops the same
way Rajâs faces off to Customer Service. Hers is the biggest application
group in the company, bigger than Rajâs because it has become where
we develop platforms for institutional clientsânot 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 Iâd bet she has another five or so it would really hurt to lose.
âFinally, we have Fentonâs group, the Infrastructure Management gang,
also quite large. Paulâs 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 jobsâor rather make sure
the jobs complete successfully, since scheduling is mostly automatedâ
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.
âFenton also has the facilities guys, the ones who make sure we donât
run out of power when we add another server to one of the racks in the
data center. Thatâs mostly technical real estate work, making sure we
have floor space, climate control, connectivity, power, physical security,
and so on. Iâd say Fenton has maybe five employees with deep dark tech-
nical talent. The risk of them leaving is a bit moderated because heâs
pretty technical himself. Of all of us managers, heâs the guy who retains
the most technical know-how that is still relevant. Heâs stunningly com-
petent in what he does, so much so that we pretty much abuse him by
making him work too much. But as youâll notice, heâs 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 heâs
got it down pretty well now.â
Ruben stopped, having traversed the entire organization in rapid de-
scription. âThatâs pretty much it,â he said. âDoes that help?â
Barton nodded. âIt helps. All those key people happy here at IVK?
Like their jobs? Their bosses?â
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: âTheyâre all different; some of them
grumble their fair share, but I doubt anyoneâs on the verge of leaving, if
thatâs what youâre concerned about.â
âThatâs what Iâm concerned about,â Barton acknowledged. âHow
about Cho?â he asked, picking as a âfor instanceâ the person who came
most easily to mind.
Rubenâs expression flashed surprise before returning to normal.
âJohn? His talent for grumbling rivals his technical talent, but I donât
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think heâll leave us any time soon. Ask Fenton. But I think weâve proven
more willing to accommodate Mr. Choâs unusual working hours than
another company might be.â
Barton smiled. He suspected Ruben knew more than he was telling,
but made a mental note and decided not to press.âI really need to think
about all this.â
âIndeed,â said Ruben. âI would guess you have quite a bit to think
about.â
Barton smiled, added a diplomatic chuckle that wasnât very heartfelt
and probably didnât seem so. He stood and moved to the door.âThanks,
Bernie,â he said, transitioning to an entirely genuine sentiment.
âNo problem. Come back any time, weâll talk more.â
âIâm pretty sure,â said Barton, âthat I will.â
Monday, March 26, 12:12 p.m. . . .
Back in his office, Barton held his green pen aloft, contemplating the
statement on the whiteboard: âIT management is about management.â
Beneath this lone statement he began constructing a list, adding a first
entry: âSkill and talent mgmt/key skills, key contributors.â He had no
idea how to create a solution or system in this area yet, but after the mor-
ningâs meeting and the discussion with Ruben, he believed this was an
important subarea of IT management. He wasnât sure yet whether the
problems Ruben had describedâknowing who your key people are and
being able to supervise them and know what they are doingâwere 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. Heâd 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 Vinnieâs Bar on Friday night, and
maybe something from his subsequent encounter with Davies. But he
didnât 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: âKWYDK,â his own pri-
vate code for âKnow what you donât know.â Then, at the bottom right
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corner of the whiteboard he wrote Daviesâs challenge: âYWLOY.â âYou
wonât last one year.â 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 Audiâs sound system.
The traffic started to move just as he landed the radio on a business story.
Interestingly, it was about a CIO whoâd had a major problem at a large
hospital.1 Barton listened attentively, but heâd come in at the middle and
wasnât 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 Prizeâwinning economist. He
was also the author of four books on computer programming, and had
written the first version of many of the hospitalâs software applications
himself. Barton marveled, I bet he doesnât 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 hospitalâs 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 heâd failed to foresee the prob-
lem. He listed the areas of his expertiseâa formidable listâbut then
pointed to a hole in his command of networking technology.
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KWYDK
YWLOY
IT management is about management â 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 heâd 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 âUpâ 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 heâd actually read anything.
Heâd 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 âcapability maturity model,â 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 reportsâthat you canât 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 didnât 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.
âTCP/IP? BGP?â she said, after he read her a couple of the titles on
top of the pile in the passenger seat.
âYou betcha,â he said.
âWell,â she said. âDonât spend too much time on it. I think a general
idea of what all that is all about will suffice.â
âDonât try to protect me, babe,â joked Barton, âIâm up for it.â
âOkay,â she said. But she didnât 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 âOSI layersââexcept when there were only sixâand each
layer was complicated as hell. Most of them had nothing to do with de-
livering direct functionality to system users. Heâd had no idea so much
complexity resided âbelow the floorboardsâ of IT systems. By 10:30, no
dots had even begun to connect: heâd learned a lot but he couldnât see
any way that most of it would help him manage, except by accident.
Maggie called him just before midnight.
âHowâs it going?â she asked, but he could tell from the sound of her
voice that she knew. Sheâd known how this whole thing would go from
the moment heâd told her of his plan.
âI think Iâm going to need to think a lot more about my assump-
tions,â he said.
âWhich ones?â
âThe 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-
nât know. I had no idea.â
âHow does that make you feel?â
âHorrible. Itâs a huge job, Maggs. I donât know if I can do it.â
âIf it helps any, I think youâre reaching the right conclusions. And
youâve gotten there a lot faster than most. Some managers never get there.â
âWhatever you say.â
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âIâm right about this.â
âYes, Maggie.â
âGet some sleep.â
âYes, Maggie.â
âIâm coming home this weekend. Iâll make it all better.â
Barton had forgotten that. Not everything was horrible, then.
âYes, Maggie,â 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. Theyâd 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. Heâd need, the e-mail told him, answers
to a few questions. The key questions: âHow much are we spending in
your area?â and âHow does the spending fuel growth or contribute to the
bottom line (and how are we measuring this)?â Barton had expected the
e-mailâand 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 departmentâs financial guru.
Despite his modest rank (the most junior manager level at IVK), Geis-
lerâs 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 CIOâs (empty since the departure
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of DaviesâBarton had not moved into that space yet and wasnât sure
that he would). Geisler reported directly to the CIO; unlike the other
CIO direct reports, however, no one reported to Geisler.
Barton didnât 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 âof
courseâ implied, as if expecting that no one should ever contradict him.
Barton didnât 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 Bartonâs 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: âSo,
Mr. Geisler. How much are we spending on IT?â
Bartonâs question was the last simple thing to happen in the meeting.
âWhat do you mean by âweâ?â said Geisler.
Barton laughed, then realized that Geisler was not joking. He tried
again: âHow much does IVK spend on IT?â
âAh,â said Geisler, âthat âwe.â It depends on how you count.â
âWhy,â said Barton, impatience rising, âdoes it depend on how you
count? Itâs a simple question.â
âWell, 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.
âIn 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 âbilled outâ to business units, the business units can also
choose to go outside for services.
âIn 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
donât use IT budget doesnât stop the business units from seeking IT
support when their PDA e-mail stops working.â
âOkay,â 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 hadnât 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 easilyâeven more easilyâthan a problem internal to IVK.
âAnyway, I assume youâd ultimately like to include all of that IT
spending from non-IT budgets when you ask for a total spent on IT,â
said Geisler, returning to the original question. âWe can always break
things out into categories if thatâs helpful.â
Barton nodded. He would, later, want things in categories, but he
was still trying to understand the basics: âSo give me a number, any one
of those numbers,â said Barton. âWhat ballpark are we talking about?â
Geisler removed a sheet of paper from the file folder heâd been clutch-
ing and handed it to Barton.* âWithout the money being spent on IT ser-
vices that is not from the IT budgetâin other words, not including those
PDA services and the like that arenât acquired using IT budgetâthatâs the
number I have here at handâwe spent just over $29 million on IT last
year on a cash flow basis, about $18.5 million on an accrual basis.â
Barton did a quick mental calculation. âAbout 8 percent of sales.â
âYes, although historically we have run lower than that. As you
know, weâve 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 âProject IT Capital and Operating Expenses for Fiscal Year Xâ at the end of this
chapter.
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When the growth rate leveled off, IT spending on a catch-up trajectory
couldnât level off as fast. Davies was working on ways of slowing down
spending whenâwell, you know what happened to him. Itâs not going
to be easy to bring costs back down. The percentage will probably go up
before it goes down. Weâre 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 wonât be easy to
cut back.
âHistorically, Iâd say weâve run closer to 5 to 6 percent of sales on IT
spending. Which, by the way, Davies thought wasnât enough to keep IT
assets from degrading over time, in terms of general robustness.â
âHmm,âsaid Barton.âSo the IT department has no budget of its own?â
âThatâs 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.â
Barton remembered being puzzled by a largish item called âIT and
telecom servicesâ on his Loan Operations monthly budget reports. Heâd
paid little attention to it because his actions didnât seem to influence it.
It went up a bit when he started major projects, but mostly it seemed not
to change over time.
âThe overhead component is pretty big, right?â Barton asked. âI
donât recall having a lot of control over the amount I was charged for IT
services when I was in Loan Operations.â
âThatâs right. It varies by department, but Iâd say most departmentsâ
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 . . .â He began leafing through the pages of an imposingly thick
black binder.
âNo, never mind,â said Barton. âTell me more about the chargeback
system. How does it work?â
âThe direct billing part is just straight billing for hoursââ
âI get thatââ
ââbut the overhead calculation is pretty complicated. Itâs a formula.â
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âWhere did the formula come from?â
âIt came to IVK with CFO Mark Lundy, who isnât here anymore . . . â
âYes, I remember him,â Barton said. Lundy had come to IVK from
the financing division of an established manufacturing company. He
hadnât 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 companyâs immune system had rejected him.
âIn the original version of the chargeback system,â continued
Geisler, âwe 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.â
âTelephones?â
âYes, it was an imperfect system to say the least. But that was the way
they had done it at Lundyâs old company.â
âBut we donât do it that way anymore.â
âNo. The number of telephones is still in there, but weâve 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. Itâs a much
closer approximation to charging back the âreal costâ of resource used.â
Barton felt a little dizzy. He considered asking Geisler to walk him
through the details of the formula, but decided against it. âWhere did
the new formula come from?â 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 formulaâs origins
with a broad smile and a single word:
âMe.â
âYou?â
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âYes. Iâve been working on it and adjusting every year for the last
several. I feel that itâs really getting good now.â
Barton shook his head.
âAnybody else involved in determining this formula?â
Geisler became uncomfortable. âUh, no.â
âAnybody else know and understand the formula?â
Geisler thought, then answered: âProbably not, actually. Of course,
Iâve designed the formula to represent economic reality, within the lim-
itations of our ability to measure usage of IT services.â
Barton made a snap decision not to fight the battle of where the for-
mula came from right now. It didnât seem to be on anybody elseâs radar,
and it probably made more sense as Geislerâs invention than it would
have if it had been the result of committee work.
âIâm going to need a one-page summary,â said Barton,âthat 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.â If he could get his peers to understand
the formulaâif he could understand it himselfâthen maybe later he
could get them involved in checking and changing it.
âSound doable?â asked Barton.
âYes, it does. When will you need it?â
âWhen can you have it?â 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. Heâd 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: âIT costs,ââIT servicesâ and âchargeback.â He
drew an arrow from âIT costsâ to âIT servicesâ then wrote âmapping?â
above the arrow. Then he drew an arrow from âIT servicesâ to âcharge-
backâ and another from âchargebackâ to âIT costs.â
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He assumed that if his department could make that mapping accurate
and explicit enoughâso 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 themâthis would be a good thing. But the earlier session
with Geisler had demonstrated just how complex the mapping could be.
Recalling Geislerâs explanation of the Byzantine structure of the evolved
chargeback system still made Bartonâs 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 didnât, he
now realized, understand what the projects were acting on or adding
to. He had no sense of the accumulated IT assets of IVKâthe systems,
software, databases, hardware, and other forms of assets.
Barton wrote a large â?â in the middle of the triangle heâd just drawn,
then for the second time that day wandered down the hall to talk with
Bernie Ruben.
âMe again,â said Barton.
âSure, sure, come in,â said Ruben. Barton sat down and explained his
problem.
âWell,âsaid Ruben,âlet 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 â Skill and talent mgmt/key skills, key contributors
mapping? IT costs
chargeback IT services
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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.â
Ruben rose, moved to his own whiteboard, erased a big part of it,
and began to draw a picture.*
âWhen 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 didnât 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.
âThis company was lucky to have been founded at a time when Web-
based technology was becoming important. Because of that we donât
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.â
âThen,â said Barton, trying to move the story forward faster, âwe
started to grow.â
âOh, yes,â said Ruben, âdid we ever. We grew, as you know and re-
member, quickly. As our IT operations gained scale, it made sense to
invest in âinfrastructure,â 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 âmiddlewareâ 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
The Road of Trials
62
*See âRubenâs Explanation of the Evolution of IVKâs Applications Porfolio and Infra-
structureâ at the end of this chapter.
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