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6/29/2001
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IT Leadership Put To The Test

With the economy slumping, IT executives are under even more pressure to produce.

It wouldn't be too dramatic to say U.S. business faces a major leadership crisis, and IT is smack dab in the center of it. Consider three facts:

  • More than ever, IT is seen as an indispensable lever for driving economic growth.
  • IT leaders have never been as close to the center of corporate power as they are now.
  • Industrial growth rates in the major world economies have fallen faster in the past 12 months than anytime in the past 15 years, according to Moody's Investors Service. "It's not so much that output is declining," says Moody's chief economist John Lonski. "It's plunging."

After basking in the glory of the economic expansion of the last several years, IT managers need to stand and deliver in the downturn. "CIOs were able to take credit for the upside," says Peter Keen, founder and principal of IT consulting firm Keen Innovations. "Now, they need to show how they can contribute on the downside."

Roger Mowen

Eastman Chemical has put a major CRM project on hold, says CIO Mowen, until the company can get a better idea of where the economy is headed.

It's a leadership challenge of which Roger Mowen, CIO of Eastman Chemical Co., is well aware. Mowen's IT capital budget recently was cut by at least 10%--part of the company's across-the-board capital budget cuts. Mowen, who runs a 550-person IT department supplemented with about 90 contractors, recommends delaying large projects if they'll only muddle along with limited resources. That's why he's put on hold a customer-relationship-management project that was slated to begin earlier this year, at least until Eastman's fourth quarter. That way, Mowen can better monitor where the economy is headed.

What really kills staff morale, Mowen says, is icing a project that's been in the works for months or years, since it wastes the sweat and money that's gone into it. That's one reason why Mowen is charging ahead with Eastman's move from SAP R/2 to SAP R/3, which is more than halfway complete. "We're going to finish this come hell or high water," he promises.

Because the IT staff has been working long hours on SAP, Mowen contends that the CRM delay hasn't hurt morale. In fact, he hopes to use the delay to give many on his team a bit of a breather. "We'll give them a few months of a bit slower pace," he says. Plus, IT employees have access to Eastman's current project list, so everyone knows what's in the pipeline.

Now, more than ever, technology managers need to maintain and advocate the proper perspective on IT investing. "If you're a company that looks at IT as a cost rather than a strategic tool, that's where you'll cut," Mowen says. To avoid that mentality, managers need to take a leadership role in setting the expectations of staff and executive management. "If you're a laggard, if you back away, you'll be sorry," he says.

Consultant Keen, the author of two dozen books on technology and management, says astute IT leaders will persuade their colleagues to continue making strategic bets on technology and inspire their staffs to soldier through the hard times. "CIOs who are good leaders will set out to save the company 30% of inventory costs through supply-chain-management software, rather than cutting out the supply-chain software project to save costs," he says.

That's the challenge facing Randy Mott, senior VP and CIO of Dell Computer: to cut his company's IT costs while still delivering projects that lower companywide operating costs or increase sales. Competitive environments don't get much tougher than the IT industry these days, with cautious buyers causing an industrywide slump. As if an IT spending downturn wasn't enough, Dell turned up the pressure by launching a price war during the slowdown. To make up for that, the company has cut more than 5,000 jobs--with IT losing its share, Mott says--as part of slashing operating costs 20% in the first quarter of this year.

Mott's top leadership skill in this environment is setting priorities. His department is working on two-thirds fewer projects than a year ago. "Dell was going so fast that you found yourself starting more projects than you could finish," he says. Now, he's anointed exactly 23 projects as guaranteed to be funded and finished. They're all designed to improve manufacturing efficiency so Dell can cut costs or react to customers more quickly. One, called DSi2, will give Dell's first-tier suppliers and component suppliers a global view via the Internet of Dell's long-term materials requirements as well as immediate material needs for each factory. The supply-chain system uses i2 Technologies Inc.'s TradeMatrix software on Dell computers running Windows NT. "We don't want to drag these projects out," he says. "There's more rigor in delivering the project and delivering ROI for the business."

Nothing about current economic conditions has changed the fundamental leadership skills a CIO needs, says Ken Harris, CIO at clothing retailer Gap Inc. But he's putting a lot more emphasis on one of the basic tenets--communication. He's spending more time talking with staff and business partners to make sure cash is going to the highest-return projects. "A year ago, there was much more of a feeling that every opportunity was an equal opportunity," he says about IT projects. "The whole challenge now is how to get more creative on how we spend whatever we spend."

For example, Harris plans to partner more with technology vendors for application development. That means he has to energize a staff that's been focused on homegrown legacy applications and shift them to working more with packaged applications that require skills in Java and Oracle.

Part of Harris' job also is to convey the opportunities that the downturn has created. No longer is Gap competing with E-retailers that didn't feel a need to be profitable any time soon, so the playing field has been leveled. That helps Harris convince staff that Gap's store-and-Web-site model will win. "There's a lot more sanity now, and that makes things easier," he says.


Stuart Sugarman

Mount Sinai's Sugarman spends a lot of his time building relationships.
Even IT executives in industries that haven't traditionally made IT a priority face tougher leadership challenges. Stuart Sugarman, senior VP and CIO at Mount Sinai NYU Health, says IT resources were scarce at the New York hospital and medical network even before the downturn. But new federal privacy regulations--part of the Health Insurance Portability and Accountability Act (HIPAA)--have added a critical, complicated IT project at the same time that reductions in federal Medicare and Medicaid reimbursements are cutting revenue.

So Sugarman spends a lot of his time building relationships to get support for new IT projects, not just from administrators but from users, which in this case means physicians, an independent and skeptical group. That's a change from the more autocratic Wall Street environment Sugarman came from, when he ran IT departments for investment banks Credit Suisse and Deutsche Bank before joining Mount Sinai. The critical leadership skill for him now is learning what's most important to doctors, who want to share information with fellow doctors about their patients. Sugarman will have to rely on their support to get the resources he needs to keep other IT projects moving while complying with HIPAA, which at Mount Sinai requires a massive code-conversion effort to remove the Social Security numbers from every patient record and replace them with an identification system that better meets the confidentiality guidelines. "It's worse than Y2K," he says.

For some IT executives, the most-important challenge is keeping momentum behind tasks they set out to do a year ago. The drop-off in investment banking prompted Bear Stearns & Co. to lay off 400 people earlier this year, including more than 100 from IT. Peter Cherasia took the CIO job 18 months ago with the goal of restructuring the financial-services firm's IT organization so it's more efficient and more accountable to the business units it serves. "The economy just happened to crap out at the same time," he says.

Cherasia, formerly head of Bear Stearns' financial analytics and structural transactions group, is trying to save the firm money by managing IT projects with the entire company in mind. He has standardized Bear Stearns on a project-management system so that it can reuse common components, and has set up a project-management office for tracking costs and deadlines that reports to the company's chief operating officer.

Cherasia also insists that senior executives in the company rank IT projects as critical or discretionary. "We're spending a lot less investing in projects that don't generate revenue or cut costs," he says.

Of all the factors an IT leader has to be aware of, employee morale often proves the most complicated in times of change. The shift in this slowdown has been dramatic: A year ago, IT managers were focused on finding enough skilled people and keeping overworked staff from burning out; now the pressure is to cut or shuffle staff. Even as evaluating projects, communicating with line-of-business managers, and charting strategy dominate their schedules, IT leaders need to carve out time just to reassure their staff.

At Eastman Chemical, CIO Mowen not only makes the current IT project list available, he also articulates what the entire company is working on. IT employees get word on the company's business goals and priorities direct from Mowen through meetings, including town-hall-style events that are broadcast to employees in remote offices.

Adding to the uncertainty at Eastman is a major reorganization that will split the company in two by Dec. 31. One company, with about $2 billion in revenue, will focus on selling commodity chemicals, while the larger of the two companies, about $4 billion, will focus on chemical-industry services. That means dividing staff, including IT workers.

To ease that stress, Mowen--who will be a senior VP at the larger company--convinced the Eastman executive team to adopt an idea he's used in the IT department since January: posting all available jobs, so that IT people can apply for those that interest them. The move helps IT staff manage their own careers. "Although job posting is common practice in some industries, the chemical industry is a laggard," he says.

Ralph Szygenda

CIOs have to spend some time helping avoid panic by putting current events into perspective for people who've never been through an economic slowdown like this, says GM's Szygenda.

General Motors Corp. group VP and CIO Ralph Szygenda considers it one of his leadership roles to offer a historical perspective. Szygenda's career in IT includes a stint as CIO at Bell Atlantic before joining GM in 1996, so he's gone through much worse economic times, including the early 1990s recession.

Still, Szygenda understands the worry, and even a bit of panic, that some IT workers feel these days. Some of it has to do with the fact that there are so many young people in IT. Many haven't been through this kind of uncertainty and have seen friends who work at dot-coms bear the brunt of a lot of the major shake-ups and company failures. Szygenda says it's important for CIOs to spend time putting current events in perspective. "When you have a bunch of people who've never been through a recession before, that's very scary for them," he says. "So you have to give them some history lessons."

Keeping key projects moving--and selling them to the CEO--is the No. 1 leadership challenge in this environment, Szygenda says. GM hasn't canceled any major IT projects, and its staff cutbacks have been absorbed by its outsourcing partners, EDS and IBM, which provide the automaker with most of its programming and support talent. But Szygenda says projects and timelines are constantly questioned with an eye to outside the company. "We compare what we're doing with what our competitors are doing," he says. "In a downturn, you have to be careful. But you have to assure that your competitors are doing the same [sort of cuts] in order not to fall behind."

Szygenda says there's a different level of pressure on IT now because it's so tightly integrated in the business. More IT executives have gained bottom-line accountability, because they've been able to steer their companies into major investments in E-business projects in recent years. Now they have to show they can cut costs and show returns with the same vigor. "If they don't, they may not be there that long," Szygenda says.

Now isn't the time to take cover. IT leadership will help determine success in the recovery, and CIOs need to be bombarding their CEOs with proposals for continued investment. "Some companies think they can dodge the E-business bullet during an economic slump," Szygenda says. "They're missing the point. Transformation has to continue during a recession. Those will be the winners coming out."

The stakes are high for the future of IT leadership as well. If IT doesn't deliver, its leaders could find their hard-won seats at the corporate strategy table pushed a little farther back.

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