For Vanguard CIO, Running IT Comes Second

Two intriguing ideas I heard in the past week:

One, a CIO should focus on running the company first, and on running IT second.

Two, swapping CIOs--or executives in any position--can be a virtue in itself, because the change brings in new ideas and thinking.

Those are my characterizations, and they're surely oversimplications. But they're ideas that I took away from talking with two executives, Paul Heller and John Marcante, about a recent executive shuffle at Vanguard, the mutual fund company.

In the reorg, Marcante is the new chief information officer, and Heller moves from CIO to head of the retail investor group. Tim Buckley, who led IT before Heller and has most recently run retail, moves into the chief investment officer position.

Vanguard, more than any other company I've dealt with, is comfortable shifting people regularly into new roles. (Vanguard was the No. 1 InformationWeek 500 company in 2010.) Here's some more thinking on these two ideas, which some IT pros aren't going to like the sound of.

1. The CIO's No. 1 job is to help run the company.

Marcante, the new head of IT, gets a big promotion here because he's now part of the senior executive team that includes CEO Bill McNabb. Every exec on that team is expected to take responsibility for the whole company's performance, not just their fiefdom, whether it's IT or any other.

"Actually, the big job [Marcante] got is running Vanguard, which is how he'll spend certainly more than half his time, since that's his most important job," Heller says. "And then in his spare time he'll get to run IT. That's the big change for him."

IT pros will like the sound of IT having a "seat at the table" on par with other business unit execs. But many hate the notion that any executive can move into the job of leading IT. They hate when the CIO is seen as part of a rotation for grooming a CEO or other top exec. IT is special, they reckon, and it takes a person who has run data centers, written code, or set up and managed databases to lead technology strategy. Otherwise, they’ll get buffaloed by vendors, outsourcers, even their own technical staffs.

Vanguard's record suggests it thinks otherwise. The past two top IT execs, Heller and Buckley, were tech-smart business unit leaders rather than seasoned IT veterans. One reason this approach might make sense for Vanguard--and this might sound counterintuitive--is precisely because the company depends so much on technology. Vanguard doesn't have branches--its customers come in over the Web (its biggest channel), phone, or mail. So its business unit leaders are held accountable for making sure they have the technology they need to run their operations.

"It's pretty hard for Vanguard to be successful without technology," Heller says. "It's increasingly difficult to separate it out. You just can't run a business at Vanguard without appreciating the value of IT, and not just appreciating the value but figuring out how to make it work."

But with Marcante, Vanguard is putting a true techie in charge of IT for the first time since the early 2000s. He came to Vanguard from General Electric in 1993, and his roles have included revising the data center's disaster recovery post-9/11. Marcante has had several key business unit leadership roles, but it's clear where his heart lies. "I would still classify myself as more of an IT guy," he says.

2. Change is good in the executive ranks.

"I did what I could for IT in six years," Heller says, about why it's a good time to move on. He recalls when longtime CEO John Brennan (successor to Vanguard’s legendary founder, John Bogle) stepped down in 2008, and told the executive team that the 80-20 rule was taking over--in essence, that Vanguard got the 80% of the value he could bring, so why stick around wringing out the last 20%?

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Leaders and organizations need to move with the times. Heller notes that Vanguard's Web group was a separate business unit a decade ago (under Tim Buckley), and that setup worked to get it launched. But now the Web's inseparable from all of IT and operations, so it's no longer a standalone unit.

Marcante will have to bring plenty of creativity to deal with the technology change that's ahead. Among the big challenges he's focused on are mobility and video. Already 14% of Vanguard's online interactions come via smartphone or tablet. The company will have to support those multiple platforms without breaking the bank, since Vanguard's business model of providing low-cost funds depends on keeping its operating costs among the industry's lowest. And as the quality of desktop videoconferencing improves and people become more comfortable with it, Vanguard will have to provide more face-to-face interactions. Marcante sees opportunity in that, being able to attract customers who want that one-on-one conversation before investing. Eventually, says Marcante, "I think we're going to do that more than we do phone calls today."

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