Reimagining the IT Department

Just supporting the business? Not anymore. IT leaders are helping to reinvent it.

CIO Steve Olive isn’t handing out any gold stars to IT for providing good PC support or networking service at Raytheon Integrated Defense Systems. Consistently reliable and excellent IT service should be a given, he says.

What businesses need and IT should be providing are innovative solutions to business challenges. That means creatively applying technology to produce goods more efficiently and at a lower cost, to sell and service more of them, and to do so at the highest possible profit margins.

It also means using IT to create new products and services and even whole new business models, says Darryl Lemecha, CIO at Alpharetta, Ga.-based ChoicePoint Inc. Because technology is embedded in just about everything a company does, “technology strategy and business strategy are now one,” he says.

Kathleen McNulty, CIO at The Schwan Food Co. in Marshall, Minn., puts it this way: “It’s not about IT automating the business anymore. It’s about innovating it, improving it.”

So, forget about IT supporting the business. IT leaders are focused on reinventing the business, starting with the IT organization.

Their timing couldn’t be better, according to Gartner Inc., which predicts that within five years, 60% of chief executives will make their CIOs responsible for using information as a strategic (read: revenue-generating) asset. Gartner also predicts that 40% of CEOs will make CIOs responsible for business model innovation.

But IT executives such as John Hinkle at Trans World Entertainment Corp., Patrick Bennett at E! Entertainment Television Inc. and Filippo Passerini at The Procter & Gamble Co. are all over this trend already. They are completely transforming their IT organizations, and everything is up for radical change, from how and where IT is housed within their companies to IT job titles. IT duties increasingly involve responsibility for business processes as well as the technology that supports them. Also up for reinvention is how IT value is measured.

“If you want to drive a significant amount of behavioral change in an organization, it takes some big swings,” says Hinkle. “Maybe that means dramatic structural change or changing what people do.” At Albany, N.Y.-based Trans World, it involved all of the above.

One of the first things Hinkle did when he came to Trans World from General Electric Co. was abolish the title of analyst and move people in that role into the project management office (PMO), which oversees all technology and business projects as well as all business process changes for the company’s 800 music stores. Project managers have developed expertise and a special rapport with the specific business functions to which they are dedicated. New projects and even systems changes go through the PMO, which uses Six Sigma project management processes.

As CIO, Hinkle oversees the PMO, is a member of the company’s executive board and is deeply entrenched in all business decisions.

“I’m involved in merchandising, store planning and in every other core strategic meeting at the company,” Hinkle says. “I’m expected to be very well versed in these things, and I’m also expected to answer more than the IT questions. I’m part of the strategy brainstorming.”

Hinkle expects his IT team to be equally well versed in business processes, which is why every IT staffer spends a minimum of three days in the field every year, working in a store, a warehouse or a department such as finance or payroll. “That way, they know what the business really needs and how to help,” he says. “You don’t have a supply chain system or financial system that works in a box or a point-of-sale system that just takes money. Now we have highly integrated data flows, so every project requires an understanding of all systems and all business areas.” By knowing the business, “they better understand why they might get a call [for support] at 1:00 in the morning,” he adds.

Local-Level CIOs

At ChoicePoint, Lemecha created a federated structure with two bands of IT positions: one for technical workers, who hold the title of IT architect, and one for managers, who hold the title of business information officer. “We believe in two independent career paths. Just because you don’t manage people doesn’t mean you should be limited in how far you go in the company,” he says.

The BIOs are embedded in each of ChoicePoint’s businesses and act as local CIOs. “They understand the operational issues, they know all of the people, and they spend 100% of their time in the business units,” where they can directly affect business-IT alignment, Lemecha says.

“They know and understand the business because they live in the business,” he says. The chief benefit of this arrangement is “when you fix the alignment problems, you do the right IT projects and, ultimately, impact revenue and get better customer service,” Lemecha says. ChoicePoint’s consistent revenue growth, ranging between 5% and 15% annually for the past several years, is no coincidence, he says.

At Cincinnati-based P&G, the company’s top IT project over the past three years has been to reinvent IT itself according to a four-year strategic alignment plan. “In the last year, we reshaped, renamed, refocused and began retraining our 2,500-person IT team,” says Passerini, who is global business services officer in addition to CIO.

The IT department was renamed from simply IT to Information & Decision Solutions. The new IDS group was then merged into P&G’s Global Business Services shared-services organization, which is also home to the human resources, finance, strategic planning and relocation functions. IDS staffers focus on high-level, IT-enabled business projects exclusively; routine IT tasks are outsourced to Hewlett-Packard Co. under a 10-year, $3 billion agreement signed in 2003.

Passerini has charged IDS with the same three business goals of every other P&G business unit: to increase profits, market share and volume. To accomplish this, IDS focuses on three key tactics: getting and distributing data faster, innovating and speeding the ways in which P&G gets products to market, and applying “consumer-friendly” techniques to delivering new IT products and services to P&G’s internal user base.

For example, IDS has developed a virtual modeling process and simulation techniques that allow package design, consumer testing, product testing and even new manufacturing techniques to be developed and tested in a fully virtual environment, dramatically accelerating the cycle time for new products.

“When we have new products, we can build virtual retail shelves and even show our competitors’ products on them. More importantly, we can build our products to the scale of different retailers’ shelves. This is all about building business capabilities for P&G,” Passerini says.

“The whole idea is running IT as a business, but not necessarily using [traditional return-on-investment] financial measures to quantify IT’s value,” he says. “In the end, no one believes those numbers anyhow.

“The numbers you want are higher profits, market share and volumes. In reality, it’s all about the relevancy of IT’s contribution to the business,” Passerini adds. That’s how IT’s value is measured at P&G.

E! Entertainment Television in Los Angeles has radically departed from its traditional model of separate IT and TV broadcast operations. The change coincides with the broadcast side’s shift from tape to digital technology. Before, separate vice presidents oversaw online, television network and IT operations. Now, there is a single senior vice president of technology and operations, and ideas, designs, technology and projects are shared among all three operations.

For example, IT personnel were involved in the design of E! Online content from the time the site was first launched in October 2006, notes Bennett, executive director of business applications. “Before, we would have gotten the specs and built it much like a contractor,” he says. “But now, IT was in on branding discussions and audience focus groups from the beginning.

“What we’ve done is flatten the more formal [software development] processes and made them more person-to-person” as a way to develop products and services faster across all media, Bennett says. “As we interact with executives and users and release software iteratively, we’re also gaining greater domain knowledge about the business,” he notes.

Just recently, IT participated in a discussion about offering an online feature that would let Web viewers of E! Online vote on whether celebrities on the red carpet at the Golden Globe and Oscar celebrations are hot or not.

“Now that’s not a traditional discussion or conversation you would have in IT,” Bennett notes wryly. “But now we’re thinking about these kinds of things across all media.”

Under the new organizational structure, “there’s constant interaction and exchange of information and ideas through human contact. As opposed to being assigned to a user department, IT is constantly interacting across media,” he says. “You’re more of a partner with the business. You’re creating products together. IT is definitely stepping out from behind the shadows of back-office corporate systems.”

Bennett says IT’s broadening role as a business peer is one of the main reasons he decided to earn an MBA at the University of California, Los Angeles’ Anderson School of Management.

“At first, in marketing meetings, we’d spend hours talking about color palettes and branding — and I didn’t know a company brand from a cattle brand,” he says. “It has been a real eye-opener.”

“It’s very much a different mind-set,” says Raytheon’s Olive, whose overhauled IT organization now includes customer relationship managers who are embedded in the business, plus 10 teams of technical workers who support IT frameworks such as infrastructure, application support and desktop services. The vast majority of those technical workers are “homeroomed” in cross-business teams that work on projects that the customer relationship managers bring to them, he notes.

“It took two years for this model to really jell. At first, there was a little bit of tension while the clarity of roles and responsibilities was a little confusing,” Olive acknowledges. “But once we defined roles and responsibilities, it improved morale and worked to create a highly motivated workforce because we were making higher-level contributions to the business.

Also see Getting the Message Out.

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Business consultant Geoffrey Moore discusses his book, Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution, in this Storage Networking World webcast.

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Copyright © 2007 IDG Communications, Inc.

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