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When Ralph Szygenda joined General Motors as CIO in 1996, the automaker was one of the largest, most diversified corporations in the country. However, the IT organization was at an all time low. GM had just unleashed EDS, the IT outsourcing organization. Szygenda says, “There were about 20 of us left in the company who knew anything about IT. EDS did everything. We had to start from scratch to rebuild IT.”  Thus began Szygenda’s legendary career to become the global CIOs most CIOs want to emulate. He and his team began to build what would become the world’s largest outsourced IT organization. He says, “We consolidated endless numbers of systems, applications, networks, and processes.” Under Sygenda’s leadership IT’s focus shifted from systems to cars, customers, and innovations, such as OnStar. GM emerged as a global business, especially becoming the number one automaker in emerging markets such as China.   Now things are different. Szygenda retired on October 1, 2009, as GM emerges from bankruptcy to become a more focused, leaner automaker. He says, “Now the entire company can focus on getting closer to its cars and customers. ”   A month before he retired, Enterpriseleadership.org had the pleasure of sitting down with Szygenda to talk about how the role of IT changed the company, how GM plans to deal with some of its operational issues outside of IT, and what changes we might see for  the IT organization.  Here is what he had to say:

 

EL. Because of the bankruptcy, how did the company's business strategy changed? 

 

RS. Clearly, it is still in development. A couple of things happened. The bankruptcy took away many of GM 's decades old legacy problems. More management time went into legacy, healthcare cost, and Delphi, a bankrupt automotive supplier spinoff from GM. We had to give Delphi more money than anticipated to keep it alive because of its criticality to our supply chain. GMAC, the financial services business, has also gone away. Our strategy is to concentrate and make time for our customers. That is what a car company really should be doing. It gives us an opportunity to do this without many of the legacy issues we had in the past.  


EL. What changes have you made or plan to make to the IT organization and how will these changes affect the outsourcing partners? 

 

RS. Not a significant amount! I believe in the IT organization shadowing or mirroring the structure of the business. It goes for any company. As GM restructures and changes how it runs its international operations, the IT organization also changes to adapt to that particular area. Our base strategy remains the same -- to use process information officers (PIOs) as well as CIOs. These people drive the common elements of product development, manufacturing, or supply chain across the company. That strategy or that direction for an organization issue will probably stay in place. 


EL. Do you still have the same number of outsourcing partners? 

 

RS. During my past 13 years here, we have reduced the number of suppliers to less than 20 key IT suppliers. That number includes all of the product companies, such as Microsoft, Oracle, and Cisco, as well as services company, such as IBM, HP, Capgemini, and Wipro. We have mostly service providers along with both hardware and software product suppliers.   From an IT viewpoint, we run our sophisticated model of buying and brokering IT. We have 1,000 people inside the company that have the responsibility to design the business direction and the acquisition of IT.  


EL. How will the IT budget change and what new IT investments do you plan to make because of the restructuring? 

 

RS. IT cost will bottom out this year. It has been difficult because of the bankruptcy and the conservation of cash. We have reduced cost every year for the past 13 years through efficiency. In other words, we have taken cost out of the operating side of the IT business and put it back into development of new capabilities and application. This year that figure has been lower than what it has been because of the bankruptcy. It will start to go up again because we cut it very severely this year. So going into next year, we will put more money into innovation as the business changes the particular processes where it wants to go. 

 

EL. Can you describe the investments you made over the years that have really paid off? 

 

RS. Twelve years ago, this company operated very decentralized with autonomous business units. Today the company runs the common processes for product development, supply chain, and manufacturing the exact same way throughout the world using this exact same technology, saving a significant amount of money and permitting great speed for product development. For example, 12 years ago, we had 23 computer aided design systems. Today we have one. We cut the product development cycle time by more than 50 percent. We have approximately 30,000 design engineers around the world using this same technology. People on different continents can work in parallel to design together. We move eight million vehicles throughout the world using the same supply chain systems. We purchased $90 billion dollars of services and materials using the same purchasing systems throughout the world. We deliver just in time to plants and manufacturing facilities across the company.   OnStar is another example. We have five million customers using that technology in vehicles. It saves many people's lives. We can diagnose vehicles and tell our customers all through technology that they have an issue. If they have an accident, we can notify emergency resources through satellite systems linked to our call centers. We can stop stolen vehicles automatically if the police officer wants to bring the vehicle to a halt. The person driving is in trouble. All that includes technology changes that have occurred in the company over time.   At the same time, we have saved significant IT dollars through efficiency. In fact, we have reduced billions of dollars. At one time, we had 7,000 IT systems. Today, we have about 1,500 systems taking out billions of dollars of costs, and moving from autonomous businesses to very common business There have been significant changes in the business. 


EL. Can you describe the current governance process for making technology investments? 

 

RS. We have CIOs for the major business units in the company. Given the company's global size, 14 years ago we created the role of process PIOs or experts in business direction. For example, we have a business PIO in change of the entire product development process, from concept to actual vehicle development. We have another PIO who handles all manufacturing processes throughout the company. Another one has the supply chain. They drive initiatives across the entire company by doing two things: trying to put together and analyze the business needs, and driving the strategic direction with the business leaders on defining the most important requirements to transform the business.   Every year we do a portfolio process where we analyze those needs coming from the business PIOs, such as the PIO for product development. In this case, we would work with an IT project management officer to see what the company needs. We also do a comparative analysis or a competitive assessment of all of our competitors each year. Next, we take all of the particular IT requirements we need to do and we rank from one to 60. We go back and socialize with the business leaders, come back in, and ask senior management in the company to evaluate how we should proceed. This occurs every year through a pretty detailed portfolio process for the company.  It's unclear whether we will modify this process. I don't think it will happen totally. It is business driven, kind of a ROI investment area. We look at ROI in two areas -- one is analytical based on cost savings, and the other one is intuitive based on what we think we need to do. We look at business ROI, which includes IT. We do not do independent IT, except for running the computer center, or telecommunications, I don't expect a significant difference because the process has worked successfully over time.   GM's major issues revolve abound legacy cost issues of not having the right products for the marketplace. It is a global process around the company. I'm not sure anyone will say there is an issue with that. We had a 40 percent reduction in the marketplace of sales, which cash could not overcome.   


EL. How do you categorize the technology investments?Do you look at what is innovation or what is explorative? 

 

RS. I have a strategy manager who works across the entire portfolio process. Under those areas, we have clearly new process transformations, which include strategic area changes in the portfolio. Then we have, what I call, more tactical new product launches in the company that need IT investment, such as regulatory or initiatives to keep the business running.  Next, we have strategic business process transformations. For example, we have different regulatory requirements in Russia and in China. We have to meet all of those. We have new product launches every year because the vehicle designs change. Here we might need more leading-edge technology. We might experiment with new IT in areas where we see how they would adapt to GM from that perspective.  


EL. Are you going to make any changes to the way you measure your technology investments? 

 

RS. It is solid ROI with a total business appropriation request.  Any major changes must link with the business for measuring a business change. You can't get much better than that. On the other hand, the intuitive side is very difficult to measure. For example, how do you evaluate every new change to a new HR system?  Some of that is intuitive. I am not sure we will change that. We will change the business's end goal to focus more of customers and the cars. We will drive a different perspective from more customer-oriented systems, more product information gathering, and new ways to communicate with the customer. We will drive more investment in those areas. The IT process will not change.  The business needs will tend to tilt and change more toward the customer, the vehicle design, and the need to meet the market needs.  

 

EL. Have your expectations of your internal staff changed? 

 

RS. This organization has always been very aggressive. Most of the people on the senior IT leadership team have come from outside GM. As a result, they have had different mindsets, and difference experiences over time. The overall IT speed of the company will accelerate. We will have to deliver our requirements faster. Our IT people view this as a positive move. However, they will be under greater pressure, along with the IT suppliers, to deliver quickly on these requirements.  


EL. Can you describe your growth in foreign markets?

 

RS. Ten years ago, we were not in China. Today, we rank as the number one automaker there. If you look at the new emerging markets, GM has done quite well there because it did not have the legacy area. People say, 'How can GM be a leader in China and still have all of legacy problems and then go bankrupt in the U.S.?' We did not have the legacy cost issues outside of the U.S. I appointed an emerging market head who makes sure we address those markets from an IT perspective very quickly. 


EL. Is GM looking to move OnStar into new markets such as healthcare? 

 

RS.  Coming out of bankruptcy, we must concentrate on the core automotive businesses and nothing else. GM has a long history of being in all types of businesses, everything from heating and cooling to owning Hughes Corporation. In fact, we owned EDS when I joined the company. Diversification is not one of goals right now.   OnStar plays a key role in the insurance industry. We understand, as well as provide, all of the internal analysis of the vehicle electronically. For example, an insurance company might say, 'We will sell you insurance on the miles driven.' This information automatically feeds the insurance company. It is paid per usage. We are doing some of these things.   For the government, we can monitor vehicles with OnStar. We know which vehicles have evacuated from a hurricane. We can tell how many people are on the highways. We immediately work with government agencies to give them that input.   We leverage the fact that the vehicle acts as another node on the IT network. This leveraging helps us to use OnStar for online navigation and information you want. Many businesses have wrapped themselves around that. One example includes directing people to restaurants. There will be more of that. The killer application will always be safety and security followed by navigation. It is hard to find applications that may be extremely successful after that. It is a new territory for innovation.  Today OnStar has no direct similar competitors. We have about five million customers. Other companies install tracking devices into cars after they are built. No other competitor builds a system like OnStar directly into the vehicle. If there is something wrong with my vehicle, I get a diagnosis via email.  

 

EL. What is IT doing to drive innovation within the company?

 

RS. For a long time, IT has have been transforming all of these business processes, and transforming the technology in the vehicle, though innovations such as OnStar. We are taking that process to other parts of the world. The processes in the company for product development and manufacturing are very good. They will not affect GM's ability to compete in the automotive business. This is a fashion business. You need the right car or truck to meet customers' needs. These needs could include energy efficiency, comfort, or reliability.  Ten years ago, IT was fragmented or spread across the world. For example, within 10 years, we have gone to no presence in China to being number one using IT. This is a nice success story. GM also uses more social media than any other company. We have been into blogging for years. We have experience with Second Life. We will see more of that.   The next generation of technology will offer more transparency to customers, letting then know everything about our products and our company. Our next move includes making sure GM has the speed it needs to transform after the bankruptcy. Our legacy issues are gone.   GM had two issues -- legacy cost which was a major driver and the 40 percent drop off the marketplace. You can see right now with the Cash for Clunkers how many people are buying cars because of the stimulus.  IT has never been an issue for IT. If you talk to any members of the executive team today, they will tell you the same thing. I am not sure that executive leaders in other companies would say that IT does what I need it to do.


EL. What was the genesis for GM's major outsourcing of IT? 

 

RS. When I joined the company, IT was decentralized. It offered mediocre processes.We inherited outsourcing when GM spun off from EDS. We had to make it work. In 1996, we were the largest corporation in the world. About 20 people who knew something about IT remained with the company. EDS handled everything else. We had to make it to work.  Industry analyst reports say that 70 percent of all enterprise IT includes acquired services through some form of outsourcing. It is a way of life. We did it way before our time. We have done it pretty well. It has allowed us to move quickly. We did not have to worry about having all of those internal people and assets in the company and trying to make it leaner. We could never have moved that fast with technology. The Internet also enabled us to redesign all of the interfaces, whether it is to the supplier, or dealer using the Internet. If we had to do that from a hard-coded environment, it would have taken us a decade or more. It took us three years. 

 

EL. Can you give me some examples of IT firsts at GM? 

 

RS. We were the first one in California to display customer info versus going through a dealership 10 years ago. We were the first one to interface with a supplier base. We had 1,000 of suppliers at that time we were buying $100 billion of materials and services. We did all of that online. Meanwhile, the rest of GM was encumbered by speed in areas such as production. Within three years, IT helped transform GM. IT will not keep GM from being successful. Instead, it will be whether or not this company can meet customers' needs with the right products fast enough. The perception quality problems have taken decades to fade away. Most people believe we have good products and want the U.S. auto industry to succeed. The entire American car industry still has a perception issue that will linger for a few more years.  That will occur in the next couple of year.

 

Elizabeth M. Ferrarini - She is a technology writer from Boston, MA. Reach her elizabethferrarini@yahoo.com.  

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Emerging technologies that offer medical benefit but require substantial capital investment pose a challenge to hospitals and hospital-based health systems in the United States. Dr. Molly Coye, the former director of the $16 billion budget for the California Department of Health Services, is on a mission to make it easier for healthcare facilities to deal with this challenge. In 2001, she founded a not-for-profit research and educational consortium, called HealthTech. It focuses on stimulating the investments major healthcare facilities make in enabling technologies, and helping them to make well thought out decisions in the process. She says, "We have learned that investments in a combination of imaging devices and information technology have fueled the most important healthcare advances. These technologies have improved the quality of care, reduced the expenditures on care, and improved satisfaction for patients and providers."

HealthTech's 45 members include most of the country's largest, multi-hospital healthcare facilities in the country, such as Kaiser Permanente, Sutter Group Health, and the Veterans Administration. Other members include the Centers for Medicare and Medicaid. She says, "We have more than 25 percent of the bed capacity in the country."

Enterpriseleadership.org recently sat down with Dr. Coye to talk about how HealthTech helps its members make capital investment decisions in technology.

EL. What was the catalyst that prompted you to start HealthTech?

MC. Like many clinicians in the field, I became aware of the quality problems in healthcare that emerged in the early 2000s. In fact, I participated in the Institute of Medicine's Committee on Healthcare in America. We wrote two reports - To Err is Human and Crossing the Quality Chasm - both of which became a catalyst for re-directing the healthcare industry. In summary, the reports said that we needed to overhaul the chassis of a bad healthcare system. We identified several pieces to that change. The most important one was the need for investments in technology.

I founded HealthTech as a not-for-profit organization in order to stimulate and to advance the adoption of technology in healthcare, including biotechnology, information technology, and devices and imaging, and pharmaceuticals. Since 2000, we have been tracking emerging technologies and research to understand their potential and real impact in healthcare. We look at technology in two ways -- what's on the market today and how people are adopting and carrying it out, and what will be on the market in the next three years to five years. Our research falls into 30 categories that cut across four broad areas: biotechnology, information technology, medical devices, and pharmaceutical,

EL. Can you give me examples of how you have helped your members make capital investment decisions about technology?

MC. We work across many different areas. A big win for some of our members included how to make the decision about each generation of a Picture Archiving Computerized Storage system (PACS). We stressed the important of enterprise thinking about a PACS system because it requires a huge investment. Many facilities would buy just a PACS system for their imaging departments. A couple of years later, these facilities realized that they had to extend the system to cardiology and to other parts of the facility. We stressed the need to plan, from the beginning, for this as a platform for storage of images across the organization.

We worked with our members on handling the decision to upgrade from a 16-slice CAT scan to a 64-slice CAT scan moving into coronary CT angiography. We strongly suggested that our members should prepare for the coronary CT angiography. They would at least have the 64-slicer near the emergency room. As a result, they could begin to build a system that routinely processes a certain portion of the potential myocardial infarctions through the coronary CT angiography.

Some times, we might have to caution our members about the timing of a specific investment in technology. In the early 2000s, many clinicians became enthusiastic about the long-term prospects of robotic surgery in urology. Some facilities had this technology because a donor paid for the initial acquisition. These facilities, however, did not have a plan for the continued use of the technology. In fact, some prices of equipment sat around gathering dust. In 2003, we told our members to adopt robotic surgery slowly, and to build a plan for how to extend it beyond urology into cardiology, as well as other areas.

EL. What type of a payoff do healthcare organizations get from systems that generate metrics about care delivery, such as number of patients discharged by 3 p.m.?

MC. These systems really pay off for healthcare organizations. These systems, however, have many pieces, such as computerized physicians order entry and electronic intensive care unit. There are also executive intelligent systems or dashboards that collect information to help the executive team make investment decisions.

EL. Are healthcare organizations deficient when it comes to technology investments?

MC. Healthcare facilities do not invest enough money in technology or invest in the wrong things. This happens for several reasons. The most influential physicians on the medical staff might prefer a technology. Unfortunately, the technology might not be the best for the community, or it does not serve the long-term survival of the facility. Healthcare organizations often get caught in a gridlock where physicians, hospitals, health plans, and even consumers try to maximize their own interests. They ignore initiatives that would reduce costs and improve quality. These things would require everyone to give up a little bit. That's probably the most important reason why health reform has never succeeded.

EL. What methodology do large healthcare facilities use to measure the effectiveness of their technology investment decisions?

MC. There is no single methodology. We have seen a very wide range of opinion about whether you can use a classical ROI at all. If you do, how do you structure for multi-year investments, especially if the parts of the return include improvement, safety, quality, and financial performance. We believe that most administrators of large hospitals and multi-hospital systems have installed electronic health record systems primarily for quality and safety reasons. They have tried to do a competent job of comparison-shopping in order to understand, not just the initial cost of the system, but the on-going operating cost, and the ease of acceptance by the clinical providers. They want to make an intelligent decision about what is the best timing, what is the best product, and what are the best rollout strategies.

EL. How do you guide your members to carry out their governance process?

MC. We help our members with how to present complex technology issues to the board. Usually, board-level decisions focus on where to allocate investment dollars. Do you put a large chunk of money into an electronic health record system, a new imaging system, or a chronic disease program? We help our members to sort through those kinds of issues. For example, we show them how to rank the different strengths of risk and the positive income values of different technologies. Using an array, they can see, for example, which technologies have a relatively lower risk and a higher yield for the things the board would find important. To this end, they might want the portfolio for the next year to have a risky, but high-potential-yield investment and several lower-risk investments that will payoff.

EL. How do clinicians influence investment decisions in technology?

MC. They play an indirect role because often their decisions about technology will either accelerate or slow the adoption of the technology.  For example, an administrator of a multi-hospital facility can clearly understand that the computerized ordering entry system will save money over a two- to three year period. This system will also improve patient safety. On the other hand, clinicians might resist adopting a new process, especially if it requires them to use a computer to enter an order for a medication.

To this end, the decision-making process for investments in technology should include clinicians in some way. If the process does not include physicians, then they might threaten and might frustrate the attempt to implement technology. Some clinicians, especially, physicians, have little experience thinking about systems -- why it might be worth investing the extra time, labor, and money in put in an electronic health record system.

Many clinicians see a direct disincentive in investing in some technologies. For example, often pulmanologists view the electronic intensive care unit with much skepticism. Because they think it will decrease their income, they resist it strenuously. In some cases, they have essentially agreed to carry out a portion of the electronic intensive care unit, usually about half way. The nurses use it, but the doctors say, 'I won't let it handle any orders for me. I have to do each order or approve each order.'

EL. Do you think this physician resistance has to do with the person's age?

MC. Not really! We see across that country that it is not a one-to-one correlation. It has also to do with whether or not the physicians are organized into groups. Often in groups, physicians get a chance to start thinking about systems. We also see a very bimodal distribution where the very young physicians and the relatively older ones are interested in technology. We find that physicians in their late 30s and in their 40s tend to resist technology. Because the older physicians are within 10 years of retirement, they feel more economically comfortable, and thus they can afford to be interested and curious about technology. This isn't the case with physicians in their late 30s and in their 40s. They see technology as a lessening of their usefulness.

EL. Should technology leaders in healthcare facilities have a medical background?

MC. Not necessarily! It's great if a CIO or a CTO has a healthcare background in either nursing or pharmacy. On the other hand, many CIOs and CTOs who do not have a medical background have made important contributions to their healthcare facilities. They can bolster their knowledge of healthcare by taking continuing education sources. The most effective approach includes teaming a CIO or CTO with a chief of medical informatics or chief nursing officer. In some cases, these individuals might report directly to a CIO or a CTO. An organization should not isolate a CIO or a CTO. In fact, many healthcare organizations still do not include the CIO on the leadership team. We have seen a decrease in this trend among the large healthcare facilities.

EL. What information are you giving to your members about what to expect from the Obama administration?

MC. During the past few years, the government has become more aggressive about Medicare/Medicaid not paying for serious efficiency and serious quality problems, such as a physician cutting off a wrong limb. As a result, healthcare organizations have to file more paperwork about efficiency and quality problems. We are telling our members that they are going to see a combination of bad economic times, and the intent to make the healthcare system more rational, despite contradictory incentives. They need to think about investing in technology differently.  They need to leverage technology to improve service delivery and to increase efficiency. Efficieny also includes, not only making errors, but also not spending as much to get the outcome.

EL. What things is your organization working on now?

MC. Because we want to help seniors stay independent in their homes, we have a new initiative to disseminate information about accelerating the adoption of again technologies.

Elizabeth M. Ferrarini - She is a free-lance writer and IT consultant from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.

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If you think being a CIO at a major university has fewer headaches than being a corporate CIO, think again. The two environments are both different and come with their own set of challenges, according to Gerry McCartney, CIO and vice president of information technology at Purdue University. Based in West Lafayette, Indiana, Purdue has more than 40,000 undergraduate and graduate students, more than 6,000 faculty members, and expends about $400 million a year in support of research system-wide, using funds received from the state and the federal governments, industry, foundations, and individual donors.

 

McCartney knows what he's talking about. His experience cuts across both the professional side of managing IT and the academic side of IT leadership. Before McCartney's CIO appointment at Purdue, he was assistant dean for technology at Purdue's Krannert School of Management, where he taught in the executive MBA program and in the engineering program. He also was the associate dean and CIO at the University of Pennsylvania's Wharton School. He holds a doctorate in sociology and in anthropology from Purdue and diplomas in advanced computer programming and systems analysis from the Graduate School of Engineering at Trinty College, in Dublin, Ireland.

 

Enterperiseleadership.org recently sat down with McCartney to discuss how he makes strategic capital investment decisions, and what key differences exist between the CIO leadership role in academe versus working in a major corporation. Here's what he had to say:

 

EL. Can you describe the structure of IT at Purdue?

 

GMc.We have about 1,000 IT professionals. Half of these people work for me. The rest, are in the various schools, departments, and administrative officers. These people meet the local needs of end users. I run the central IT services or the enterprise organization. The challenge is how to define a central service versus an edge service. My group manages the data center, ERP, all of the classrooms and labs, video production facilities, telephone services, all of the networks, and IT security for the campus. We even oversee a large research enterprise.

 

My $70 million budget has different colors of money. Half of that amount comes from the university for us to run the operation. The rest of the budget goes for recharge activities. For example, you can recover your cost of phones and networks. Because end users pay for these services, we don't have to invest any company dollars in them.

 

EL. Is there a formal process for the way you make investments in IT?

 

GMc. It's by the area. We need to distinguish between areas that are strategically important to the institution. Put this way, we need to excel at some things, while we can get away with just being good at other things. When we buy servers, for example, we try to get them at the best price we can. Because servers are a commodity, there's no competitive price advantage when it comes to buying them.

 

During the past two years, we've made several capital IT investments -- one was for $3 million and other, $1 million. Both investments concerned a research computer. In this case, research is our most strategic activity. We leveraged funding elsewhere on campus. We didn't have a board or a review committee. We put out a shingle that says we're interested in doing this and who is interested in being with us. We both built and bought a fairly large machine. About 75 percent of the funds for the machine came directors from researchers' pockets.

 

EL. Is that the way you normally make capital IT investment decisions?

 

GMc. That's the way we do it for research. On the other hand, if it's an ERP system, we handle it different because all of the funding comes from the center. It looks like a corporate purchase and goes through the board of trustees. It has many levels of approval and people poking at it.

 

EL. What would be your involvement with an ERP system purchase?

 

GMc. The need for a new ERP came from the business owners, which include the vice president of finance, the university treasurer and the director of human resources. They review our systems and decide if they're good enough or if we need to make a strategic change here. They would involve us as technical advisers and implementers. However, we outsourced the implementation of our current SAP system to Bearing Point, a consulting company.

 

EL. What role do you play in the governance process for making capital IT investment decisions?

 

GMc. I'm on the executive steering committee as a technical adviser. All of the governance committees have representatives from my staff. To this end, I have representation on all the committees that would be involved in this type of a decision.

 

I should point out that ERP isn't an IT project, but it's a business project. Now that we've completed the implementation of the ERP system, finance and human resources have given us the responsibility for managing and operating this system. The original owners of this ERP have now become users of our system. The relationship changes somewhat. Now, we're talking about amendments to systems where things go through our normal set of processes.

 

EL. Are there other influencers outside the university that having input into capital IT investment decisions?

 

GMc. Not in any significant way! The business owners might talk to their colleagues from other institutions. The board of trustees takes an active role in these types of decisions, by reviewing quarterly reporting.

 

EL. Do you monitor and track these investment decisions?

 

GMc. With the ERP system, the business owners monitored the investments because it was their dollars. For research, we're the fiscal coordinator for that. We monitor and do all of the negotiations. The monitoring for the research computer was a short process. We went from the first meeting on February 29 to having the supercomputer spinning disks and running jobs on May 5. That was the entire process. It's a very handmade activity.

 

EL. Have you encountered a bad investment decision in your career in IT?

 

GMc. It's easy to make a bad investment decision. The systems are so tightly coupled into our other systems. There's no discipline. During the 1990s, no one worried about what anything cost. It reminded me of an Oklahoma land chase with everyone trying to get things up and running in the shortest amount of time. During the past five years, we've started to ask what should we think about the value of it, and what's it worth to us. If you want to ask the latter question, then you need to know what is IT costing you.

 

EL. What do you hear from your corporate colleagues about assessing the value of IT?

 

GMc. That's something that many of my corporate CIO colleagues have shared with me. Based on discussions my colleagues have had with their CFOs, I've gotten a clearer picture of how IT runs completely differently than the rest of the company. CIOs know in gross what things cost them. For example, 20 percent of a global brewery's corporate budget went for IT. The brewery's CIO started to ask why the CIO couldn't give him precise costs for specific IT tasks. The CEO said that if he asked plant managers at any of the company's breweries how much would it cost me to change the color on this label from blue to teal, they could tell the CEO down to the penny. On the other hand, if the CEO asked the CIO how much it would cost to redesign a header on an email package, the CIO would have no idea of the cost. They can't give you discrete costs. They have no experience doing that.

 

EL. Where do you see difference between the corporate IT group and the business units?

 

GMc. During the 1980s and 1990s, the role of IT became more significant in most organizations. To this end, CIOs became the keepers of the keys to the IT domain. Things have changed. Business people today know more about IT than IT people know about the business. Business people have become more comfortable with their technology and better-informed consumers of it, as well. If you were a good COBOL programmer in 1986, then you'll be unemployed today. That skill has no value for us at all. If you where a good CPA in 1986, you're probably still a good CPA today. Many IT skills have a short shelf life. IT people can't live in glass houses thinking they're doing important stuff, they have to move with the times.

 

EL. What makes working in IT in a university differ from a corporation, and what do you look for in IT talent?

 

GMc. Universities have a unique culture, similar to the two-class system found in law practices and in hospitals. I look for people who've worked in those bifurcated societies where there is a rainmaker and it's not you. Rainmakers in hospitals are the doctors, and in law firms, the lawyers. At a university, it's the professors. The support staff, which IT is part of, enables these rainmakers to do their job.

 

Corporations, by their nature, tend to treat everybody the same. So, if you've only worked in a corporation, you won't get the bifurcated model, where many people see themselves empowered to make decisions. When I interview people, I always ask them about their experience with decision making or their experience handling conflict. At a university, a letter from president won't solve the problem as in a corporation. There everyone sits down and listens. So, good IT candidates for a university need to know how to listen, to collaborate, to negotiate, and to set their personal feelings aside.

 

EL. What's are the top three problems IT people have trouble with?

 

GMc. I have laid off some people because I needed the money for something else. Agility is the key characteristic of a successful IT operation. Agility means change and change means people coming and people going. IT people find it hard to deal with change. It's kind of ironic because IT is all about change. A cadre of hardcore IT people has deep technical skills. The sweet spot is to find those IT people who have genuine technical skills and genuine business skills. Those people are a challenge to find right now.

 

Some companies don't regard their CIOs as business leaders. How many CIOs do you know that have moved into other non-IT positions? What credibility does a CIO have to run marketing or finance? If a CIO is doing his or her job right, they should be the only senior executive, other than the CEO, who has a global view of the organization. They could be dealing with all of these people daily, but this doesn't mean they are. Many CIOs like to think of themselves as technology directors. If that's the case, they should be CTOs, not CIOs.

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Interview conducted by Elizabeth Ferrarini at elizabethferrarini@yahoo.com

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Liberty Mutual Insurance has turned out to be the company to watch in the fiercely competitive global insurance industry. Since 1996, this sixth largest property and casualty insurer in the U.S. has seen its annual revenues triple to about $26 billion. Today, Liberty Mutual ranks as the sixth largest property and casualty insurer in the U.S, has $85 billion in assets, and has more than 40,000 working across 900 officers worldwide.

 

Because Liberty Mutual's offers a variety of lines of business, ranging from personal auto, health and life insurance to commercial property insurance and workmen's compensation, the company has adopted a highly decentralized business unit structure. Although this is a powerful business model, it also has presented many challenges to Stuart McGuigan, Liberty Mutual's global CIO. Enterpriseleadership.org recently sat down with McGuigan, who was the former CIO of the $32 billion Medco Health Solutions, to discuss how IT delivers the technology required by the business units to meet marketplace demands. Here's what he had to say.

 

EL. Can you describe the structure of your IT  organization?

 

SM. We have 3,000 people in a centralized IT organization. We don't bother to draw a dotted line to the businesses. We have established business CIO who report to me, but who sit on the staff of the president of the business units. These CIOs attend staff meetings, strategy sessions, and offsite meetings. Their entire focus and their passion include how to use technology to make the business more successful. This structure keeps everyone talking to each other. Although these CIOs work for me, I don't want the CIO supporting the personal markets business concerned with what the CIO of the commercial markets is doing, unless an initiative can help a CIO do something better, faster, and less expensive for a business unit.

 

EL. What factors can you attribute to Liberty's rapid financial  growth to?

 

SM. We can attribute our success to Ted Kelly, our CEO, who came to us in the early 1990s. He discovered the secret of growing a large company with significant diseconomy of scale.

 

When I came to interview at Liberty Mutual with Kelly, I began to understand why management capacity has driven Liberty's growth rate in the insurance industry. Kelly empowers general managers to exploit everything from niches to significant markets with a tremendous amount of operational latitude, and with a certain amount of standards to minimize financial risks.

 

To this end, the executive leadership of each Liberty Mutual business unit determines how that entity goes to market, how it is organized, how it approaches its marketplace, and what type of technology it uses. As a result, Liberty has exploited numerous niches in midsize businesses by acquiring companies, both in the U.S. and outside the U.S. These companies very quickly adopted Liberty's business model. In every case, we've succeeded in the business case. This's something many large companies struggle with.

 

EL. What does the decentralization of  management authority mean for IT?

 

SM. If you don't do something differently, then every group and every application team decides its own technology. You end up heterogeneous technology environment, which leads to cost. You can't sacrifice the responsiveness and effectiveness. Over time, we've been making Liberty more than the sum of its parts. We looked at technology in a different way starting layer by layer and said: Which technologies provide no value, which technologies offer added benefits, or which technologies are different across the various business units. We gradually moved up in technology stacks. Does it really matter what Unix server people use? Some people initially said that it did matter. We determined that some applications could you use certain types of Unix servers. These three servers became a standard. We said if you want to use these standard servers, then you can't take 100 days to complete the installation, you have to do it in 10 days and at this cost. If the business units could derive enough business value from using unique technology or custom technology, we told them to for it.

 

EL. Can  you go into more detail about how you built flexibility into the decision to go  with standard technology?

 

SM. Some IT organizations tell the business units that they can only use standard technology, or what IT has stamped as standard. So how can they benefit collectively when no one benefits individually? That's the dilemma of dealing with some types of enterprise architecture strategies. We've avoided that by saying we're going to standardize up to the point of indifference and beyond they can choose. We're not continually going to challenge their decision.

 

We're trying to standardize where it doesn't make a business difference and to allowthe businesses to decide what technology will enable them to be successful. Because they bear the entire cost, which is the biggest part of their business resource decision making, this IT philosophy fits in with the way they manage the business. It's not something external.

 

EL. Do you see any difference between the way business units make IT investment decisions versus any other operational business investments?

 

SM. Usually IT people believe there are two separate entities -- IT and the business. IT is a business function that manages technology. The thinking that does into the decision to hire 20 underwriters shouldn't be any different from the thinking that goes into the decision to spend a million dollars on an underwriting system. Both decisions will produce different results, but you're looking at the same variables. Getting that balance right is the secret to realizing some of the benefits of being a large-scale enterprise, but you don't want to sacrifice your ability to exploit smaller business niches, such as startups.

 

EL. What aspects of  IT do you need to improve and why?

 

SM. First of all, look at our decentralized business structure. Each business unit organizes itself around business, products, and customers. For example, the real driver behind the retail business isn't the product, but the retail marketing operation. Think about the technology that a sale-driven and a direct marketing retail organization needs versus the technology that a business-to-business organization needs to support customers such as IBM! Think of the differences in business processes, product requirements, and customization.

 

If they were truly separate companies, no one would argue they should have the same architecture. Several standalone, billion dollar businesses comprise Liberty. Although we are a large company, we found that the cost of IT isn't our issue. In fact, our cost of IT is really a percent of premium or revenue, which is on the low side.

 

Our issue is this: like every other insurance company, we need to improve out time to market. If we save 10 percent of our IT cost, but we don't improve our business, then we'll be out of business. If a good IT project is a 2 to 1 or 3 to 1 investment over time, then IT spend too much time trying to make that $1.95 or not enough time making sure we get the $2.

 

EL. What's wrong with the discussion about aligning IT with the  needs of the business?

 

SM. The conversation about business and IT alignment infuriates me. Of course, I try to be patient if someone wants to talk about it. If you step back and think about it, what does it mean to have IT projects that aren't aligned in the business? You're spending money on things that don't produce a business result, not even in theory. Don't do it! What other business area makes capital investments and refreshes its equipment with no idea of how it's going to contribute to any business results? Only IT does that. We have to get out of that cycle. Pharmaceutical companies, for example, have a replacement cycle for when their tablet-making machines will produce lower quality products or breakdown. There is a cost associated with replacing those machines. It comes down to an optimal point to which you maintain and replace those machines. It's not vendor recommended because it's end of life.

 

Three years a go, we had a proposal to replace all of our Intel servers with smaller departmental servers. The vendor said they were at the end of their life. I questioned what made them end of life -- a decrease in performance, many outages, or high energy costs. I said we shouldn't do it. My decision shocked everyone because we had the money, and because we did it every three years. I told my staff to keep track of the mean time between failures, keep track of performance, and keep track of newer versions of the software. If we started to see any of these things go south, then we'd have the beginning of a business proposal to spend the capital to make that replacement.

 

Three years later, we're now replacing those servers because of those changes. We had the highest level of availability, the lowest cost of any one else in recent benchmarks. We accomplish that because we didn't fool with the systems Changing your environment can produce defects in reliability. We put the maintenance on a different footing, made different decisions, and made sure our staff understood that we weren't walking away from technology. Instead, we were investing technology dollars in an area that could produce the biggest return and that could avoid significant issues. We didn't fall prey to follow the leader by replacing technology and making IT investments just because it's common practice.

 

EL. Can you describe your governance model?

 

SM. We have a project management office for governance. We need to follow guidelines for both Sarbanes Oxley and for good practice measurement. We need the ability to see whether we're improving our processes, improving our quality, or improving our productivity. We have mandated criteria from product development, such as phase gates or stage gates, project initiation, design readiness, development readiness, testing readiness, production readiness, and the new post-implementation evaluation. The milestones we assign to a project require us to go through a structured set of questions before we can move to the next level. These questions address how prepared we are to move to the next level. We don't wind up 90 percent into a project only to realize we don't have a chance of success. We catch issues and problems early as part of the evaluation. That's how we exercise quality governance.

 

EL. How do you look at projects that will benefit the entire  organization?

 

SM. We have a set of projects we do across the enterprise. For example, we have some infrastructure investments that will help everyone. We'll discuss these investments with the heads of the business units. Our chief executive officer who reports to the CEO drives many capital IT investment decisions. For example, last year, he spearheaded a very aggressive project to enable voice over IP to our 300 offices. It was a technology needed by out retail business, but it is clear to us that we could use that flexibility in all of our operations in the near future. Rather than do it piecemeal, we did it as an enterprise project.

 

EL. How do you  justify IT projects for each of the different business units?

 

SM. We justify projects on a business-by-business basis. For example, two of our business units have invested in customer centric data management, which will them provide a 360-degree view of the customer. This's a new capability in insurance. It is also good for marketing and good for relationship management. These business units need that technology as fast as they can jointly build it together.

 

Meanwhile, the commercial business that includes worker's compensation and general liability for large companies, is a mature business. We've put much good technology in place for this business unit. This business unit's projects are all about reducing the cost of business process and IT to provide more pricing flexibility.

 

The small commercial and personal line business unit goes through independent agents as oppose to selling directly to end customers. These independent agents handle relationships with multiple insurance companies. They have a different business model than other business units. They also use an entirely different set of tools. They also have a whole set of different issues. They're in very early stages and they're trying to build some basic integrated capabilities and consolidating some operations. They have a different set of needs.

 

Author: Elizabeth M. Ferrarini - She is a technology writer  from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.

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When Dan Hill, CIO of Exelon Energy, the $14 billion owner of two of the nation's largest electricity utilities, decided to outsource a major project, he evaluated several companies and then awarded the contract to Computer Sciences Corp. (CSC), a global $16 billion IT services company with more than 90,000 employees in 80 countries. According to Lem Lasher, CSC's chief innovation officer and president of CSC's global business solutions, says that Hill was impressed with depth and breathe of CSC's Office of Innovation. "Hill said that's what played a key role in earning his business.

 

Lasher has every right to blow his horn about CSC's Office of Innovation. In 2007, the American Productivity and Quality Center (APQC), the organization that sponsors the Malcolm Baldridge Award, did an independent benchmarking study of companies with programs to embed innovation within the organization. Lasher says, "Our competitors, such as IBM, Accenture, and Hewlett-Packard, funded the study. We didn't." After reviewing CSC's innovation programs on the company's Web site, APQC interviewed Lasher and his team, and then audited all of CSC's innovation programs. As a result, CSC received one of APQC's five Best Practice awards. The other winners included four product companies -- HP Printing and Imaging, Efficon Endosurgery, Boston Scientific, and Air Products. He says, "We were the only professional services firm to get this award. It has given us a huge competitive advantage."

 

Recently, enterpriseleadership.org sat down with Lasher to discuss the many programs that comprise CSC's Office of Innovation. Here is what he had to say:

 

EL. Why did CSC decide to create an  Office of Innovation?

 

LL. We needed to do something different about the way we operated. We wanted to bring about a change that would reflect an appropriate innovation agenda for our customers and for the business. We began by reorganizing a number of activities and programs we ran across the enterprise. In April 2005, we set up the Office of Innovation to establish an explicit global innovation agenda within the company from idea generation through solutions development. The Office of Innovation functions as a funded corporate department which runs with unified governance and management structure responsible for CSC's innovation agenda to run the business.

 

EL. How does your office carry out thought-leadership programs  for your customers?

 

LL. The Leading Edge Forum is the Office of Innovation's front-end piece where we do our basic research and development for thought leadership and business idea. This forum has two program activities. The executive program provides the thought leadership agenda for CIOs. The technology programs address socialization of intellectual capital rewards and recognition among the employees, and engagements with our customers.

 

EL. What do your customers' CIOs get from your innovation  program?

 

LL. We'll create an account innovation program that we tailor to each customer. We have a formal taxonomy or a formal way of setting up those programs that includes agreed upon definition of innovation, objectives, governance, processes we'll put in place, funding mechanisms, commercial terms and conditions, and underlying technologies and tools that support that. Each program is unique and specific to each customer. My team spends much time with customers, designing account innovation programs that an account team runs and my office supports.

EL. Does your  office have any type of a research component?

 

LL. Our internal research network comprises a group of individuals who do market-based analysis and research for CSC employees. We might use this group's findings for making investment decisions, for making offshore location decisions, for doing competitive analysis, and for investigating various types of technologies and products. This global research covers all of CSC's business lines and verticals.

EL. How do get  ideas flowing from both employees and customers?

 

LL. The Office of Innovation program called CSC Collective Intelligence runs ideation campaigns for customers, for employees, for internal organizational challenges, or for specific account issues we have. We have a good record running these programs.

EL. Can you explain how an  ideation campaign works?

 

LL. We view ideation as something done in a short-term, project setting that focuses on solving a particular problem. We call this activity a campaign. We'll identify a particular problem we want to solve, and then we'll create the appropriate executive ownership, the appropriate executive governance, and the taxonomy for triage of the ideas that come in. Each campaign ends with a solution that customers or employees can carry out. We do measure the results of the campaign. It's not a standing suggestion box.

EL. Can you discuss the  strategic aspect of your office?

 

LL. Our Global Service Offerings (GSO) group runs the programs office for the development of all of our global strategic offerings. This office abstracts the taxonomy, and maintains the repository, the portfolio, the business case, and all of the governance associated with how we make strategic investments in service offerings across the business.

 

The people who run these programs engage directly with customers for validation of concepts, for explaining to them what those propositions are and for helping them to shape those concepts around particular solutions.

 

EL. Does your office have specific  programs that leverage intellectual capital?

 

LL. The Intellectual Capital and Knowledge Management program supports all of the CSC communities by harvesting, storing, and leveraging intellectual capital. This intellectual capital has been explicitly articulated and put in the repository. This program also provides technical support for groups of individuals who want to form communities across the business.

 

EL. How do you handle intellectual property for things that you  develop in conjunction with a customer?

 

LL. We regard intellectual property as intellectual capital that we've protected in such as way to make it proprietary to CSC. As a services company, we aren't interested in acquiring intellectual property for patents. We have flexibility on the terms and conditions of how we would develop and use IT. We'll go through an analysis that says this particular intellectual capital warrants this level of protection and this position. If we've invested in something that would give us a competitive edge in the marketplace, we might be prone to get a patent on it. If we did something with a customer, we'd negotiate on a case-by-base basis about the ownership of the intellectual property.

 

EL. I haven't heard you mention breakthrough innovations or disruptive innovation. How much emphasis does your office put on them?

 

LL. We don't focus on breakthrough innovations, nor do we have an efficient way of managing them. Those types of innovations usually happen in a product company. We look at something we call the amplitude of innovation. It's the functional intersect between something being new to the company or being new to the marketplace. We look at the incremental and the adjacent innovations that result in leveraging a way to do something different to provide more economic value to our customers. If we came up with something we consider breakthrough, we'd probably figure out what to do with it. We're better off focusing our innovation activities on incremental and adjacent.

 

EL. What types of  centers of excellence programs do you have?

 

LL. We refer to these programs as socialization of intellectual capital. We have centers of excellence and we have innovation centers. The 18 centers of excellence all have physical locations, have a dedicated team, and have a commitment from a group president to fund the center's activities for up to two years. Each center may or not focus on innovation, but each center has deep domain expertise. My office certifies each center of excellence as a way of establishing its importance to constituents within and outside the organizations. Each center's work must undergo a peer review process.

 

My office also runs some of the innovation centers in India, in Australia, and in the UK. The business groups supports the innovation center in Sweden and the U.S. We support those programs. These facilities do sandbox prototyping, workshops, and solutions demonstration showing vendor's products and technologies. Each center varies according to its geographical region. The centers share resources and communicate with each other. My office leverages the intellectual capital these centers provide. The centers run under their own governance structure.

 

EL. How do you reward employees  for innovation?

 

LL. Our award programs run the gamut from an at'a boy to an at'a boy with stock options. Specifically, we have a paper's program, a grant's program, and the Chairman's Award for Excellence.

 

Employees can submit their original papers to the paper's program. If the peer reviewers come across an outstanding paper, it will get an award at the end of the year.

 

The grant's program funds both directed and non-directed work. We fund between 10 to 12 projects each year. For directed projects, we tell employees what we want them to research. In contrast, with undirected projects, employees tell us what they think they should research. Both types of research are subject to peer review. Although the grant's program doesn't offer any monetary reward, employees completing this program receive more recognition than those receiving a paper's program award.

 

The Chairman's award is the highest award employees can get for innovation. It's also the hardest award to win. Each year, the global division presidents nominate their respective candidates who've done an outstanding job on a project. Keep in mind, we do more than 10,000 projects a year. We narrow down between 100 to 150 nominations to 12 finalists, and then down to the six winners. The winners get stock options in CSC, and an invitation to a senior management award's meeting. We make up videos and issue employees a crystal glass reward.

 

EL. Do you also extend your office to academics?

 

LL. Our Leading Edge Forum manages relationships with professors at about 20 universities around the world. We look for universities where we can work with the leading professor whose innovative research is in an area germane to our business. We engage with those professors either on a contractual or on a retainer basis to do research work with us. We'll frequently rotate the list of universities we work with

 

EL. How do your work with David McCue, the CIO, to make IT  investment decisions?

 

LL. My office's GSO group has a portfolio governance board that oversees the investment decisions we made. McCue is a member of this board. He is current with all the decisions we've made. He uses that as input for the kinds of things that make sense for him to do. He is a non-voting member of the board, but he sits on the board. The other people on the board include all of the global group presidents. They make the overall decisions for investments. The board of directors isn't involved at the service offering level. I negotiate a budget with the CEO, and have funds made available to me. I'm the custodian for this governance board. We vote that money in. Democracy rules! Each group president has one vote. We meet each month to discuss where we need to make investments and approve funding for some of them.

 

My office monitors and tracks those investments. For example, we track the revenue that comes in from the investments. We know what our rate of return is on investments.

 

We have some tools. I can't say off the top of  my head what they are, but they aren't Excel spreadsheets.

 

Author: Elizabeth M. Ferrarini - She is a technology writer  from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.

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