The Internet might have sounded the death knell for print newspapers and magazines in the United States. High quality print media, however, continues to thrive around the world. Developing countries in Eastern Europe and Asia have stepped up their efforts to keep pace with people's demand for print media. In fact, Goss International, a $1.1 billion developer and manufacturer of web offset presses, plans to capitalize on the international appetite for print media, especially newspapers, magazines, catalogs, and advertisement. The Shanghai Electric Corporation recently bought a majority interest in Goss International.  The company also expanded its global business focus through the acquisition of Heidelberg Web Systems in Germany.

Goss's presses and finishing systems print everything from books to directories from coupons to advertisements for customers on four continents.  The company sells it presses to large advertising agencies, major metropolitan newspapers, magazine publishers, and major commercial printing companies. Customers include R.H.  Donnelly, KP Group (Russia), AIW Printing (Australia), Segerdahl Corporation (U.S.), and Valpak. (U.S)

Founded in 1895, Goss International has become known for aligning technology innovation and product reliability with customers' requirements. Some of the company's technology firsts include the four-color newspaper tower, tele-color remote ink key control, and high-speed circular newspaper inserter. Bill Rogers, Goss International's CIO, says that the company's innovations, such as marrying print with wireless and online access, give advertisers new capabilities. Meanwhile, Rodgers says that the company has begun to apply its engineering expertise to new markets such as wind turbines.

Enterpriseleadership.org recently saw down with Rogers to talk about Goss International's process for making technology investments and driving innovation.

EL. Can you describe some of the international growth areas Goss is looking at?

BR. Prominent families in the U.S. own many of the major metropolitan newspaper. It has been a rough road for them.  U.S. newspapers have been losing advertising dollars to the Web. Several major metros have closed and others have been losing money. The international market for print continues to drive our growth and revenue.

We have seen much growth potential in China. It will accelerate once we get passed the current economic situation. Right now about 10 percent of the Chinese population has the discretionary income to buy newspapers and magazines. As that percentage grows, there will more of a demand for not only newspapers but higher quality print products such as magazines.  In fact, Chinese people gather in droves at newspaper viewing stands to read about what's happening around the world.

We have customers with global operations in China. They have already started to invest in huge printing facilities that will accommodate about 40 presses. India is another growth area for us. There are about a dozen Indian families that control much of the wealth. A few of those families want to use the same U.S. model of family-owned newspapers. We have customers who have bought many multiples presses within the same family. At this time, the print quality in both China and India cannot compare to that in many parts of Asia or in Europe. We sell presses that are priced for that economy.

EL. What distinguishes your presses from your competitors?

BR. We do much personalization of print media. For example, we can print catalogues that have specific items for sale or that will go to a specific demographic population. So, instead of one catalog going to an entire group, we can produce a special catalog for 100 or 1,000 people based on their needs.

We provide the print system, but we don't provide the demographic data. The customers get the demographic data from database marketing firms. After our press prints the material, it sorts it into books or signatures and then bundles that the books with either twine or in plastic.  If you go to our Web site, you will see a time lapse movie that shows one of our folders that took about three months to build. In 60 seconds, you will see the complexity of handling the folder.

EL. What is the challenge of building a printing press, say, to handle a magazine or a newspaper?

BR. We engineer everything to the customer's specifications. For example, we configured a printing press to stuff plant see packages in the publication. As a result, we build very few of the same thing. A customer's specifications can be based on geographical needs or physical needs. For a customer that wants to get new technology, but is located in a major metro area, we would fit the new technology to reside within the specified building. In the meantime, we would keep the old press running until we built the new one. Some of our customers have constructed a building just to house the printing press.

EL.  Are any two printing presses alike? 

BR. No! Some of our low-end presses are very similar. A customer might order six of the exact same thing, but they are engineered to order.

EL. Your company has earned a reputation for innovation. Can you talk about some of your technology innovations and the value it provides customers?

BR. Goss RSVP is technology that connects a cell phone to a two-dimensional bar code on print material, such as an advertisement. Depending on the cell phone, you can use his or her cell phone to scan the bar code in the ad. You would get a five-digit code to get more information about the product or you could connect to a Web site or see a video. A project we did for a real estate agent allows you to scan a particular house in the ad, put in a short code, and view more information about that house, including a short video. We are ahead of the times. We have designed some of this for the next generation phone that will run on 3G, and eventually 4G. Today we have lots of customer using the SMS part of it.

EL. Can you talk about other innovative technologies?

BR. Our tagline is 'innovation for business.' We have 1,000s of patents. Many of these patents fall into several areas - reducing labor for the customer, improving print quality, and reducing environmental impact. For example, a few years ago, we developed a technology called gapless printing. It decreases the space between the images or between the pages in the book and thus uses less paper.  By using this technology we have helped customers collectively save about 2.2 million trees over the last 10 years or about 4,300 acres of forest land.

EL. What percent of your annual revenue do you spend on product development and innovation?

BR. It's about 15 percent. We have sustaining engineering for our older equipment and new engineering for recent products.

EL. What process do you follow to make technology investments?

BR. All of our major investments are business investments. We do not like to distinguish between investment types, such as technology. The technology team works closely with the business team to develop and conceptualize ideas. We then put together a business case. Depending on the size of it, we might do a pilot. From there, we will develop an appropriation's request with a project plan, benefits, and return on investment.  We will review the request at the quarterly steering committee meeting that I chair.  All of the business leaders from around the world attend that session. We go over the status of major projects and upcoming projects, and anything else people might want to talk about. It is a governance meeting because we have about 15 people in a teleconference at the same time.

We also have a technology leadership team comprised of all of the on-site technology leaders. We meet monthly via a conference call for two hours to discuss what we accomplished, what we need to get done, and who needs what help.

EL. Are you part of other major investment decisions in the company besides technology?

BR. I participate in all decisions about technology, including our computer aided design systems. I also participate in decisions about engineering, marketing, and sales. I have input into decisions about how we support our customers with technology. For example, most of our newer presses have the ability for us to monitor that press remotely and to adjust it remotely. For example, we can adjust the print quality or the speed of the press, or we can look at what is coming off the press. It is like a remote console.

EL.  Where does the innovation come from?

BR.  We have a research and development group. Because many employees have been with the company for many years, they have solid relationships with each other and the management team. Our innovation comes from the open dialog we have with employees and our customers. For example, I might ignite some of their ideas when I talk about what I have seen at other places or conferences.

I have a card that says I am the chief innovation officer.  A colleague recently came to me and said: 'Because you build large, rotating, high reliability devices, have you ever thought about getting into the wind turbine business?' As a result, I have met with executives from wind turbine companies, as well as have attended a few industry conferences. That technology has a deep tie to how we build high quality presses. In fact, some of our presses have been printing the same newspapers for 60 years. Our technology undergoes much stress testing to ensure the reliability of engineering.

EL. Are you thinking about having a core of the business in wind turbines?

BR. Yes! The manufacturing and design engineering section on our Web site talks about projects we are doing with several wind turbine manufacturing companies. We might never put together a wind turbine and sell it. On the other hand, wind turbines have many components that look similar to those found on a printing press. Both types of components have similar lifecycle and duty requirements.

EL. Have you come up with other innovative ideas?

BR. Because we have a large service force, we have added some things such as Skype. Our Skype videophone enables our service people to see remotely how a press is operating. For example, if a press is making a loud noise, we can dial into it electronically, but we can't see what is wrong with it. This new device will function as our remote eyes and ears. Service people will be able to transmit video of a customer's press to our engineers in the main office. The engineers can help to speed up the solution to the problem.

EL. What marketing challenge does your business face?

BR. Our business is based on relationships.  You do not go shopping online for a multimillion dollar printing press. We spend much time educating prospective customers about what we do, how we do it, and why it is better than what our competitors offer. Depending on the price of the press, our sales process can take several years.

EL. How do you communicate business impact to your constituents?

BR. I came up with a periodic checkpoint meeting comprised of directors and vice presidents from functional areas. We each go over some tactical issues about our area. We also talk about we have accomplished and what we need to improve.

EL. Do you attend any meetings of the board of directors?

BR. We are privately held. I, however, attend four board meetings a year to talk about technology and innovation. The board presentation package helps me to further understand our strategy.

EL. What is your process to revise the corporate strategy?

BR. Once a year, the global management team meets. We go through a series of presentations about each site, including any functional areas. Our customers also attend this meeting. Print industry consultants provide us with a three-year vision on where they see the market going.

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

These days generics are the hottest growth market in the pharmaceutical industry. And Ranbaxy Laboratories Limited ranks as one of the eighth largest generics producers in the world. With annual revenue of about $1.7 billion, Ranbaxy offers generic drugs that cover the majority of chronic and acute segments. The company sells in 125 countries and has a physical presence in 49 countries. It also distributes about 80 percent of its products through the three top pharmaceutical distributors: AmerisourceBergen, Cardinal Health, and McKesson. Emphasis on new drug research into areas such as metabolic diseases, oncology, and urology help distinguish Ranbaxy from its global competitors.

Several years ago Ranbaxy underwent a business transformation to do a better job of carrying out its mission deliver value everyday to customers. This transformation included making sizable technology investments so Ranbaxy could both accelerate and lower the cost of bringing new products to market, and streamline the process of developing new chemicals and new chemical entities. The results paid off for Ranbaxy. In early 2009 Ranbaxy became an operating company of Daiichi Sankyo, an $8 billion global manufacturer of branded pharmaceuticals and the 15th largest company in this marketplace.

Enterpriseleadership.org recently sat down with David Briskman, Ranbaxy's chief information officer, to talk about the strategic integration of technology to better enable the company's key business processes.

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

DB. We have a centralized technology organization comprised of both internal technology staff members and outsource partners in about 30 countries. Most of our applications, technology support, and our governance process follow a centralized model. Our key technology areas include the following research and development, drug discovery, and manufacturing technology.

EL. How will your business model change because of the Daiichi Sankyo relationship?

DB. Daiichi Sankyo ranks number 15 globally in branded drugs. We plan to follow a hybrid global business model that combines generics and the branded drug globally.  Our growth opportunities will include leveraging our capabilities with those of our parent.

EL. I read that your CEO wants to use technology to drive business transformation. Can you describe the areas where technology provides the most strategic value to the company?

DB. Developing a molecule that falls into the multimillion-dollar drug segment, and keeping that intellectual property for years have driven the traditional branded drug market. In the generic market, you have to be very efficient as possible if you want your business to thrive and to be successful. It is a highly competitive business, much like private label, consumer packaged goods. You have to produce a very good basket of goods or else you will not be successful. For us to accomplish this goal, we depend of technology to support our three key business cycles. One key cycle includes moving the product form the research and development cycle to the filing and registration and finally delivery to a particular market.  Our supply chain, another cycle, needs to be incredibly efficient, given our product diversity.

Our third cycle looks at how we run our business. For example, we market directly to doctors in India where customer intimacy is less of a focus. For the rest of the world, our business growth opportunities depend consistently on delivering a good quality selection of diverse products.

EL. Can you describe some of the key technology investments you made to improve the business cycles you mentioned?

DB. We have moved our research and development for new products from a manual process to a highly automated one. We submit all documentation electronically to the U.S. regulatory authority using a specific format. We are one of the early adopters on that technology. It has enabled us to obtain faster approvals on the submissions and subsequently to bring faster products to market. We also have deployed our global regulatory database that allows for our tracking, monitoring, and managing of all our regulatory submissions. This database has facilitated our ability to look at our product suite in a more meaningful way. Before this database, we had to figure out what we registered across all of the products in all of our markets.

We invested very heavily in business intelligence and our SAP supply chain suite. In fact, a variety of our business intelligence initiatives focus on enabling the business to respond better to customer demand. Some of those areas include everything from mobile phone-based automation tools in India to the different data mining, and dashboard tools.

EL. What changes did you make to your enterprise architecture for some of the things you mentioned?

DB. Because we have to be efficient, we prefer not to dabble in lots of different technologies. We have a different architecture and set of applications in research and development. Our enterprise architecture, however, revolves around our supply chain backbone and our Microsoft capabilities. We try to leverage these two platforms.  Our current enterprise architecture is less than ideal on the sales force automation front.

EL. Can you describe how you are handling sales force automation to make your organization efficient?

DB. We have 17 different sales force automation systems. That might sound like an inefficient number of systems. On the other hand, this number of systems complements the way we operate geographically. We have different business models for certain countries. Most of the business advantage does not come from the architecture of a given system, but from the local market intelligence available on those sales force automation systems. Our global studies show that we are far more effective growing our business with our regional and local players versus an enterprise approach to sale force automation.

EL.What is your governance process for making these investments?

DB. We have both formal and informal governance for making technology investments.  Our formal governance process is very straightforward. I sit on both the budget committee and the operating committee.

Each year we go through a very rigorous assessment based on a value framework we adopted from Gartner. It accesses all of the different technology investments to do a multi-cycle review process.

Throughout the year we have councils comprised of leaders from the different business areas. These councils also include my direct reports and me. We meet quarterly to assess the amount of progress we have made against the specific plan. These business councils provide a formal structure for what we must work on, along with any unexpected projects.  Depending on the region and business function, a business council might have as many as 25 people sitting around the board room to an informal gathering of five people.

Most technology projects have steering teams, which comprise our informal governance process. These teams include mostly technology professionals and some representatives from the business units. Together they work with the different business leaders to understand their priorities, vision, and strategies beyond that quarter.

EL. How will your governance process change because of Daiichi Sankyo?

DB. The governance model going will grow because of our relationship with Daiichi Sankyo. We have made most of the strategic investments and put in place the platforms that enable our generic business to run efficiently on a global basis. The exciting opportunity for me is the ability to extend that efficiency to our parent.

EL. Do you link technology to new sources of revenues, new products, or new improved processes?

DB. We rank all of our technology investments on this value framework. The framework's four areas include the following: financial metrics such as ROI, strategic implementation, compliance, and feasibility. The last one involves the ability of our business to take advantage of an implementation.

I produce an annual report that quantifies the business value associated with each investment. We have been through several cycles on this. In the first year we used this value framework, we focused on ROI. I found that we spent too much time trying to quantify dollar values where we should have been looking at qualitative capabilities.

We can say that our new supply chain platform drove our inventory reduction, but other factors contributed to this reduction.  We make sure we can have quantifiable metrics associated with each project. For example, pharmacovigilance is the compliance process for tracking adverse events in drugs used by patients. We do not put a financial benefit on that system per se, but we have started to improve the timeliness of our regulatory reporting.

By focusing on the metrics directly attributable to the investments, we have improved the overall perception of the investment's value. For example, for many of the dashboard and collaboration platforms we have set up, we measure efficiency factors, such as how many reports we run and how many active users we have. We prefer to do it this way rather than this particular report helped us improve revenue by so much. That type of process leads to much interpretative discussions and in turn does not lend credibility to technology. By focusing on the business capabilities we provide, we will derive a perceived value from the knowledge we provide with those capabilities.

EL. How integrated is technology into your business?

DB. It is integrated into the business on several levels - as a centrally managed function and as a strategic driver. We have moved from the perception of being help desk order takers to playing a strategic role in the business. We have become more proactive in our ability to propose business changes and technology investments that will improve the business.

This year my team is leading a project sponsored by our CFO to streamline the financial close process. We are in partnership mode on this project. The same goes of our sales force automation and CRM efforts. We have taken a more strategic stance in bringing solutions to the business and suggesting changes to business operations. For example, we worked on how we could improve our customer management process in India.

EL. What is your process for reviewing the corporate strategy? How will change because of the Daiichi Sankyo relationship?

DB. We have been on a three-year cycle for reviewing and setting our corporate strategy. Our relationship with Daiichi Sankyo, however, will influence how we look at our corporate strategy. I told my team that we do not have to sit down every few years and figure out our corporate strategy and alignment for generics. Instead, we need to get as many good quality products to market and to make sure we deliver them in a timely and efficient fashion. We also have to accomplish this in a compliant and profitable manner.

The generic drug industry is very simple. We support the industry's best practice for new drug development. As our business model evolves with Daiichi Sankyo, we will move forward to leverage our cost advantage in the global branded pharmaceutical market too. Many of our competitors have a federated business model versus our forthcoming centrally controlled business model.

EL. How has the global economy affected your business?

DB. Before 2009, we had been growing at 12 percent per year. Our growth rate is now about six percent. The global economic downturn affects about 10 percent of our business. We have refocused our efforts on becoming more efficient by enabling the appropriate technology and business process to achieve productivity. It has also helped us to leverage and to stick to carrying out more standard policies and procedures that facilitate productivity. For example, we rolled out unified communications and IP telephony to the increase the use of collaboration technologies.

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

Most CIOs accept a new position on the premise they will create an IT organization that will bring great value to the business. Some CIOs, however, find themselves maintaining the IT status quo by keeping costs under control and systems running.  Other CIOs struggle to make important improvements despite shrinking budgets and lack of executive management support. And then some CIOs manage to overcome corporate challenges to bring about a major IT organizational transformation.

John Carrow, the former global CIO of Unisys, likes to think of himself as someone who thrives on delivering the business impact of IT. In fact, during his 30-year IT career, he played a major role in four IT business transformations, including  10 years as the global CIO for Unisys, and four years as the CIO for the City of Philadelphia. Carrow’s IT experience enabled him to move out of the IT role to become Unisys’ vice president of strategic client development, where he worked on developing key accounts and client relationships for the company. He left Unisys to start Carrow Consulting, a strategic technology advisory firm to help small and mid-size companies reset their strategy, and gain alignment with their executive team or their workforce in order to execute a strategy.

Enterpriseleadership.org recently sat down with Carrow to discuss how he handled two major IT business transformations, and dealt with the politics of being a CIO. Here is what he had to say:

EL. How did you create business impact of IT as a public sector CIO?

JC. When I joined the City of Philadelphia in 1993, it was near bankruptcy, had very little automation, and a new mayor, who happens to be the current governor of Pennsylvania. His mission included changing the direction of the City so it operated as a business with a good financial foundation. When I interviewed for the job, I asked the mayor to define his expectations for IT. He replied, ‘I don’t know much about our technology, except that I don’t think it is very good. I expect you to build a monument on the side of a cliff with primitive tools and no money.’ I took the job on that premise. I measured the impact of IT during the four years I was there. We infused a tremendous amount of automation, that not only made things more efficient, but also pulled in more revenue for the City which helped turn it around.  When I started as CIO, we had 1,000 computer users out of a workforce of 25,000. When I left, we had 16,000 computer users who spanned just about every department.

EL. What challenges did you face creating business impact of IT at Unisys?

JC. When I joined Unisys in 1998, it was a $7 billion traditional hardware supplier of technology to the business community. Because hardware was becoming a commodity, the new CEO decided to change the company’s direction to become a service-oriented business, and to have the entire company operate as one entity or one business unit. In the past, we had multiple business units doing their own thing.  He wanted to use technology as the lever to help transform the company. We changed many things, but we centralized the IT organization. We consolidated 56 data centers around the world to one. We rolled out Oracle for ERP, Peoplesoft for HR and Seibel for sales force automation. We collapsed the number of systems we supported by 50 percent. We lowered the overall cost of IT by 40 percent. We standardized and simplified processes across the globe. During my 10-year road trip, I produced many measurements that showed the business impact of IT.

EL. How did you communicate business impact when you were at Unisys?

JC. Because we had a global workforce of more than 35,000 employees, we relied heavily on top-level communications through the management team. We had many all-hands meetings, and Web-based meetings. We had the luxury of broadcast TV capabilities.

EL. Were you at the board of directors meetings?

JC. Occasionally! When we kicked off the transformation, both the CFO and I attended several board meetings where we presented our case for the investments we needed to make. We attended periodic meetings to report our progress. After September 111, we gave the board regular updates about security issues.

EL. Was the business impact of IT ever communicated to stockholders?

JC. Yes! It was communicated to investors as part of the overall going-forward strategy of the company to become a service business. These were underlying transformation toolsets that were being put in place.

EL. Did you provide this information?

JC. Yes!

EL. How did you measure the business impact of IT? Were there certain criteria you looked for?

JC. The most important aspect of it was the financial cost savings associated with the overall transformation. We had forecasted that a sheer reduction of infrastructure, especially the number of systems, would produce a cost savings. We also said that we would put in place a central procurement activity supported by technology. There would be cost savings by reducing the spend we had with fewer suppliers. We reduced 19 different procurement systems to one. We also simplified the company’s multiple financial systems to a single instance financial system with a data warehouse reporting capability. It would reduce the cost of the accounting activities.

EL. How did you track those cost savings?

JC. We benchmarked ourselves on all of these functions over time. That gave us a pretty good indicator of the costs from the first day we started. Periodically along the way we did two or three benchmarks with the same firm to make sure we made progress in the right direction. We used the Hackett Group.

EL. Have you gotten into the politics of being a CIO? That is a subject few CIOs talk about.

JC. How do you avoid that as a CIO? You have politics starting with who you report to. Are you getting the visibility you deserve so you can make a difference trying to bring about change in the organization? For example, I was brought in as a technical expert for the City of Philadelphia. People respected that. The more people my team trained to use computers, the more the politics started to disappear.

Unisys had its own political challenges. I was a technical expert inside of a company full of technical experts. I used to joke that I had 35,000 deputy CIOs all of whom said what direction we should go in. There’s one level of politics. Another level of politics was the relationship inside of the executive committee. How do you get your voice heard? I worked directly for the CFO. I did not like that reporting relationship, but that’s the way it was. Some times it was difficult to get my voice heard especially when another person filtered it. 

EL. You stayed at Unisys a long time? Apparently you found a way to make this work?

JC. We made significant progress. Whenever you make progress with difficult challenges, you feel good about that, and you feel good about what you are doing.

EL. Were you represented on the executive team or did CFO represent your point of view?

JC. It was the latter. I dealt with all of the members of the executive team individually. I would have liked more opportunities to engage with them collectively. I wasn’t unique in wanting to sit at the table. As my confidence level grew over time, I quit worrying about who I reported to, but getting the job done in the manner people expected.

EL. As far as you are concerned the CIO shouldn’t worry about who he or she reports to?

JC. I have heard some CIOs say that they would never take a position reporting to a CFO. I have even felt that way in my life. When I was the CIO at Unisys, I knew I had the support of top-level management, especially the CEO and his executive team. In that case, who you report to doesn’t make a difference. When that support starts to wax and wane, you might not continue to get the right level of support, say, from the CFO you report to. That’s when you have something to worry about.

EL. What methodology is your new consulting organization using to help companies receive a better payback from their technology investments?

JC. I have developed a paradigm based on the transformation I have carried out. I call it the SAGE factor, which stands for strategy, alignment, governance, and execution.

We talk about each of these in isolation. You need a strategy that aligns with the business.  A governance process has to be associated with that strategy in order for you to achieve execution. If you don’t have the first three set up correctly, you really cannot achieve a successful execution. Technology is a piece of SAGE, but it goes beyond technology. At the end of the day, business strategy is what matters.  IT is an enabler, but it is really the business focus that is important.

EL. Can you describe how you helped one particular company?

JC. We worked with a business process outsourcing company that has been a backroom provider of high quality services. The company came to us and said it wanted to change and go after a public sector market. We helped them identify the solution sets it can take to market and how it can best do that. Working together, we built those solution areas.

We worked with a small printing company that has a software development arm. It is very innovative company. This company asked us how it could get its products to market. We have been helping them layout the products, test marketing them, and develop a go-to-market program for those products. 

EL. Given this economy, what are doing to get clients?

JC. At Unisys, I was on the IT audit committee. We worked with the Information Systems Audit and Control Association to implement the COBIT framework not only in IT, but in our overall governance structure.  I developed a good relationship with Ernest & Young and KPMG. When I left Unisys to set up my own consulting practice, both of these organizations referred me to clients who needed my expertise.

EL. What’s next for Carrow Consulting?

JC. I am about to work on a large transformation project within the federal government. That’s all I can say about it. My other goal is to write about the transformations I have been a part of.  What things make a transformation work? What barriers will you encounter? What causes them not to work well? It all starts at the top.

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

In 2005 when California Governor Arnold Schwarzenegger introduced his Strategic Growth Plan to rebuild the state’s crumbling infrastructure, he said that this infrastructure went beyond roads and bridges, but also included the State’s massive information technology infrastructure.  On January 1, 2008 the Governor appointed Teri Takai, the former CIO for the State of Michigan, to first transform the California’s IT organization, by managing costs, despite the tough economic environment, and then to put more e-government initiatives in place.

Takai is no stranger to overhauling a state’s IT organization. While CIO for the State of Michigan, she restructured and consolidated that State’s resources by merging the IT organization into one centralized department to service 19 agencies and more than 1,700 employees. Under her leadership, Michigan ranked number one four years in a row in digital government by the Center for Digital Government. Prior to going into public service, Takai worked at Ford Motor Company for more than 30 years. At Ford, she led the development of the company’s IT strategic plan.

Enterpriseleadership.org recently sat down with Takai to talk about the challenges she faces transforming the largest IT organization in the State of California. Here is what she had to say:

EL. What is it like working for Governor Schwarzenegger?

TT. I am enjoying every minute of my work. It's never a dull moment.

EL. Can you describe the structure of your organization?

TT. We are currently in transition. To date, our organization has been highly decentralized. Each of the 130 CIOs have pretty much been able to set their own processes, establish their own way of doing things, from both a business and a technology standpoint.

This position was really the creation of a central CIO organization with reporting responsibilities directly to the governor. That is the first time the CIO has been a cabinet member. It is the first time the position has directly reported to the governor. Before today, my organization was a policy setting and financial review vehicle with about 32 people. I have close to 1,100 people. Within my organization, we plan to consolidate our large mainframe data center, our security organization, and our public safety communication organization. The central shared services to support our infrastructure will become part this larger organization.

EL. How many IT workers does the State of California have?

TT. We have been using the 10,000 number. When we consider things like desktop support and other functions, we think that the actual number is a little larger. We believe that our on-going run rate budget is about $3 billion. We run about $1 billion of project spend on top of that. As a result, our spend comes closer to $4 billion. Even that could potentially be a low estimate.

About 10 percent of the current state IT workforce will become part of my organization directly. The rest will move to a federated model. We plan to establish a dotted line working relationship where the IT policy, as well as all of the technical direction, will come from this office. The business direction will reside within each respective organization. The business organizations will also make the decisions about how much money they want to spend on IT.

EL. Since you are going to this structure, what will your governance process look like?

TT. It is changing dramatically. We plan to establish a brand new governance structure around reporting of projects. We put out a policy letter in April to get the transparency ball rolling. First, we do not want to monitor all of the little projects. Projects that met certain parameters will require reporting into this office. We plan to post the projects on the Web site so they will be available to the public, as well as to the legislature. The reporting frequency depends upon the size of the project.

EL. How do you plan to measure these projects that meet certain parameters?

TT. Initially, we will look at project performance. Our challenge is sheer performance. The first thing we plan to do will be to meet our milestones.  Within those milestones, we may have measures around earned value. The first step is to just get the reporting to happen.

Keep in mind that we are not where we need to be. We are just in the beginning stages. We have the challenge of trying to do business transformation while we are trying to do IT transformation.

EL. How are you going about getting this reporting to happen?

TT. We told the departments and the agencies that we have the ability to put out our policy letter, which is the equivalent of the traditional administrative manual. Our policy letter requires certain project and portfolio management training, certain practices, and then reporting requirements. This is all brand new. The portfolio management tool we plan to secure will help us to do the reporting.

EL. What key technologies investments have you needed to make?

TT. Because the budget crisis hit when I arrived here, we have not made what I call key technology investments. We struggle to make due with our dollars. We have continued to support some of the investments that we have had underway. For our infrastructure, we are working on aligning data centers to improve disaster recovery. We have a major project going on to shut down one of our locations and create a more robust disaster recovery plan for our mainframe data centers. The investment there is not a huge amount of dollars. It has been making use of the dollars we have to make dramatic changes in our disaster recovery capabilities.

We still have a large number of application projects underway and continuing to move forward. Some of them even accelerated. We have several ERP projects underway. As you can imagine with the size and scope of California, we have had several of them happening right now in corrections and another one in transportation. We have a statewide payroll and personnel replacement system underway, that is an ERP implementation for personnel. We are in the process of preparing an RFP for an enterprise-wide ERP system for financial management.

EL. Are you folks doing much consolidation of redundant systems?

TT. We have just begun that process, but I would not say we are far along with it. In 2008, we did our first ever five-year IT capital plan. It was the first ever it was ever done for the State of California. We required everyone to come with his or her five-year plan. This process will give us visibility into the areas where we need to move towards consolidation and shared services. We will update that plan this year.

The 130 CIOs will be in 11 different groups. Before I move forward with a statewide consolidation strategy, I have asked all of these CIOs to submit a consolidation plan for their agency based on what they would do. These plans will give us a way of actually looking at what we should do from a state perspective.

EL. Is your shared service organization going to be mandated or not?

TT. Yes and no! It's an interesting situation to look at a shared services environment based on both mandating and cajoling. Because I have done this type of consolidation before, a mandate could damage could damage your ability to pull if off, especially if you do not have the ability to do it properly. Our first step requires that I have the technical team organized, and I have the ability to do consolidation properly. Call it the first step. I am focusing right now on directory and email.  It is a great kind of outward invisible place to start. The second place we are starting to work in is our data centers. We have more than 400,000 square feet of data center and only about one third is what we would call tier three. Those are a couple of areas where we are going to move toward consolidation, but I have not yet going to the mandate state. I have mandated that the agencies are to prepare their consolidation plan, but I have not mandated which direction they are going to go in.

EL. Because your IT transformation or reorganization implies a change in communication style, what type of training program are you putting in place to facilitate this?

TT. Our communications director has been working very hard to develop a cohesive communications plan. This plan is not only important for our IT employees and our business partners, but we need it for dealing with our legislature and our various special interest groups in Sacramento. For example, we have a council comprised of the 130 CIOs. They all have the opportunity to participate. Our executive leadership council includes the undersecretary of each major agency. To this end, we are always talking to the business folks, as well as to IT. I then have the venue of the cabinet secretary if there is an issue I have to raise to that level. Communication is key and essential to what we doing.

EL. Are you looking at social media for the communications piece?

TT. Yes! We recognize social media tools as an effective way to reach our audience, especially those who want to follow us. We have done a Facebook page. We are experimenting with Twitter and how to push out information using those short updates for people who want to follow us. Governor Schwarzenegger is twittering. People are very interested in what he say to say. He has started to lead leading state agencies toward that style of communicating. We are looking at different things.

We are focused on using the tools to push information out. We have not yet spent enough time looking at how we use these tools as a way to gauge and to get input. We are re all struggling with this issue.

EL. Have you had much contact with Vivek Kundra, the new U.S. Federal Government CIO?

TT. Yes! We are certainly interested in what he is doing. While putting data out there is great, we are all still struggling with what people do with the data that actually will result in an outcome. We have to continue to work on this piece. On the other hand, we have much internal resistance to putting data out to the public

EL. How do you communicate to the rank and file about the importance of understanding the business impact of IT?

TT. This area is important to us. We are trying to use a business approach to the way we approve projects and the way we implement them.

EL. What are you looking for in a CIO?

TT. We want pro-active people who will stand up and be counted. They want to be leaders.

EL. What challenges would private sector CIOs if they wanted to join your organization?

TT. They have to be able to calibrate and understand the way the work gets done here. They have to be able to calibrate to the pace of government, and the bureaucracy of government. People who can do these things will derive much reward working in government.

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

Founded in 1983, Erickson Retirement Communities is not your typical construction company. John Erickson, the company's founder and current chairman, saw the need for building continuing care retirement communities (CCRC) for middle-income seniors, especially the baby boom generation. Today, the company's 23 communities in 12 states house more than 21,000 seniors. The $1.3 billion company has designed each CCRC as a self-contained campus with apartments for independent living, an assisted care facility, and a skilled nursed facility. Each CCRC has a fitness center, a convenience store, a restaurant, and a full-service medical facility.

While Erickson is currently building new CCRC's in Colorado, Kansas, and Virginia, it has begun to leverage its expertise in geriatric care and technology to build a series of medical facilities to serve the local community. Since 2004, Erickson has been investing in electronic medical record (EMR) technology to drive these facilities, as well as healthcare at all Erickson's CCRCs. John Lambeth, senior vice president and chief information officer at Erickson, says that our "technology investments in both healthcare and construction differentiate us from our competitors. In 2008, the InformationWeek 500 recognized us for our construction software and our EMR."

Enterpriseleadership.org recently sat down with Lambeth to talk about the company's process for making and evaluating technology investments to enter new markets.

EL. Can you describe your business model and your business strategy?

JL. We build continuing care retirement communities (CCRC) and then populate them. Once the community has created value, we sell it to a third-party who sets it up as a standalone 501C3 corporation. Erickson then gains it revenues by providing the management services to that community, as well as reimbursements from the Medicare billing. We set up a benevolent fund for those people who run out of money and can no longer afford to pay.

Our overarching part of our business strategy resolves around our senior communities, especially how we provide care to seniors. Part of our business strategy includes our growing medical practice, which extends outside of our communities. We have based this on the electronic medical record (EMR). For example, our Howard County medical center services people that are not our residents. This facility highlights the advanced geriatrics medical practice we have in our communities. Our strategy also includes things such as our retirement living television channel, which appears on cable networks in a variety of states. We also have our own Medigap insurance product, which our residents can purchase at a lower cost than similar products offered by AARP. It is called Erickson Advantage.

EL. What do you offer that other senior living communities do not have?

JL. Our on-site medical practice has become a key competitive differentiator for us. No other CCRC offers that. As a result, our residents can live within our communities through the span of independent living, and on to assisted living or at our skilled nursing facility. Each community has a fully functional medical practice. We have stepped out in front with the use of EMR technology. Moreover, we have also integrated our EMR technology with long-term care systems to create a level of productivity that even doctors in private practice or in another CCRC do not have.

EL. What is your technology platform?

JL. Our infrastructure runs of products from Cisco and Microsoft. The two core medical systems include GE Healthcare's Centricity for EMR and CareMedx to manage the skilled nursing facilities. We have integrated Centricity into CareMedx. When it comes to our enterprise architecture, we distinguish the portfolio of systems related to the medical side from those for the construction side. We manage the portfolio of operational systems as a side entity.

EL.  Can you describe some of your key technology investments?

JL. We have been investing in EMR technology since late 2004. Our goal is to have a complete EMR. For example, we added an e-prescribing component, which gives us the ability to do prescriptions electronically. Our e-orders component enables physicians to put orders electronically into the record. We link to external labs. If residents go outside for specialty lab analysis, we get those results back electronically. We now do advanced directives electronically and associate those with the EMR, such as meals or dietary.

EL. Can you describe some of the benefits your EMR capability provides your residents?

JL. Usually, when new people move to one our communities, they often continue to use their own outside physician. After about six months to a year, many residents decide to go with our community physicians because of convenience. At that time, the residents will bring in paper medical records or we will get them from their former physician. We have an initial process to get as much information into our base EMR system. Our community physicians do a full series of diagnostics for residents who decide to use our medical services. We also scan the paper records in their original form and make them attachments to the EMR.

Many of our residents arrive with a shoebox of medicine. Because of our EMR capability, we offer those residents who use our medical facilities with one place that records all of their medications. We can look and see if what interactions those medications have with each other. We also offer programs that help our residents to get off certain medication. Many of our residents wind up taking rid of many of their medications because they just do not need them or they do not work well together. That is the beauty of the EMR.

EL. Do you have any clinicians on your team?

JL. Yes, a medical doctor who reports to me is our vice president of medical informatics. He also makes rounds at one of the communities. I spend an hour or two a week either with the chief medical officer or with his direct report.  We talk about the direction we are heading with EMR.  The equivalent head of nursing who is our VP of health and operation relies on that same technology set. We meet weekly to make sure we are in harmony. We all sit collectively on the e-health executive team.

EL. What technology investments have you made on the construction side to build your communities?

JL. We are a large construction company. Building a CCRC's has all of the complexity of building a college campus. We invested in building construction management software, called EricksonWare. It helps us to manage all of the different components, the documents and the workflows associated with one of these construction projects. A CCRC can cost several  $100 million. The software really used by the construction division is unique.

EL. Can you describe any other major technology investments?

JL. We have a significant investment in our data center. Because of our EMR capabilities, other CCRCs and private physician practices have started to approach us about handling managed medical services for them.  This offering will become a new source of revenue. Our data center houses the systems that manage all of the activities for our 23 campuses and our 21.00 residents. In addition to our medical capabilities, we deliver a host of other systems such as general services, work order systems, menu management systems, HR systems, and door-entry access systems. We deliver all of these services remotely from one location.

EL.  Did you have to invest in network infrastructure enhancements with the idea of offering new services?

JL. Yes. We made significant investments in our network capacity. We had to make sure that our each of our systems had adequate bandwidth to come back to our location. We also needed bandwidth to provide Internet access for our residents. None of our communities has less than a 3-megabyte circuit to and from their community to our data center. We also invested in fibre and optical networking technology to connect out data center with our four corporate buildings.

EL. Can you describe the process for making these capital technology investments?

JL. Our annual capital investment budget has an allotment for technology. All of our investments have to align with our business priorities and the business strategy. Our capital steering committee includes members from our executive team. Our CEO presides over this committee. We usually look at our main thrust for the year. If it is revenue generation, we might have a higher portion of our capital investment monies going to technology and sales and marketing. We usually carve the pie accordingly based on our priorities.

Next, various project committees hear requests for capital. For example, our e-health executive committee reviews capital investments in technologies related to our medical facilities. Each group requesting funds has to bring a business case with an ROI to that committee. The chief medical officer, the executive vice president of health and operations, and I sit on the e-health executive committee where we approve projects about our capital investment allocations. Our enterprise executive committee includes the chief marketing officer, the chief financial officer, the executive vice president of health and operations, and me. This committee hears all business cases outside of healthcare.

EL.  How do you measure the success of these capital investments? Does the board of directors get involved here?

JL. The board gets regularly updates about our capital investments. The board has the oversight responsibility of ensuring that we spend our dollars according to our intended allocations. The board also has a keen interest in how we spend technology dollars among the different departments. The audit committee takes much interest in what we do with technology. Either the CFO of I will give regular updates to our audit committee about compliance issues around technology.

EL. What methodology do you use to measure the success of these capital investments?

JL. We have an ROI process and a customer satisfaction process. Our semi-annual technology satisfaction survey looks at customers' direct satisfaction with technology in the areas of innovation, strategic focus, service delivery, and general quality of services. This survey goes to both executives, as well as users of the systems. For every project, we apply go-live practices from the Project Management Institute. It includes an after-action review. Once we take the project live, we institute a process to do a post-deployment ROI for our capital investments. For example, we just did this for our investment in a human resources information system, which was more than $1 million.  We hired an external consultant to interview all of the folks throughout the business to see if we did get the kind of benefit that we expected. We validate whether we achieved the stated ROI or not.

JL. At the end of the day, do you show capital investment linkages to new customers, new sources of revenue, or improved processes?

EL.Yes! Our executive team has a business strategy and a business plan for technology that both map to the planks (strategic drivers) in the overall business strategy. For example, in 2008, our business strategy focused on becoming a leader in senior living, attracting and retaining the best employees, and demonstrating corporate social responsibility. The technology planks for becoming a leader in senior living might include attracting new customers, increasing sales growth, and improving sales productivity. Next, we define some investments against that, such as replacing our sales automation system. We made some investments in our CRM system and our data warehouse. The latter investment will help our sales department to understand price elasticity.

EL. What is your role in the corporate strategy?

JL. Our business strategy has a technology component. After the executive team sets its overall business strategy, I initiate our annual portfolio planning process. I meet with each executive team member. We develop a portfolio of prospective investments. I then take those investments back to the executive team where we prioritize against our business strategy. Next, the team carries out a quantitative voting process where we measure them on ROI or impact to the business. We then go through an above-the-line-below-the-line process for looking at our portfolio of investments. This process helps us to decide if we can squeeze in any pending projects or scale down.

EL. Has the economic climate affected your business in anyway?

JL. Erickson is a construction company that builds large communities years before we populate them with residents. We have no shortage of demand for our communities. On the other hand, some prospective residents have had to wait longer to sell houses than they anticipated. The bond market that drives the construction market has become very tough to crack. We have relied on many of our long-term financing relationships. Many one or two campus CCRC campuses are struggling. Some of them have approached us about managing all of their services or running their communities.

EL. What are you doing in the area of innovation around technology?

JL. We are working with Intel on some pilot programs in home health technologies, which is a booming field now. These technologies will allow a person to have a higher level of support than pure independent living. For example, we have a device that combines a blood pressure cup, a scale, and a thermometer. A Bluetooth enabled patient station sends those statistics in real-time to the doctor or the nurse to interpret. If something does not look right, a nurse could go over and visit the resident and say, 'Your temperature has been up for three days.' The home health concept allows the resident to stay in his or her apartment longer. It costs us less as a community for residents to be in independent living than in assisted living or skilled nursing.

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

Originally founded as a local bricks and mortar mortgage company, Quicken Loans has leveraged technology in order to do business in all 50 states from several locations. Quicken Loans, within less than a decade, has become one of the nation's largest online lenders, the 10th largest retail mortgage broker in the U.S., and Michigan's largest mortgage company. The company closed $18 billion in home loan volume in 2007 and more than $80 billion in the last five years. In 2007 at the height of the mortgage industry crisis, Quicken Loans stopped doing second mortgages, home equity lines of credit, deferred interest loans, and Alt-A products. Today, Quicken Loans does FHA loans, VHA loans, and reverse mortgages.

Investing in a good work environment and in developing employees has contributed much to Quicken Loan's success. Fortune's list of the 100 Best Companies to Work For in the U.S. has included Quicken Loans in the top 20 for five consecutive years. Metro Detroit has also named Quicken Loans the Best and Brightest Company to work at. For 2008, Quicken Loans ranked second on Computerworld's list of the 100 Best Places to Work in Information Technology, and held the number one spot in 2005, 2006, and 2007.

Enterpriseleadership.org recently sat down with Frank Laura, Quicken Loan's chief information officer, to talk about how IT creates business impact, how he communicates it to the leadership team, and how he motivates the IT organization.  Here is what he has to say:

EL. What important IT investments have you made recently?

FL. We've invested much money in virtualizing our environment and building out our Web-based services applications. We build most of our technology. We've been doing that for a number of years even before it was the in thing to do. We've invested heavily in the development infrastructure and the server infrastructure to do virtualization. These improvements will enhance our agility and will give us the ability to save some money, not only in energy and in data center space.

We've also bought some larger servers. We've engineered into this hardware the ability to have redundancy internal to the server, as well as the ability to slice up and to use every last CPU cycle the server can muster.

EL. How do you measure the effectiveness of your virtualization efforts?

FL. We've virtualized more than 400 servers. If you talk to a number of companies, you're going to get numbers all over the place, such as compression ratios. Virtualization can definitely skew your results. We got good results from many of the single server-type things all the way up to business process-oriented things. As the business demand grows or shrinks, we can spin off new servers or decommission servers within minutes. You may look at some applications and say that you only have a five to one ratio here. It doesn't sound that great. With other applications, you might have a 20 to 1 ratio or a 50 to 1 ratio. It depends on the application and how you use it.

EL. How do you define business impact and how do you keep the executive team abreast of it?

FL. We measure some things from a technology perspective. It helps us that we've satisfied internal customers. On the other hand, we're concerned about how well we satisfy our external customers. We strive for a 92 percent satisfaction rate or higher from our external customers. I pay attention to what our external clients tell us. Our team looks daily at the numbers.

We rely heavily on business intelligence. In fact, we track everything from financial information all the way through production numbers at the beginning of a loan, to the end of the loan process, and through to post-closing. Our business intelligence (BI) infrastructure consists of highly skilled people whom analyze the numbers and report on them for our executive leadership team. The BI team understands what the business finds important and helps the executive team find numbers they need for supporting critical decisions. This process happens on an automated basis. We continue to build out that platform.

EL. Do you communicate business impact down to the troops?

FL. People on the team like to know that sort of information. They really like to know they're making a difference. We communicate business impact in a variety of ways. I have many one-on-one meetings with IT team leaders and people who are on the front lines. I'm very happy to share this information with them.

We have a very open culture, especially around information disclosure. To this end, communication readily flows throughout the organization. We do relay company information either verbally or through company-wide email. For example, our CEO often sends out information to the entire company about what we doing. He might send a message about how a particular change made an impact to our business, how quickly we got into a new line of business, or how we achieved efficiency through some technology improvement or process improvement.

EL. Can you easily link technology investments to new markets, to new customers, and to improved business processes?

FL. Yes! We've designed into our systems some ways to track how a new marketing initiative, for example, or an arrangement we have with an online partner, directly impacts revenue and profitability. We have those things built into our systems as part of our processes. We can trace things back very accurately.

EL. What did it take to achieve the open communications that you have in your organization?

FL. Our culture supports open communication. You can't have an organization that doesn't believe that sharing information is a something that can be taken lightly. Everyone in the organization has to feel like they make a difference. That's was our first step. Next, we understand that information is timely. As a result, we explain it clearly and then share it quickly.

We have a variety of mechanisms for sharing information. Like many companies, we can send broadcast emails. Some of the leadership team might use entertaining voice mails to convey information about our business. We'll even put together videos and send them out as a way to broadcast how the company is doing or what changes have occurred in our business.

EL. If you look at your IT organization on an IT maturity model, where would you rank as an organization?

FL. Depending on how you'd look at things, we'd be all over the board on an IT maturity model. We recently went through an exercise with a partner where we compared ourselves with other companies on a maturity model. We also compared how we thought we were doing with what people in our industry thought of us. We don't take have much time to dig deep into IT industry standard ways of following a process, carrying it out, and then ensuring we can repeat it. Why? Quite frankly, our processes change very quickly, and we grow in new lines of business or new products very rapidly. The IT things we do today may not make sense tomorrow. We haven't spent much time studying and making sure that we let the industry-established IT governance standards dictate how we do business. On the other hand, we spend more time working with the business to understand how IT can better support the business.

If you look at the IT maturity models, you'll see that agility doesn't mean all that much in those models. You need to have processes that you can easily repeat and constantly maintained. These models assume that the overall business processes stay relatively the same and must be within certain tolerance levels at all times. The numerous disruptions in our business create the need for us to change rapidly and to be agile. I find it to hard to have those things operate in harmony.

EL. Because your business reacts to ups and downs in the economy, can you explain how you leveraged technology to stay competitive within your business model?

FL. We have the advantage of being able to leverage our technology platform here in one location and to do business in all 50 states. If we didn't have the technology platform to afford that, we wouldn't be in business right now. We've figured out a way to have the processes and the technology, and to maintain both of those things in such a way that we can adapt and can change it. Can you imagine having branch locations in all 50 states all trying to do the same thing! It would be nearly impossible to have a single platform that relates to our business, that operates smoothly, and that has visibility. We're fortunate to have very agile, knowledgeable IT professionals, business analysts, metrics people, and others. You need a powerful team like this if you want to build your business successfully on a single platform and to operate nationally.

We've been able to adapt our platform to work rapidly in our space. For example, we can get into a new line of business, like reverse mortgages, rather quickly. We can grow into the FHA loan business within a very short amount of time. If we had to do that with a branch model, we'd spend months and months and probably miss the opportunity. The technology in a single platform model has been a huge benefit to us.

EL. What's the process for setting strategy and how are you involved in it?

FL. We communicate in all directions throughout the organization.  The corporation has a formal process for how it meets certain guidelines. In addition, we have the informal process for how the team works together to get things done. It can include everything from streams of email and voice mails to a group of key people meeting throughout the week. The group might include the CEO, the process team, or the mortgage people. Our flat management structure enables people to figure out what is important, then to meet, and to decide what needs to get done. For example, the business development folks might say to the CEO, 'These are the top three things that we need to do.'

We don't have a quarterly board meeting. The CEO meets regularly with both decision makers and people in the trenches. The latter group has first-hand knowledge about what happens on the floor and recommends better ways to accomplish something. The information we gather from this diversity of opinions helps has to uncover business concerns that can help  dictate the strategy of where we need to go moving forward.

EL. Have you ever made a technology investment that turned out to be a mistake?

FL. Everyone has. We all learn from those lessons. I can't talk about specific ones for obvious reasons. Several led us down the path where we finally decided we needed to do this ourselves. While we try to focus on things that our core to our business, we need to look at things that support the core. For example, our off-the-shelf faxing system didn't work all that well with the industry standard solution, and we had many problems with it. The service level that the industry supports wasn't acceptable to our business. We wound up writing the fax system ourselves. That's one lesson we learned. To this end, we need to look at very closely, to evaluate, and then to decide whether or not an outside purchase provides better value than developing it ourselves.

El. Have you converged your IT strategy and your business strategy?

FL. We hope it is. IT needs to follow what the business needs to do. It can't be the other way around.  If you look at who we are, you'd see that we're a technology company that does mortgages.

EL. Do you give your IT professionals any special awards for outstanding performance?

FL. Within the IT team, we have a variety of different awards. We have something called the IT family gathering, which occurs quarterly. We try to make it special. During each gathering, we give out some type of recognition award. In many cases, team members will come to me and will nominate someone who has excelled in his or her job. We recognize people for the different areas they excel in.  We have innovation awards that are name changers. People must see their idea through execution and then to justify how it made a difference to our business. An award can range from recognition in front of a group, a call from our CEO, or the full star treatment at a Cleveland Cavaliers' game. Our chairman of the board owns this team.

EL. What development programs do you have available for IT professionals.

FL. We have two programs in the company. One of them is our formal company-based leadership development program. As I became familiar with the people in IT, I decided to create an IT leadership development program. A group within IT, which we call the farm team, develops the leadership programs.

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

The posters of Norwegian waterfalls that line the lobby of the $100 million, 100,000-square ft. data center in Oslo have the word hydroelectric printed across them. It's the reason why this data center and others like it are just about 100 percent green. Today, DigiPlex is one of the leading builders, owners, and operators of green data centers.

After a successful career starting and growing the $2 billion McArthurGlen, Europe's largest owner and operator of designer factory outlet malls, Byrne Murphy, an American real estate developer, couldn't take his eyes off the potential the Internet offered. At the end of the dot.com boom, Murphy partnered with The Carlyle Group, an equity investment firm, to buy DigiPlex, a bankrupt Scandinavian engineering company. Together both parties turned DigiPlex into a company that focuses on building data centers, especially ones that are very green. Murphy says, "We have 100 percent equity and no debt."

Enterpriseleadership.org recently sat down with Murphy, who is the president of DigiPlex, to discuss what it takes to build a green data center, what countries are leading the pack, and how the U.S. ranks in the green data center movement. Here is what he had to say:

EL: Where are you currently building data centers?

BM: We're working on sites in the United Kingdom, Germany, and France. The most important element of our data center in Oslo is that our power comes from hydroelectricity, which is 100 percent green. We don't have a fossil fuel driven energy source. Nearly all of the Scandinavian countries, including Iceland and Greenland, use hydroelectricity.

EL: Besides hydroelectricity, what other advantages do these colder climates provide for building green data centers?

BM: Green data centers are of such paramount importance now for reasons we've have all been reading about. Some companies, such as IBM that are trying to take the lead on this, are looking at the Northern European climate just for its hydroelectric power. The fjords of Norway produce plenty of this power. Also, this climate has colder ambient air. About 40 percent of the power consumed in data centers goes for cooling down the hot air generated by the enormous heat created by the server farms. For example, if you can suck in 20 degree F air and use that air to cool down your servers, you can save a lot of power. Furthermore, if you can also drive the power in data centers by electricity generated by dams, waterfalls, and hydroelectricity, you can also have an enormous amount of power. This clean power leaves no carbon footprint.

EL: Is Europe further ahead of the United States when it comes to building green data centers?

BM: For decades, Europe has been further along the green curve than the United States. In U.S., we rely heavily on fossil fuel. Up until the past few years, we've ignored alternative sources of clean fuel. As a result, data centers in the U.S. have continued to soak up large amounts of energy. They leave massive carbon footprints.

In contrast, you wouldn't build a new data center any old way in the UK or in Germany. Heavens forbid, if you try to get a permit for that type of a data center. These countries don't want large carbon footprints. Instead, they want something that is clean.  The UK has a very active secondary carbon trading market where you get credit for being clean. You can even make a deal with someone that has a dirty data center.  It will be interesting to see if UK data centers with large carbon footprints will want to team up with clean data centers in Scandinavia. There is nothing formal on the books today about doing this, but there is much chatter that this could certainly happen.

EL: What green measures are you using for your data centers that aren't located near sources for hydroelectricity?

BM: If I can get a data center inside the London beltway to open within eight months based on certain specs, I'm not going to wait for hydroelectric to find the data center. For these data centers that aren't located near hydroelectric sources, I'm trying to incorporate as much green efficiency into the design, mostly through ambient airway uptake. The climates I'm looking at are far enough north in latitude where a good number of weeks per year are 35 degree F or less outside. As a result, we can suck in the cold air rather than having to run generators for heating, ventilation, and air conditioning systems. Specifically, we push air through from inside rather than re-cooling hot air which is 84 degree F. We put the air through a cool water system and it comes out at 43 degrees F. We don't have to spend all that energy if we suck in outside air that is already 43 degrees F. We use the basic guts of a HVAC system, but the ductwork we've added points directly outside to suck in the cold air. Once you have a HVAC system in place, the ductwork isn't a major addition.

EL: Are you planning to build data centers in the United States?

BM: Yes, but the question is when. We have a skewed supply and demand metric. The Internet continues to grow and grow. In fact, we grossly underestimated the Internet growth projection we made several years ago for the consumption of data. For example, mobile devices, such as the Smartphone and the iPhone, soak up more than two percent of Internet bandwidth just by themselves. These devices didn't exist 15 months ago. Youtube.com now soaks about 13 Percent of Internet bandwidth and that figures keeps growing. And Youtube.com didn't exist two years ago. We can cite plenty of other examples.

All this demand on the Internet has to go somewhere. If you're going to fly an airplane, you're going to need an airport. If you're going to have a virtual world, you're going to need a data center. The problem is that data centers are enormously capital intensive to build. Before you even put in the equipment, it's $1,200 per square ft. to construct a data center. That's very expensive compared to building a normal office building, which could range from $300 a square ft. to $400 a square ft. depending upon where you are.

You have an enormous need for these data centers just when you have a capital crunch. So where is the money going to come from? There is a real need for data centers and thus the problem associated with building them.  It's one that isn't easily solved. The very smart money is going to press on with data center development anyway. For example, Digital Realty, the largest data center developer in the world, is trying to press on anyway, but the company has it own set of issues. It's a very difficult time. To this end, you don't see huge numbers of new data centers just being built any old way all across the U.S. Why? There is almost no debt, even the equity is very hard to find, but yet the demand is there for it.

EL: Can we really build green data centers in the United States?

BM:  The question is 'what do you consider green?' Yes, you can build one, but whose definition of green are you talking about? The answer is this: The data centers being built in the U.S. are greener than those built three years or four years ago. On the other hand, very few of these data centers are as green as some of the ones in Europe. We just don't have the hydroelectric power here. Green data centers are being built in the Pacific Northwest by google.com and amazon.com. Neither company wants to talk about them for security reasons. Amazon.com is building data centers next to rivers to have a source of green power. I can't give out specifications about these data centers because amazon.com won't release any information.

EL: If you wanted to build a green data center in the U.S., what challenges would do you face?

BM: The first obstacle is to find a site that is located next to a water source to make hydroelectricity and that has enough fiber somewhere nearby.  Most important, can you get all of the appropriate zoning in place in time to build? The demand is very high for that. Getting the combination of a hydroelectric location and plenty of fiber exists in many places, but not in all places. If you're in a really rural location, you'll need backbone fiber. How expensive is it to get there? Combined with assembly with the zoning and the very important construction financing  -- debt and equity in a short time horizon -- can make it all feasible. Financing, the last part of the process, might be daunting at the moment. That should change, but the question is when?

EL: Can you power a data center by wind?

BM: Yes, but not a very big one. If you have a large data center, you'd need a huge wind farm. Everybody likes to be green. Any population, however, doesn't like the look or sound of wind farms.  It sounds like you have an airplane behind you the entire time. That's why Ted Kennedy and Walter Cronkite have been opposing wind farm sites on Cape Cod and Martha's Vineyard.  Some folks advocate being green until it hits their backyard.

EL: Would you recommend that a European company or a U.S. company with a European operation build a data center outside say in Norway?

BM: It might be a good idea if you have a European-based business already. On the one hand, it would be a challenge to convince a London-based company to move its primary data center to Norway. On the other hand, you need to answer how the company is going to use the data center. If you're a trading operation, you need milliseconds between when someone pushes a button and the trade happens. If the fiber is too long and too far away from the data center, you run the risk that the fiber can be cut. The further away your data center is from the information being pushed out, you run into latency issues about the quality of fiber. If you're backing up data, then it might make sense to use a data center in another country.

EL: What does the Asian market look like for building data centers? Are they concerned about going green?

BM: Asia offers a huge opportunity for building data centers. In fact, this area doesn't have many data centers. As a result, you can drive the demand there. The very large banks and trading floors need data centers. They need more of them. The big corporations expanding there need more of them. Although it's a huge opportunity for building data centers, being green isn't so terribly important in East Asia. It's growing in importance, but not there yet.

EL:  How about the Middle East and South America?

BM: The Middle East has a huge demand for data centers. Places like Dubai build cities all at once, and these cities need power. Anything that needs also power needs a data center. Because the Middle East countries create and profit from fossil fuels, they aren't concerned about green data centers. It's just not profitable to go in this direction.

As for South America, I'm not well versed on the depth of the market for data centers there. I do know that Brazil has a need for data centers and also has big power generators there.

Canada is a good, but small market for building green data centers. You'll get all the support you'll need because the Canadian people and the Canadian government understand the need to be green.

EL: Many companies are moving to server virtualization as a way to make their data centers greener. What's your feeling about this?

BM: When it comes to improving your green factor, we haven't seen a gain changing process thus far to say 'here is the great secret.' It makes sense to change and to reduce dramatically the amount of power per server. IBM is trying to get way out there. In the meantime, data center demand keeps growing, and we're just beginning to figure how to keep up with that growth and how to do it while reducing power consumption. As a data center builder and owner, I don't want to be perceived as a power-consuming hog.

EL: Have you talked to people in financial services about having greener data centers?

BM: Being green is on all corporate agendas. It's getting into board rooms. Companies like to be green when and where they can just as long as it's not increasing their costs by more than two percent here and there. If you can make a case for it, companies would rather be green than not be green.

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

While major automobile manufacturers might be chalking up significant losses this year, one auto finance company has learned how to operate a successful business in a volatile and risky niche. Drive Financial Services, one of the fastest growing automotive finance companies in the U.S., makes new car loans to sub-prime borrowers throughout the U.S.  The company has a current $6 billion portfolio of loans originated from more than 8,000 U.S. franchise auto dealers. In fact, Tom Dundon, Drive Financial Service's CEO, said the company is continuing to enroll new auto dealers.

Unlike some auto financial companies, Drive Financial Services has a strong financial backer. In 2006, Banco Santandar Central Hispano, one of the seventh largest-for-profit banks in the world, brought Drive Financial Services from the Bank of Scotland. Drive Financial Service is Santandar's first privately held North American venture. This company holds a minority interest in Sovereign Bank in the U.S.

What keeps Drive Financial Services successfully on the move? Dundon says that he bases his company's ability to stay profitable during economic downturns on three things: a significant investment in a solid technology infrastructure, a contrarian view of what competitors are doing, and a well-thought out set of business practices emphasizing profitability. Enterpriseleadership.org recently sat down with Dundon to learn more about these things. Here he what he had to say:

EL. What is your business model?

TD. Santandar, our parent, provides us with liquidity to make car loans to sub-prime borrowers throughout the U.S.   We originate the loans for dealerships, mostly franchise dealerships. We also originate auto loans direct to consumers via the Internet.  We do both direct and indirect leading of only car loans exclusively to sub-prime borrowers.

EL. Three years ago, your predecessor decided to hold back on company expansion while other competitors wanted to grow rapidly. How has that strategy paid off for Drive given the state of the economy today?

TD. The decision we made three years ago is characteristic of the way we run our business. Many of our competitors have used the availability of leverage and of liquidity to justify pricing loans and taking risks that aren’t sustainable in an economy that isn’t growing. When you’re in a boom economy, low-margins and lots of risks are easy. If you don't have the margins to handle the losses that come from change in the environment, then you’re going to loose money when the economy stops growing. We have always had very conservative growth plans to make sure that we have the proper margins to handle downturn. The economy has softened up in the past 18 months. Although our profits are slightly impaired, we’re still profitable because of our conservative nature when things are good.

EL. How do you gauge your revenues?

TD. We do it by dollar amount. . The average life of the loan is about two years. We wouldn't do a $1,000 car loan. Our minimum car loan is about $7,500 and our average is about $15,000. We’re going to do $3.5 billion in loans this year.  If were to do the same amount next year, we’d have a $7 billion portfolio.

EL. Where in the company do you assess marketing opportunities and threats in the marketplace?

TD. We have a risk management group that does data modeling or decision science. This process enables us to keep up what our competitors do. We determine what we’re going to do based on what we see in our numbers. We look at our margins for the risks we're taking. We also look at our closure rate for the number of applications we’ve received. That ratio kind of tells us if we’re under priced or over priced relative to the market. If we look at our margin and find out that it’s too high or too low, then between those factors, we decide what to do. We try not to worry about what everyone else does. Just because many of our competitors are doing similar things, doesn’t mean they’re all good things to do.  If you look at what the mortgage companies have done and what some of our competitors have done, they didn't have the margin to sustain their business and unless the economy was growing. We don’t have that problem.

EL. Is change a permanent part of your business?

TD. Yes! Over the years, we’ve seen cycles in the economic environment. If we try to ride the wave up, we’ll invariably crash on the way down. We try to do good things for the stability and profitability of our business. We’re willing to let other people grow their business by going for volume. We make sure that we keep our margins wide enough so we can deal with an economic downturn. We do the same volume in bad times as we do in good times. 

EL. What capital investments, including technology, have you made to enable the company to grow and to become profitable?

TD. We’ve done a couple of things. Good data capture is the most important thing for us.  We make sure that we capture all of our data so we can make educated decisions.  We’ve invested heavily in our infrastructure to make sure our ability to grow or to shrink was based on most of our transactions are incremental costs. We have a base system that has a fixed cost. We then built out our systems to handle incremental volume and to make sure we’re only paying for what we use so opposed to having a huge fixed cost.

EL. What types of data are you capturing?

TD. We receive applications from certain dealerships. We capture everything from where the application comes from to the customer data to the data on what kind of loan they want. Once we book the loan, then we capture how long it took from the time we received the application to when we booked it. We capture the standard type of data having to do with the loan, such as the type of vehicle, and type of payments. We also capture all of the peripheral data around the customer's credit, around the dealer's behavior, and around our internal behaviors as they relate to how we book the loans. We made a commitment years ago to store every piece of data.

Many companies get into trouble because they don't properly label their data warehouse. You have to properly label all of the data and then you have to keep it and use it. We’ve made this task a priority. Historically, companies have purged data to free up resources. We always felt that we should spend the money and store data. As data storage has gotten less expensive, it has become easier to store massive amounts of data. If you ever need, you’ll have it. And we do have that data.

EL. One of your innovations is a scorecard program that enables an auto dealer to know if a customer fits into one of your programs. What makes this scorecard unique?

TD. We use credit bureau data, other third-party data sources, and our own experience to figure out if a customer can fit into our program, and if we should give them a car loan and at what price or structure should we do the loan. The innovation we have done is the value we add to the process. We include some other data sources, and we tightly couple the deal structure and the underwriting to the credit. Many of our competitors will only focus on credit. We believe that credit and underwriting together will lead us to the best decisions.

EL. Can you link capital investments to new customers, new dealers, and new improved business processes?

TD. We ran our business without growing while we invested in our infrastructure several years ago. We don't get benefit from it anymore. We’ve built our systems in such a way that the incremental enhancements don't require much capital investment. We’ve shifted from mostly capital investments and a little bit of maintenance to mostly maintenance, and not needing a many of new systems.  As technology has matured, we’ve been able to integrate our new systems easily in our infrastructure. When we first started building our infrastructure, we found it difficult to integrate a mainframe with other technologies. We built our enterprise architecture so that we can isolate any system with a problem, and keep it from affecting other systems. No one system can bring down the entire enterprise system. 

EL. Do you leverage technology resources from our parent?

TD. We don't do much of that. Santandar has a global IT initiative for its offices around the world to leverage technology. We’re so specialized that we only do auto loans. The technology investments we made before Santandar bought us put us in good shape to run our business. Because Santardar is so large and has so many countries that need its technology help through the world, the company decided that our systems are efficient and scalable enough so that we don’t need the same level of technology as the other business units do. 

EL.Have you built other things into your systems that your competitors don’t have? 

TD. We’ve a strong culture of making sure we’re efficient and not wasting money on costs. Because we're efficient and can make good credit decisions, we don’t have to sacrifice our margins. Many of our competitors focus on volume rather than profitability. In contrast, we emphasize profitability first and then volume. What’s happening in the U.S. economy rather proves this view.  People chase deals and chase volumes because they have an incentive to gain market share and volume. We’ve never looked at it like that.  Every one of our loans has to make a risk adjusted return. The number of loans we’ll book, and the amount of volume we’ll do will result from hard we work and from how well sell our product. Price is a determining factor in what good or service people decide to buy. If someone wants to beat you on price, no matter how good your service is, you’re going to find it difficult to get the get same marketplace and volume as someone who competes solely on price. We’ll never compete solely on price.

EL. How are you dealing with setbacks in the auto industry?  

TD. In July 2007, we decided that because consumers were under so much stress with high unemployment, with liquidity becoming more difficult to maintain, and with credit card companies and mortgage lenders operating under tight margins, we decided to cut out volume and to raise our margins. We felt that anymore undue stress on consumers would have a pretty big ripple effect on consumer finance in general. We got very conservative last year, raised our margins and tightened our credit. Now as other companies took a too long to react to these things in the economy, they’re now faced with heavy losses. We’re still profitable. In fact, we’re very profitable. We more prepared than ever to take advantage of less liquidity and less competitors in the marketplace. We can generate profits to liquidity we need to continue to operate our business.

EL. Do you have a governance process for capital investment decisions?

TD. Santardar wants us to run our business and unless we are trying to do something that makes no sense, it would never be an issue for us. Above a certain level, we have to go to our parent; otherwise, we’re on our own to run our business.  Our board of director’s provides the check and balances for our  key decisions. There are certain governance limits where yes we’d to get certain approval from the board. We haven't run into that as a business problem for us.

Right now the systems that we have are as good as better than anything in the industry. They are very cost effective. We don't have a glaring need that we can see today. Our philosophy has always been if we need to spend the money to make ourselves better, we will.

EL. Why did Santandar acquire Drive?

TD. Santandar is one of the top 10 banks in the world. It focuses on retail and commercial banking. It doesn’t do investment banking. It has strong consumer ties through a group called Santander Consumer, which does auto loans in Spain, Germany, Italy, Portugal, the Nordics, Eastern Europe, and South American. It’s one, if not, the largest non-captive auto finance company in the world. Auto finance is a core business for Santandar. Drive was the best auto finance franchise available for this company to buy.
 
Elizabeth M. Ferrarini - She is a technology writer from Boston, MA. Reach her at elizabethferrarini@yahoo.com