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

When Gary Cantrell became chief information officer at Textron in early 2006, the company was almost three-quarters of the way through a six-year transformation of the information technology organization. Over the years, Textron had become an $11 billion global, multi-industry organization by acquiring aircraft companies and industrial firms. Some of the Textron brand companies include Cessna Aircraft, Lycoming Engines, and Bell Helicopter.

By leveraging formal best practices and governance, Cantrell and his team have continued to streamline the IT infrastructure across all of the Textron companies. He says, "We're doing things faster, better, cheaper."

Recently, enterpriseleadership.org spoke with Cantrell about how the IT organization is structured, what initiatives were key to the transformation, and what were some of the lessons learned from this process. Here's what he had to say:

EL: You've taken a kind of matrix approach to your IT organization. Can you describe it? 

GC: We have a federated model with nine divisional CIOs. They focus on delivering application services and support, but are also accountable for the infrastructure. Our shared services model for IT comprises six Centers of Expertise (COEs) including infrastructure, security, enterprise initiatives and strategic planning, collaboration, SAP, and PeopleSoft. Each COE has a leader. For example, the CTO who reports to me oversees the infrastructure COE. The collaboration COE is working on how we handle virtual teaming across all 400 Textron locations.

EL: How does your governance structure work?

GC: We have two ways to manage the governance process. Our information management council comprises the nine CIOs, all of the COE leaders, and me. This group provides our strategic direction, the corporate business unit alignment, and then our integrated planning activities. Below this group, we have started to organize tactical review boards staffed by people who report to the COE leaders. For example, we have an architecture review board.

The Textron executive management committee has five members, including the CEO. Below that, there is the Textron Transformation Leadership Team, which consists of all the business unit presidents. All IT capital issues, such as deploying SAP, would go through the TLT. If something affects the business, I might go to the executive management committee. I don't have to go to either committee for everything that happens in IT. Neither one of these committees works on IT issues independent of my involvement.

EL: Textron has undergone a six-year transformation in process improvements. Can you talk about some of the key IT process improvements?

GC: We call our transformation process "systems modernization." Like a lot of companies, we've acquired several companies over the years, nine in our case. SAP has been a big part of our IT modernization.

We're trying to clean up the portfolio of acquisitions. Six Sigma has helped us to reduce the variation in our environment, and Lean has helped us to move a little faster. That's where Lean fits in. You still have to deliver high quality and value, but you have to find innovative ways to do it.

EL: Can you describe the specific areas of IT modernization where these best practices have helped you improve processes?

GC: Using Lean processes and with the help of an outsourcer, CSC, we restructured nine different infrastructures and architectures where we took out dozens of data centers. We also restructured our email service from 150 servers in 70 locations to 40 servers in six locations. Now we have the redundancy and backup capabilities we need on the network backbone.

We also put in a new manufacturing system across the enterprise. However, some of our business units use specific applications that complement the manufacturing system. We leverage these applications across the enterprise also.

EL: Do you use the IT Infrastructure Library, CobIT, or the Balanced Scorecard?

GC: We've tied use of the Balanced Scorecards in with our Six Sigma gold deployment that we used in the beginning of the IT modernization. We're now working on integrating CobIT into some of our process maturity initiatives with Six Sigma. We've pretty much standardized on a plan for using CobIT for the next few years. We have a little bit more work to do on our tactical action plan.

Some of the business units have become very advanced CobIT users. We used the Lean manufacturing philosophy of Shigeo Shingo for one assessment we went through. In some cases, we've gone from silver to gold; in other areas, we're at the basic level moving to bronze. We're working aggressively on having a standard implementation methodology and assessment methodology for driving our maturity. Over the next 24 months, we will get the horses all lined up and get the enterprise on the same level footing.

EL: What kind of certification levels do you have in place?

GC: Right now we have two Six Sigma black belts for every 100 people on our IT staff and on the CSC staff. The ratio of Six Sigma black belts is higher on the corporate side. This year, we're pushing to have 60 percent of the first two levels of IT professionals green-belt certified in Six Sigma. The goal for 2008 is to have 100 percent of these folks green-belt certified.

EL: You have been quoted in the trade press saying that Textron's IT strategy resembles General Electric's IT strategy. How are they similar?

GC: When I was CIO of Honeywell, I had some first-hand exposure to GE. That company has a core corporate IT function similar to our COEs. GE's IT organization also has a fairly strong presence in their business units similar to us.

On the other hand, GE is larger than us and its business units have more scale that ours. We have a more standardized, rigid infrastructure, which provides us speed and efficiency and a lot of leverage. Also, our architecture review process is more rigorous that GE's. We try to do as much enterprise standardization as we can.

EL: Do you think IT can be run as a business?

GC: We had these conversations at both Honeywell and Bank of America. As far as I'm concerned, IT is a support function, enabling the business units to generate revenue and generate support for their customer. If you're an IT provider such as CSC or IBM, then you can argue about running IT as a business. Internally, IT is a cost center. It might not be a core competency in each business unit, but it's critical to support the work of each business unit. To this end, my charter is very simple -- help give each business unit a competitive edge and to achieve customer satisfaction.

EL: What do you get out of venues such as the CIO Executive Summit?

GC: Venues such as the by-invitation-only CIO Executive Summit give me tremendous network opportunities. That's the most important thing that comes out of it. Second, I get to discuss common challenges or technologies or industry threats. The most common discussion among peers deals with the latest virus threat on the horizon. These venues also expose you to lot of new IT talent or new suppliers. If you select your venues wisely, you can spend several days looking at a lot of new technologies. This process eliminates the need to have vendors parade through your office.

EL: You spoke at the Hackett Group's 17th Annual Best Practices Conference. What did you have to tell attendees?

GC: We've used the Hackett Group to benchmark some of the processes we are doing, as well as to assess how well we are doing with some of our best practices. This year I spoke about Textron's IT transformation and the best practices we deployed. The group of 100 really wanted to know what best practices worked and what best practices didn't work in our environment and why.

EL: So what things didn't work?

GC: We had a strong business case for many of the things we planned to do. Communication seems to be fairly robust. On the other hand, we grossly underestimated employees'

resistance to change. We had to do a lot of front-end work on change management. If I had to do things over again, I would've put more emphasis on this.

EL: What best practices did you find to be ineffective?

GC: Our change management process, which is based on Six Sigma, worked very well. This seven-phase-gate approach requires you to define everything from business case to stakeholder involvement. It worked well for the high-risk, high-changes areas. When it came to routine activities, it didn't hold up for us. That's where we could've done a better job of selecting a better methodology.

EL: One of your IT teams is looking at virtual teaming. What are your thoughts about 3D virtual worlds such as Second Life?

GC: I'm not sure what to do with it. It's not based on reality in the first place. If someone can help me understand the applications for Second Life, I'd be glad to listen.

EL: You were one of the nominees for the Information Security Executive Award from this year’s Northeast division of the ISE. What initiative did you get nominated for?

GC: We've had a comprehensive push on consolidating perimeter security, along with improving other areas of security. The nine acquisitions Textron made presented IT with the challenge of how to handle disparate approaches to security. We also focused on how to extend secure wireless connectivity to all of our Textron locations. Here, we sewed up all of the areas for possible data loss. Next, we overwhelmed our disaster recovery and business continuity programs to focus on our consolidated data centers. We also carried out a program to educate employees about security.

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

In 1987, the 42 separate insurance companies that comprised Factory Mutual Engineering & Research (FM), an industrial property insurer, and engineering-driven underwriter, consolidated their operations into three FM companies: Allendale Mutual Insurance Company, Arkwright Mutual Insurance Company and Protection Mutual Insurance Company. The three separate mutual insurance companies found it difficult to deliver reasonably priced, value-added engineering services in a marketplace driven by increasing competition and a demand for more challenging property protection. To reduce costs and to eliminate competition for the same customers, the three FM companies in 1999 merged to create one company, FM Global.

Today FM Global is an international property insurance and loss prevention engineering company with $4.7 billion in premiums and $9.7 billion in investments for 2007. The company's research group conducts tests in fire and explosion hazards, hazard detection and protection technology, natural disasters, and electrical hazards.

Enterpriseleadership.org spoke with Jeanne Lieb, senior vice president of information services (CIO) of FM Global at the MIT Sloan CIO Symposium 2008 where she spoke about managing a corporate business transformation. In this interview, Lieb talks about how executive commitment helped to make the merger go smoothly, and how standard processes, strong governance, effective leadership practices, and a good understanding of the business have helped IT deliver value to the business. Here's what she had to say:

EL. You can describe your organization's key responsibilities to  support the business? 

JL. We centrally manage all of our infrastructure, our systems development, and our enterprise architecture. Because our business model is unique in our marketplace, we had to build the majority of applications we require to run our business. These applications aren't available off the shelf. We're in the midst of a major six-year initiative to update our entire platform. 

On the infrastructure side, we're upgrading our internal voice network to voice over IP. From a server management, we're trying to gain efficiencies for using virtualization technology. 

EL. What other IT changes have you  made to operate both locally and globally? 

JL. Because of our presence in 50 countries, we had to standardize our global operations across the enterprise. As such, we use the same North American custom software in all of the countries where we operate. The software is centrally developed and centrally managed. This arrangement enables us to bring key information assets on the standard platform and use these assets in other parts of our business process. We drive economies of scale by doing that. 

Some of my CIO peers face the challenge of how to bring all of the financials together for doing business in several foreign countries. At FM Global, we don’t face this issue because we rely on this consistent platform. Because everything is centralized, we've been able to develop standardized business processes. As a result, we can focus on providing value back to the core business as opposed to worrying about how to handle financial reporting. 

EL. Can you describe why the merger went as well as  it did? 

JL. The three insurance companies that owned Factory Mutual were three equally matched companies. It was a merger of equals coming together to form a new company, namely, FM Global. This's important to understand. Because the merger didn't affect our clients, we quickly had to make some critical decisions at the beginning of the merger. For example, we had to decide which business-operating platform we wanted to use for FM Global. We didn't allow ourselves to say, 'Let's take a bit here and a bit there.' All of the insurance companies had valid platforms. Within three hours, four individuals, including me, made the decision to select one platform. We then worked with the executive committee on our rationale for our decision. During the 15-month merger period, the executive team continued to validate that we made the right decision for FM Global. No one challenged the platform decision. During this period, we also removed all of the system redundancy, and had all of the operations using a common platform. We couldn't have accomplished all of this if we didn't have full executive commitment. 

EL.  How are you providing value to the business units that translate to  profitability and to competitiveness? 

JL. I can approach that in several different ways. We've developed those business applications that run our business. Applications, such as engineering, underwriting, and claims, have an intrinsic value in ensuring that people have the tools, the technologies, and the infrastructure to respond efficiently and immediately to our clients' needs. 

As a developer of products for FM Global, we return a lot of value back to the company. As an insurance company with a foundation in engineering, we think of the information that comes from our visits to clients' facilities as the raw material for a manufacturing process. We have data management practices in place so that we then derive value from our product development, our underwriting, and other process supported by all of that information flow. 

EL. What initiatives have you  developed to become more customer centric? 

JL. We focused an important initiative on the core business roles, which include client-servicing departments, such as underwriting, claims, engineering, and sales. Using that portal technology, we knew we could provide ready access to all the client information and client content our employees needed, depending on their role. We then took a step forward by integrating our business applications into that portal. It presents employees with a list of their associated clients. After they've selected the client of interest, then all of the underlying applications then operate off that client. This streamlined interface helps employees to understand our working relationship with the client by providing information such as policies, terms and conditions, inspections completed, and other services. Essentially, we have one place where we go to find what we need. 

Sometimes business processes get lost; no one knows who owns what. We've worked to provide a clear understanding of which parts of the business own what components. It's important to know which sponsoring part of the organization drives any change or innovation. These things need to evolve over time. Because of our role and our integration of technology into our core business, we play a key role in every aspect of the business. Planning activities, for example, help us to ensure that we put together an annual plan we can respond to. 

EL. Can you  describe your governance process? 

JL. We have a cross-functional technology steering committee comprised of senior management, along with representatives from marketing, underwriting, and engineering. We ensure that we have the appropriate targets on the plan, and we deal with allocating resources appropriately. Our efficient process to resolve issues helps us to break down barriers as they arise. Usually, a team working on an initiative might have issues they can't resolve efficiently. Our resolution forum helps to resolve the team's issues. For example, we might try to resolve how far a certain application might go, or how the scope of a project needs to change. 

EL. How do you make investment decisions? 

JL. Working with the technology steering committee, we come up with a plan. Once the plan is agreed upon, I work with the CEO of on an appropriate budget to support the plan. The board gets involved as needed. Many of our decisions focus on defining the needs of the core business, and looking at what things are in our clients’ best interest.

EL. What steps do you take to address your clients' needs? 

JL. The business organization, not IT, talks with clients directly.  We call them our risk management executive councils, which foster a direct exchange between local management with clients. We also have advisory boards represented by CFOs at our clients’ organizations. 

EL. Do you assign IT people to be the liaison with the  business units? 

JL. I don't have people in the specific role of relationship manager. A good IT professional needs to understand the business. You're always going to need people who are good at coding or managing the infrastructure. Because our business model relies on technology, I require my entire management team, as well as business analysts, to connect directly with the business and have sound relationships with their business peers and understand the plan, the objectives, and the way we leverage technology to best meet those objectives. 

EL. Many people say there is often a disconnection between management and IT. So, when you hire someone, how do you know they speak the language of the business? 

JL. I can't point to a specific methodology we use to ensure that. I've seen many technologists who provide great value, but they do a mediocre job of speaking to business peers about solving business problems. In these cases, you need to have a liaison or a translator in the middle. This person could sit in the business unit or sit in IT.

EL. What are you doing to minimize the personal risk for employees to  understand and to embrace change?

JL. Management experts will say you need to layout and to articulate to an individual what success means to their organization. You need to communicate early in the relationship about your expectation for how employees can contribute and positively influence the changes they want to affect. When it comes to asking employees to accept major changes, you need to take a step back and to understand what obstacles would prevent employees from embracing the change. If you believe, as I do, that people want to do what's in the interest of the company, then you need to look at those other personal factors that define success for those employees.

Bill George, currently a management professor at Harvard Business School, has spent the past decade researching and writing about the authentic approach to leadership. It's about understanding your motivations, orienting your moral compass, building your support team, empowering others to lead, and staying grounded by integrating all aspects of your life.

George has the right credentials to write as an authority of authentic leadership. Inspired by Medtronic's mission to restore people to full health, George joined the company in 1989 as president and COO. He became CEO in 1991. Under his 10-year leadership, Medtronic's market capitalization grew from $1.1 billion to $65 billion. In 2003, he wrote the best-selling book, Authentic Leadership - Rediscovering the Secrets of Creating Lasting Value. He followed this book in 2007 with True North: Discovering Your Authentic Leadership, which includes vignettes of executives who demonstrate an authentic leadership style.

George is on the board of Novartis, Goldman Sachs, and ExxonMobil. His articles have appeared in the Harvard Business Review and U.S. News and World Report, and many other business publications.

Enterpriseleadership recently sat down with Professor George to discuss what it takes to be an authentic leader, who are and who aren't examples of authentic leaders, and what challenges a CIO faces in becoming an authentic leader, and how governance must change to support sustainable innovation.

EL. What were your  criteria for the executives profiled in True North?

BG. The idea for the research came out of Authentic Leadership where many people wanted to know how to become an authentic leader. We interviewed 125 leaders who we felt were authentic and successful. Measuring authenticity is hard to do. We want back over the interviews and measured our qualitative judgment of their authenticity. Part of our criteria looked at people in all age groups. We had a minimum of 15 people per decade, ranging from more than 20 on up to more than 70. We wanted to get the age dispersion to see what, if any, differences existed between the emerging generation and the older generation.

EL.  Did you look quantitatively at what type of success some of the authentic  leaders profiled in the book had?

BG. To do quantitative research, you need to look at things over a long period. For example, some people asked why we used Jeff Immel, CEO of General Electric, when the company's stock hasn't gone anywhere. He's looking at long-term restructuring.  He's doing a good job. 

EL. Is values-based leadership the same as authentic  leadership?

BG. Authentic leadership encompasses values-based leadership. Authentic leadership goes beyond that, but it certainly requires values-based leadership, especially a sense of purpose, an ability to lead with the heart, which includes having a passion for the work you do, having the courage to make tough calls, being able to build long-term relationships that get the best out of other people, and having empathy for your employees.

EL. Some companies, like Oracle, have had a high turnover in executive talent. What would you say about the leadership style of a CEO who runs a company where this is happening?

BG. These executives would be at the opposite end of the spectrum of what we're describing as authentic leaders. These leaders can be aggressive and manipulative. Oracle has had good people, such as Ray Lane, building the company. Oracle has grown by aggressively acquiring companies, such as PeopleSoft and Seibel Systems.

EL. Jack Welch, the well-respected CEO of General Electric, supposedly has a tough personality.  Would you say he is an authentic leader?

BG. He's right in the middle. He did some fantastic things at GE. He transformed GE in a way that the leaders of parallel companies, such as Westinghouse, Seimens, and Phillips, were unable to do. You have to admire what he did. He has a very rough style, but he has the ability to get the best out of people. He makes people feel like he really cares about having them perform. In the end, his on-the-job values are very sound. He made tough calls about removing some people whose ethnics were questionable.

EL.  Is Steve Jobs, CEO of Apple, an example of an authentic  leader?

BG. He's a very difficult case. He has learned from his crucible.  It's obvious that he never had formal training in leadership or management. He had a failed marriage with John Sculley. Jobs went off and formed another company, and he's very well with it.  Now he has come back to Apple where he's doing amazing things. He's a good fit for the Apple culture. He, however still has an arrogant streak. On the other hand, Jobs is an incredible innovative leader who transformed a company with no marketing. Look at what he has done with the Ipod, with the iMac, and now with the Iphone. This country needs people who can innovate and create new things.  He has shown sustainability in creating innovations. Most people are like a one trick pony which can't come up with another exciting product.

EL. Where  does Carly Fiorina, the former CEO of Hewlett-Packard rank on the authentic  leadership scale?

BG. For 40 years now, HP has been my role model for how you run a company. HP became the role model for companies such as Medtronic and others. HP put her in the wrong position. Lew Platt, her predecessor, used to fly commercial, and Dave Packard drove an old car to work. These people used to hang out in the cafeteria. She brought an elitist style, which didn't fair well with employees. She focused a lot of time outside the company. She lost the hearts and minds of the engineers who are the real innovators. Other innovators, such as Bill Gates, stay close to their creative people all the time. She would have been better off staying at AT&T. The bottom line is that she didn't connect in the Silicon Valley, highly creative culture. Mark Hurd has come in and connected, and, as a result, turned HP around very quickly. I wouldn't say she's authentic. She seems to be more focused on the external world.

EL. Can you give an example of a CEO who is an authentic leader and describe what this person has done to create an authentic organization?

BG. Authentic leaders have to be very consistent and true to the roots of that organization.  Take a man like IBM's Sam Palmisano. He has taken IBM right back to its roots in the very best sense. He is also moving IBM forward into the future. He has put in an amazing program in place called Leading by Values. It had a 72-hour online jam for 350 people.  Everyone said what values the company ought to have.  The values aren't unique, but the commitment is. He was taking it from a task-oriented organization to a true values-centered organization. His philosophy is that we have to act as one organization all around the world.  This down-to-earth guy has really achieved this. He has come up from the ranks at IBM, working in just about every aspect of the company. He spends a lot of time with the engineers just tracking their innovations. He is very passionate about going into emerging markets.

EL. As the former CEO of Medtronic, you know that CIOs have to balance the interests of IT with those of the business units. What challenge does this place on CIOs who want to find their authentic leadership?

BG. This is a huge challenge for some CIOs. About a decade, ago many CIOs were spending too much time trying to build their own empires. The emergent CIOs and CEOs really understand how to use information as a strategic weapon to better their business. Take Dick Kovacevich, CEO at Wells Fargo. He has been the most successful banker for 20 years.  He went away from all of the commercial banks using IT to cut costs and to take people out. He, instead, said we want to use it to make our front-line people more effective so they can better service customers with all of the bank's offerings. He saw the opportunity to have all of the customer profiles online. He did it very well. On the other hand, CitiGroup, a larger bank, never could ever do this. You can't even figure out how to get the status of your credit card.

EL. You co-authored a book called, Mastering Global Corporate Governance. If a company wants to improve its sustainable innovation initiatives, how should it modify its governance model?

BG. Boards of directors have been asleep. They need to get engaged in the important elements of the business. The governance model is to focus first on leadership succession and second, to look at how well employees focused are on handling customers.  They need to look at the numbers third and then all of the other formalities.

The boards I'm on do an outstanding job of that, but I lot of boards haven't. The Target board focuses heavily on the needs of consumers. This board which has four women reflects the needs of its key consumers, namely women. The Target board has always been asking tough questions: How well have we been serving the Hispanic market? Are we meeting the needs of young people? Do we use IT effectively so that our merchandise is fast flowing and we can turn it over quickly? If you look at the results, you'll see how well Target has used it IT systems.

EL. How would you rate the leadership styles of most CEO  of Fortune 1000 companies? Are they authentic leaders?

BG. A big change is taking place today among CEOs. My generation, people who are in their late 50's and 60's, didn't do a good job. I call these the pre-Enron CEOs. They focused too much on the trying to meet the short-term needs of the stock market. As a result, they destroyed many great corporations.  I'm speaking of the old AT&T, the old Sears Roebuck, and the old General Motors. These were once great corporations. They are virtually out of business or hanging on for dear life. Their CEOs weren't authentic. They weren't corrupt people, like Enron or WorldCom.  They didn't really build their companies for the long term. You can see this in the pharmaceutical industry. Great companies, such as Bristol Myers Squibb, have lost their position.

Today's CEOs are very different. They know they have to meet the short-term needs. However, they're trying to build organizations for the long term. For example, Anne Mulcahy has brought Xerox back from the brink of bankruptcy. The same goes for Andrea Jung at Avon. These are examples of outstanding CEOs. A.G. Lafley's predecessor at Procter & Gamble turned the company against it culture. Lafley has created an incredible corporation. There is a whole generation of very authentic CEOs, including some very young ones.

EL. How have governance models in Fortune 1000  companies changed?

BG. They are changing, but there is too much emphasis on regulations, such as Sarbanes Oxley. These are your ministerial duties. Boards aren't changing fast enough. Worrying about today's leadership and tomorrow's leadership should rank number one of their list. They aren't doing that. They aren't engaged enough and knowing who the people coming alone are. They're more concerned about who would replace the CEO if he/she were hit by a bus. They get into a panic and have to go outside the organization to recruit. The chief operating office should be thinking about leadership succession. If the COO isn't doing it, then the board has to insist on it. Everyone needs to get to know the candidates by seeing them off site, or seeing them on the job. Jack Welch did this very well. He suggested that the board go visit Jeff Immel on site when he was running GE Medical Systems. Boards that do their job get really engaged with who the leadership is.

I'm on the board of Goldman Sachs. When Hank Paulson, the former CEO, decided to become Secretary of the U.S. Treasury, we moved faster than we anticipated. Fortunately, Lloyd Blankfein had been groomed. We knew him very well. We also knew the people coming up behind him.

Resources

Authentic  Leadership Book Review
PBS Interview With Bill  George
True North Web  Site
Strategy  + Business Interview with Bill George

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