In 2000, when Jon Beyman became chief of operations and technology at Lehman Brothers, the global investment firm, he set out to deliver on the company's mission statement: to drive productivity, enabling the firm to generate superior returns. Even the catastrophic events of September 11, 2001, propelled Beyman, along with his heroic IT staff, to make sure the company could resume trading within days. For more than six years, Beyman made his IT staff of 4,000 at Lehman Brothers delivered the services the business needed, and did it at a reasonable cost. In fact, cost containment of IT expenses became the underpinning of Beyman's leadership style.
In 2006, Beyman left the investment firm to spend more time with his family and to pursue some personal interests.
Recently, enterpriseleadership.org spoke with Beyman about how his staff rebuilt Lehman Brothers' infrastructure following 9/11, what types of cost controls he put in place, and why the need for them. Here's what he had to say:
EL: Where were you on September 11, 2001?
JB: I was standing on the Lehman Brother's London trading floor when the first plane hit the first tower of the World Trade Center. We had offices on the 38th through 40th floors of Tower One in the World Trade Center, and across the street at the World Financial Center.
EL: How did you start the monumental rebuilding task of rebuilding after 9/11?
JB: We started to rebuild our trading floors immediately after the event took place. We moved more than 4,000 employees into a Jersey City facility that had a data center and space for 1,500 employees. None of these people had PCs. We ordered more than $100 million worth of networking and computer equipment directly from the vendors without any formal paperwork. I was on the telephone with CEOs from Sun, Cisco, EMC, and Compaq.
We relied on everyone's unbelievable imitative to put Humpty Dumpty together again. On Thursday, September 13, we were able to trade in the bond markets. The following Monday when the New York Stock Exchange opened, we were able to trade that day.
I didn't worry for months after getting back my cost controls. I focused on how to keep the firm going.
EL: What did you come away with from this situation?
JB: We thought we had built this unbelievably resilient IT infrastructure. Now, we had to take disaster recovery to an entirely new level of seriousness than we ever had before. We built additional trading floors in Jersey City, so if a disaster strikes again, traders in NYC can go to these unused floors. The telephone system even enables traders to connect directly with customers.
EL: Outsourcing of Lehman Brothers' telecom expense was a big priority for you. Why?
JB: We had more than $100 million worth of telecom equipment, including 20,000 phones in NYC for 8,000 employees. We also had a lot of complicated ring-downs and point-to-point circuits, and we had an impossible time tracking all of the cell phones and Blackberries we gave to employees. Our power pricing was based on individual deals.
No one works on Wall Street to look at phone bills, which is a tedious process to manage. You need to know what's on your bills, what type of equipment you have, and what your contract says. I knew we weren't going to do a good job of tracking all of these things accurately. I believe that telecom companies rarely give you a completely accurate bill.
I outsourced our telecom expense management to TNT. If TNT finds an overcharge or an inaccuracy on one of our bills, then it gets a certain percentage of each dollar it collects or it saves us. TNT also negotiates all of the telecom contracts, seeing what the telcos would accept. From 2001 to 2006, TNT saved Lehman Brothers in excess of $35 million.
Lehman Brothers has a reputation on Wall Street for being one of most cost conscious and hardest drivers of saving money. The strategy to outsource our telecom management to TNT aligned well this strategy. We were able to offer the best telecom services for the lowest cost.
EL: How would you rate how well other companies handle their telecom expenses?
JB: Most companies don't have a good handle on their telecom expenses. To begin with, most companies don't have the experts in-house who can negotiate telecom deals and who can track telecom expenses accurately. Besides, a lot of IT organizations don't want to handle telecom. They have more interesting and value-add work they'd rather be doing than telecom.
If you want to handle telecom expense management in-house, you're going to spend a lot of money for the right personnel and processes. You also need to be committed to understanding your telecom expenses. That's why it makes sense for a global company to outsource this task.
EL: How did you drive innovation at Lehman Brothers?
JB: You can waste a lot of money trying to innovate, especially if you do it wrong. My innovation philosophy was simple: to make sure every dollar we spent generated some sort of return. To this end, I made the IT staff understand what both perpetual returns and absolute returns were, and how we deployed all resources. I also made sure that the business units, the people footing the IT bills, really understood what they wanted, how much it cost, and what they could expect for a return.
I hired the smartest and most creative IT people I could find, and I paid them well. They had the freedom to work on a variety of business problems. I also made sure that we had some really smart people managing projects tightly and getting every dollar they could out of them.
Technology enabled us to be innovative about the way we solved business problems.
EL: Can you describe the theme of your chapter in the book, Managing the Technology Team?
JB: IT organizations get knocked because they spend money badly and without accountability. My chapter, called "Sunlight the Great Purifier," talks about making IT processes transparent and making sure people understand how money is spent and are held accountable for those expenditures. The title is from Chief Justice Brandeis's famous line, "Sunlight is more like a disinfectant, and electric light is the best policeman."
EL: What type of a governance model did you have at Lehman Brothers?
JB: Our large projects went very smoothly because of lots of reporting, design reviews, and health checks. We handled small projects very well, too. When it came to medium-size projects, we were always at the mercy of the project manager's competence to handle technical issues, to resolve budget problems, and to deal effectively with staff. Without a lot of transparency and accountability, you don't find out how bad things will turn out until the project manager fails to deliver.
I made sure everyone had a common language, and a common framework for understanding what things needed to be done. The project management office did health checks. Senior people from the infrastructure group did design reviews. We had peer reviews on various types of technology.
EL: Looking back, what would you have done differently as CIO?
JB: Not much. I had several multi-year projects that I accomplished. I made sure the yearly projects got done on time and within budget. I worked hard to improve IT cost controls and the relationship between IT and the business unit. Perhaps I could've done more in this area. Sure, I did question the way some transactions turned out.
EL: How are you spending your free time?
JB: I've been taking history courses at Columbia University and teaching a course called, "The Management of Technology" for the University of Connecticut's MBA program. I'm also on the board of a charity, DonorsChoose, to fund public school projects.
EL: Do you plan to return to IT?
JB: Now that my non-compete agreement with Lehman Brothers is over, I'm free to look at a variety of opportunities. I'm looking forward to a period of exploration. That's all I'm going to say on the subject.
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Elizabeth M. Ferrarini is a free-lance technology and business writer from Boston, Massachusetts. You can reach her at elizabethferrarini@yahoo.com.
