When you think about all that an IT organization provides to its business (security, operations, delivery and innovation) and add up the costs of those services, you tend to wind up with a big number.
That's what happened years ago at Land O'Lakes, the $13-billion cooperative. "Senior management had seen the IT budget increase too fast prior to 2004, so they asked IT to reduce costs to a great extent," says Mike Macrie, who has been the company's CIO since 2013.
From 2004 to 2008, that's exactly what Land O’Lakes did. "While we derived some great benefits from that cost optimization program, we simply pushed too far," Macrie says.
As the company grew, IT was not funded sufficiently to support that growth, so in 2009, executive management approved a program to invest $95M to upgrade their core infrastructure and systems. The first step was blocking and tackling, including centralizing and consolidating all of IT, implementing a common OS, and bringing virtualization to the data centers. With operations running smoothly, the IT organization now had the capacity to run roughly 10 times the number of new projects, so IT became focused on project and change management.
"That took us through 2013, when we realized that we also had to invest strategically in digital technology to defend our business against disintermediation," says Macrie. "We were ready to partner with our business leadership in creating a strategy for innovation."
Recognizing that operations, project management, and digital innovation are distinct activities, Macrie decided to break his IT organization into six distinct profit and loss statements (P&Ls), each with a different business model, budget, leadership, and metrics.
The six P&Ls of IT at Land O’Lakes
The company's first business is infrastructure and support operations. "Everything that happens on the desktop is run by that group," says Macrie. Like traditional infrastructure organizations, Macrie measures this business on uptime and cost reduction, but he "also measures the group on customer service and adoption rates."
The second business is built around deploying new systems. "We spend 25 percent of our money on project implementation and change management," says Macrie. "So we built a business that runs on billable hours, like a consulting firm."
The third business delivers innovation and drives revenue growth, so it is run like a traditional P&L. "In this business, we partner with our business leadership to make development and equity investment in companies and products that drive revenue," Macrie says. "We sell technology services to our members and farmers."
The group's first major investment, for example, was the Winfield R7 tool, a leading precision agriculture product for seed placement. Land O'Lakes distributes the R7 tool through its co-op retailers to end users and growers in the field. It is a revenue producing product for the company, and Macrie's IT leaders are jointly accountable for its success along with business leadership.
The fourth business provides cybersecurity and risk management. "We are funding more investment there to reduce our risk in the external marketplace," says Macrie. “We treat this area of the business like an insurance contract and deal with those investments separately from our other IT businesses."
In the fifth business, IT provides business process optimization services to Land O'Lakes' various corporate functions. "Due to our success in working with external third parties, we inherited a new business around business process optimization," Macrie says. "This business measures our combined success in how we can reduce cost-per-transaction in a way that maintains quality."
Earlier this year, Land O'Lakes IT launched a sixth business that provides technology services to local farm retailers in rural America who cannot find those services in their regions. "We are providing our members with software-as-a-service products and comprehensive IT services," says Macrie. "We started with software consulting and project management, but our intent is to provide network, security, and desktop services, as well."
How is Macrie's P&L model at Land O'Lakes different than any other IT organization that provides a variety of services? "Each of these businesses has very different goals, objectives, and metrics by which we measure success," he says. "Too often, CIOs fall into the trap of talking about one big number, which becomes overwhelming to many of their executive peers and places too much focus on cost instead of the benefits of the technologies."
For example, IT at Land O'Lakes has invested significantly over the last three years in driving digital revenue and innovation. "Based on the growth of our innovation business, we can demonstrate that we are investing appropriately in the company's growth," says Macrie. "But if we just looked at what we spend on innovation as a percentage of the overall IT budget, the executive committee would say it isn't enough. By looking at innovation as its own business, we are able to have a much more rich and fulfilling discussion."
Benefits of distinct P&Ls
With six distinct businesses, not only is Macrie able to break the big number down into six smaller ones, he can run each business with more precision and focus. "I force decisions against funding levels and metrics in each of those businesses," he says. "When I sit down with my leadership team, we are making more informed and educated decisions about where to invest."
The challenge in moving to a P&L IT model like the one at Land O'Lakes is internal. "It's a change for the IT organization to think about what they do as a business," says Macrie. "When you are running a business, for example, you need to invest in marketing and you need to make sure your customers are happy. This means that my IT leaders have to build marketing plans into their budgets. That doesn't come to them naturally."
How to break IT into different businesses
Unlike most major IT changes, this one does not require a whole lot of initial support from the top. "You don't need a lot of buy-in external to IT to do this," says Macrie. "Ninety-five percent of the work is within your control. It's up to you to change your own internal metrics and how you manage the expectations you set for your team."
When you run IT as six business units, you need dedicated financial management resources. "We rely on a strong team from finance to measure and report on the performance of each business," says Macrie.
Macrie also cautions that CIOs shouldn't underestimate the internal resistance they will face from breaking IT down into distinct businesses. "To most technology people, this is a new way of thinking," he says. "It will require more internal change management than you think."
About Mike Macrie
Macrie came to Land O'Lakes in 2010, and he became senior vice president and CIO in June 2013. Before joining Land O'Lakes, Macrie held a breadth of roles at Ingersoll Rand, AlliedSignal and was involved in several startups, including G5 Technologies and Multi-Media Solutions. He earned his MBA from Duke University and a bachelor's degree from Cornell University.