How Cloud Computing Rose From Lehman Brothers’ Ashes
The inside story of how Lehman Brothers is being dismantled in the cloud
Mon, April 11, 2011
CIO — James Johnson, an IT veteran with 25 years’ experience running Wall Street technology operations, walked into Lehman Brothers’ packing-box-strewn office high in the Time-Life building in Rockefeller Center. It was November 2008. Johnson had just been named Lehman’s CTO and had been given the job of operating the IT infrastructure needed to wind down the firm.
Just two months earlier, Lehman helped set off a worldwide financial panic by filing the largest Chapter 11 bankruptcy in U.S. history. By the time Johnson found himself picking his way around the cardboard boxes, most of Lehman’s brokerage and money-management operations had already been sold to international banks at fire-sale prices. But Lehman still owned over $600 billion worth of global assets, including real estate, those infamous mortgage-backed securities, derivatives and other hard-to-value items. The professional services and restructuring firm Alvarez and Marsal won the contract to wind down operations and turn those assets into as much cash as possible for Lehman’s creditors.
Maximizing the return to creditors required minimizing costs through efficient processes. Meeting the transparency requirements of the bankruptcy court overseeing the case necessitated bulletproof record-keeping. All that demanded high-performance IT systems.
But, in the middle of a massive bankruptcy, one was far more likely to find chaos than efficiency, reliability or performance. Indeed, Lehman could no longer call much of its IT operations its own. They had been sold off.
“My responsibility,” says Johnson, “was to find a solution to support the current business and at the same time support the wind-down.”
A Very Different Approach for a Very Different JobJohnson anticipated that running the IT shop at Lehman would be very different from running IT at most new businesses. Most CIOs come into new jobs at new enterprises with the business leaders urging them to prepare for runaway growth. Then the CIOs procure resources to be sure they can accommodate that optimism. That often leads to racks of underused (and expensive) storage and servers because the predicted business surge never occurs.
Lehman, however, had a different problem. Johnson knew that the demands on its IT infrastructure would peak in the first months of operation and then decline steadily as the business sold off its assets under court supervision. What Johnson needed was a way to scale up rapidly without making a significant (or, ideally, any) capital investment. Even a few years ago, that would have presented an almost insurmountable challenge. Today, however, Johnson knew he could do that by finding a cloud to host Lehman’s shrinking infrastructure. It turned out to be the perfect solution for a failed business. (For expert advice about cloud-vendor contracts, see "How the Cloud Can Turn Toxic.")