LEADERSHIP -Rules Of The Road For Turnaround CIOs

Wanted: CIO for the number-three office supply company in a three-company industry. Company being investigated for inappropriate promotional payments and falsifying documents. Executive in charge of retail and CFO both resigned in January. CEO resigned in February. In March, company announced a fourth-quarter loss of more than $24 million before the sale of major assets. Company still digesting an acquisition concluded more than a year ago.

Sound like the ultimate nightmare job? Not for Randy Burdick, who took the CIO post at OfficeMax in March. “Turnaround situations attract me when I think there is a chance for success,” he says. “The opportunity to be on the ground floor of a new team was exciting, and I believed that the challenges at OfficeMax were solvable.”

Burdick isn’t some masochistic executive looking for a short trip to the unemployment line. He’s part of a band of technology chiefs who call themselves, or find themselves called, turnaround CIOs. They are brought in when Something Big has, is or will go down at a company. The Something Big could be financial problems or even malfeasance, consistently bad performance in IT or the broader business, or a merger or major shift in strategy or operations.

The need for turnaround CIOs may seem the exception rather than the rule. But with many companies still struggling in an up-and-down economy and the federal government’s closer scrutiny of corporate finances because of Sarbanes-Oxley, a large portion of corporations are looking for these hired guns to fulfill three roles: firefighter for a business beset with numerous problems, drill sergeant for an out-of-order IT department, or guide for an organization embarking on a transformation. That means somewhere between 30 percent and 50 percent of companies in the market for a CIO need the turnaround variety, estimates Brad Brown, director of the business technology office for the McKinsey & Co. consultancy.

While the turnaround IT methodology isn’t carved in stone, there is a common set of steps that these CIOs employ. Some of these actions are common sense but are frequently overlooked, such as open communication with IT employees. Some are difficult decisions that the CIO must gut out for the good of the company, such as firing a large portion of senior IT managers. All require quick results, or the CIO will soon join his staffers on the street. Turnarounds are all about performance. “More than anything, you have to expect change,” says Jeff Chasney, CIO and executive vice president of strategic planning for CKE Restaurants, which operates the hamburger franchises Hardee’s and Carl’s Jr. As a turnaround CIO, “you haven’t been called in because things are running well; they’re broken, and things have to change—a lot.”

Types of Turnaround CIOs

The quintessential turnaround job is the company in crisis. A sense of urgency hangs over a CIO’s every decision. OfficeMax suffered from numerous, interwoven problems, some of which could be directly linked to trouble in the IT shop, Burdick says. For example, because of fundamental problems in the way IT functioned, sales reports took too long to generate to be useful. A lack of technology standards made it difficult to operate the business as a single enterprise and take advantage of economies of scale.

Dana Deasy faced an even greater sense of impending doom in July 2003 when he became the first-ever CIO at manufacturing and electronics conglomerate Tyco International. The company was reeling from an Enron-like scandal in which its former CEO, Dennis Kozlowski, was under investigation for allegedly misappropriating more than $600 million from the company (in June he was found guilty of grand larceny, among other charges); its entire board of directors had been replaced; and it was facing bankruptcy with no way to pay $11 billion coming due. It also had no central IT organization, common infrastructure or common data structure to speak of.

But Deasy simply viewed the job as a startup—albeit a very large one—just as he had his previous two CIO posts: at electronics giant Siemens, where he led the effort to develop a CIO Americas office, and before that at General Motors, where he was a divisional CIO in charge of building an IT organization after the GM spin-off of EDS. “I tend to walk into a position where there is nothing, somewhere where you have to put something in place,” Deasy says. “Even though Tyco brought with it crisis management, I viewed it more with a startup mentality.”

A second type of turnaround situation for CIOs is the company with fundamentally flawed IT. When John Nordin became CIO at Insurance Auto Auctions (IAA) in November 2003, the IT department was spending more money than it was delivering in business value, was not delivering systems on time or in some cases at all, and was poorly managed. IAA, a $249 million company that contracts with insurance and car rental companies to sell off cars that are considered total losses in wrecks, was spending a lot of money on IT (between $5 million and $10 million a year) but getting very little in return, Nordin says.

In his first 12 months, he focused on renegotiating leases and contracts, such as a telecommunications contract for data services, saving IAA nearly $1 million, which dropped straight to the company’s bottom line. Nordin also focused on serving IAA’s external customers. For example, for IAA’s buy-side Internet auction system, used by companies that consign wrecked cars to IAA and those that buy them, Nordin chose to team up with outside contractors to build the system. In the past, IAA staff would have built the entire system, slowing down the delivery.

A third type of turnaround is the business transformation, in which the company is betting its success on a new strategy. Usually IT is a critical part of the change. “What happens under those conditions, those companies get more strategic in view and increase their peripheral vision,” says Stephen Mader, vice chair of executive search firm Christian and Timbers. “When the companies do that, they begin to notice the information they want and don’t have.”

That’s when transformational companies need a CIO like Robert Moon, who in February joined LeapFrog, a maker of electronic educational toys. IT systems at LeapFrog have not kept up with the company’s growth. (Two class-action lawsuits filed in June alleged that LeapFrog’s failure to correct IT and supply chain problems had led directly to missed earnings estimates in 2004.)

Moon quickly planned a three-phase upgrade. First, ERP applications and Oracle databases are being brought up-to-date, since hundreds of interfaces currently require updating every time an application is upgraded. Phase two will be an upgrade of LeapFrog’s supply chain, which now comprises eight software systems, making it difficult to communicate quickly with business partners. In phase three, Moon plans to build a CRM system to streamline the marketing group’s and sales force’s systems.

Transformational turnarounds are becoming more common—or at least more commonly warranted. “I think the need for these kinds of CIOs is becoming more immediate now,” says Charlie Feld, former CEO of the Feld Group, a CIO-for-hire consultancy that turned around several large companies before it was acquired by EDS in 2004. “In every industry now there is a Wal-Mart or a Dell that is changing the game. The older companies need to transform their legacy systems that need to enable, not inhibit, the speed and agility of business.”

Six Steps to Turnaround (and One Prerequisite)

To effect a turnaround, a CIO must make quick decisions that can have a significant impact on the business. This requires support from the top. “This is very much like a baseball game,” says CKE’s Chasney. “You’re not managing game by game or inning by inning; you do it play by play. It is a paradigm shift that has to be supported by the CEO.”

Moon says two of the primary reasons he took the CIO job at LeapFrog were that he reported directly to the CEO, and that his boss was very open to new ways of thinking and to taking managed risks. Moon meets once a week with the CEO for 30 minutes, during which Moon reports on what he is doing, how IT programs are progressing and on future projects. “He’s 150 percent behind what I am doing,” Moon says. “The CFO is tremendously supportive too.”

But with the support from the CEO and other top executives comes higher expectations for using IT to rescue the company. “That means you have to set reality; you have to differentiate between fact and fiction,” Deasy says. Otherwise, the CIO will continually fight battles over what can be done and what cannot, what needs to be upgraded or thrown out and built anew, and what should be done immediately or later. “Before you know it, you will have lost your chance to help the company,” Deasy says.

Read on for six steps to help you meet the high expectations and accomplish a turnaround, distilled from CIOs who have done it.

1. DELIVER QUICK WINS. Every CIO has to show the value of IT to the business, but a company suffering from bad PR, poor earnings and low morale is desperate for some fast returns. Typically, the turnaround CIO has only six months, maybe even less, to show that he has had an impact. After that, the honeymoon is over.

Long before Chasney joined CKE in 2000, he was director of systems development at Best Products from 1981 to 1985. There, he gained his first experience at turnarounds and learned a lesson he would apply in each IT executive job thereafter: All projects need to have a meaningful deliverable every three months. Best Products was suffering from an ineffective IT shop. Chasney determined that the IT staff was “wallowing in methodology,” he says. “They were so bogged down in forms, structure and process that they couldn’t see where they were at.”

Chasney told the staff they were done with the development process and needed to go into production. Within three months, they delivered the online system of terminals throughout 1,000-plus restaurants, which was the foundation for a business intelligence system that would deliver daily data to corporate headquarters on 25 performance indicators. The system also provided marketing data that measured sales of specific menu items after changes from advertising, promotions and the introduction of new items. Best Products’ business partners and employees no longer viewed the IT shop as a nemesis or department that wasted money, Chasney says. “You have to deliver actionable items, such as business intelligence, right off the bat.”

2. FILTER THE NOISE. Often, it’s hard to know what to do first in turnaround situations. Top executives, board members and IT managers all have their versions of what needs to be done to save the company. At Tyco, the suggestions came in spades, Deasy says. He calls the difficult job of prioritization “filtering out the noise.” Yes, a common financial system was important to better track the $40 billion company’s finances, which were suffering. And, the 400 separate ERP environments probably needed to be consolidated into one.

However, most Tyco employees also weren’t able to e-mail each other easily. “You don’t wash the windows when the building is on fire,” Deasy says. “We were a company in crisis and fighting for our survival, and we had to see what is important and what can wait. Does it make sense to want a common system? Yes, but probably not a thing to focus on when you can’t communicate.”

The challenge has been in determining how to allow the 115,000 Tyco employees who have access to e-mail to connect across 140 disparate directories. Deasy recognized early on that a single common directory was not pragmatic. His team settled on an identity information server technology that would synchronize the systems.

Another priority has been to consolidate the 140 separate networks, which connect 2,140 sites worldwide, into what Deasy calls a “One Tyco” network. He plans to consolidate 80 percent of the networks by the year’s end, leaving out businesses that already consolidated their networks internally. “Don’t assume you have to slay the dragon for the whole company,” Deasy says. “Why tie up those who are already doing a good job into the initiative?”

3. ALIGN I.T. Successful turnarounds require that everyone pull together. In his fifth week on the job at OfficeMax, Burdick called a three-day conference for the top 50 OfficeMax IT managers to map out where the company’s IT operations should be in three years. Rather than leading the process himself, Burdick asked the managers to develop the three-year plan.

At the conference, Burdick also reported the results of a survey he had distributed to all 500 IT employees two weeks prior, asking how they felt about the direction of the company, the integrity of the management team and the openness of communications, among other things. Several employees provided up to three pages of typed comments, and one employee even listed managers whom he said did not believe in Burdick’s team approach. Burdick says he mentioned the survey to the managers (minus specific names) and told them, “If you happen to believe that the team approach is a joke, I invite you to leave now.”

4. FIRE AND HIRE RIGHT. Layoffs and firings are a staple of turnaround situations. However, CIOs should try to retain the staffers that give them the best chance of success. On day three of his new job at IAA, Nordin called a meeting to remind his staff that the IT shop does not generate revenue and therefore is a service to the company. “We are here at the pleasure of the business. So you better be service-oriented,” he told the IT staff. “If you don’t agree with me, you better get over it.”

Creating the right staff also means hiring the right people. Deasy says one of his most important steps in turning around Tyco IT was hiring IT managers with a “turnaround attitude.” When interviewing to fill three divisional CIO positions, he looked for managers who could walk into a situation in which they had no one to call and no documentation of IT systems or data—people who could say to themselves, “’I am the staff; I write my own PowerPoint briefings and write my own spreadsheets,’” Deasy says. “I’m looking for a mental toughness, and like the Wild, Wild West; they must like a little bit of chaos and not be afraid of that.”

5. STAND UP FOR YOUR STAFF. While serving as a top IT manager in the U.S. Navy and as CIO for the Office of Naval Research, Moon learned that a leader needs to be approachable so that people have the freedom—and comfort—to report problems. Moon tells his LeapFrog staff the story of how a captain whom Moon knew in the Navy ran a guided missile cruiser over a large submerged rock, injuring several crew members. Sailors on the bridge suspected the ship was headed for the rock, but they were afraid to tell the captain to change course for fear of being wrong. Moon says he wants his staff to tell him their opinions and help him make the right decisions. “The important part here is that they are confident in their knowledge that if they make an honest mistake, I will support them,” he says. “I also learned in the Navy that if you take care of your people, they will take care of you.”

Deasy follows a rule of keeping IT staffers “out of the line of fire”—that is, corporate politics and the various agendas in the company. Deasy says he wants IT managers focused on executing day-to-day operations, not distracted by trying to get buy-in or hearing different opinions of what must be done. “If they’re dealing with that stuff, we’re not moving the needle forward,” Deasy says.

6. GET THE TECHNOLOGY RIGHT. With a premium on moving fast, turnaround CIOs may believe they don’t have time to test whether new systems or processes work. In actuality, it is more important than ever to make sure systems are workable. New failures will only create more delays, and morale, already low, will only get worse.

Nordin found this out the hard way by not sufficiently managing IAA’s switch to Microsoft Active Directory. The changeover was the first production shift Nordin implemented. But a glitch prevented employees from accessing the main order entry system. Because changes had not been logged, the staff did not know what to undo.

If these six steps toward accomplishing a turnaround sound like they would be useful in your organization, you’re not alone. EDS’s Feld, who is one of the deans of CIOdom, estimates that six out of every 10 CIOs should be applying turnaround methods—even if they don’t face a classic turnaround situation. “These CIOs have a good set of skills that would be applicable in almost any company,” he says, “whether a turnaround company or one that is more stable.”

CIO Washington Bureau Chief Allan Holmes can be reached at aholmes@cio.com.