Wayne Luthringshausen is chairman and CEO of The Options Clearing Corp. (OCC), a clearinghouse for options, futures, derivatives and other complex financial trades. The company, which is jointly owned by some of the country\u2019s largest options exchanges, processes over 5 million contracts on an average day. Its customers\u2014approximately 130 financial services firms\u2014can\u2019t put up with any downtime. Luthringshausen depends on IT to get this done. "Our systems, the hardware they operate on and the wires that connect them, that\u2019s our factory," he says. "We don\u2019t have a business without it." Correspondingly, IT employees make up almost two-thirds of the company. In April, OCC went live with a fourth-generation transaction processing system that cost $100 million and took five years to install.Luthringshausen needs to get his budget approved\u2014and ultimately provided\u2014by his customers. As a result, a large part of his job is to serve as an intermediary between IT and those clients. Luthringshausen spoke with CIO about how he fulfills that role and works with his executive team, including the CIO. He also offers some surprising insight on how CEOs view IT expenditures. Hint: Coming in on budget is not always the be-all and end-all.CIO: Do you find yourself having to defend your IT department to your customers?Wayne Luthringshausen: That\u2019s how I\u2019ve viewed my job all along. If IT screws up, I\u2019ll tell my clients that we\u2019ve screwed up and we\u2019re going to solve the problem. But the other side of it is that I don\u2019t think my board should be beating up on my IT folks. I have to be an advocate, because we\u2019re doing a good job. For example, I went to a bar one night after a function, and one of our clients was there. He yells down the bar at me, "Luthringshausen, you\u2019ve got the lousiest IT operation anywhere in the world!" That took me aback\u2014it\u2019s not the best way, but it\u2019s one way to get feedback. The issue, it turned out, is that every night we process the day\u2019s transactions, and our agreement is that we get the results to our clients by midnight. So we\u2019ve built our system to be able to deliver on a peak night, when the volume is substantially higher than average. As a result, most nights we deliver around 10 p.m. When that night comes where he gets them at 1 a.m., in his mind, I\u2019ve missed.\n\nAs the CEO, how do you stay on top of complaints like that, as well as ones that address fundamental weaknesses with your IT?\nThere are two ways. Our clients, the Merrill Lynches and the Goldman Sachs, are very technologically astute, and if we fall too many technology generations behind them, we\u2019re not going to be able to provide the kind of information services they need in order to trade. So for me, it starts with noticing that our customers want to do more and realizing that we can\u2019t do those things inexpensively and efficiently.For example, options expire on the third Saturday of every month. It\u2019s a busy day, and there\u2019s usually a heavy volume of transactions. Over that weekend we reconcile all the transactions that were made and expire all the contracts that aren\u2019t exercised. Everybody in the industry works that Saturday. Well, our old system was a dumb terminal, so if you worked for Merrill Lynch you had to go all the way downtown to use the machine for what really is just a half hour of work. So of course everyone was asking, "Why can\u2019t I just get on my laptop at home and log on to a website?" When you get enough questions like that you start to realize that you\u2019re out of touch with your clients and the way they\u2019re conducting business. That\u2019s when I start to look at redoing the systems.I also look for internal things. Our U.S. options volume has been growing at 20 percent a year, and the bigger it gets, the more recognizable our problems become. And the ramifications are bigger when you\u2019re doing 5 and a half million contracts a day than when you\u2019re doing a million. We have about 50 quality standards to help us measure how we are doing. If we miss one, odds are I\u2019m not going to hear about it. But you miss two, or miss one for several months in a row, everyone hears about it. Suddenly you\u2019re not just dealing with a miss, you have a weakness you have to address. People come to me with money requests, because we need to add this or that. We make a lot of changes, we\u2019ve fixed this, fixed that, patched here. One day, you sit up and you say, "Guys, it just seems like our systems aren\u2019t what they ought to be for the kind of business that we\u2019re doing today. Let\u2019s take a look at that." \n\nWas there a specific moment that you knew it was time for a new system? \nThere wasn\u2019t a particular incident, it was more a series of incidents and events that get you to a point where you realize you have to move on. What I noticed was that our technology management group had become much better at putting out fires than at creating [new systems]. You get to a point where you are patting people on the back for having gotten you out of trouble last night, when it is partly their fault that you had the problem because they are not ready to move on. When someone has worked on something for so long, it can become their baby. Instead of thinking about the next baby, they can only think about fine-tuning the current one. That\u2019s the epiphany that I came to.As we were moving along [with Encore, the new transaction-processing system that went live in its entirety in April], it became apparent that we needed to move the project out from under that management group. They did an awesome job of making the old system run a long time, but they had gotten into a defensive mode, and it is hard to do a major project when the whole management team is like that. I had to move the old CIO out, and we had a strategic executive manage the project for a while. We wanted to get rid of as much negative energy in IT as possible before we brought in a new CIO. We wanted someone who could come in with a fresh view. When we hired the new CIO [a year and a half ago] he walked into the middle of the project. \n\nEncore was a five-year, $100 million project. How did you stay on top of it, or did you leave all of that to the CIO? \nDuring Encore, I went over what was working well and what was going poorly at least once a week with the project manager, the COO and the CIO. Also, my CIO\u2019s office is catty-corner to mine. We see each other every day, and he would have to make a real concerted effort to hide something from me. I also hired an auditor to come in and do some checks for our board. We wanted to get an outside opinion on what was working, what wasn\u2019t and where we had more risk than we should have. We got that report every couple of months. It was a check-and-balance for the board. You know what though? We hired the wrong guys [as auditor]. They reported things as being in trouble that weren\u2019t in trouble. So we had to get another auditor in to audit the auditor. If you hire the right people, it\u2019s a great way to get an independent view, to find out if your people are lying to you. In our case, our people were clearly telling us the truth, and in the end we found that out. \n\nYour customers depend on you to keep your systems up all the time. As the CEO, how did you ensure that you could stay up while doing a major upgrade like the Encore project?\nFor me the most important thing is the soundness of our business. And it\u2019s my job to set the tone for that\u2014for example, saying to the CIO that if the system goes down we need to be up and running in two hours. When we decide to take risk\u2014and putting in place a new system is definitely a risk\u2014we have to mitigate it as best we can with all the additional processes, resources, checks and balances, testing and double-testing it takes so we are confident that the thing\u2019s going to work when we start to use it.I hear about organizations that are doing these big systems that run into all kinds of problems. I\u2019d rather go into the boardroom and say, "Guys, if we were a for-profit company, we might try to do it for $75 million. But it\u2019s going to take us $100 million." Because we have to be absolutely certain it works, and I\u2019d rather spend $100 million and have it work than spend $75 million and not have it work, and then have to spend another $100 million to get something that actually does. I never like to brag about IT, because it comes back to bite you, but with Encore, every one of our installs worked. And now that they are in full-time production, they still work. I think the reason is that we said we\u2019re going to spend more money at the front end of this thing to make sure it works. \n\nBut CIOs are trained to try to deliver on time and under budget. Are you advocating a mind-shift? \nOur CIO came from a larger company with a much different kind of environment, and it took him a good six months to recognize how we look at this stuff. When he first came in he\u2019d say, "Hey, I want to get this thing done in half the time," but he\u2019s sitting in a room with a bunch of people that have been here for five years and can say, "Whoa. Could I just talk to you, sir?" It sounds unbelievable, I guess, but remember, I\u2019ve been here for 35 years, and this culture\u2019s been around for 35 years. I want my CIO to know that his focus shouldn\u2019t be on profits, it should be on pulling off a project safely and soundly. So, yeah, the cost for us is probably a little higher, but we accept that within certain parameters. Over the years you get a pretty good sense of when the cost is wacko and when the cost makes some rational sense. \n\nOn April 15, which is just after Encore launched, you guys processed 11 million contracts, which is double an average day. Were you nervous?\nThe system went live in phases, so it wasn\u2019t all brand-new. But we knew we were going to be stressed during the day since volume for everything was up. It was all-hands-on-deck\u2014we sat there watching the CPUs. We got hit pretty heavy, but we handled it. And nobody knew we were staring at the computer. Our view now is that we are headed to that kind of volume more regularly. And we won\u2019t have any problem handling it.