Gartner, one of the world’s most influential information technology research and consulting companies, makes its living dispensing advice on technology, strategy and business-IT alignment. So it is profoundly ironic that the company recently faced its own misalignment woes. During the late 1990s, the Stamford, Conn.-based consultancy suffered from a chronic lack of communication between its IT department and its far-flung business units. That disconnect cost the company millions of dollars every year, in the estimation of its own CIO and other observers.
These troubles were exacerbated by a no-holds-barred acquisition strategy that went awry in the dust of the dotcom bust last spring. Like some of its clients, Gartner saw its market valuation and share price drop, and it had to sell off and take a loss on some of what it swallowed during the boom-time feeding frenzy. The company is now applying its own advice internally and using the lessons it learned in restoring alignment between its own IT department and its business side to meet the recession-time challenges of restoring investor confidence and bolstering its bread-andbutter research revenue.
Here is the story of how Gartner dug itself into a hole and how it is digging out.
Digging the Hole: Who’s in Charge Here?
Gartner CIO Bart Stanco took the job in the spring of 1999 at the height of the dotcom boom. At that point, the IT department had no system to determine which projects would best support the company’s strategy. “There were multiple projects for the same function, projects at cross-purposes,” Stanco says. “We found that we were working on too many of the wrong things.”
For example, when Stanco took the reins, Gartner had two teams working on two projects, both intended to support pricing structures for research services. One group was developing a software tool to customize research and prices for individual clients’ needs. The other group was working on systems to streamline pricing by offering the entire array of research on a per-user basis.
Stanco worked with Gartner executives to pull the plug on the project to tailor individual offerings and adopt a new community-based pricing scheme. This method took the latter approach?providing a client with the complete menu of Gartner research services. However, those changes were made only after Gartner had wasted months working on both projects with approximately 50 staff members and consultants, Stanco says. With costs of around $1,500 per day for each outside IT consultant, that kind of effort easily added up to $1 million a month.
Lack of communication among IT groups and Gartner’s worldwide business units also caused the company to miss opportunities to cut costs. For example, nearly 80 percent of the company’s 4,600-member workforce uses laptops, but there was no centralized purchasing process as there is now. The cost of extra support and missed opportunities for volume pricing came to more than $8 million a year, estimates Stanco.
Another troubling symptom of Gartner’s misalignment was poor morale among staff and executives at all levels that was generated by an almost complete lack of communication. “You and the person you were working with in [IT] didn’t know for sure whether anyone in the company was thinking about anything similar to what you were thinking about,” says Moira Collins, senior vice president of worldwide marketing.
The project-decision processes and budget prioritization were a mystery. In the absence of a clearly understood decision-making process, employees often ascribed obscure motives to any project approval decision. “It began to look more like a political decision than a good business decision,” Collins says.
Digging the Hole, Part II: Trying to Have It All
Gartner’s aggressive acquisition strategy strained the company further. Since it went public in 1993, Gartner has acquired or made significant investments in 30 companies, including Inteco, the Internet research and advisory service formerly based in Norwalk, Conn., and San Jose, Calif.-based market research company Dataquest. “We were on a course to diversify the company’s product line to gain market share, and over the long run that would give us greater sustained profitability,” says Gartner CFO Regina Paolillo.
Competitors like Cambridge, Mass.-based Forrester Research were growing faster than Gartner, partly by jumping on the Internet bandwagon, notes Sandra Notardonato, an analyst with Boston-based investment company Adams, Harkness & Hill. “Whether they liked it or not, Gartner became known as the ’Y2K shop,’ while competitors became known for tackling the Internet and tomorrow’s technology,” she says.
Integrating the numerous acquisitions that resulted from Gartner’s diversification strategy was a challenge. “You want to integrate the offerings and drive efficiencies, integrate billing and sales, check security, integrate infrastructure, and ultimately as a research organization you want to take the knowledge you’ve acquired and plug it into the company’s intellectual capital,” Stanco says. When a company has existing alignment problems, though, that’s tough to do, he acknowledges.
The duplication of effort and projects at cross-purposes, to which Stanco refers, were not only a symptom of existing misalignment during this expansion but also an indication that miscommunication may have impaired Gartner’s ability to make sound, strategic acquisition decisions. To catch up in the Internet space, Gartner bought the TechRepublic professional IT services and news website in March 2000. The decision was questioned by observers and ultimately undermined by its timing. While TechRepublic’s content was within Gartner’s realm of expertise, its business model was not. As a research and consulting company, Gartner had no expertise in fostering a revenue stream by selling online advertising.
In the downturn that followed the acquisition, it would have taken years to realize TechRepublic’s revenue potential. Gartner ended up selling it for $23 million in April, after buying it for $80 million and sinking $50 million into the site for maintenance and updates, thus losing about $107 million on the deal. A few weeks after that, Gartner experienced a slump in share price?which dropped from about $18 in March 2000 to about $6 a year later?that kicked off a conversion provision for the $300 million bond Gartner had used to help fund its aggressive expansion strategy. As a result, bond issuer Silver Lake Partners became a 36 percent owner of Gartner, diluting the value of other investors’ shares. Sources familiar with the company’s plans say Gartner was also in talks to be acquired by Reuters, but its offer price was too low.
“Investors are a little unhappy,” CFO Paolillo acknowledges. “Where we wandered off the farm was to say we were gonna get into the Internet space.”
Digging Out: Better Budgeting
Though Gartner’s alignment problems were exacerbated by acquisitions, they had other roots as well, according to Stanco. Gartner is organized geographically, with different executives responsible for different countries and regions and different functional units. That makes communication and enterprise-level thinking a challenge.
To spark communication between IT and the business units at Gartner and get them thinking about companywide strategy, Stanco introduced elements of what he would later call project-based budgeting. The project-based budgeting process consists of a three-tier advisory council in which IT and business-unit leaders from around the world participate in the project planning process. There’s also a formal proposal system requiring project sponsors to tie project goals to corporate strategy, prioritize projects based on criteria derived from corporate goals, and generate a return on investment and total cost of ownership analysis after launching projects. Paolillo and Stanco both point to the GBIS, or Gartner Business Information System, an analysis program designed to help managers control profit and loss, as an example of a new tool developed using Stanco’s project-based budgeting methodology.
One of Stanco’s first steps toward establishing that process was to appoint strategic business partners (SBPs) from the IT side to each business unit and establish a review process to vet and approve projects under $100,000 that are limited to one business unit. The SBPs and business unit leaders discuss project merits and have the power to give them the green light. By summer 2000, in time for fiscal 2001 budget planning, a three-tier advisory council was in place. This hierarchy included a council for larger projects that assembled senior business and IT managers from around the world (see “Advise and Align,” Page 138).
To ensure that project proposals are tied to company strategy, the lead project sponsor, who can be from IT or a business unit, fills out planning templates that identify the goal the project is supposed to facilitate. One of the advisory council members then prioritizes the project in a “stack ranking,” using criteria weighted according to the relative importance of the project goals. For example, since growing research revenue and profitability are paramount, those projects will end up on top of the stack.
A key component of this methodology is its flexibility, says Paolillo. If the company needs to reconsider strategic and corporate priorities midyear, then the top-level advisory council can rework stack rankings and reprioritize projects using a new or reweighted set of criteria.
Digging Out, Part II: Getting Aligned
Project-based budgeting was derived in part from Gartner’s own consulting and research advice, applying what Stanco calls “Gartner at Gartner.” For example, Gartner has long stressed the necessity of an ROI analysis after launching a project?something the IS department now does religiously as an integrated part of the project-based budgeting process. The planning templates used in these analyses ask the types of questions espoused by Gartner’s “IT value scorecards,” which are used to align IT and business.Though applying Gartner’s consulting advice to itself may seem obvious in retrospect, some of the initiatives met with resistance. For example, the advisory councils “took a little time to get traction,” says Mike Zboray, chief technical officer and a former analyst. Stanco’s proposal to establish these councils goes beyond the types of projects and proposals usually expected of IS.
To ease cultural issues, Stanco and his team strove to earn the confidence of the business units by continuing to take care of the basics, such as running the database center and help desk, managing the desktops and telecommunications?what Paolillo calls “right-to-life” issues.
Still, Stanco felt a key challenge in his efforts to become a partner with the business side of the house was articulating a vision that would help drive the IT alignment mission from the CEO and CIO all the way down to department managers.
With that in mind, Stanco enlisted Hunter Muller, who runs professional management company Hunter Management Group in Westport, Conn., to help spell out the principles behind the criteria Gartner now uses to prioritize projects. Those principals are as follows: The IT department should deliver a competitive advantage to increase shareholder value; it should form a partnership with the business side to focus on creating value, increasing efficiencies and reducing costs; and it should focus on organizational development of people, process and technology.
The project-based budgeting methodology has made an amazing difference, says Paolillo. “What it’s done is helped close the gaps, not just between corporate services and business units but between the business units themselves.” By bringing those groups together, Stanco and Paolillo hope to have made Gartner’s misalignment woes a thing of the past.