IT Integration at Internet Holding Co. CMGI

Before the Nasdaq crash and the Internet bust, before paying millions to plaster your name on a stadium became a mark of corporate folly (see 3Com Field, CMGI Field and Enron Field), CMGI was a star in the high-tech firmament. The Internet holding company’s CEO, David Wetherell, was regarded as a new economy guru. And when he hired Jo Hoppe three years ago to be CMGI’s first-ever executive vice president and CIO, Wetherell’s charge to her was to build an IT structure capable of keeping up with the company’s growth.

Today, of course, CMGI is shrinking, not growing, having lost $5.8 billion in fiscal 2001. But when Hoppe arrived in October 1999, “the company was acquiring two to four companies a month,” she recalls. And CMGI’s subsidiaries?including online businesses such as AltaVista and UBid and 19 others at the company’s high-water mark in late 1999?were also focused on growth. No one had time for process. “There were no mainframes, almost no legacy systems,” Hoppe says. “Most of the [subsidiary] companies had no systems at all.”

Starting from Scratch

Hoppe’s challenge?to lead IT in a decentralized company?is familiar to many CIOs. But at Andover, Mass.-based CMGI, the scale of the undertaking was fearsome. Not only did Hoppe have to build and integrate systems for 21 companies where there were none, she had to do so at “CMGI speed.”

“You couldn’t say two years for an ERP system. Two years is a lifetime here,” Hoppe says. It didn’t help that CMGI, as a bag of brands, had no corporate identity. Its subsidiaries had little or no feelings of affiliation among themselves and only grudgingly acknowledged headquarters.

But Hoppe had two factors working for her: the strong support of her boss, the corporate CFO, and the pain felt companywide from the lack of integration. “It was a horrendous task each month just trying to close the books without systems. Spreadsheets would be e-mailed in or faxed in,” Hoppe says. At a gathering of all the subsidiary heads a few weeks after she was hired, the CFO introduced her and said that centralized systems were the new priority. There would be complete integration, no systems overlap and clear visibility of all corporate and subsidiary data.

Hoppe dove right in, making her first tasks an ERP system for financial and HR information. She quickly selected Oracle software and set a six-month time limit for implementation. The Oracle rep balked, saying that was unrealistic. “Oracle anticipated that with 21 companies we wouldn’t be able to get agreement on basic needs of the system for months,” Hoppe recalls.

But just six weeks later, after a pair of five-day workshops (one for financial data and one for HR information) at which the 21 companies were represented, Hoppe and all the subsidiaries had agreed on the ERP specifications. “I insisted that all the key players had to be at the table,” Hoppe says. “So when we got a few [subsidiary] CFOs who said, ’I’m busy,’ I went back to their CEOs and said, ’This is critical. You’ve got to be represented.’” By the end of each workshop, the heavy lifting was complete, and Hoppe had a total chart of accounts in hand. The ERP implementation was finished within the six-month window.

Hoppe drew two lessons from that success. The first is the necessity of support from the top when it comes to dramatic organizational change. The second lesson is the importance of working closely with business leaders throughout each organization. Hoppe joins in CMGI’s monthly executive committee meetings, which are attended both by corporate executives and the heads of all the operating subsidiaries. She also goes on the road once a quarter and visits CMGI’s campuses?in Andover, San Francisco and Chicago?meeting with all of the operating company heads. “I ask what their pressure points are and how I can make a difference,” she says.

After the Fall

Even as the ERP implementation project was wrapping up in the summer of 2000, the dotcom boom was slowly turning into the dotcom bust and CMGI’s go-go atmosphere began to go-go away. Wetherell stopped acquiring companies and began to consolidate the subsidiaries in search of economies of scale. Hoppe’s drive for integration fit into that goal perfectly. Her IT budget in 2001 was $23 million (1.9 percent of total revenue), which among other things she spent on a Siebel CRM system, corporate website improvements and a corporate portal.

The portal turned out to be a primary integrating tool for the company. “More than anything, it helped establish a CMGI identity,” Hoppe says. “All the subsidiaries are entrepreneurial, but now for the first time they had one place to go” for information. Yet the need to create a portal was an irony in itself; CMGI owned three portal companies but had no corporate portal. Like the cobbler’s children who had no shoes, CMGI was an IT company that lacked even IT basics.

Now 52 years old, Hoppe gained her credentials in the publishing industry, starting out at Atex Media Solutions before becoming vice president of IS at Houghton Mifflin and then CIO at Addison Wesley Longman. “I came from very established companies with systems in place. Houghton Mifflin was a very classy company, for instance, with mainframes and legacy systems and established ways of doing things,” she says. But Hoppe found the tabula rasa of CMGI exhilarating.

Still, she acknowledges that her job has been more challenging than fun since the recession took hold. The market pressure on CMGI, which saw its stock drop from a high of $163.50 per share in January 2000 to a low of 60 cents in October 2001, has been enormous. The company shut down some subsidiaries and divested itself of others?including its biggest investment, the Lycos search engine company?eventually paring down to nine operating companies in mid-2001: the AltaVista search engine, the online auction site UBid.com, fulfillment specialist SalesLink, online marketer YesMail.com, Internet analyst Engage, Internet services providers Tallan and NaviSite, online imaging specialist Equilibrium, and ProvisonSoft (formerly CMGion).

Although CMGI has done well to survive when so many other Internet companies have not, it’s not out of the woods yet. Noting that all the company’s subsidiaries operate in “embattled markets,” Forrester Research Analyst Christine Ferrusi-Ross in Cambridge, Mass., is less than gung ho about the company’s future. “Even though things are picking up, most firms’ prospects for the year are moderate, and moderate is a best-case scenario for CMGI” in 2002, she says. Beyond the coming year, “development will be much more important than their current cash position. If their growth strategy is to wait for the recovery and hope rising tides raise all boats, they won’t make it past 2002,” says Ferrusi-Ross.

At first, the economic slowdown made Hoppe’s centralization mandate easier to carry out. The subsidiaries were hungry for the business systems she put in place. The ERP system lowered purchasing costs and improved the accuracy of forecasts. By themselves, though, the new systems couldn’t offset CMGI’s cascading losses. The Internet advertising on which the company depended had disappeared.

Hoppe’s IT budget, originally set at $28 million for 2002, was slashed to $17 million?a big hit made even bigger by the presence of high-fixed costs derived from the business systems rollout. In response, Hoppe has reined in projects, negotiated savings with vendors and laid off more than a third of her IT staff. From a peak of 102 employees, the IS group is now down to 65, and it may not yet have hit bottom.

Some of the layoffs have been due to efficiency gains. For example, Hoppe and other members of an ad hoc committee seeking cost savings tallied 230 file-and-print servers and 65 e-mail servers across CMGI’s operating companies and three campuses. Those servers are being consolidated to 20 and four, respectively, thereby reducing the need for IT staff to maintain them. But that doesn’t make layoffs any easier, Hoppe says. She is sympathetic to the plight of those who have been laid off or might yet be, but CMGI’s hopes for profitability come first.

As the company shed subsidiaries and people, Hoppe came up with an innovative way to save some money. Concerned about IT hardware “sprouting legs,” she had all unused equipment gathered on the fourth floor of CMGI’s historic headquarters building. She then had her staff set up an asset tracking system, complete with hardware specs and internal cost, on the corporate portal. In a little over a year’s time, Hoppe redeployed 75 percent of the assets, valued at $4.5 million.

Hoppe’s ability to accomplish her business goals received a boost when Wetherell relinquished his CEO title in February. He remained chairman while CFO George McMillan took the reins. McMillan insisted that Hoppe continue to report to him, in effect raising her status. “Having that reporting relationship to the top helps a lot when you get push-back. People are aware of where your directives come from,” she says.

Relationships with the leaders of the line businesses are no less important for the CIO, Hoppe believes, especially in a company as decentralized as CMGI. “It’s in hard times that everyone needs to draw closer and work cooperatively,” she says. “You’re never going to get everybody happy about the fact that they’re going to have to let people go, but when you have good working relationships, they see where you’re coming from.”