Top Four Challenges: Let’s Start with Market Volitility

For charles m. mccaig, CIO at the Chubb Group of Insurance, the events of Sept. 11 were a tragic reminder of just how volatile markets can be. In that one day, Chubb suffered $600 million in losses. The terrorist attacks also turned McCaig’s job upside down; he now wrestles with how additional turmoil in the already shaky insurance industry will affect his role and those of his 1,500 IT workers.

When it comes to confronting the uncertainties of market instability, McCaig has plenty of company. In “The State of the CIO” survey, 22 percent of respondents listed volatile market conditions among their top four challenges. The other major challenges facing today’s CIOs: lack of key staff and skill sets, inadequate budgets, and shortage of time for strategic thinking. In essence, CIOs face the ultimate challenge of having to do more with less in nearly every area of their job. They lack either money, time, skilled labor, market stability?or all of the above. Yet many CIOs are succeeding nonetheless, learning valuable lessons in how to manage during these lean times.

Market Turbulence

The importance of McCaig’s department at Chubb was clear immediately following the collapse of the Twin Towers. Thanks to IT systems, the $7.2 billion company based in Warren, N.J., could quickly identify its clients within a quarter-mile radius of the World Trade Center, and tally their total losses. Still, IT is nowhere near top of mind for company executives right now. “Their number-one issue is not IT. It’s trying to figure out what this market is going to look like and what our new imperatives are,” McCaig says. “So right now IT is providing supporting information for those critical business issues.” This new focus on giving support rather than creating new products and services is a shift for McCaig and his staff.

Dealing with a sudden change in the market came down to several simple steps for McCaig. First, he took a deep breath. “Some people are biased toward action. They immediately want to go out and do things,” he says, recounting that one of his employees wanted to clear out 50 desks in the IT department to house a displaced customer. “It was well-intended, but not as good as making sure that all of our customers had access to desks and computers.” Instead, McCaig let enough of the events unfold that he could get a clearer picture of the situation.

Second, McCaig kept lines of communication open to his staff and company executives. Finally, he set up task forces to keep tabs on the most pressing issues. He created one task force to figure out how to contact World Trade Center customers who no longer had mailboxes, computers or phones. Another was focused on building catastrophe centers where representatives from displaced businesses could go to deal with Chubb.

In this economy, several industries are in a state of flux. The oil and gas industry has been a roller coaster for Lon Winton, who after 28 years in the business is accustomed to the ride. The industry is going through colossal consolidation, and Winton’s company is no exception. During the past three years, Chesapeake Energy, where Winton is senior vice president and CIO, has acquired several smaller companies and hundreds of wells. Along with those acquisitions come enormous amounts of disparate data, which Winton’s staff needs to consolidate. At the same time, natural gas prices have fluctuated from greater than $6 per million British thermal units (or mmbtu, the standard measurement for natural gas) to less than $2/mmbtu, making Winton’s budget and personnel count unpredictable from one year to the next. “I have to be in a position to react when the company wants to react and to maintain when the company wants to maintain,” he says. Now that prices are low, Winton has to weather the storm.

One tack he takes to stomach the ups and downs is keeping a very lean IT staff at the Oklahoma City-based company. “I don’t want to have to go through the cycles that other companies do of staffing up and then reducing, so I’m very cautious about adding any staff,” he says. When manpower is short, Winton complements his workers with contractors. (He currently supports a company of 560 with a staff of 22.) He also makes a point to stay on top of where the company is headed on any given day. Although Chesapeake’s CEO won’t divulge the specifics of planned acquisitions, he will give Winton information in orders of magnitude, such as letting him know that his team should be prepared to support a company twice Chesapeake’s current size in the next two to three years. That way Winton can continue to support a company that’s growing exponentially even while his staff and budget are not.

The Incredible Shrinking Budget

When markets get rocky, many CIOs have to contend with smaller budgets. Peter Royers, director of IT for Hydro-Aire, a manufacturer of aerospace braking systems and fuel pumps, learned that for the first time last September. Orders at the Burbank, Calif.-based company had sharply decreased, and his operating budget for IT was cut 15 percent. He lost two full-time employees and a contractor, an ERP implementation set for this year was pushed back, and software upgrades and enhancements were put on hold. “I sat down with the CFO after 9/11, and well, let’s say he set the tone,” says Royers.

Itty-bitty IT budgets are nothing new for Brian Bullard, who’s been the CIO at three biotechnology startups. Yet Bullard, former vice president and CIO of AxCell Biosciences, a Newtown, Pa.-based bioinformatics company, was charged with supporting a very tech-intensive organization. Prioritizing was the key, though that was problematic at the 30-person company. “Everyone knows everyone at a much more intimate level, so it becomes very important to make sure everyone is included in the discussion,” he says.

While at AxCell, Bullard learned some budget-stretching activities that CIOs at much larger companies may find useful. Among them are completing projects in phases, forgoing fancy maintenance contracts and taking the time to investigate alternative solutions such as using Linux over Win-dows NT or Unix.

The Staffing Dilemma

Staffing has been a big issue for CIOs for the past few years. But today, instead of scrambling to fill scads of jobs, many CIOs are trying to figure out how to retain skilled workers in the midst of tighter budgets and job insecurity.

Royers is concerned about the effect that belt-tightening will have on his staff. Although executing his first layoffs were difficult for him, he knows they were even harder on his team. His solution has been to communicate honestly and often, and involve team members in budget decisions. “Another key priority is finding creative ways to challenge the staff with the technology we have,” Royers says. “I am afraid that my staff might go where the projects are, or I might not have enough new technology to interest them,” Royers says.

Some CIOs turn to human resources for retention help. As director of agricultural information services at Land O’Lakes Farmland Feeds, Jim Emanuelson experienced a lot of turnover in his staff soon after he joined the company in late 1998. He was competing with other local businesses in St. Louis for tech personnel, particularly those who had SAP project experience. Not only did he face the challenge of finding skilled workers in that competitive environment, he had to figure out a way to attract them to the less-than-glamorous world of animal-feed manufacturing. So he sat down with HR to work out a plan. “They helped me to understand that there’s no quick fix to a staffing problem,” Emanuelson explains. “If you apply short-term thinking to a critical staffing problem, even if the problem is short-term, you won’t be successful.”

Instead of continuing his hunt for SAP specialists, Emanuelson started using behavioral interviewing techniques to find people with certain “soft” skills. “We don’t emphasize technical skills as our leading indicator anymore when recruiting,” he says. “Instead we look carefully at motivation, teamwork skills and work philosophy. When you select people on those types of criteria, you’re able to build a team of people with similar work styles.”

Today, Land O’Lakes Farmland Feeds is fully staffed at 65 employees, and the attrition rate has dropped from nearly 9 percent in early 1999 to less than 1 percent. And because he has hired people motivated by personal growth, Emanuelson has been able to retrain workers as needs have changed?a good computer operator is now on the SAP team, a former help desk employee is working in Windows NT administration.

Bill Haser is also used to competing for staff. But as vice president and CIO of North American and emerging markets for Tenneco Automotive based in Lake Forest, Ill., he’s dealing with the added challenge of attracting skilled people to an industry undergoing significant contraction. Despite that, he’s kept his voluntary attrition rate below 10 percent.

After losing much of his infrastructure group during a spinoff in 1999, Haser found himself in need of nearly 50 new employees. That’s when he made a decision to become an employer of choice. To do that, he made sure employees were given opportunities to advance and were compensated fairly. “Even in tough times, you can’t be penny-wise and pound-foolish,” Haser says. “If you’re not paying people fairly, you’ll lose them, and the cost of replacing them is much greater than giving them a 10 percent bump in pay.” It certainly helps that the management team at the $3.5 billion company gives Haser more bonus and compensation tools with which to retain workers than other department heads. He’s using those programs now to draw people with middleware and e-commerce experience, currently the most competitive specialties in his region.

Haser also says the key to retaining the best workers is to get rid of the worst ones. When he was forced to cut his 270-person IT staff by 100 in two rounds of layoffs in October 2000 and January 2001, he didn’t make those decisions based on criteria like seniority or salary. He let the underachievers go. “If you have the wrong person on your staff, dealing with that quickly and effectively, while difficult, is a great motivator for organizations,” he says. To that end, Haser looks at his bottom 10 percent of performers on a regular basis, insisting that managers upgrade their performance, offer remedial training and take further action if they continue to underperform.

Too Little Time to Think

With all the worries over staffing, budgets and market fluctuations, it’s no wonder CIOs find little time for strategic thinking and planning. Yet with strategy being an important part of the CIO role today, it’s imperative to find the time. (See “Responsibilities,” Page 50.)

Eric B. Yablonka, vice president and CIO at University of Chicago Hospitals and Health System, finds the dichotomy between thinking strategically and deploying technology a dilemma. “Strategic thinking and planning are critical, but execution is what delivers value,” he says, adding that most of his 85 employees are focused on tactical work. But he’s trying to enable them to spend more of their time on strategic initiatives such as T2, a five-year project aimed at transforming the use of IT within the 3,000 person organization. As for himself, Yablonka has taken a page out of Nike’s book when it comes to making time for the big picture. “You just do it,” he says. So far that approach is working for Yablonka, who joined the Darien, Ill., health-care organization last August largely because of the commitment to T2. He holds biweekly meetings to discuss strategy and tries to keep his strategic hat on during his tactical duties. As a result, Yablonka estimates he’s able to devote 30 percent to 40 percent of his time to strategy, with most of that focused on T2.

While it’s clear that CIOs are challenged to do more with less today, they can succeed by applying innovative practices. And the lessons they are learning will remain relevant whenever boom times return.