Bette Walker wouldn’t wish corporate bankruptcy protection on anyone. But by managing her team during Delphi Corp.‘s, (PNL: DPHIQ.PK) two years under Chapter 11, Walker, the company’s CIO, now knows more about her people and herself. She learned who she can count on. And her education began with frank talk from one of her toughest competitors.
Delphi, a $26 billion spin-off of General Motors, entered chapter 11 bankruptcy protection in October 2005, with costs up and profits down for several years after 9/11. Delphi’s competitors, too, have been hit hard. The $8.5 billion Dana Corp. (PNK:DCNAQ.PK) filed for chapter 11 last year and $11 billion Visteon (NYQ: VC), a spin-off of Ford, had to restructure in 2005 with $400 million in help from Ford. Still, Visteon lost $167 million last year.
But even back in 2004, Walker, who has been at Delphi for 10 years, knew she needed to make changes. Two benchmarking studies Delphi conducted revealed that it was spending more on IT than its rivals.
Walker swallowed hard and called one of those rivals for help. One night after work, she met with John Crary, CIO of Lear (NYQ: LEA), an $18 billion supplier of parts for car interiors.
What Crary said shocked her. While Delphi spent 2.1 percent of company revenue on IT, Lear spent 1 percent.
“What do you say when your competitor is operating at half your costs,” she asks, shaking her head and letting the question hang. “You gotta listen.”
Choosing to listen, Walker decided that Delphi, too, had to get to 1 percent. Some of that transformational work had just begun when Delphi filed Chapter 11. The plan was to emerge within two years. To do it, Walker says, she had to fight the old way Delphi ran. “When you are at war, there are certain behaviors [you adopt],” she says.
Many CIOs will gain experience in dealing with bankruptcy this year, as companies including American Home Mortgage, Bally Total Fitness, Consolidated Energy, New Century Financial Corp. and Quaker Fabric have filed for Chapter 11 protection. Some CIOs thrive in the situation, such as David Johns at Owens Corning. Others may need some insights from those who have been there.
At Delphi, Walker started by drawing some lines. She wanted to cut IT suppliers from 162 to five, to simplify negotiations, for example. Delphi’s internal IT group decided to keep technology architecture, strategy, support and client-facing applications, such as ordering parts online. It would outsource infrastructure and networks because they are “routine” systems, Walker says.
Walker built a special forces unit by moving the most capable person from each of the areas IT retained out of their regular jobs to oversee the IT reorganization. She chose aggressive, clear thinkers with thick skins, she says. They were allowed latitude; Walker let these leaders negotiate vendor contracts, for example. But they also had to meet tough goals—namely Lear’s 1 percent IT spending formula.
“Situational courage was the single most important attribute” for both her handpicked special forces team and for herself, she says, because of the high pressure of answering to bankruptcy court and trying to meet Lear’s bar.
Bankruptcy takes a personal toll. Ken Brame, for example, reorganized himself out of a job when he was CIO at Service Merchandise during that company’s Chapter 11 in 1999. The retailer, which eventually closed for good in 2002, wasn’t doing many new IT projects and no longer needed a high-level IT leader. “We determined that there was a level of management they didn’t need. They didn’t need a Ken Brame,” he said at the time. He is now CIO of AutoZone.
Sometimes the process at Delphi ground Walker and her staff down. “This kind of command and control is not the way to manage long-term,” she says. “This is hard on people. I’m exhausted every day.” When she enters a bout with insomnia, she uses self-hypnosis to get to sleep.
“I wish I’d been less aggressive but I felt I needed to be honest about it—get to that 1 percent,” she says. “If I told my boss we could aim for 1.5 percent, I’d have been done [earlier] and sitting by the pool.”
Delphi did tamp IT costs to 1.1 percent of revenue and won a CIO 100 award this year for the work. In September, the company filed a reorganization plan with the bankruptcy court and is awaiting a judge’s approval.