Dawn Lepore won Web success as CIO of Charles Schwab. Now CEO of drugstore.com and a CIO Hall of Famer, she tells her own CIO that all IT investments should be customer-focused.n
By Matt Villano
As the CIO and later Vice Chairman of Technology of
brokerage Charles Schwab from 1993 to 2003, Dawn
Lepore was among those pioneering IT executives who became
strategic business leaders. In 2004 Lepore parlayed the
lessons she learned as a member of Schwab’s executive
team to become president, CEO and chairman of drugstore.com.
At Schwab, Lepore rode high through the dotcom boom. In
1995, she launched Schwab.com in a matter of weeks. It was the
first customer-facing website for the company that was then a
worldwide leader in electronic trading by its brokers, and it
helped Schwab preserve its competitive position as a discount
broker against upstart E*Trade. For her achievement as a
technologist who created a strategic role for IT, CIO chose
Lepore as a member of our CIO Hall of Fame.
Lepore left Schwab for drugstore.com as Schwab’s
fortunes waned (then-CEO David Pottruck was fired in 2004). The
online health and beauty retailer had turned only one
profitable quarter since it was founded in 1998. Sales were
sagging. Turnover was high. And company shareholders were
growing restless. Lepore was hired to turn things around.
So far, the road to profitability has been challenging.
Although revenues are rising, drugstore.com ended the second
quarter of 2007 in the red. But Lepore is betting that
fundamental business and IT principles will change that.
For example, she performed a comprehensive strategic review
of the company’s business segments to evaluate the
profitability of each customer order and partnership, then
eliminated or adjusted the price on several thousand
over-the-counter products. Among other accomplishments, she
also reduced net shipping costs by introducing weight-and
location-based surcharges for certain customer orders and nixed
an unprofitable relationship with a pharmacy benefits
Furthermore, applying the lessons she learned while selling
her colleagues at Schwab on the importance of the Internet as a
business tool, she has clarified the role of IT at
drugstore.com as one of strategic business partner. “The
role of IT as a strategic partner, especially when I was CIO in
the 1990s, was not entirely the norm,” she says.
“Today I think it’s clear that no company [can
succeed] without defining a role for IT and how IT can operate
within that role to improve business strategy.
Drugstore.com’s IT team is a strategic partner in our
e-commerce business. The business works closely with IT to
identify top priorities and to analyze the ROI of initiatives
based on revenue, profitability and customer
Lepore recently spoke with contributing writer Matt Villano
about how her past IT experience helps her analyze and evaluate
CIO: Is drugstore.com a technology company or a
retail company? And what does your answer tell us about the
role of IT?
Dawn Lepore: When I got to the company,
that was a raging debate. I could answer that question the
first day I was there. We’re a retail company where
technology’s absolutely critical.
There’s a subtle difference in whether you think of
yourself as a retail company or a technology company. That
doesn’t mean that the technology organization is not
crucial to our success. It is absolutely crucial. But if you
understand that we’re a retail company first—that
technology needs to be used to enable e-commerce and enable our
customers to shop—you look at technology slightly
As I learned when I came aboard, the world of retail is a
world of razor-thin margins. The good news is that keeps us on
our toes; we have to watch every penny. The bad news is that we
can’t really make mistakes. It’s very hard to make
big investments that don’t pay off. Companies which have
higher margins can make three or four bets, spend a fair amount
of money and then decide which one works. We have to be a
little more cautious in where we make bets [with IT] and how we
Separately, being an e-commerce company presents some unique
challenges. With other types of businesses, customers can have
multiple ways of experiencing you. With our business, the only
experience our customers have of us is through the website.
That puts an added burden on us—a burden to maintain a
positive experience all the time. We’re not perfect, but
hopefully we can be over time.
How is turning around a company different from
jump-starting an IT department as you did at
Lepore: There are a number of differences.
The scale is certainly a little bigger. Also, because
we’re a public company, I must be accountable to our
shareholders, which is something I didn’t have to worry
as much about at Schwab because I was running the IT
When people have put money into your company and
they’re depending on you to lead a team to turn the
company around and deliver on their investments, there’s
a huge sense of responsibility that goes along with that. And I
definitely feel that every single hour of every single day.
It’s not really something I’d say I focused on as
heavily as a CIO.
Of course there also are lots of similarities. The idea of
having to take a step back, look at where you are today and
take a real strategic assessment of what are the strengths,
what are the weaknesses, what are the changes that need to be
made—that’s all the same. Really, both situations
are a lot about leading change and a lot about making the right
strategic decisions, having the right people in the right jobs
and building the right culture.
I always strive to do my job while staying true to two
personal valuesmade—managerial courage and generosity of
What has been your biggest challenge so
Lepore: One of the things that’s
always challenging when you come into a company to turn things
around is to respect the past and the team that got you where
you are, but at the same time be very objective about
what’s working and what’s not, what’s good
about the strategy and what has to change. It’s a
balancing act, because you want to be respectful and supportive
of the people who built the company to the point where you
joined it. They put their heart and soul into it. They made the
best decisions they knew how to make.
Another big challenge is always keeping the customer in mind
as we make changes to the way we do things. I’m on our
site every day trying to gauge what the customer experience is
like. It’s constantly a challenge for IT organizations to
remember that the customer is really the center of things and,
as we act, to ask ourselves what our efforts are going to be
like from a customer experience. That was the case at Schwab,
and because of the situation we’re in, focusing on
customers is even more the case now.
How does your experience as a CIO influence how you
communicate your expectations to Luke Friang,
drugstore.com’s vice president and CIO?
Lepore: There are positives and negatives
about me coming into the CEO position with experience as a CIO.
The positive is that I truly understand how hard his job is. I
truly understand the challenges he’s dealing with because
I’ve lived them. The flip side is that in some ways that
makes me even more demanding because I know what the issues
are. I’m going to ask an awful lot of detailed questions
just because I’ve got experience.
When I was CIO at Schwab, one of the things that I know my
CEO appreciated is that I never emotionally blackmailed him. I
never said, “Oh, well, I can cut costs but, you know, in
exchange we’ll have to lose X, Y and Z.” And the
good news is that my CIO never does that, either.
Luke understands that everything is a business decision. He
gets that the business case can be about enabling future
change, lowering cost structure, keeping our technology
innovative or just about anything, as long as it’s
expressed in terms of business value. He sees that he
can’t just walk in and say, “Well, you have to
trust me.” That makes the decision-making process for IT
So what do you look at when you evaluate purchasing
Lepore: We’ve recently implemented
drop shipping [so that inventory is maintained by the
company’s wholesalers]. We put in a new internal search
tool [for customers to search the site]. We also implemented a
new prestige beauty site, Beauty.com, which is a key part of
our strategy to refocus on profitability by selling products
with the highest margins. Down the road, we’re looking at
a major investment in terms of rewriting a piece of our
platformmade—if the technologists decide it is more cost
effective to move from proprietary software to an off-the-shelf
package. As we evaluate all of these projects, we’re
looking at how they are going to support things like revenue
growth, cost reduction, retention of employees and speed to
We’re also looking at all kinds of [new] technology.
But the argument that people don’t like working on old
technology doesn’t fly. For us, it’s got to be,
“Here’s the investment. Here’s why it makes
sense. Here’s the payback. And here are the specific
benefits.” At the end of the day, everything we do must
be tied to the customer.
Matt Villano is a freelance writer
based in Healdsburg, Calif.