Leadership – Page 182

Surgery vs injury

If you’re a CIO and aren’t tightening your organizational belt right about now, and I had to bet whether you work in (1) a growing, profitable company; or (2) a different solar system, I’d put my money on (2).

IT can’t tighten its belt in isolation. The enterprise needs an integrated plan. As CIO you participate in its creation, both because you should as part of the executive team, and because without IT representation the plan’s practicality will be limited.

In typical cost-cutting situations, a single company finds itself insufficiently profitable. The proper response is finding and fixing root causes, and the places to look are internal: Uncompetitive products, bad marketing, ineffective selling, too-costly manufacturing, a flabby supply chain, or any of a variety of other sins of ineffectiveness.

That, however, isn’t this. The root cause today is the entire economy.

Faced with any new, externally driven trend, I know of only four possible strategic responses: Ignore, exploit, ally, or defend.

Ignoring the financial crisis isn’t an option. I trust no further argument is required.

A few happy companies can exploit this mess, either by aggressively grabbing weaker competitors’ customers or aggressively buying the weaker competitors themselves. If that’s your situation, as CIO gear up to support due diligence work, and for integrating acquisitions.

Alliances might be a useful part of your overall game plan, but choose your opportunities carefully. Alliances entangle your company’s future with potentially unreliable partners, after all.

Strategic outsourcing is a long-term play. It rarely reduces cost in any significant way and certainly won’t in the short term. Meanwhile, it does create immediate reductions in effectiveness as everyone learns how to operate with the outsourcing partner.

And, it adds risk, because you dismantle your internal capabilities. If the outsource doesn’t work out you’ll have to rebuild them — an expensive proposition.

Tactical outsourcing, in contrast, might make sense — particularly for “commodity” business functions that are highly portable. For IT, managed hosting or co-location facilities are the most likely opportunities.

Most companies will choose defense as the most prudent response. Defense means becoming less dependent on debt, increasing cash reserves, and most of all downscaling capacity in response to ongoing industry-wide declines in demand. If that’s your game, here’s the enterprise-level program:

First, as mentioned last week, terminate negatively productive employees. Put this at the top of every manager’s to-do list, in every department in the company. It’s a pain-free cost-cutting step, and you don’t have many of these.

Second, identify “charity case” employees. Every company has them — perfectly nice people who everyone likes but whose contributions are limited. They are a luxury, and this, sadly, isn’t the time for luxuries.

Third — speaking of luxuries, don’t make the “AIG mistake.” The bash AIG threw for its top salespeople was a rounding error given its size. The tone choices like this set, though, rationalize a thousand more decisions to be lavish.

Lavish means: Four-star hotels instead of clean, three-star alternatives; apartment-sized offices instead of using space more productively; travel when a conference call will do … in a word, self-indulgence.

Dial everything back a notch. And be creative. For example, convert vendor-provided perks — junkets for the privileged few, for example — to productive business uses such as vendor-funded broad-based training.

Every luxury the company eliminates is pain it can avoid.

What’s left will hurt. Your choice is whether it’s the pain of surgery or injury. The difference lies in how well every part of the enterprise understands what drives costs.

Cost-centers fall into three major categories: Direct revenue generators, production, and shared services.

Direct revenue generators include Sales, Marketing/Advertising, and Customer Service (yes, Customer Service, which retains current customers, reducing the need to acquire replacements). The target for these areas is reducing the cost of sales.

Production departments (in manufacturing, Supply Chain, Manufacturing, and Distribution) deliver what the revenue-generating departments promise. Their target is, in the short-term, to shed capacity, and in the middle term to reconfigure, shifting overhead cost to unit cost so they can respond flexibly to uncertain, fluctuating demand.

Shared services departments … IT, HR, Accounting, Purchasing and so on … can’t effectively plan until the revenue-generating and production departments know what they have to do. That doesn’t mean IT gets to sit back and wait. It means IT has to do what it’s been doing all along:

Collaborate. Be part of every solution. And make sure assumptions about what IT can deliver are realistic.

Unkindest cut

At least a dozen different people have, in correspondence, endorsed an alternative to bailing out AIG: Instead we’ll divide the $85 billion evenly among the 200 million adult U.S. citizens, giving each of us $425 thousand.

Other than the misplaced decimal point this would be a fine idea: The correct division of spoils is $425.

The economy has, in the words of Ambrose Bierce, an “implacable aroma.” The impact on your IT budget is a predictable, if misguided desire for panaceas. CIOs should plan on thinner budgets, demand for more services, and insistence that these two requirements are entirely compatible.

There’s no point in arguing, either. Those who insist will have both the authority to do so and the desire for it to be true. It’s a lethal combination — neither facts, nor logic, nor shouting at the top of your lungs will result in any discernable dissuasion.

You’re in danger. It’s time to dust off a basic rule of responding to requests: Both yes and no are bad answers — in this case because one admits incompetence; the other is insubordinate.

Answer yes and you’ve admitted to having run a hopelessly inefficient IT organization for lo these many years. If that weren’t the case, how can you now find the efficiencies necessary for delivering more for less? You’re dead.

Answer no and you’re disobeying a direct order from the person you report to. That’s generally a very bad idea. (Yes, I’m stereotyping CEOs. Some are quite reasonable and won’t put you in this situation. This type of CEO is terrific to work for, but quite useless as a rhetorical device.)

Your alternative to yes and no is, as always, “here’s what it will take.” You can get from here to there, but not for free. Some alternatives will require investment; all will have risks attached.

Investment and Risk pay for your ticket out of Can’t Win Land. They explain why you haven’t already done whatever it is you have in mind, without you looking like a slug.

Now all you need are the ideas.

Here are some starters. See if you can spot the risks (add a Comment below this column):

Increase trust: Distrust is expensive. It’s a luxury distressed companies can’t afford. Specifically, distrust drives unnecessary rework. This increases unit costs, lengthens cycle time, and decreases throughput in any process where it plays a role.

Increasing trust is far from simple. Distrust exists for a reason, and there’s no simple recipe for overcoming it. The chapter on Building and Maintaining Teams in Leading IT: The Toughest Job in the World provides some useful techniques, but it’s hardly exhaustive.

Managing the interpersonal dynamics among employees to identify and address dysfunctional relationships is a core leadership responsibility. Focus on it yourself, and insist that the managers who report to you focus on it as well.

Cut meeting participation in half: Many consider all meetings wastes of time. It might be true of some, and possibly most meetings in your company.

The challenge: You don’t know if they’re wastes of time because they aren’t needed or because, while needed, they aren’t run very well.

In my experience, most meetings are convened for good and valid reasons. Also, most have more participants than necessary, primarily due to distrust: If someone isn’t personally in the room, that person doesn’t trust those who are to do a competent and unbiased job.

Increase trust and you can probably cut attendance at the average meeting in half, freeing up all of those hours for other work.

Do something about negatively productive employees: Employees fall into three clusters. The first, and biggest, consists of those who put in an honest day’s work for an honest day’s pay and deliver acceptable, workmanlike results.

The second consists of star employees. These folks aren’t twice as productive as the first cluster. They’re an order of magnitude more productive.

Then there’s the third group — employees who not only fail to deliver useful results themselves, but who interfere with everyone else.

Getting rid of these employees is a triple win. First, you save their salary. Second, since their productivity is negative, their departure increases average productivity.

The third benefit? These folks spread distrust the way a manure spreader spreads … well, manure. Get rid of them and the level of trust among those who remain will almost certainly increase.