Executive Report: Four Executives Speak Out

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Manpower CIO Rick Davidson, Guess Inc. CIO Michael Relich, Mellon Private Wealth Management COO Tim Tully, Accenture CIO Frank ModrusonCIOs are finding that as they take on more responsibilities, they must move beyond technology-enablement tasks and create value for their companies. Four corporate leaders—Manpower CIO Rick Davidson, Guess Inc. CIO Michael Relich, Mellon Private Wealth Management COO Tim Tully, and Accenture CIO Frank Modruson—met recently with Optimize senior executive editor Patricia Brown and executive editor Paula Klein to discuss the CIO's roles and responsibilities. Despite their varied industries and organizational structures, they shared many concerns: running a global operation, driving innovation, and promoting IT throughout the business. They also discussed the results of the Optimize 2006 "Defining The CIO" survey of 407 IT and business executives, in which respondents described their current roles and priorities compared with last year and their projections going forward. Among the key findings—included throughout the following pages—are that respondents feel they must shift IT spending from maintenance to innovation, as well as implement security, business intelligence, wireless, and Web services.

Q: Describe your current position and priorities. MIKE RELICH: Guess is an almost $1 billion retailer/wholesaler fashion merchandiser. It's a global brand, and I've been in the position for two years. Prior to that, I was CIO at Wet Seal, a $620 million chain of young women's fashion merchandise. Guess has made the transition from primarily a wholesale business to a retail business. Currently, we're upgrading and installing systems to support the transition to a retail-centric environment. TIM TULLY: I'm actually acting CIO right now, since I was promoted about four months ago to COO for Mellon Private Wealth Management. I've been with Mellon for about four years. Private Wealth Management is really focused on individuals with investable assets of $1 million and up, so we have many multimillion-dollar customers. We span different segments of the market. Previously, I was at T. Rowe Price and was the No. 2 in technology there. Besides our core deliverables, I spend a lot of time on regulatory and compliance issues and deciding what's the right balance of work to offshore. We do a significant amount of IT offshoring as well as business-process outsourcing, and we're constantly evaluating the right mix. I'm also challenged every day in financial areas; I just came out of a meeting looking at capitalization issues and how we're going to finance a couple of new projects to get to market quickly. FRANK MODRUSON: Accenture is a $15.5 billion publicly traded company. We're in global management consulting, technology services, and outsourcing, with more than 126,000 employees in 48 countries. Our biggest focus is growing the business and business processes and outsourcing—what we call the global delivery network or our centers around the world, such as India and China. I'm in my fourth year as CIO. RICK DAVIDSON: Manpower is a $17 billion global staffing, permanent placement, and HR outsourcing firm. I've been here about three and a half years. We help with career transitions, and we're in 72 countries. We have about 28,000 employees in 4,400 offices. We're growing in Asia now and, like most other [global CIOs], I spend a lot of time in India and China supporting our efforts. We're all about providing tools that allow customers to interact better with their company. We also have another set of customers that we call candidates: They're the people we employ—about 2 million around the world. I'm also focusing hard on driving productivity improvements within the business and IT. Q: Innovation was ranked as a leading priority for CIOs this year in our survey. What technologies are you pursuing to make your business more innovative? MODRUSON: We run IT as a business, and that has allowed us to transform how IT is provided to Accenture. The business can decide how it wants to be served. Also, we've used a lot of things we recommend for our clients to transform our own IT. For example, we're very aggressive users of outsourcing. Roughly 82% of our internal IT is outsourced, and the global infrastructure is outsourced. Roughly 60% of the overall IT head count is in low-cost locations. In application maintenance and support, for instance, 90% is provided through low-cost locations such as Spain, the Philippines, India, and China. DAVIDSON: Innovation is really one of the last areas where companies can achieve a competitive advantage. We're getting near parity from a cost standpoint. Everybody pursues cost reduction—and you've got to have a good cost strategy just to stay in business—but that's not what provides a competitive advantage. So when we look at innovation, we look at the future world of work and helping customers understand what skill shortages in the next five or 10 years will mean for their business. Internally, we use a knowledge-management system to leverage best practices within the company. That was deployed about two and a half years ago; it really took off. We have several thousand case studies and subject-matter experts identified, and we're starting to link people together. Strategic PartnersQ: It sounds like all of you are doing business in Asia and India. Anywhere else? DAVIDSON: We have resources in India, but also in Uruguay, and in the Czech Republic. Time zones matter: Often, Europeans are most comfortable working with IT providers in Europe; in North America, we spend a good deal of time working with service providers in South America; and in Asia, they're working with offshore providers in India. That also avoids the issue of any particular geography having a lock on our business. Given the issues around staff shortages and turnover and so on, that's a better strategy; you're not dependent on any particular country, company, or geography for your IT staff. Q: How do you drive innovation in banking and retail, which are traditionally more conservative sectors? TULLY: It's true that Mellon is an ultraconservative organization in a very traditional industry. Specifically, with the clients we're dealing with, it's hard to differentiate yourself. Oftentimes, we're buying off-the-shelf products and customizing them to some extent and/or integrating them with our existing technology. We have a lot of knowledge workers that we have to arm with the most real-time information available so they can be proactive. We're also working on customer interactions, online or as an extension of the relationships that we already have. We have a relationship-manager model and tools that [knowledge workers] use to answer questions and go beyond just investing client assets. And if you're someone who manages 75 or 80 relationships, you need a lot of information at your fingertips. So we've really been focusing on technology that helps bring a lot of those third-party tools together, and consolidates the data in a very simple fashion with a lot of flexibility to begin to individually customize. RELICH: Retail has traditionally been slow to embrace technology, and I think competitive pressures and the low-cost producers like Wal-Mart have really pushed technology to the retailer. One way we're different from a lot of brands is that we're international. We've had significant global expansion where we've opened almost 400 stores in Europe and Asia. Therefore, we've gotten initiatives in place to collect sales data from a number of disparate partners that actually run different hardware, and we're able to look at and model what's selling worldwide. Even though cultures are different globally, the fashion trends tend to be the same. They're all run by the global pop culture, and we'll see that the best-selling watches in Asia now will be the best-sellers in Europe a few months later. So we've leveraged that. Also, with China entering into the World Trade Organization and a lot of production moving offshore from the United States, we opened a sourcing office in Hong Kong and have a design office in Italy. We're moving into what's called PLM, or product life-cycle management, which is a Web-based repository to allow collaboration among all these global sites. Three or four years ago, this really wasn't a problem because everything was done domestically out of Los Angeles. But globalization is really pushing us to have global-based systems to allow collaboration. Chain Of CommandQ: Is Mellon outsourcing at all? TULLY: We are in two ways. One is that we do a lot of outsourcing with two vendors in India—Mphasis and Cognitive—specifically, technology outsourcing. In private wealth management, our work is a mix of maintenance and support as well as new development. The other leg is a captive [partner] in India, Mellon India, that's doing business-process outsourcing—specifically, some back-office operations we previously did in Pittsburgh and in other places in the United States. Q: We'd also like to get a sense of how you spend your time. Fifty-nine percent of our survey respondents said "business planning and staying current," while 58% listed strategy as their primary focus. Would you agree? DAVIDSON: Travel is one big thing for me. I just returned from a six-week trip, and I covered two large continents. I was in Europe and Asia and probably in 10 to 12 different cities. Our jobs are definitely global, requiring a different kind of leader. It takes two unique skills that seem to be contradictory: patience and persistence. When you're in a different time zone and you're suffering from jet lag, your stomach's messed up, and you're struggling to understand the language, it's easy to become impatient and want to get right to the punch line. But you need to be very patient and try to listen carefully. At the same time, you have to be persistent to push and drive the change. If you're just patient, you never get anything done; and if you're only persistent, your foreign colleagues will see you as arrogant and obnoxious. So you have to balance both in a global environment. As global CIOs, we're always dealing with some issue at some point during the day. MODRUSON: I think in terms of strategic and tactical priorities, and I have a one-page list I focus on. From a strategic standpoint, it's about ways to fund IT, focusing on IT for our growth businesses such as business-process outsourcing and our global delivery network. We're in the technology business, so using IT as a showcase is a big priority for us. We've also been doing more M&A activity, so we ask: How do we do that very effectively? Then, of course, there are always tactical priorities, individual systems you're implementing or whatnot. It's very challenging to make sure you're spending your time in the most meaningful way possible. TULLY: You need to be fairly disciplined, and that comes from a project-management and risk-management discipline. You need to be the kind of person who can find a way to get the square peg in the round hole. I often find myself doing two different things at once: strategy and cost-cutting for the business. That's just a part of what we do every day. Sometimes that means helping to define business strategy, and often it's trying to define the technology strategy. But they're interrelated, and you can't do one without the other. On the cost-cutting side, I find myself being called on by our vice chairman to help other business areas that aren't as successful in cost management as we are, and leveraging technology to help get some cost containment or cost management in other areas such as marketing or sales.

Q: Do any of you see your role changing very much from last year? TULLY: As I've been with the firm longer, I've been called on more frequently [by corporate executives]. And the missions are much longer than they've been in the past. RELICH: When I started, we had some infrastructure issues and a lot of legacy systems. We were a best-of-breed shop with a lot of point applications. I've spent the last year swapping those out and trying to consolidate and fix the infrastructure. Now, maybe 40% or 50% of my time is spent on tactical projects that I'm trying to make sure stay on budget. We've done a pretty good job of cleaning up systems and addressing a lot of user complaints. As a result, IT has taken a more strategic role, and we're being called on to focus on the larger business issues. So about 50% of my time is focused on issues that aren't IT-related, but issues on how to make the supply chain more efficient, or maybe looking at alternate technologies. IT has been called in to help solve business problems. And because retail has never really been a technology leader, there are a lot of creative people here who fear technology. We're trying to build an environment where they look to us for advice and where we understand the business as well as they do, understand their problems, and then apply solutions that will solve the problems and not intimidate them. TULLY: I also spend a lot of time on the projects and technology initiatives around regulatory issues—Sarbanes-Oxley, the Patriot Act, and such. We're doing projects now that would have fallen to the bottom of the prioritization list five years ago, so they're taking a disproportionate amount of the resources—they're not necessarily projects or initiatives that clients benefit from directly. Spending ShiftQ: Regarding legacy systems, our survey and others say companies are spending 65% on operational maintenance versus 35% on new initiatives. Is that the case at your company? DAVIDSON: As long as we develop software the same way, I'm not surprised we're getting the same result. One way to reduce some of your maintenance costs and still get value out of the application is to move toward an ASP model where you don't have to manage the infrastructure or even the support of the application. Unless we change the way software is developed, supported, and maintained, it's still probably going to be around 65-35. That's pretty representative of what we have in our company. Q: Are you looking at ASP models and utility computing to combat maintenance costs? DAVIDSON: We've used them selectively, but ASPs haven't gained a lot of traction here. Typically, it works when you're a smaller organization. I've found that once you get beyond, say, 1,000 and 1,500 users, it doesn't make a lot of sense to go to the ASP model. In terms of the on-demand model, I think it's still a myth. I haven't seen any vendor really provide this concept of utility-based computing effectively. MODRUSON: We ask: What is our investment budget, and what is the return on that investment? In terms of what's changed from a few years ago, we now look at individual business cases and ask: What are their merits, and what's the return on investment? We're very aggressive about that. So we look at the merits of the business case. For three years after we do a project, we monitor the benefits. In addition, we have an internal audit/benefits realization process. We're getting 123% of original benefits on our IT projects because we've been very aggressive about monitoring and expecting the benefits to be realized. Many times, pivotal business cases justify a project, but [businesses] don't do the benefits realization or postmortems. We do it. We audit and then we report it back to the IT steering committee just before we do annual funding. DAVIDSON: One of the dangers in using this 65-35 model is what is the base? Because one year you may have a lot of project work and then you may have very little. And so your maintenance as a percentage of the total IT spent is going to swing a little bit. Another way to look at it—[though] it's not the best measure—is IT maintenance as a percentage of revenue or gross profit or whatever macro financial measure you want to use. Or even a measure against the number of transactions that you complete so that you continue to drive productivity in that maintenance number and then you let the investment side—the 35%—float based on where the business wants to go. Q: Is Guess seeing maintenance costs go up, and how do you bring them down? RELICH: I think maintenance costs are going down slightly. We've actually been reducing the number of software packages we're using. Before, it was kind of like Pavlov's dog: Every time there was a problem, someone said we needed a new system. A lot of times, simplicity and integration of one complete package is going to far outweigh point solutions. So we've been reducing the number of applications we're running. And we're capitalizing a lot of the staff work on these development projects, as opposed to pure maintenance. So in the last two years, maintenance as a percentage of total IT spending and of sales has declined. Q: Are your percentages in line with these numbers? RELICH: No, I would say they're closer to 50-50. TULLY: We have a fair amount of third-party software. The way we've tried to address the recurring demand from maintenance-type initiatives is to be more crisp and consistent. We have a pretty consistent testing methodology and template approach that we use to keep those costs down, and we try to apply that to a couple of other places. We also try to be more creative in contracting with software firms to be more aggressive on maintenance pricing and do more pushback. We've just been really aggressive on that in the last couple of years in trying to push that down and/or using the cost-of-computing index to try to have a more realistic adjustment figure or inflation figure. Q: What key technologies are spurring innovation at your company? MODRUSON: To me, making IT more invisible and easier to use is very important for business. Single sign-on for the enterprise is incredibly important. Once it's working, no one notices it. Before you have it, it's a problem. I don't know if you call it innovative; most people wouldn't. They might call it boring. But it's innovative because it's hard to do. Q: Are you emphasizing customer relations? MODRUSON: We're moving to more of a self-service model. With the Internet, we've become more accustomed to using self-serve in dealing with vendors. We do the same thing with our IT. We moved to a much more self-service model. We find that people love it because it empowers them to get their job done. TULLY: We have a slightly different approach to online and, ironically, we have a fair number of customers who want to do business online even though we have a large institutional contingent of our business. We found that your average, say, $5 million investor, or somebody with $5 million of investable assets, wants transactions with a person—wants to pick up the phone and have that person take care of it. Web services are something we're putting in right now. If [vendors] were more Web-servicescompliant, it would be a lot easier for us to present not only to our internal clients, but also to our external clients. DAVIDSON: If you think about the dimensions of competition, one is the ability to develop and deploy new business capabilities quickly. So the tools we use to develop and deploy capabilities quickly, like Web services or enterprise application integration tools, make it much easier and faster to integrate applications. These are the technologies our business colleagues expect us to pursue so that we can build capabilities quickly and get them launched. That's where the competitive advantage is. I agree that it's not the technology by itself that creates the competitive advantage, because anybody can go buy an EAI tool or a Web-services platform. It's how you deploy it and how strategic business processes are supported. That's where the real benefit is, and that's our role as CIOs—to be the nexus between what the business wants and pushing the envelope a little bit in terms of new thinking around business models and technology that can support those. That's where our real value is.

Falling ShortQ: How are your organizations changing to stay competitive and meet customer demands? RELICH: We run several Web sites where we sell direct to consumers. Previously, we would send out E-mail blasts and we had pretty abysmal [response] rates. Now we're looking to see what the person purchased before and are basically targeting them with more specific E-mails. We're testing RSS feeds where a customer can ask about new jean styles and we'll push the relevant content to them. We use Web analytics pretty thoroughly where any time we make changes to the Web, we test conversions and make sure that any of the changes result in hard conversions; we also want to know that we're getting incremental sales to pay for those click rates. In other areas such as merchandising, the typical merchant would take markdowns or discount products based on a gut whim. We're actually looking now on doing some pilot tests with what's called markdown optimization, which is basically applying advanced mathematical models to figure out seasonality demand patterns by location and marking down appropriately. It's an area that's quite new in retail and it's exciting. MODRUSON: At Accenture, "anytime, anywhere" access to our technology is very important. And that applies everywhere around the world. For example, in Shanghai, China, broadband in the home is actually reasonably common, probably more common than in the United States. Well, that "anytime, anywhere" access is important not only for your traditional application, but also for advances like voice over IP. How do you use that? Where did the network take you? We've got a new network-information project we're working on. We've already used the Internet as our primary network architecture and have for years. How do we take that to the next level to support the conversions in voice and data? In some of our larger offices, we're already using VoIP. The network becomes incredibly important. Ease of access, the conversion of voice and data, that's got to be top-of-mind. Q: Is there any other way that your role, or the role of IT, is really making a major difference this year? MODRUSON: The bar keeps [getting raised]. The role of IT continues to be more important in our business. It's what takes the friction out of business, so how you're investing that money to make it more and more effective for your business is critical. And that, to me—business is always changing—is how you're staying current. DAVIDSON: Fortunately, technology has always been one of our major strategic thrusts, and this starts with the board of directors and includes the senior management team, of which I'm a member. With that kind of support, we're not just looking like a cost center, but a place where we can really deliver strategic value. TULLY: I was fortunate as CIO to be a member of the senior management team, and when I think about the projects that were successful, it was where we had the support of our senior management as well as the board. Mellon's board is very active. When you have that level of engagement and involvement, you'll get the success. You need people who have the wherewithal to see things through, to see them as investments and be there with you along the way. RELICH: At Guess, management sees IT as critical to the success of the enterprise, and we're basically looked at as business partners. I've been at businesses before without management support, and [IT efforts] were never successful. A top-down buy-in is critical to making these projects work. We're definitely seeing it at Guess. How do your priorities compare with those of our roundtable participants and survey respondents? Tell us. See Related Articles: Defining The CIO: An Optimize Research Report, June 2005 Roundtable: The New CIO Leadership, June 2005 METHODOLOGY: In our "Defining The CIO" survey, Optimize researchers interviewed 407 IT and business executives in industries ranging from banking and financial services to health care and manufacturing. Company size varied: Some 20% of the respondents represented enterprises with $5 billion or more in annual revenue, while 18% worked at businesses with $6 million to $49.9 million in annual revenue. Nearly half the participants were 40 to 49 years old, and 92% were male.

Power Moves CIOs engage with just about all parts of the business these days: customer service, sales, finance, even HR (see When HR And IT Orbits Meet). So what's the next career move for these multitaskers? It could well be the chief operating officer, says Tim Tully, COO at Mellon Private Wealth Management. "Technology is the underpinning of virtually all aspects of the business," Tully explains. "So the deep level of understanding that a CIO develops forms an excellent foundation for the roles a COO plays within the organization." Tully was named COO just months ago, after serving as CIO for three and a half years. Skills in financial project management, risk management, and process automation are all transferable from the CIO to COO position, he says. Strong measurement and analytic abilities enable COOs to operate more strategically as well. Tully is now recruiting for a CIO. At the top of his expectations is a person who can demonstrate the strategic and competitive value of IT spending, provide leadership, and motivate IT professionals. Tully finds his past CIO experience invaluable. "Technology is what drives the business and provides our competitive advantage and differentiation," he says. "One of the principal tasks of a COO is to constantly anticipate and ferret out risks to the business. Many times, the solution to eliminating those risks is based on effective technology that's intelligently applied." Most important: the hands-on experience CIOs get.—Patricia Brown

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