The Education of a CEO
Asked to describe his new CEO, Chris Formant, iXL Enterprises chairman Bert Ellis falls back on a favorite joke:
There were twin brothers, one a pathological pessimist and the other a cockeyed optimist.
With Christmas approaching, a child psychologist suggests giving the pessimist a roomful of expensive toys to raise his spirits, and the optimist a large pile of horse manure to dampen his perpetual enthusiasm.
On Christmas morning, the pessimistic kid plays with his new toys for about an hour, before growing bored and lapsing back into a funk. The optimist, meanwhile, sits gazing at his manure pile with a big smile creasing his face. "Why are you still so cheerful?" ask his dumbfounded parents. "With a pile of manure this big," replies the kid, "theres got to be a pony here somewhere."
Chris Formant, says his new boss, is the kid looking for the pony in the manure pile.
Ugly, but Promising Formant did not see Atlanta-based iXL as the commercial equivalent of horse manure, but he admits that the notion of turning around a distressed e-consultancy was far from his mind last winter. At the time, he was running PricewaterhouseCoopers prestigious Global Banking Consulting Practice, a career path he had been at for eight years, following an equally successful stint in the banking industry. Formant loved the air up there at the Big Five levelthe collegial working atmosphere and the monetary rewards of senior partnership, which enabled him to indulge a passion for collecting rock n roll memorabilia. He liked the sophisticated clientele and the Turnbull & Asser shirts.
"When its good, major-league consulting is as thrilling as any business in the world," he says. "Naturally, my first reaction to the idea of running iXL was, youve got to be kidding."
IXL, a five-year-old interactive agency built largely through acquisition, was, like nearly all of its e-competitors, in an advanced state of financial decline by late last fall. Demand had fallen off the cliff; iXLs Q4 loss was $46.3 million on a 30 percent drop in revenue to $52.3 million, and its overhead costs remained way out of whack with its fast-shrinking revenue base. On top of that, operational discipline was lacking, project management was a foreign concept, and there were layers upon layers of senior management that made getting close to customer requirements an impossibility. And that was just for starters.
"When I met Bert in New York last November, I had to admit that the situation looked pretty ugly," acknowledges Formant. "Ugly, but promising. It was a classic turnaround of a distressed company, and I had done a lot of that kind of work from the outside, helping distressed banks, working with regulators, making cost improvements. It was a role with which I felt comfortable, and, of course, a turnaround can be personally and financially rewarding."
Moreover, Formant hit it off extremely well with Ellis, another old-time rock n roller whose industry Rolodex is the stuff of legend. Finally, Formant saw in the faltering iXL the opportunity to create out of the ashes of the New Economy an entirely new breed of consulting firm; one that could combine speed, low-cost development (from its India partner) and other attributes of a specialty e-consultancy, with the industry focus, repeatable solutions and leverage of a Big Five powerhouse.
As opposed to most e-consultancies, iXL had never bought whole hog into the dot-com madness, and did roughly 85 percent of its business with the likes of BellSouth, Delta Air Lines, DuPont, General Electric, Kraft Foods and Merrill Lynch. Plus, Formant studied the available industry research, which projected that the professional e-services market, from front-end strategy and design, through applications development and middleware integration, would experience healthy long-term annual growth of 20 percent.
His ultimate decision to abandon the relative safety of PricewaterhouseCoopers and heed iXLs distress signal was cemented during subsequent meetings with Ellis and the board of directors. "As a consultant, you learn to read people, and I walked away thinking that Bert was a fighter who had the support of a strong board that would not cut and run at the first sign of trouble and would back a CEO through the bad times," relates Formant.
"I knew it was going to be very tough," he continues, "and if I had grown up my whole career in consulting, instead of spending some time as a businessman, I probably would have been scared away. But I thought that with the right positioning and staying power, we could be one of the three smaller independent consulting firms still standing when this market improves."
The Sublime and the Ridiculous When he officially took office on Feb. 1, Formant got a look at iXLs operation from the inside and was alternately excited and horrified by what he saw.
"The company was like New York City," he says. "The best and the worst existing side by side."
The sublime could be glimpsed, says Formant, "in some of the best quality work Ive ever seen stunning, jaw-dropping work for companies like British Airways and Post cereals. Talk about multichannel delivery! They had designed games on the Internet [that played off] clues on the Post cereal box. It was very cool, drop-dead stuff."
On the flip side, however, was inconsistent quality. Some of iXLs young designers, "who had grown up in an age of entitlement," were not doing such good work. In addition, the companys business model was office-centric, which further contributed to a serious quality gap.
"With all the resources on a project based in one office, work was accepted or rejected [by an office] based on its local capabilities," explains Formant. "So you could have a project turned down by a local office, despite the fact that the best guy in the world to handle that job was located 300 miles away. There was no leverage in the organization."
Michael Casey, the CFO who was brought in a few months before Formant, experienced a similar disconnect when he first confronted the existing iXL culture. The youthful-looking CaseyFormant calls him "Cubby"says he was in heated discussions with other iXL execs within five days of joining the firm. At that time, the market was just beginning its brutal descent, but nobody at headquarters seemed to notice or care.
"Teed up for execution was an $8 million purchase of an ERP system, because managers thought they needed it," Casey recalls. "And, perhaps, if the market had continued to grow, that might have been true. But their frame of reference was the moon and beyond, and mine was cutting costs. There was definitely tension in the air at the beginning."
Formant, Casey and the rest of a brand new management team got to work quickly. On the cost side, sales, general and administrative expenses were reduced 60 percent in raw dollars from Q4 2000 to Q2 2001. Some of the biggest cuts came from renegotiating exorbitant office leases. Casey says iXL was spending more than $3 million a month in rent.
A second key move was to lop off the layers of senior management between the CEO and the end customers.
"You need top managers who are close to the customers and the industry, but here you had executives who were only guessing what the market was doing, or thought they could outsmart their customers," relates Formant. "There were chiefs in charge of everything chief strategist, chief technologist none was in tune with the market or knowledgeable about the industry. I characterized it when I first got here as a salon, where people sat around debating big thoughts."
Within weeks, all debating had ceased and nearly all of the old guard was gone. IXL had for the first time in its history a flat, nonhierarchical management structure, a set of methodologies, checks and balances, and a viable business model.
"I told everybody, This is how were going to conduct business, this is how were going to go to market," notes Formant. "And if you dont want to come along, then leave. Those who didnt quickly agreed to move on."
The New Model IXLs new matrix organization, formally unveiled on May 9, combines five industry groupsfinancial services; travel and transportation; manufacturing; retail and consumer goods; and enterprise serviceswith six service lines. Those are core engineering and technology, business-to-employee, customer-relationship management (CRM), digital reengineering (app development), user experience (creative design), and strategy.
Formant says the new organization fundamentally changes iXL from a provider of front-end, Web-building services to a broader-based supplier of professional services for specific industries. To effect the change, about 300 of the remaining 1,300 employeesmost of them creative personnelwill be laid off, but the company hopes to staff up with industry specialists, project managers, and CRM and supply-chain consultants as business improves.
"We can now tie together the Old Economy, domain-leader types with New Economy digital kinds of people, and create something that does not exist anywhere else," says Formant. "A place with the industry focus of the Big Five, combined with articulate, custom-designed, lower-cost implementation. It will never be end-to-end, but ultimately I want a quarter of our top line to be maintenance, because thats the epitome of client- relationship management."
Such a model, he continues, is especially critical as Global 2000 companies like Kraft pare down their supplier rolls to just three or four strategic service providers. To be one of those survivors, insists Formant, youve got to be both specialized and able to deliver solutions that cut across the enterprise.
Fortunately, says Lorin Coles, who directs iXLs alliance program, the need to deliver quality, low-cost solutions plays nicely into one of the companys core competenciesthe ability to select the right partners and maintain good relationships with them through thick and thin.
"The big thing I see with Chris," says Coles, "is less talk about industry-based solutions and more putting the wood behind the arrow."
Anne Smith, VP of the consultants and integrators group at IBM, one of iXLs staunchest allies, says she already sees a new "discipline" emerging throughout iXL, and notes that in Formant, the company has a leader who understands the "value of relationships in delivering industry-based solutions."
IBM, for its part, has trained 50 iXL consultants on WebSphere and MQSeries in just the past 60 days and will train another 50 or more consultants by mid-July. "A year ago, we never would have been so aggressive in pursuing this alliance," says Smith, adding that IBM and iXL are currently teaming on major projects in the transportation, consumer goods and beverage industries.
John Gray, VP of worldwide alliances at BEA Systems, says his firm has active deals with iXL in financial services, travel and enterprise accounts, where both partners already have major stakes and are looking to get stronger.
"Customers want to work with vendors who will survive the consolidation," says Gray. "Although some lump iXL in with Xpedior and MarchFirst, they clearly are in a different league. We believe the move to fewer services vendors will play to iXLs advantage."
Its Greek to Him Ellis says he felt from their first meeting that Chris Formant had "the fire in the belly"the toughness to ride out the recession and the fortitude to survive the 80-hour workweeks that would be necessary to turn the company around.
"This was a huge task, and I needed someone who wasnt in it for a cushy, twilight job," says Ellis. "I needed someone who could change a tire through the window while driving along the interstate."
Formant, being of Spartan heritage on both his mothers and fathers sides, possessed that fighting spirit. "Chris scared the bejesus out of everybody who was apprehensive about the new program," says Ellis. "But he also gave everybody their due. Nobody got run out of here without getting a day in court."
When Formants new organization and vision are more firmly in place, and the combination of industry focus and services expertise kicks in, Ellis hopes he and Formant can make their planned pilgrimage to Memphis, Tenn.
"Were going to take a private tour of Graceland," says Ellis.
Formant is equally anxious for all of the business model changes to begin yielding top- and bottom-line results, so he can relax a bit on the daily operations side and begin working more closely with clients, partners and industry analysts.
"Im not used to being cooped up in an office all day," he says. "I want to be out in the industry. I would hope as we come out of this [downturn], I can get out into the field."
Yet, on a recent Thursday afternoon, a typical workday at iXL, its hard to imagine Formant having that luxury anytime soon. There are ad hoc meetings with senior staffers to discuss the new strategy, countless phone calls and a parade of Big Five candidates to be interviewed for industry specialist positions. Conducting a press briefing with Formant is, to paraphrase an old pop song, like trying to catch the wind.
But through all the brouhaha, there is a sense of expectation and exhilaration in Formants office. He clearly welcomes the challenge and, whatever trepidation he may feel about failing, he is handling that fear very well.
Perhaps that is because, somewhere under all of those anxious phone calls, negative financial figures and grim layoff statistics, Formant believes there must be a pony.