While the slowing economy has provided an unsolicited lesson in IT leadership, theres nothing quite so powerful as operating through the near- death experience of Chapter 11 to sharpen your priorities.
Just ask Cole Libby, who was vice president of network management systems at PSINet Inc. when the troubled Ashburn, Va., Internet service provider filed for bankruptcy protection June 1. Suddenly, Libby was forced to shift his priorities from growth to profitability and to deal with a large, very nervous staff. His first step was to keep the lines of communication open.
“You just have to be open and honest with them and explain what the future looks like. Show them the range of options and describe what the best path is going to be,” said Libby, who left PSINet last month to become chief technology officer at Gold Wire Technology Inc., a software startup based in Waltham, Mass. For example, Libby said, its important to share as much information as possible about the financial condition of the company with employees.
“Its a common reaction for management to lock themselves in their office and think problems through. Thats the wrong approach,” Libby said. “In bad times, you need to go out and talk to people because they understand how to make things better. Employees will buy into that.”
Its one thing to manage an IT organization when times are flush and operating revenues—or venture capital—are flowing. As increasing numbers of CIOs are finding out these days, however, it takes a different approach when times are tough, particularly if your company has been forced into Chapter 11. And plenty of companies have. Internet companies alone accounted for 642 bankruptcy filings or shutdowns since January 2000, according to Webmergers.com, a Web site that brings together buyers and sellers of technology properties.
The good news is the CIO or CTO doesnt have to be heir to George Patton to lead the IT organization through a protracted crisis. Some rather simple steps can help keep IT on track. Besides communicating early, openly and often, IT leaders in troubled organizations need to refocus on short-term return on investment, experts say. And they need to be able to change direction quickly, pulling the plug on marginal projects if necessary.
No one knows how quickly everything changes during a financial crisis better than Brian Bertlin, CIO at Washington Group International Inc., a Boise, Idaho, construction company that filed for Chapter 11 in May. Chapter 11 lightning has struck Bertlin twice in five years. The first was in 1996 when his company bought WGIs predecessor, Morrison Knudsen Corp., then under bankruptcy protection (see story, below). At that time, the challenge for Bertlin was to cope with sudden growth and to bolster an acquired company that had been struggling.
“The first time I was with the rescuer, and this time Im with the side being rescued,” Bertlin said. “Im used to being the white knight, and now were having to dig out ourselves. Its a 180-degree turn on perspective.”
Nonetheless, leading his staff is just one of his top concerns. Its also a challenge simply to keep up with the companys rapidly changing circumstances.
“Our priorities depend on whats in the press and decisions made by the court and company leadership. You react when there is a decision. Its day to day, and theres always something going on,” Bertlin said. “Were still bobbing between being support-oriented and strategic. Either way, youve got to keep your people together.”
But its not just IT leaders at companies fending off bankruptcy who are having to retool. As the economy continues to slow, many are being asked to do more with less. A project that doesnt show demonstrable savings in tough times is a hard sell unless its something a company simply has to do.
“Its easy to be a CIO when the money flows,” said Patrick Flynn, CIO at Paccar Inc., a manufacturer of heavy-duty trucks in Bellevue, Wash. Paccar isnt in Chapter 11, but its CEO compared the big-truck market recently to the 1990-91 recessionary time frame. “You have to be tough-minded about what projects you choose to do,” Flynn said.
Paccar deferred an enterprise resource planning project but is continuing to install new human resources software from SAP AG because a vendor dropped the system the company was using, according to Flynn. “Theres no glory in doing an HR system. You just have to do it [regardless of cost savings],” said Flynn, who added that the company almost never funds projects—the HR system was a rare exception—that cant clearly show cost savings.
And, in tough times, the scrutiny on projects gets tougher, Flynn said. ROI justifications that flew before fall to earth now. “Theres a great deal of honesty. … If someone says theres cost savings from a piece of this person and a piece of that person, we either wont factor those into our ROI calculations or we discount them.”
Paccar, currently in a downturn in what has always been a highly cyclical business, will audit the cost savings after project completion to verify the original calculations, Flynn said. He also looks at variable costs such as travel and outside training to pull back dollars.
“Were good at taking our medicine when it comes to costs,” Flynn said. “Half of us have been through this before, although its been a long time since the last downturn.”
When times are tough, knowing when to unplug a project is just as critical, said former PSINet exec Libby.
“We continued to spend valuable time and energy on a [digital subscriber line] deployment that wasnt likely to be lucrative any time in the future,” Libby said. But when hard times arrived, PSINet killed the project, he said. “You dont have time to continue carrying projects that dont make money or arent likely to in the near future,” Libby said. “You have to make business decisions for the shorter term.”
Similarly, PSINet last fall scrapped a plan to build network automation tools for a new PSINet hosting center, choosing instead to adapt ones already in use within the companys WAN. The company also stopped a network provisioning project that was almost done but still required significant cash outlays. “We started doing smaller things aimed at solving customer problems that they were willing to pay for,” Libby said.
Its well and good that IT executives are coping, but when do you consider the drastic step of leaving a company thats struggling? The answer: rarely in todays environment, said Tom Eisenmann, an assistant professor at Harvard Business School, in Cambridge, Mass.
“If a small company has made it to September 2001, and no one has raised money in a year, you have had to survive on almost nothing and throttled back on your cash burn rate. You would have had to have some type of decent product,” Eisenmann said. He added that venture money for such companies is loosening up again.
On the other hand, you could have no choice if you had jumped into a startup staffed in advance of a real need. “You have a person making $250,000, and he just cut his staff in half. Management is going to ask whether they really need that person or not,” Eisenmann said.
The CIO with a Fortune 500 company, even if its facing a shrinking order book—or worse, Chapter 11—will find leaving at this point riskier than staying.
“No one is going to shut down that IT department, and the competition for the good jobs is a lot greater. If you didnt get whacked six months ago, the odds are probably decreasing youre going to get it now,” Eisenmann said.
And, if you do decide to stick it out, just think of all the valuable experience youll be getting, particularly if all you were familiar with as an IT leader so far has been economic good times.
“Its hard to move an organization that big, especially from a mentality geared to growth to one that has to focus on making money and being profitable,” Libby said. “The things you do in growth mode are much different than what you do to run a profitable business.”
While bankruptcy is often a course of last resort, most value the experience when its behind them.
“Its really wonderful in that you have to focus on what makes a business profitable. That experience shifts well to a startup, where youre building a business,” Libby said.