Hiring a CIO for a tiny company may seem like dropping a whale into a koi pond. But a few small businesses are finding the investment pays off
Robert Rollo had been helping large companies recruit chief information officers for four years before he decided to get one for himself. His executive-search firm, Rollo Associates, has only nine employees, but it runs on information--rÉsumÉs, industry profiles, news stories about layoffs and companies on the move, and the assorted detritus turned up in background investigations. And although the company has computers, back in 1996 it was using them merely to hold all that information rather than to actually manage it. "We were using only 10% of our systems," Rollo says. "Technology wasn't driving us, and it should have been. I said, 'Let's go out and get somebody who's going to push us in that direction."
For a company as small as Rollo's, hiring a CIO--a management-level, business-focused technology leader--might seem as extravagant as buying a corporate jet. Salaries for experienced information systems (IS) directors often run north of $100,000, and major corporations may dangle seven-figure compensation packages before pedigreed candidates. (Last year CIOs' salaries at large companies jumped 61%, to an average of $264,700 base pay and $625,000 in bonuses, stock options, and other compensation, according to a study by executive-compensation consultancy Pearl Meyer & Partners.)
What those corporations are paying for are big-picture thinkers who can help them increase their value and seize new competitive opportunities. Small companies generally lack the resources to pursue such ambitious agendas; in addition, many see their technology needs as merely tactical and consequently fill them as simply and cheaply as possible. Typically, a small business will rely on the individual or collective knowledge of its existing staff to keep its computers running and will bring in contractors or low-level support people to troubleshoot and handle upgrades. When upper management sits down to plan, there is no voice saying, "Here's what is or will be possible" in the technology-centric future.
But companies of all sizes increasingly view technology as a strategic resource (as is stated at least 10 times in every business book written in the past five years, but no less true for that). Many small businesses seeking to enter the electronic marketplace, expand into global markets, or offer new technology-based products and services throw themselves on the mercy of a consultant. Working along with that consultant, however, must be someone with back-of-the-hand knowledge of both the business and the technology--or else the company risks getting less-than-optimum results. "The small-business environment is very intimate, and companies do a lot of brainstorming every day," says Rollo. "If technology is going to be a big part of your strategic direction, then you'd better have someone in-house working on it."
Not all small companies need a CIO; in fact, most will be able to muddle along without one for the foreseeable future. And the responsibilities of an IS director in a 20-employee business are obviously worlds away from those of a Max Hopper (of American Airlines fame) or a Ron Ponder (former senior vice-president and CIO of Federal Express). But businesses that rely on the efficient collection, analysis, and dissemination of information should at least start considering the investment now, some experts believe.
How do you know whether the time has come for your company? Paul Strassmann, CEO of Software Testing Assurance Corp., in Stamford, Conn., and a former Defense Department CIO, says that a small company can tell whether it needs a CIO by looking at the ratio of its capital assets to its "knowledge assets," which he defines as intellectual property, proprietary customer information, and employee skills. If knowledge assets are greater, says Strassmann, then the company needs a CIO to manage them.
If a company does intend to hire a CIO, it should do so early--ideally at start-up, advises Strassmann. That way, he or she can build from scratch a culture in which information technology is valued, instead of having to win over employees who may have soured on IT after suffering through a string of unspectacular support people or a disastrous consultant gig. Mike Christy, managing partner of the international-technology practice of executive-search firm Heidrick and Struggles, in Irvine, Calif., believes that while the precise order of management hires will vary, the CIO should be one of the first five. "Company founders wait too long to have a CIO on the senior executive team," he says. "I think the CIO should be part of the early management team to be part of the early strategy."
CIOs hired in a company's infancy can also forge immediately into new opportunities, such as budding markets and acquisitions. Many companies resist bringing in a CIO or senior IS executive until things are an unholy mess, according to Christy, and as a result the new executive spends more time mopping up than leading. "We're finally called in to find a CIO when the company's systems are in disarray and are not supporting the business," he says. "Every catch-up day costs a business money."
Once hired, the CIO should be expected to learn the business as thoroughly as any other high-level manager, attending management meetings and strategy sessions and working closely with business users as well as with the technology staff. IS directors who allow themselves to become ghettoized in tech departments won't be able to do what the majority of CEOs want them to do most, which is align information technology with corporate goals, according to a recent study by Ernst & Young and CIO magazine. That study focused on large companies, but Ken Norland, a partner at Ernst & Young, says that small companies have identical goals. "It's just a difference of scale," he explains.
Here are the stories of three small companies that have hired CIOs and are the better for it.
The Standards Bearer
Pat Byrnes arrived at work one fall morning in 1994 to find his company's network engineer with his head on his desk, fast asleep. The "computer guy," Byrnes's shorthand for most systems personnel, was supposed to have been up all night fixing the network, but he hadn't done squat. It was just one more example of how Actuarial Consultants Inc.'s (ACI) practice of employing only low-level tech support wasn't working.
The slumbering technician was the second of three "computer guys" hired by the employee-benefits consulting firm since 1991. All three had been disasters. The first, described by Byrnes as a "super typist who liked computers," had a passion for workarounds--a way of circumventing bugs without actually fixing them. A muddled attempt to integrate the company's E-mail and word-processing applications brought down both. The second and third computer guys, who weren't big on things like compatibility or usefulness, purchased hardware and software that reduced ACI's network to an unworkable hodgepodge.
Clearly, Byrnes couldn't rely on those characters for basic support, let alone anything resembling a technical strategy. And a technical strategy, Byrnes was convinced, was what ACI needed to galvanize its growth.
ACI, based in Torrance, Calif., is a $4-million company that designs custom benefits programs such as 401(k), profit-sharing, and employee stock ownership plans. Since its inception, the company had relied on referrals for its customers, but that strategy had produced four straight years of flat sales. To achieve Byrnes's goal of 10% to 15% annual growth, ACI would have to begin aggressively pursuing new business. And that would require a big investment in the company's sadly malnourished marketing function. ACI had no marketing database and no system for tracking the entire marketing process. "It made it difficult to plan for the number and types of clients we might have coming in," says Byrnes.
ACI also needed better processes for acquiring, servicing, and terminating accounts, so that it could handle the hoped-for influx of customers without adding staff. Byrnes had always been a proponent of autonomy, hiring veteran benefits consultants and then letting them work in their own ways so long as those ways worked. The result, unfortunately, was that the organization had degenerated into islands of information floating on a sea of paper. Employees kept their client-contact data in Rolodexes and on sticky notes, stuffed handwritten prospect-information forms into files on their desks, and calculated potential benefits-plan yields on whatever spreadsheet pricked their fancies. Documents had to be located before they could be moved; efforts were duplicated, data lost. "We are in a business that needs to move information quickly," says Byrnes. "We just couldn't go on like this any longer."
So when the CEO convened a meeting of his management team in May 1996, topping the agenda was a process and systems revamp of the entire company--with an emphasis on marketing operations. For the first time in its 13-year history, ACI would simultaneously consider how its employees worked and the technology with which they worked. Creativity, while still prized in individuals, would be banished from companywide procedures. Two mandates coming out of that meeting made clear the new orientation: "Make standards a religion" and "Don't tolerate heretics."
The management team drafted the broad outlines of a reorganization plan whose technical underpinnings included standardization on Windows 95, Microsoft Office 97, and PCs from AST Corp. But given ACI's previous experience, Byrnes wasn't about to entrust the company's grand scheme to some low-level technician. He wanted someone who understood not only computers but also business and people--a management-level leader who could sell the changes to the staff, handle outside consultants, and make sure the company's choices positioned it for growth. To get that, Byrnes was willing to pay three times what ACI normally paid for technical employees.
The someone Byrnes found was Howard Moore. An 11-year IBM sales-and-marketing veteran with an M.B.A., Moore had been in charge of administration at an executive-benefits consultancy before he joined ACI, in July 1996. His title, special assistant to the president, was purposely vague--a reflection of Byrnes's uncertainty about the new guy's role. The president handed his special assistant the technology plan and said, "Here you go. Make this happen."
At IBM, Moore had implemented large systems for big companies. He applied the skills he developed there--an understanding of the strategic value of technology and the ability to explain that value to skeptical employees--to his new job at tiny ACI. But he soon found that ACI's staff wasn't nearly as skeptical--or as change resistant--as Byrnes had thought, so long as someone listened to the employees' concerns and responded in their own language. Over the first three months, Moore spent a large proportion of his time talking individually with ACI's 38 employees, who eagerly suggested both process changes and technologies--Internet E-mail, for example, and file-sharing capabilities--that would help them do their jobs better.
Byrnes knew the company would need the services of a systems integrator, but he worried about entrusting the project to outsiders who couldn't possibly understand ACI's rather complex business. So Moore took charge, selecting the company (Creative Business Concepts, based in Irvine, Calif., which he had used before and liked), supervising its work and--most important--making sure everything it did was in ACI's best interests. For example, rather than simply accepting CBC's recommendation for an E-mail package, Moore saw to it that half a dozen ACI employees took it for a test-drive first; when they weren't satisfied, he told CBC to come up with something else. "That relationship would have been a fiasco without Moore managing it," Byrnes says.
With the systems standardization chugging along nicely, Moore turned a businessman's eye toward ACI's crazy-quilt processes. Starting with customer-acquisition issues, he created an electronic prospect-information form accessible to everyone in a shared file on the network--and detailed strict rules for using it. Now employees in sales, marketing, and accounting could instantly access a wealth of prospect information--contact data, type of plan, probability of closing a sale--simply by typing in a case number. "Most of that information used to reside in the benefits consultant's head," Moore says.
Armed with that information, accounting personnel for the first time could accurately assess future staffing needs, and data that Byrnes used for long-term planning no longer went missing. Perhaps most significant, the new system allowed ACI to track how much business individual benefits consultants brought in and closed, and to compensate them accordingly. The change in compensation caused revenues per employee to rise dramatically--from $80,000 to $110,000 in 1997. "It helps the consultants have ownership in what happens," says Byrnes.
With customer acquisition under his belt, Moore has begun working on eliminating paper and improving communication within the company by E-mail. "People laugh at me because this is a pretty paper-intensive business, but whatever paper I can eliminate, I'm going to do it," he says.
Two years after Moore joined ACI, his work is visible everywhere: not only in the freshly upgraded network and technical standards but also in the employees' ease in using those systems. (Moore did much of the training himself.) Under his guidance the company has developed security and backup procedures, something it never had before, as well as a telecommuting program. Byrnes now has so much confidence in ACI's ability to handle more customers that he has launched two new lines of business--compensation consulting and executive benefits.
Eighteen months after Moore's arrival, Byrnes promoted him to vice-president of operations and technology. As one of Byrnes's seven direct reports, Moore sits in on all management meetings and is directly involved in hiring. While he manages only one computer-support technician, he works closely with employees in every part of the business. "We are benefiting from Howard's experience, his discipline, his ability to work with people, and his ability to bring the needed change to our organization," says Byrnes. "This is one hell of a better strategy than when we just had the computer guy."
For Rodney Weary, launching a company without an IS director was never an option. Over the past two decades Weary has founded and sold three cable-television companies, one paging company, and a cellular-phone business. He credits the successful initial public offering of one company and the easy and profitable sale of several others to his strategy of bringing in CIOs from the get-go. Investment bankers and potential buyers demand solid information such as sales reports and market analyses, he explains, which makes managing the technology that gathers such data a task of first importance. "I don't think you could make it in this business without an IS director," he says.
So when Weary dreamed up satellite-television distributor Golden Sky Systems, in 1996, he wasn't about to let the start-up go CIO-less. "I find it easier to bring a CIO in early, so they are instantly involved in the core planning and strategies of the company," says Weary. "You don't want the CIO to arrive and waste time having to rebuild a bad database."
Golden Sky Systems, now a $50-million business based in Kansas City, Mo., markets and distributes programming provided by satellite-television company Direct TV. Golden Sky creates customized packages--love sports? Get 50 channels' worth--and feeds them into customers' homes through satellite dishes mounted in yards or on rooftops. The company operates in more than 40 rural territories in 19 states. Last March, Golden Sky had 120,000 customers; Weary's recent purchase of territories with more than a million potential customers could increase that number significantly.
Having hired for the position before, Weary knew what he wanted in a CIO: a team-oriented manager with equal parts technology and business skills. "We want the IS director to fit in well in the boardroom," Weary says. "He should wear a suit comfortably and speak the language of business without getting bogged down in the technical details."
Weary brought on Eric Tucker as one of Golden Sky's first 10 employees in April 1997, just a few months after hiring Rob Weaver, the chief financial officer to whom Tucker would report. Tucker came from Garmin International, a global-positioning-systems manufacturer in Olathe, Kans., where he had moved up the ranks from network administrator to IS manager. At Garmin he had handled everything from the soup of building a systems infrastructure to the nuts of negotiating long-distance service. Golden Sky offered him the chance to participate in sales and strategy meetings and confer about acquisitions and operations. "I'm much more involved in executive management decisions here," Tucker says.
Although Tucker has his own six-person staff and gets a say in practically every major move that Golden Sky makes, he is essentially a project manager. But the projects he manages--such as linking 40 disparate service centers with a central database of customer information--make up the company's core operations. Like Moore at ACI, Tucker is the point person for vendors and consultants, representing his employer's interests at every juncture and pressing hard for the best possible deal. For example, Tucker turned his formidable negotiating skills on AT&T, eventually cutting a deal that saved Golden Sky $50,000 a month. "I said, 'Look, we are on the road to spending $600,000 to $800,000 annually with you," Tucker told AT&T. "I want reduced rates--and the exorbitant fees removed."
In addition, having a dedicated technical strategist emboldened Weary to venture into untrodden territory: service for apartment buildings. Golden Sky uses Direct TV's billing system, which is fine for single-family homes. But the model falls apart when it's applied to multiple-unit dwellings. The problem: Golden Sky's charges are based on the volume and variety of programming received through individual satellite dishes. In an apartment building, 30 different units might purchase 30 different packages, all of them delivered through a single dish. "How do you bill them individually without putting 100 satellite dishes on the roof of a building?" Weaver asks.
You can't, Tucker explained at an executive meeting last summer, not using the billing system Golden Sky had then, anyway. Armed with suggestions from cable veteran Weary, the IS director embarked on a round-robin of conversations with contractors. He eventually chose Denver-based CSG Systems Inc.; together the contractor and the IS director created a system that customizes billing for multiple units served through a single dish and wire. "Eric has been the driver behind finding a solution," says Weaver. "It's been a long-term and complex project that we've built based on his recommendations."
Another reason for hiring a CIO: an IPO is always a possibility, and investment bankers look for what's missing from the management team, says Weary. "It would be an obvious flaw if we didn't have an IS director or plans for one," he says. The strength of the company's information systems and their ability to break open new markets is also critical. "The investors want to know that the systems are in place," he says. "But it is the CIO that drives the systems."
The Information Wrangler
Robert Rollo's business is helping senior-level executives find jobs, so his praise for the CIO position may come off as pure self-interest. But the CEO and managing partner of $3-million Rollo Associates isn't spending close to $50,000 a year on salary (plus benefits) for his own IS director just to prove his faith in his product.
Rollo Associates' stock-in-trade is detailed data on corporate leaders; its customers include major companies in the financial services, aerospace, technology, and energy industries. Two years ago growth stalled, and Rollo identified the problem as technology--both the stuff the firm wasn't using and the stuff it wasn't using well. Foremost among the latter was a 3,600-record database of job candidates and sources that employees could search by title (for instance, CFO) and by industry (say, financial) but not by both at the same time.
If the database had been his only concern, Rollo would have brought in a contractor to fix it. But there was also the Internet. During his own peregrinations on the Net, Rollo had recognized rich veins--job databanks, news articles, and corporate Web sites containing information about leaders, reorganizations, and industry developments--that he could mine for customers, candidates, and sources. He believed that Rollo Associates' ability to exploit those resources would mean the difference between "someone driving on a freeway and someone driving in the Le Mans," he says. "One person is driving straight at medium speed; the other is going incredibly fast around difficult curves without getting killed."
The Internet would increase exponentially the amount of information Rollo Associates could apply to its searches. But, like the frantic bus driver in the movie Speed, the company's employees couldn't risk slowing down long enough to explore what the Internet could offer. Rollo's business happens fast: he may receive a request in the morning for a customer meeting the next day, sending his researchers into a frenzy of data gathering. "We were just too busy with the tasks at hand," says Rollo. "We needed someone dedicated to technology."
Rollo conducted his CIO search on the Internet--the company's first foray into electronic recruiting. A notice placed on the JobTrak site turned up Jennifer Nelson, a Ph.D. candidate in institutional management at Pepperdine University, and Rollo hired her in April 1997. Nelson had little technical experience, but she had managed a sophisticated 20,000-record database of the university's alumni and business-school donors. What Rollo considered more important, however, was Nelson's history as a blazer of trails. At Pepperdine she had developed her own educational track, beginning with a concentration in psychology and culminating with a degree in "leadership"--the university's first. "That proved to us she was not following in someone else's footsteps," says Rollo, who was so impressed with Nelson's academic career that he agreed to pay for her Ph.D.
But the chief reason for selecting Nelson over more seasoned technical vets was that she was "really, really sharp," Rollo says. "We take what appear to be exceptional people and teach them what they need to know about our business. In this case we judged right."
Nelson's first order of business was to solve the database problem, which she did with dispatch--combining five flat databases into one relational database so that "instead of getting just one piece of the pie, you get all the primary research as well as the ancillary information in one search," she explains.
The new CIO then turned her attention to the Internet, which she saw as an informational--as opposed to a technological--challenge. Assuming the role of cyberlibrarian, Nelson began the exhausting process of locating Web sites, databases, and other on-line resources she thought the firm's recruiters should be using. She evaluated each site (Is it industry specific? position specific? a good place to start a search?) and then created on-line libraries of URLs that she or one of the recruiters could use to find reliable information--fast. She also trained staff members to conduct swift pinpoint searches. "If I spend half an hour teaching someone to do smarter searches on the Internet, it saves the company hours later on," Nelson says. That estimate may be understated: as a direct result of Nelson's efforts, Rollo says, his company can now place more CEOs than ever within 90 days. (It usually takes 150 days to place a CEO, according to industry averages.)
Nelson's teaching carries over to other applications as well. Worried that his company was using only a small fraction of its software's functionality, Rollo asked his CIO to create a training program for such packages as FileMaker Pro and Microsoft Office. Now every Monday morning the whole staff gathers for a College Bowllike competition--with Nelson acting as quizmaster--on things like the uses of F-function keys in Microsoft Word.
Perhaps most important, Nelson is helping Rollo Associates build for the future. She is involved in creating new products, including salary-comparison reports that leverage information in the company's own database. About 30% of her time is spent investigating new technologies that might be helpful to her employer, such as voice-recognition software, which she hopes will reduce word-processing time. And by the end of the year she will be overseeing the company's migration from Macs to PCs.
Last year Rollo Associates increased revenues by 20% without expanding its staff--the result, says its president, of more job placements made possible by broader, more efficient searches. His goals--for the time being--achieved, he waxes rhapsodic over the person who made it all happen. "The CIO position should be regarded as just as critical as the head of manufacturing or marketing," Rollo says. "I can't think of a business today that isn't being driven by its ability to manage information."
Emily Esterson is an associate editor at Inc. Technology.
ANATOMY OF A TECH LEADER
The ideal CIO candidate has--
Source: Mike Christy, managing partner of the international-technology practice at Heidrick and Struggles, and Robert Rollo, CEO and managing partner of Rollo Associates.