The company has already gone through two CIOs this year, and it's only April 1. During the job interview, the CEO tells you that you have six months to turn IT around, because the company is being positioned for sale. And by the way, feel free to fire all 50 current IT staffers. Would you take this job? Terry Knecht did.
From 1995 to 1997, Knecht led the IT operations of Los Angeles-based Lexi International. The telemarketing company had made the Inc. 500 list twice, yet its IT operations were in disarray. "Most of the people in IT were not IT people but telemarketers who had taken over that function," Knecht recalls.
His first step as CIO was to hire a few lieutenants who had worked with him before. They quickly moved to replace most of the IT staff as they developed new core business applications and began setting up a data warehouse.
"When you are positioning a company like that for sale, the buyer has to see the IT operations moving in the right direction," he says. (Lexi was sold to Thayer Capital Partners in 1997.)
Knecht, who has led IT turnarounds at several companies, is currently CIO of The University of Iowa Foundation . He arrived there in 2004 as a turnaround CIO, but the situation wasn't desperate. He buffed up the IT staff, created an effective infrastructure, built relationships and mapped out a stable IT strategy. Now, he says, things are in good shape.
Knecht is one of a particular breed of CIO who moves from one difficult situation to the next, often jumping from industry to industry, and usually staying in a job only two to three years. Sometimes called paratrooper CIOs or even mercenaries, they thrive on challenges and, like the CEOs who hire them, have limited patience. "You have to establish key pieces of your program before the CEO loses faith or interest," Knecht says. "You have less than a year."
Knecht and two other CIOs with similar backgrounds explain how they approach a turnaround situation.
See eye-to-eye with the CEO
unlike most new CIOs, turnaround specialists don't have the luxury of spending a lot of time studying their options or building relationships before acting.
Before accepting a job, turnaround CIO Roger J. Jones asks questions the CEO is bound to find uncomfortable. "I ask what is it about their behavior that's contributing to the fact that they're going through CIOs," he says.
He looks for red flags. For example, having the CIO report to the chief financial officer may be a big part of the problem. Or it could be that the CEO isn't spending enough time talking with senior business managers about IT projects to understand where the problems lie. Does the CEO know whether IT is resolving business problems in a reasonable time? Or is it possible IT has been made a scapegoat for other underperforming departments?
Jones tries to get the CEO to explain what he means when he says, "Fix IT." What part isn't performing? "I do my own analysis," Jones adds, "and make sure it agrees with their assessment."
He says the turnaround at Milwaukee-based Fortis Health (which later became Assurant Inc.), involved consolidating underwriting and claims systems following a merger, a project that had already failed once.
Jones oversaw a move to a third-party claims-processing system, created an enterprise project office and outsourced data center services. He also reinvigorated an IT staff of 275 that had been perceived as unresponsive. "I found my direct reports to be good people who had been underutilized," he recalls.
Jones established a competency-based review system with metrics for each position. His team built an interactive online appraisal program that included a self-appraisal and a manager appraisal. "It had the desired results," Jones says. "Low performers chose to leave. Those who stayed sought to improve."
Change the IT mind-set
wayne sadin has made a career of fixing IT departments in the financial services industry. At Houston-based Bank United -- "a bunch of failed Texas thrifts that were merged together" --" his biggest challenge was to develop an e-commerce strategy. Sadin says he had one year to complement the bank's traditional delivery channels with Internet, e-mail and call centers to improve customer service and cut costs.
Like Knecht and Jones, Sadin typically brings along a team of loyal lieutenants who have worked with him before to create an enterprise architecture and work on alignment. The existing IT management team usually moves one level down. "They generally know something is wrong, even if the former CIO didn't," he says. "I get them to stop talking about users and start talking about clients or customers."
If IT staffers are responsible for mainframe applications or the network, for example, Sadin adds a business unit like retail banking or human resources to their responsibilities. "They get stuck thinking in terms of technical stacks that don't match up with the business," he says. "I put them in charge of a business group of customers and tell them to go make friends and develop contacts."
Sadin says a turnaround CIO should sit on the executive committee but do more listening than talking. And even though he may have a very short-term focus, it is still important to build relationships with other leaders. "The key is to understand what they're thinking," he says. "If you don't know why they're doing what they're doing, you will always be playing catch-up."
Jones adds that listening for conflicts among senior executives is key to prioritizing activities at the beginning of a turnaround. "Often after a merger, you have a lot of finger-pointing and an --˜us vs. them' mentality," he says. "It's critical to understand which [of the] decisions they can't agree on are going to have serious technical consequences and which aren't. Some things can be allowed to fester, while others have to be resolved."
Turnaround CIOs also have to be able to shoot down unrealistic proposals. Sadin recalls an experience at booming subprime mortgage lender Aegis Mortgage Corp.
"We were growing so fast, they asked if we could spend US$10 million and add 100 more people right away. I had to tell them we couldn't absorb that kind of growth right away without getting dysfunctional."
Build discipline; Shift priorities
When he joined Blue Cross Blue Shield of Wisconsin in 2000, Knecht had to deal with a chargeback system that was broken and an IT group that was $8.6 million over budget and didn't deliver projects on time. "No one had respect or confidence in IT," he recalls.
Knecht implemented an IT project/ resource-tracking system that fed the chargebacks into a PeopleSoft financial system. He reduced the budget by 20 percent, and in 2001, he eliminated the IT group's deficit for the first time in five years.
And as he had in earlier turnarounds, Knecht shifted IT's priorities temporarily. "I freeze the funding on low-priority maintenance projects and apply those resources to more significant projects that will make a difference," he says.
Usually, he says, it takes about a year for executives to notice that IT is starting to deliver on its promises. "Once we get to that level of predictability, then we have line managers eager to come to us with a second tier of strategic issues they'd like worked on," Knecht says.
At that point, he gets funding to deal with those strategic items and turns to the lower-priority maintenance items. "By that time," Knecht says, "I'm almost ready to declare victory and leave."
And unlike "caretaker CIOs" in stable situations, turnaround CIOs start thinking about successors very early in their tenures. Jones says that sometimes a CEO will tell him that he has a few really good people in IT and that if it were a stable situation, he would promote one of them to CIO. "That is nirvana for a turnaround CIO," he says, "because you can probably trust their opinion and you can start grooming [the candidate] to ultimately take on that role."
What makes a turnaround CIO?
Companies "want to have their cake and eat it, too," says Marc Lewis, CEO of Westport, Conn.-based Leadership Capital Group LLC, an executive search firm that has placed several turnaround CIOs in large corporations.
What does Lewis look for in a turnaround artist? Agility is key, he says. Candidates must be able to work in companies of various sizes across a range of industries and geographies. From the outside, he says, past success is the best indicator of future performance, so companies looking for a turnaround CIO "would like to see some notches on the belt, and preferably more than just one."
From the inside, turnaround CIO Roger J. Jones says it's important to be a quick study and to be decisive. "You have to make quick decisions and accept that you're going to get some of them wrong," he says.
It also takes a different career perspective. Jones and his peers "don't have careers," he says, "just a series of assignments with freelance consulting jobs in between."