C.J. Prince

C.J. Prince
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C.J. Prince is a regular contributor to Chief Executive and other business publications.

Your Company Has Changed,Why Hasn’t Your Board?

When Stephen Hemsley took over as chief executive of United - Health Group in December 2006, he inherited a bit of a governance mess. Since March of that year, the company had been embroiled in an options backdating scandal, making it the target of both SEC and Justice Department investigations. The board had lost credibility when for months it refused to oust CEO William McGuire, even as dozens of other companies were dismissing chief executives over similar allegations. Hemsley, an insider who had been cleared of wrongdoing, was tasked with restoring trust at the Minneapolis health care company, and that included dealing with a board that had aligned itself, perhaps too closely, with the tainted image of its fallen chief. In the nearly three years since, fully half of the board has turned over, with old-guard directors retiring their seats, and new independent directors, such as Robert Darretta, the retired vice chairman and CFO of Johnson & Johnson, and Michele J. Hooper, managing partner and cofounder of The Director’s Council, a private company that helps boards increase their independence and diversity, coming on. The result is a largely independent and continually evolving board, possessing industry expertise and knowledge uniquely relevant to UnitedHealth’s future success. But it shouldn’t take a governance crisis to prompt a review of board composition. As industry changes force shifts in corporate strategy, most CEOs will, at some point in their tenure, find it necessary to ask themselves whether they have the right mix of expertise, experience and business savvy to advise and challenge senior management on the path to success. A board that has served adequately, even exceptionally, during one phase of the company’s life, may well be ill-suited for the next phase. “And it doesn’t mean the board members aren’t very good people. It just means that the company has moved to an entirely different place,” says Jerre Stead, CEO of IHS, a provider of technical information, decision-support tools and related services. Businesses that had been focused purely on domestic sales, for example, may need to recruit directors with international savvy as they plan to move into markets abroad. Even those without immediate plans to expand overseas need to understand how rapid globalization will affect their markets. “It’s so critical today to have board members who have global views,” says Stead. “It has to be people who have either led global organizations or lived abroad - or both. And they need to have stayed current because the world is changing so quickly.” Gayle Mattson, EVP and global leader of the Board & CEO Practice at executive search firm DHR International, reports that an increasing number of companies are seeking out such expertise for their boards. “Globalization is the number one priority of every corporate board today that I’ve had the privilege of working with,” she says. In other fast-moving, competitive industries, CEOs need to make sure that at least some of their directors understand current trends and can evaluate not only where the company is, but where it needs to go. “That’s especially true in our industry,” says Dan Hesse, CEO of Sprint Nextel Corp. “Things change quickly in technology businesses, so it’s important that the skills of the board keep up with the strategy of the company and the environment in which it operates.”

Managing Board Turnover

The very public, and unpleasant, battle between Disney’s former CEO Michael Eisner and the company’s shareholders before his departure in 2005 could have led to an equally dramatic, high-profile turnover on the board, given that several of Disney’s directors were longtime Eisner supporters. But while the board’s complexion has changed fairly dramatically since Robert Iger took over as CEO, the shift has been more of a quiet evolution than a radical reconstruction.

Over a period of four years, Iger and the board have replaced Eisner friends like Leo O’Donovan, Gary Wilson and George Mitchell with new blood, such as Apple icon Steve Jobs, retired Starbucks CEO Orin Smith and Susan Arnold, president of global business units at Procter & Gamble. Each new director recruitment took place over a period of six months or more, giving both parties ample time for due diligence and to assure themselves that the new recruit would fit in well with Disney’s evolving board culture. Similarly, UnitedHealth Group’s board, rather than risk more headlines by asking directors to step down, shortened terms to one year and then let those tenures expire quietly, filling the seats as vacancies arose.

That is typically the way it ought to be done, experts agree. Even in cases where change is clearly warranted, there are a host of reasons not to rush the process. For one thing, it’s harder than ever to find great directors, given the time commitment required for board service, and sitting CEOs have tighter restrictions on the number of boards on which they can serve. For another, you don’t really want to hire any directors who don’t take adequate time to do their due diligence. “A good board member is going to want to talk to other board members, the CEO, general counsel, the CFO, the outside counsel, the audit firm,” notes John Gardner, vice chairman with executive search firm Heidrick & Struggles.

And unless the current directors are not adding any value, it’s best not to show them the door abruptly, says Korn/Ferry International’s Charles King. That kind of dramatic move could signal Wall Street that the company is in governance trouble. Instead, consider temporarily expanding the board by one or two members to accommodate new talent. As King points out, “There are a lot of things you can do to manage the board in terms of the skill set so you can create this portfolio of talent and manage that portfolio.” - C.J. Prince

Other CEOs may find they need help from a Washington insider as their companies navigate a newly regulated environment. “If you were in banking and you thought you were unregulated, now all of a sudden you’re regulated,” says Hesse. “And if you are a company that takes government assistance, your business plan and environment with respect to regulation has just changed a whole lot, very quickly. A year ago, it might not have been a very important issue, but today it is.” With the recent change in the White House, more companies are looking to bring some political savvy onto their boards. “One of the things I bring to a board table is my knowledge of how Washington works, how our governmental processes work and that is quite useful,” says Barbara Franklin, CEO of Barbara Franklin Enterprises, a private investment and consulting firm headquartered in Washington, D.C., and a former U.S. Secretary of Commerce under President George H.W. Bush. She has served on as many as 14 boards since the 1980s, and currently sits on two. “You could get that from other places, a Washington consultant perhaps, but I think it is useful to have someone around a board table who has been inside the process.” Even at the most basic level, a company’s needs change as it grows from start-up to midsize to multinational, requiring different kinds of expertise at the board level, points out Charles King, senior client partner in charge of CEO & Board Services for Korn/Ferry International. King is currently working with a company that had spent several years growing by acquisition, but is now looking to level off and focus on organic growth. “The board that got [the CEO] through this quadrupling of size over the last several years may not be the right board to help him manage the mature part of the life cycle,” notes King. “His board didn’t have a great deal of industry experience. They were deal people, movers and shakers, lawyers who helped him through some of the proxy battles and transactions, but now what he needs are some people who understand the industry and can help him, as a 40-something CEO, think about the speed bumps ahead.” Given that many directors have served on their boards for a decade or more, the process of implementing change is a delicate one. And in anything but a genuine Enronesque crisis, asking directors to step down in droves is generally not a good idea from a public relations perspective, and can be a risky move for the company, since it can take new directors up to a year—or longer— to truly get up to speed. “It absolutely is an evolution where you are making gradual changes in the boardroom, because the institutional memory and history is very, very important,” says Hesse, who recommends seating one or two new directors per year, depending on the size of the board, as term cycles permit. “So you keep that continuity. The board isn’t stagnant, but except in rare cases, I don’t suggest massive makeovers either. It should be a constantly evolving process.” Even in the case of UnitedHealth, where the independence and wisdom of the board had been called into question, the company chose not to kick up too much dust in an effort to bring about change. Rather than make headlines by asking directors to retire early, the board shortened director term limits to one year and then let those tenures expire quietly, filling the seats as vacancies arose. One key to a successful transition is getting a thorough grasp of what the board has in terms of skills and competencies, and where the gaps lie. New CEOs who have inherited their boards should set up one-onone meetings with each of the board members to get a sense of who they are and what they bring to the table, advises Franklin, who was recently appointed chairman of the National Association of Corporate Directors. “Sometimes, we are too superficial,” she notes. “There may be more there than you realized initially.”

Board Renewal as a Strategic Differentiator Driving Success

Public company directors know that our most important responsibility to the shareholders is succession planning and continuity of leadership to build and lead the enterprise. We are in a time of great market upheaval and pressure. This will require many corporations to adjust and change their business model. They will need to cut costs and think more broadly about how to compete to build and preserve shareholder value.

All directors clearly understand the importance of having a robust pool of general managers to develop and cultivate for leadership succession. When the CEO hires a senior executive to build the leadership team we are actively involved. We understand that corporations outgrow the capabilities of their executives. Hiring and promoting talent to adjust to a new business model enables the company to grow and adapt to changing business environments.

Although a board faces the same outside pressures, board succession is almost never discussed. It is one of the taboos in the boardroom, yet the perspective around the boardroom table must change with time. Just as a company may outgrow its CEO, the company also may outgrow the capabilities of its board members.

Companies that engage in board renewal find that it brings a set of experiences, perspectives and an important network of introductions and contacts. A positive example can be seen at SunPower Corp. The board was small when SunPower, a solar panel systems company, went public in 2005 with three outside board members.

SunPower’s business evolved; we acquired and integrated companies and began the process of expanding our thinking on offshoring our manufacturing, tightening our supply chain, and globalizing our go-to-market. We recruited Dr. Uwe-Ernst Bufe, former CEO of Degussa, a global chemical company, to help mentor our CEO and bring contacts and expertise in the polysilicon supply chain, as well as deep operational knowledge.

SunPower then adapted its business model, expanding to sell its solar panels from residential,to business rooftops and to joint venturing with utilities. We needed depth, experience and knowledge in the utilities sector, and added Tom McDaniel, former EVP and CFO of Edison International. This is an example of building a board and forward investing in it to bring knowledge, direct experience, contacts, and what I characterize as “scar tissue,” to the boardroom. The board is truly in a partnership, to mentor and contribute actively with our CEO and his leadership team.

A contrary example can be seen at Lucent, where I was a board member in 2000. Lucent went through an enormous market challenge when the telecom industry imploded and revenues went from $33 billion to $8 billion in one year. Clearly, bringing in a board member who had gone through market dislocations and financial restructuring would have enhanced the company’s ability to remain viable, strengthened the CEO’s knowledge, and allowed the company to make the necessary aggressive decisions in order to endure and evolve. Rather than do that, the company brought on a NASA scientist who had never been in the for-profit product world, which was clearly not the perspective needed.

I believe companies and shareholders are well served when boards actively engage in board renewal. Just as CEOs look at the management team and see who would scale and who would not, and what is needed to maximize the enterprise performance in a marketplace, the same analysis should be applied to board members.

Annual board assessments usually focus on the information that management supplies the board and whether it is received in a timely manner. What boards may better ask themselves is whether the board can be strengthened—what new perspectives and experience would help our enterprise going forward? If this question is asked, we may see more board renewal in the future.


-Betsy S. Atkins is CEO of Clear Standards and serves on the boards of Polycom, Chico’s FAS, Reynolds American, NASDAQ LLC and SunPower.

 
Stead of IHS further recommends that new CEOs go through two or three cycles of board meetings and committee meetings before making any changes. “Within six to nine months you’ll have a very good view of, do you have the right fit, the right board members, what needs to change, who needs to change?” he says. For CEOs who have worked with their boards for some time, thorough annual self-evaluations are key, says Hesse. “The board needs to look at where the company is going and then assess themselves as a team rather than looking at specific individuals,” he notes. That approach can also help some directors see for themselves why their service may have outlived its usefulness. And for those boards and CEOs reluctant to give longtime directors the boot, the process gives them a context and support for doing so. “It’s much harder to give someone the bad news if there’s no setup to do it,” says Constance Dierckx, senior consultant with management consultancy RHR International. She adds that, for a review to be really effective, directors have to be willing to be brutally honest—with themselves and with one another. “Some of those reviews are anemic,” she says. “We did a board survey two years ago and 98 percent of the respondents said their board was either ‘highly effective’ or ‘effective.’ But last time I checked we didn’t all live in Lake Wobegon. Some boards really are just average.” With an accurate self-portrait in hand, the CEO and board can begin to take steps to fill in the knowledge and skills gaps. Catherine Bromilow, partner with PricewaterhouseCoopers and leader of the corporate governance group, cautions against looking for expertise that is too specific, lest that director become the unofficial expert, leading to others to defer to him or her on related matters. “You don’t want the other directors thinking, ‘I have a concern about a major shift in IT strategy that we’re going through, but if Jill, our IT expert, doesn’t say anything then it must be okay.’” Mattson adds that boards ought not confuse the skills they need in the C-suite with those they need in the boardroom. “Directors need to know what questions to ask; they don’t need to be able to run the company,” she says. And while specialized industry knowledge is helpful, it shouldn’t take the place of good critical thinking and a basic willingness to be honest and open. “When you add new people you do want to look for specific experiences to add to the mix, but you don’t want to lose the culture,” says Franklin. “If you have a culture of respect and trust and candor, that’s where the CEO gets the most help—that honest giveand- take with the board.” If the board has no current openings, there are other ways to bring in additional expertise. Rather than seating a new director, Franklin points out, the board can simply invite experts to advise on an ad hoc basis, to join for a single meeting or a series of meetings. “I’ve been on boards where we’ve done that. We wanted to learn more about what was going on in Saudi Arabia, so we got several experts to come and join us at a meeting and talk about what was going on, economically and politically,” she says. That’s a strategy likely to become more popular as sitting CEOs, who can now serve on fewer and fewer boards, become harder to find. Bromilow notes that companies can also consider creating a separate advisory board, rather than asking valuable directors to leave the table. “Your board may be bringing some great attributes in terms of sound business advice and you don’t necessarily want to blow that up,” she says. But CEOs and boards do want to keep their attention focused on being proactive about board succession planning, and thinking ahead, four or five years out, about which directors are retiring and what needs the company expects to have as it executes its strategy. “What you don’t want to do is have all your good people go at the same time,” says John Gardner, vice chairman with executive search firm Heidrick & Struggles, adding that some companies elect to keep certain directors a year or two beyond retirement age just for that reason. “Otherwise, you end up with a whole new board that doesn’t understand how you got where you are.”

LSI Logic CEO Abhi Talwalkar: Chipping Away

When Abhi Talwalkar agreed to take the top post at LSI Logic in May 2005, he knew he was in for a wild ride. Once a Silicon Valley darling, LSI had risen from no-name startup in 1981 to $2 billion global company under founder Wilfred Corrigan, who established it as a leading manufacturer of customized microelectronic chips for the semiconductor industry.

But the chip-maker had fallen far and fast from its perch, discovering that in the rapidly changing and consolidating chip industry, a company’s future was only as sure as its ability to adapt nimbly to change. As early as the late ’90s, LSI began losing its way, failing to reinvent itself in response to industry changes while placing too many bets on disparate businesses. Following the dot-com collapse, spending on telecom equipment that contained LSI chips dried up, delivering additional blows to the company’s bottom line. Investors lost confidence as the stock crab-crawled in the single digits, offering little hope of a return.

Corrigan and the LSI board realized it was time for a change. But rather than seeking out a seasoned turnaround artist, the board tapped Talwalkar, a 20-year Intel veteran. The 41-year-old’s mission: to completely transform and recast the flailing company and position it strategically for the future. A tall order for a first-time CEO, to be sure, but Wall Street approved of Talwalkar’s Intel pedigree and investors grew bullish when they saw he intended to make the tough calls necessary to get LSI back on track. In less than two years, Talwalkar has guided the company through four acquisitions, including a $4 billion dollar merger with Agere in 2007, two divestitures and has replaced all but two executives in the senior ranks. “We’ve changed the company, I would say, in every single dimension,” Talwalkar says.

One particularly bold move was to shed or shutter LSI’s manufacturing facilities, including its large chip fabrication plant, moving instead to an entirely fabless, outsourced model. In the new semiconductor space, Talwalkar observes, only two giants could survive on their own: his former employer, Intel, and its rival Samsung. “The economics are just ridiculous,” he says, noting that a company would have to generate $10-$15 billion to justify the investment in R&D required to build rather than buy. “Just about everyone is commingling and partnering and leveraging.”

LSI still invests 20–25 percent of revenues in R&D, but without having to manufacture wafers from scratch, it can spend on areas in which it can successfully differentiate. “We are very deliberate now about the markets we focus in,” Talwalkar says, noting that storage and networking products are LSI’s top priorities. “We actually had a great position in the storage area but we were squandering it because we lacked a cohesive strategy.” Today storage accounts for roughly $2 billion of LSI’s revenue and the company boasts an impressive roster of OEM customers including IBM, HP, Dell, Seagate, Western Digital, Cisco, Ericsson and Nokia Siemens Networks.

The transition has not always been pretty, Talwalkar admits, and things grew particularly ugly following the merger with Agere, as both investors and employees expressed doubts about the CEO’s ability to achieve the promised synergies. “People wanted to hand me my head, frankly,” he recalls. “But we’re through that because we moved very quickly.” Since the merger’s completion, LSI has shed 42 percent of its workforce and has achieved top-line growth for the past four quarters. Despite an ugly year for technology companies, LSI reported better-than-expected results for Q4. And while Talwalkar is tightlipped about specific financial forecasts, he expects the company to continue its upward trend. “We have a very solid balance sheet, a very good cash position,” he says, adding that, macroeconomic conditions aside, “a lot of our destiny is within our control.”

For Talwalkar, who made the leap from sure thing to risky rescue, the ride has been well worth the risk. “Even on my worst days, I’ve never looked back,” he says. “Even though Intel’s a great company, and I have great relationships there still, it’s just been a blast doing this.”

Polycom CEO Robert Hagerty: Video Vanguard

For decades, videoconferencing was touted as The Next Big Thing for companies, promising to bring far-flung employees together in a virtual huddle realistic enough to replace in-person meetings. For much of that time, though, the technology sported obscene price tags, while offering only mediocre quality with awkward time lags and choppy images. Today, thanks to upgrades in bandwidth and lower-cost high-definition technology, meeting via high-end video systems feels so realistic, “it’s spooky,” says Robert Hagerty, CEO of videoconferencing technology provider Polycom. “We’ve had people instinctively reach across the table to shake hands when they were leaving a meeting,” he notes. “It’s just amazing behavior.” With companies under mounting pressure to cut travel costs and, increasingly, to reduce their environmental footprints, adoption of video-conferencing technology has accelerated worldwide. Pharmaceutical companies use the systems in their labs to educate their sale forces on new product rollouts; physicians view patients’ diagnostic tests remotely; consulting firms employ video to leverage their experts’ brain power without having to trot them around the globe physically. And global 2000 companies convene geographically dispersed directors in virtual boardrooms to cut travel expenses while meeting governance covenants. As adoption has crept up, so has Polycom’s bottom line. The $1 billion company, which offers voice, video and data solutions, has seen its video business growing at a healthy 25–30 percent clip, Hagerty reports, and its telepresence business soared 500 percent from second to third quarter of 2008. At the high end of the conferencing spectrum, telepresence offers users complete rooms outfitted with special lighting and sound systems to replicate the feeling of an in-person conference, at a cost of roughly $350,000. According to technology firm Frost & Sullivan, telepresence revenues are expected to reach $1.44 billion by 2013, up from $165.3 million in 2007. As expensive as the technology still is—$10,000 for a single-user, off-the- shelf system—Hagerty expects videoconferencing adoption to continue its pace because of the technology’s attractive ROI. “When I take one international trip it’s more than $10,000,” he says. “So you save it just on the travel costs.” Not surprisingly, the economic recession—expected to deepen in the first half of 2009—has already slowed growth, particularly in the voice business, which represents 40 percent of Polycom’s revenue. Still, in December the company reported fourth-quarter earnings above market estimates and, in an effort to stay ahead of lean times, announced it was reducing its work force by 6 percent. Hagerty points to Polycom’s consistent annual cash-flow generation of $100 million or more as evidence of its solid financial foundation. And he notes that much of the global market—with some 30 million conference rooms, by his estimates— has yet to get videoconferencing religion, leaving plenty of open field for both Polycom and its chief competitors, Cisco and HP. “We’ve probably got a million penetrated in the industry, so that’s a pretty untapped market,” he says. Founded in 1990, Polycom has already lived through a couple of downturns, and strategically used the 2001 dot-com meltdown as an opportunity to gobble up a series of complementary businesses and rivals, including PictureTel, which Polycom’s founders started in the mid- 1980s. Though one of the youngest players in a nascent industry, Polycom has managed to grow its brand to near ubiquity, with its signature triangle conference phone now a staple in corporate conference rooms around the globe. Hagerty believes even a global recession can’t stem the widespread adoption of videoconferencing that has just begun. “We helped create this industry, and we think that our time has come,” he says. “Our aspiration is that video everywhere—on every desktop, every conference room, at home, in your office—has got the Polycom triangle on it. “That’s a personal passion as well,” he adds, “because I’m so lousy at golf.”

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Will the CIO Role Be Obsolete?

Twenty years ago, if you'd have told a group of CEOs they might one clay be succeeded by a bunch of techies, the news likely would have been greeted with gales of laughter-or, at the very least, heavy skepticism. What does a technology manager know about running a business, after all?

But these clays, we know better. In the past five years, the role of the CIO has been steadily and rapidly shifting to one that involves as much strategic planning as it does networks and cables. And, as technology continues to play an ever greater intrinsic role in the success of any organization, IT managers are finding themselves more and more on the level of "partner" with their CEO leaders.

But if it's true, as many say today, that CEOs will need to have a much deeper understanding of technology in order to sustain competitive edge in the future, where will that leave the CIO as the keeper of techno-knowledge? Looking further out, what happens when the children born today and in the new millennium-those kids whose first toys are likely to be neon-colored, Pentium-chipped, GUI-enabled handheld PCs-reach the corner office? Will they really need somebody to head up technology?

We asked the CEOs of a diverse group of companies to look into their own crystal balls and tell us: a) how they see the CIO's role changing; b) whether the inevitable increase in technology acumen among CEOs would eventually render the role of the CIO obsolete; and c) whether they thought it possible that the CIO of today would one clay rise to become CEO. Here's what they had to say.


 Tom Bell

President and CEO

Young & Rubicam Advertising

My opinion is: no, the role of the CIO is not going to change, and no, the (10  is not going to become the CEO. Rather, the CIO will become one of the direct reports to the chief knowledge officer or chief strategy officer. The CIO will be more of an implementation job than a strategy job-more on the back end of the process than the front end.

I'm sure there are those ClOs who are insightful and have many of the skills I commonly see in chief strategy officers or chief knowledge officers, but for the most part, the ClOs I deal with, while very smart and very technically savvy, are caught up in the technology and how to execute and implement against a strategy that they might have had a part in devising but has been basically driven by others.

It's also getting more and more difficult to expect the operating guys who are busting their chops every day to execute against the existing plan in a hypercompetitive environment to also be the guys who are looking out toward the future, keeping up with technology, with the changing geopolitical environment, here and across the globe-you can't expect the operating guys to also understand how these things are going to impact the business in the future. You give somebody too many balls, they're going to drop one of them. Many of us in the corporate world have the bad habit of just continuing to add balls until some of them start falling to earth-and dropping the ball is the wrong way to figure it out.

I see the chief strategy officer or the chief knowledge officer-very savvy, well-schooled, very comfortable in the world of technology with a lot of the CIO's technical capabilities, but a broader vision-I see that person as very much with future CEO potential.

The really hot (10 who is able to sort of rise above the technology trap is going to become the chief knowledge officer or the chief strategy officer of the future and then he'll have a CIO working for him. Here at Young & Rubicam, we have a guy named Bruce Benson, whom we hired from Sony; he has an IT background, but he's morphed himself into a strategy person, and he then hired a CIO who is a direct report to him, who worries about technology and how to make it a differentiator for us.


Charles W. Mueller

Chairman, President, and CEO

Ameren Corp.

The CIO role is changing in that he or she is no longer simply keeper of the hardware or software. The CIO must be included up-front in business decisions. Because technology is now an essential ingredient in product development, service enhancement, and even business alliances, the CIO must clearly be closely involved in setting the strategic direction of a company.

The CIO will become an increasingly important player not only because of automation's role in improving efficiency, but also because of the growing use of technology for developing sophisticated products and enhancing our ability to quickly meet the changing needs of our customers.

Here's an example: automated metering. Ameren now has the world's largest automated meter network-one million automated meters. What's our midwestern utility doing with that? Well, we're improving customer service, but we're also developing innovative products that allow customers to track energy use by process and facility-all on the Internet. So someone in Detroit can track energy use for a facility in St. Louis. That's just the sort of product that can't be offered without strong technical expertise.

My relationship with our CIO, Chuck Bremer, is based on mutual respect. He comes from a legal as well as technical background and is able to explain technical challenges clearly and precisely. We pride ourselves on our cost-cutting prowess, so some of the price tags for what he proposes to do tend to raise my eyebrows. But his trial experience has helped him argue his case convincingly. The proof is always in whether the technology enhances our ability to serve our customers.


Merle Lewis

Chairman and CEO

Northwestern Corp.

The focus has shifted over time from engineering and the value brought to operations and businesses during the industrial age toward skill sets of lawyers and people with financial backgrounds ina time of business transformation. As we move into the information age, we see a new type of discipline, one I see, at least within Northwestern, as residing within our CIO and technology group.

I do not subscribe to the view that the CEO needs to be the leading strategist on the use of technology. This approach may limit the opportunities of an organization. Certainly the CEO has many things to focus on in addition to the tools used in the e-commerce or information-based business applications. I see the transitiont to greater use of technology as a relatively permanent type of movement. You're really asking, when will this mature? I see the impacts of information on our business and how it's turning things into an e-commerce society as being very profound. I think this movement will extend well beyond our lifetimes.

The ClOs today need to develop a greater understanding of all aspects of the business and gain a better perspective of many other areas of discipline within a company. That depth will enhance their stature significantly as we look to succession planning. I think the phenomenon is new enough that it will still be some five or 10 years before you'll see widespread impacts of that, but I think it will happen.

As far as who is closer in the race-the CFO or the C10-you will see a kind of natural migration to individuals who are more oriented towards e-commerce. My view of the future is that north of 75 percent of future business will be information-based. Looking at that type of magnitude, those who are the closest to it and understand it best will just have a broader and more demanding skill set that is going to be needed in the CEO office. Certainly, both skills will be important, but the relevance will be shifting to the C10.

The most valuable CIO is going to be the type of individual who can step up and be a very significant contributor to the development of strategy. You'll see in many instances what may have been a previous form of operations innovated with the creation, distribution, and manipulation of information. We're going to need to find better ways of attracting customers, learning who they are, what they want, and how to satisfy them, all without meeting or talking to them. That's going to be a unique skill. How we take these new tools and create the intimacy of a one-to-one relationship has the potential to be absolute dynamite. The most successful ClOs will be the ones who can take that proposition and make it real for a company.


J.Peter Kline

Chairman and CEO

Bristol Hotels & Resorts

I think it is pretty clear that the role of the CIO-or other technology chief-is becoming much more critical to the overall strategic planning for a company, and that will continue. Ten years ago, our company spent very little money on management of technology and today, close to 20 percent of our corporate overhead is technology-related. So I think, if there were three corners to the stool in the past-with the CEO, COO, and CFO as legs-today it's a four-legged stool.

As far as succession is concerned, if someone is a manager of technology and an effective one, they're more likely to become a CEO. If they're a technology wizard but they can't deal with people, they're not any more likely. It's becoming progressively more difficult for a techie who doesn't have the basic managerial skills to rise to the ranks of even being CIO.

When you manage the technology department, it's a lot like managing artists. There are all kinds of dynamics that require a lot of management skills to do a good job of running them. And you need to have somebody making decisions about the direction of a lot of those investments so that you have a reasonable expectation that it's going to have a payback as opposed to just being the most current technologically.

The reason I don't necessarily think the CIO is going to be on the straight approach to the CEO

job is that unless you're in the technology business itself, technology is just part of a business, and you have to have somebody to manage how that technology gets integrated into your business. That's changing so fast that the CIO is absolutely a key job in most companies now.


Micheal Dubose

Chairman, President and CEO

Aftermarket Technology Corp.

I tend to agree that information access and flow is absolutely critical to today's businesses. I think as businesses move more towards teams, the need for communication and information becomes increasingly critical. I think also as business moves more toward e-commerce, the competitive landscape will be changing dramatically. The CIO, in my mind, should be the catalyst for identifying the information needs of the business as well as providing the access and distribution of that information. This is a significant change from the role of the CIO of the past.

There will always have to be a CIO, though maybe under a different name. But that individual will become increasingly integrated into the senior management team and process. CIOs and businesses, in general-and this means the entire senior management team-will become increasingly challenged as the market and organizational pace of change tends to exceed the ability of the enterprise information infrastructure and the associated tools to respond.

The challenge will be establishing an information infrastructure that's flexible enough to evolve ahead of the business needs, and the CIO will need to anticipate those changes and the future information needs of the business. I think in order to do that, he or she has to be an integral part of the senior management team.

As far as succeeding the CEOs of today, clearly it depends upon the individual. But increasingly those people are more capable of moving into the CEO role for some of the reasons I mentioned above. In order to be a successful CIO in the future, you have to have a broad understanding of the needs and capabilities of the business and how those components of the business inter-relate with the information needs. So I clearly think, increasingly so, CIOs will be moving into CEO positions.

And I think the CFO and CIO roles, as tracks to the CEO-ship, are probably comparable. The role of the CFO has changed and will continue to change dramatically. It's becoming much more strategic, much less of an accounting focus. So I see that race as neck and neck.


Jerry Tatar

Chairman, President, and CEO

Mead Corp.

I can't see the role of the CIO becoming obsolete in the foreseeable future. There are just too many things changing and too many aspects of the issue emerging at any point in time. But I guess, if I put on my imaging hat, and looked way out to the future, I could see where everybody was so knowledgeable about it and so comfortable with it, that it could be part of the way a business is run-but I'd have to stretch my imagination to see that happening right now.

The CIO is extremely important to our company, and I would assume now to most companies. In our case, the CIO works directly for me, and I wouldn't have it any other way, given his emerging role in the company. It's a critical aspect in the business for two reasons: 1) he's literally engaged in and in charge of a large and growing part of the budget of our company, both in the sense of variable costs and in terms of capital costs; and 2) besides having this responsibility for big dollars and important hardware and software initiatives, we're trying to use all these vehicles to redesign our business processes to make them more effective and more efficient, and our CIO's influence on all that is very significant.

Five, 10, or 15 years ago the CIO role was viewed as a very esoteric speciality area. In many respects, the inner meshing of their job with the basic business was somewhat tangential, but that's not true at all anymore. The things we're doing with technology-ERP systems, e-commerce, and the business process redesign that accompanies all this-are right at the heart of managing and running a business. So I think the probability of ClOs gravitating toward division presidencies, presidencies of companies, and CEOs has got to be going up.

There are tracks to the CEO from both the CIO and CFO spots. I would say the CFO has probably some higher probability than the CIO, but again that gap is changing and those lines could cross in the early part of 2000. I would not overlook the possibility that the CIO and CFO roles could become merged down the road because the initiatives the CIO is now working on strike me as being very much intertwined with the efforts of the CFO. And if you find the right person who has expertise and experience in both, it would make a wonderful combination.


Tom Rogers

President

NBC Cable

The CEO has to be the CFO, general counsel, chief marketing strategist, the head of sales, head of personnel, and so on.

The CEO has to be almost every element of a company. I think the difference between now and years ago is that a lot of those other functions I just mentioned were always considered issues that got most of the CEO's time, so the CIO issues were often things that were off in a cubbyhole someplace and maybe once in a while they got talked about or dealt with on the CEO level.

Now I think they get dealt with at the CEO level as an equal of every other function and in some ways, it's emerging as even greater than any other function because of the importance of e-commerce, the Internet, interactivity, and the role of information technology in all of that. The CIO's role is not eclipsed by the CEO but becomes more integral and more important and probably takes up much more of the CEO's time.

Ten years from now you'll probably find that the CIO has been a more typical path to being a CEO. You've had the path of CFOs, the COOS, the heads of sales staff, but, because e-commerce and interactivity are that much more important in the conduct of day-to-day business, 10 years from now you'll probably increasingly see the CIO role as a stepping stone to the CEO office.


Bill Clifford

President and CEO

Gartner Group

For much of the past 20 years, the CEO really dealt at arm's length with the CIO, and it's only been the more enlightened of the CEOs that have really appreciated and valued the role that technology can play in their organizations.

Today I couldn't imagine a CEO in America who is not challenged to be technology aware in just about everything they do. You look at the P&L and find you're spending some 5 percent of your revenues on IT. So you've got one of your major cost elements of the enterprise right there on the technology line. From the CEO's point of view, if you're not technology astute, you and your enterprise are at a very significant disadvantage. And then I'll say these two words: Y2K and e-commerce. If a relationship didn't exist between the CIO and CEO before, then the Y2K issue was an excellent opportunity for them to get to know each other on a very intimate basis.

What we've generally found is that organizations have adopted two kinds of roles: the role of the CIO, which typically refers to a business strategist responsible for translating the corporation business strategy into a set of technical initiatives, and the CTO, who is the infrastructure owner. So there's really a combination of roles there.

The more important one in terms of the CEO's relationship to technology is the classic role of the CIO -that is, the person who is responsible for sitting at the strategic planning table of the corporation, for understanding technology but also for being a business partner with the CEO, translating business needs and strategy into technology initiatives; it's an invaluable role and one that is going to challenge many of today's ClOs in terms of their prior skill sets. Not all are equally qualified to do those kinds of things. We've seen many corporations use the CIO role as a developmental role for upcoming and emerging future business leaders where an individual might be doing very well in an operational, finance, or planning role and they'll move for a two-year tour of duty into the CIO-ship to ensure they have the strong technical awareness, so they become the well-rounded business executive we'll all need in the future. But there will definitely be a place for the CIO/CTO in the future.

The CIO who aspires to be the CEO is going to have to demonstrate strong fundamental business skills, operational success, broad operations skills, good interpersonal skills. You're going to need to be broad-based no matter how you attempt to get to the corner office. But one of the things on your curriculum vitae will be a demonstrated awareness, knowledge, and practical application of technology because tomorrow's businesses are now and will be emerging to be technology enabled and technology driven.


Bert Ellis

Chairman and CEO

iXL Corp.

The CEO is going to be heavily engaged in the technology discussion because this is either going to be the channel or one of the channels. It is going to be a major focus for companies or they're going to get left in the dust. And the CEO is going to need a partner to help him or her make these technology and application bets. The CIO can be an active part of this and enhance his or her own standing in the company as well as engage in something that in my view is fascinating-to transform their whole business and be right there on the leading edge of it.

Or they can take the position that this is loosy goosy, it's not fully cooked, it's too racy, and we want to think about it longer. But if you try to take an Internet application, think about it, perfect it, build the whole thing behind the firewall, and get it all 100 percent right before you do anything with it, you're going to be 12 or 24 months behind somebody else, and the game's over.

In our company, when we approach the CIO, it's no longer ready, aim, fire-or even ready, fire, aim. We just take the "ready" out. And now it's just fire, aim. It's a different mindset that says, "I'm not just here to protect that big box over there that we bought three years ago and amortize every nickel out of it, and get as much use out of it as long as I can until it just quits."

This is a real-time evolving process that's changing every single day, and it's never gong to be perfect, because by the time you get there, somebody else has gone further. CEOs are looking for people to help them with that decision. They're not looking for an anchor that they have to try to drag along. If that's what it is, they're going to say don't come near me. But it's a much more proactive position. It's not somebody you stick down in the basement growing mushrooms and watching a computer.

In 10 years, the ClOs are going to be CEOs-if they get it. If they jump on this right now, they can own the biggest section of growth in their company.

Techscape

Ready To Go Global? by Rory J, Cowan, president Lionbridge Technologies, a Waltham, MA-based product globalization services company With more start-ups "going global" earlier than ever before, all companies are rethinking management of their international operations. Specifically, they are giving special consideration to localization-the process of translating text and re-engineering software components of a product to operate in other languages. This is what essentially keeps a product sold in one country looking and behaving the same as the same product sold on another shore. Put simply, the days are gone when heavy manufactured exports needed only their "on-off" switches translated into different languages. With software and semiconductors permeating everything from PCs to refrigerators to cars, pervasive localization programs are more important than ever. A 1998 sports utility vehicle, for example, has more computing power than the original PC. As a result, dashboard displays, controls, brochures, and the traditional glovebox material all constitute part of the "user interface." The challenge for automotive manufacturers is to break the localization activities for each of these parts away from their production or functional operating groups, and centralize localization in order to achieve consistent terminology and an even "look and feel" for the product. By "internationalizing" products at the design phase, companies can communicate the need for consistent standardization to their R&D organization, development partners, and subcontractors. Engineers can design product screens, help files, and systems diagnostics to be "double byte enabled" in order to accommodate the extra space needs of Asian characters, for example. This will ensure speedy product deployment for that big Asian order without expensive and episodic internationalization campaigns. When you have to go back and re-engineer to bring your product into other markets, its time to re-examine your design process. A repeatable localization methodology is a detailed, documented process that global sites adhere to strictly; each site needs to follow the same procedures and processes. The product globalization process includes every step in the sales channel. This means that both hard copy and on-line versions of sales, dealer, and service/support materials will contribute to the "feel" of your corporation and reinforce the "ethic" of your product. This attention also ensures consistent terminology, which reinforces the verbal "identity" of the company, throughout the book-to-deliver process. Since the purchase and delivery process constitutes an increasingly large percentage of a product's perceived value, a consistent channel experience will directly affect product pricing leverage and after-sale customer satisfaction. If Ford were to take its Taurus into both France and Germany without a repeatable localization methodology, the result would be cars, supposedly the same, but with two completely different user interfaces. This disparity would damage corporate image and give a sloppy reputation to a car that has a solid recipe for success in the U.S. Worse still, without a repeatable methodology, the release date for the cars in the two countries might not coincide, hampering advertising and marketing efforts. For an auto manufacturer, identity is paramount with the consumer. A successful globalization strategy should include a repeatable globalization methodology, independent of target language, that becomes part-and-parcel of the product release cycle. The main benefit to this approach is cost control. Since globalization "overhead functions," such as process and revision control, cost far more than the language component, repeatable processes leverage project management over multiple languages, without creating duplicative overheads in each country. The Internet has further transformed the outsourcing process by enabling access to the highest quality translators and engineers at the most competitive price anywhere in the world. When Sun's JavaSoft division was planning the European release of its Java Developer's Kit in five languages, the company used a rapid globalization methodology. As a result, the job was finished in six weeks, test and rollout costs were reduced, and Sun maintained a polished image overseas. With all the advantages of global communications, lower taxes are no longer a great enough incentive to move staff and production facilities overseas. The optimal globalization model is to sit tight, keep fixed expenses to a minimum, and work with an outsourcing partner to keep as much expense as variable as possible for as long as possible. This flexible overhead model guards against increasingly volatile demand curves, and the subsequent facility closure costs which almost always occur. Going global is complex and costly enough-with individual cultures, customs, and regulations. Standardizing product development across continents is a good way to make the job easier.

FRONT LINESTake care not to be so focused on the Year 2000 problem that you miss the significance of 1999. While up to now, the personal computer industry has largely thrown its effort toward-in the words of a familiar mantra-putting a PC on every desktop and in every home, 1999 seems poised to be the year in which that starts to change. From now on, expect to hear more and more about "information appliances." In fact, expect to hear that term so much, you'll be as sick of it as you were of the "information superhighway."
Get ready to hear all those PC-mongers-who've spent years extolling the virtues of today's computers-now putting forth exactly the opposite points: that the PC is just too complex and difficult to use; that it's too much work to surf the Web; that it doesn't make sense for everybody to have a computer. The solution, they'll tell you, is an information appliance-a user-friendly device designed for just one purpose (such as surfing the Web), with the ability to network and share information with other such appliances. According to International Data Corp., the global market for these gizmos is "on the verge of explosive growth"- from 3 million units in 1997 to 55.7 million units in 2002. Cheap and portable, these tech tools will eventually blend into our homes and lives. Your new camera might well communicate with your new doorknob, your new address book, or your new shoes, in ways that actually make sense and save you time. Think Inspector Gadget without the bumbling and malfunctions. That doesn't mean that the familiar monitor-hard drive-keyboard-mouse-modem configuration will disappear, But it does mean the emphasis will shift from souped-up systems that do everything to a variety of objects stripped down to their essence. The good news? Computers will be more closely aligned with how we live; we won't have to sit in front of them for hours at a time. The bad news? Apparently we'll never actually have that cool era of robots that act like people. The new book, The Invisible Computer, by Hewlett-Packard executive Donald A, Norman, suggests several possible information appliances, Among them
  • Photo Appliance. Small and inexpensive, so carry it anywhere. Print photos instantly; transmit them to a storage device; send to a television set; fax directly to a friend; send to a colleague's camera.
  •  Home Medical Advisor, Diagnose yourself with devices that have sensors that are inexpensive, rugged, and reliable enough for home use.
  • Address Book and Pocket Calendar. Aim the book at the phone and hit "send" to call someone; automatically contacts home or office address book to update new information.
-Seth Oltman

WEB WATCH CEOs don't need Bill Gates to tell them that legal issues can plague every aspect of a business. Fortunately, the Web offers a plethora of sites that help executives, who may not have law degrees, understand the constantly changing legal landscape and keep apprised of trends in everything from antitrust to the brave new world of cyberlaw. www.ipmag.com Intellectual Property-a mirror image of the print publication of the same name-is "an on-line magazine about the real estate of the 1990s," according to its publishers. The site provides in-depth articles on laws governing ideas, information, and technology. Recent offerings look at high-tech patent-sharing deals, trademark protection in the EU, and "antitrust harmonic convergence," which describes why "the stars are lining up against Microsoft." Most pieces are written by lawyers, and the subject matter can get a bit esoteric, but for the most part, the site delivers relatively straightforward material anchored in the business world. www.ljx.com Well-designed and comprehensive, Law Journal Extra provides wide-ranging coverage of the legal world. You'll find the latest in Legal Headlines and Web News Roundup. Much of the site is aimed at attorneys working in private firms, but there's plenty for the corporate lawyer. For example, recent articles look at IRS reform, the rules covering communication between company lawyers and employees, and how antitrust law might affect supplier relationships. The Practice Areas section divides stories into categories, including insurance, banking, and securities. An Intellectual Property Center offers resources forthe world of trademarks and patents. If you're in a hurry, a biweekly LJX Express e-mail newsletter covers corporate law, intellectual property, international law, technology and law-practice management, and litigation.  www.lawmaney.com Created by the Euromoney Legal Publications Group, Lawmoney.com draws on the resources of four print magazines: Financial Law Review, Managing Intellectual Property, International Tax Review, and International Commercial Litigation. Articles provide a broad perspective of legal issues around the world, with an emphasis on financial and business matters. For current coverage, there's Hot News; for deeper insights you can browse a collection of articles by such topics as Company & Corporate, EU Law, and Commercial Property. You can also click on a world map to call up stories about a particular region. Before you leave, stop by the Deal Data section, where you'll find tables showing who in the world does what in fields such as bond markets and M&As. www.antitrust org Maintained by Vanderbilt's Owen Graduate School of Management, the site is neatly divided into sections on Mergers, Price Fixing, and Vertical Restraints. Each section is divided into subcategories such as Economic Research, Case Studies, Law and Policy, and In the News, which provides a bridge between academic viewpoints and current events. Looking at a case study in Mergers, you'll find links to DoJ complaints, expert witness testimony, court decisions, and appeals documents. For more interactivity, take part in ongoing discussions of topics such as noncompete clauses and mergers. You can even take advantage of merger simulation tools used as teaching aids at the university. -Peter Haapaniemi
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