April 28, 2005 By Tod Newcombe
Enter any 7-Eleven and you can buy something to eat, something to drink and perhaps a newspaper. Nobody thinks about how those fresh muffins reached the store in time for the morning rush, or how there are just enough bottles of soda or chilled water in the cooler on a hot day. All they know is that 7-Eleven's chain of convenience stores seems to have what you need when you need it. It's fast and it's, well, convenient.
Store managers use mobile computers and scanners to take inventory of the more than 2,500 items the chain keeps in stock and to place orders daily. Touchscreen point-of-sale registers and scanners keep track of sales. Managers also tap into the chain's database to assess the top-selling items to keep on hand. Computers even track the weather across the country on a daily basis, adjusting orders throughout the supply chain so stores have the right products when it snows in Iowa or when a heat wave arrives in Texas.
InformationWeek magazine described 7-Eleven as a "company that has staked its future on technology." It's easy to see why. The retail industry is hypercompetitive -- just look at what Wal-Mart has done -- and convenience stores are in the thick of it. Profit margins are razor thin, and 7-Eleven is determined to stay on top, so IT is a key underpinning to its business strategy, according to Keith Morrow, vice president of information systems for 7-Eleven. "This industry changes rapidly. What is convenient today could change tomorrow," said Morrow, reflecting on the critical role IT plays in keeping pace with change in the retail industry.
"I have to execute well," is how he described his role, which these days is more change agent than IT director. As CIO, he has to come up with new IT solutions that will keep the chain nimble in terms of new offerings, which in turn keeps customers happy and coming back for more. That makes his job exciting and puts him unusually close to the business side at 7-Eleven, where he must use technology to constantly modernize the multibillion dollar firm, rather than just follow mandates.
Mergers, Globalization Drive Change
That's how today's CIO should view his or her role, according to Graham Waller, vice president for Gartner's Executive Programs. "The CIO position is one of few in an organization that sees across the enterprise," he said. "Unlike other C-level executives, CIOs understand how the work of an organization occurs on a daily basis, they understand how data flows and how that relates to the enterprise."
That's important because the private sector is becoming ultracompetitive, thanks to corporate mergers and globalization. "It is the confluence of globalization, corporate mergers and the need to meld business process and technology across the enterprise that makes the transformational agenda more complex," explained Waller. As a result of this trend, and because of the CIO's unique position, leading IT executives, like Morrow, are playing dramatically more influential business roles than in the past. A recent study by META reveals that a new class of CIOs has emerged -- executives that recognize the position's new demands and are committed to being enterprise change agents.
These change-agent CIOs aren't an anomaly, according to the study. Forty-seven percent of those surveyed by META indicated they have broadened their responsibilities beyond the traditional CIO-only role to absorb some form of business responsibility.
But another survey, conducted by CIO magazine, reveals that while CIOs think IT should lead business units rather than merely support them, reality says IT's No. 1 impact on business is to cut costs. The same survey also found that the proportion of IT executives who report to their CFO is on the rise at 30 percent -- up from 11 percent three years ago. That trend could hurt CIOs' ability to broaden their role to that of change agent. Without a direct relationship with CEOs, IT executives could find it tough overcoming barriers to transformational success.
These numbers may help explain, in part, Waller's contention that today's IT organizations are becoming increasingly polarized. Some companies, like 7-Eleven, are positioning their CIOs to be change agents. Other firms believe IT has become an expensive support function. For these companies, IT budgets are cut repeatedly, shrinking and weakening technology's purpose. These IT departments and their CIOs are on a downward spiral, unable to do both architecture and business transformation, explained Waller. "Eventually they remain simply to make sure the lights are turned on."
Of course, Waller is much more interested in what the other organizations are doing with their CIOs. "These organizations let IT play a hybrid role, involving business and transformation," he said. "We're starting to see more back-office business and IT roles being combined. The role of the CIO is to understand how those processes come together."
7-Eleven's Model Market
Waller could have been talking about Morrow, who describes his role, and that of IT at 7-Eleven, in strikingly similar language. He talks about using IT to bring about progressive change at the franchise chain. "We're bringing IT closer to the business side so we can tailor our business to the pace, speed and demand of the industry."
For a $12 billion business, Morrow's division is decidedly light, with only 175 IT employees responsible for approximately $90 million in capital expenditures. But 7-Eleven is a big believer in outsourcing, and Morrow is quick to note that the rest of the firm's IT staff -- three-quarters -- are contracted out.
Morrow, who has more than 22 years of experience in IT and began working for 7-Eleven in 2001, reports directly to CEO James Keyes. Two broad policy bodies oversee company IT. One takes up capital allocations issues. The other is an internal IT steering committee that meets every two weeks to consider more immediate issues that require guidance and decision-making. (Morrow also has a link with public-sector governance by virtue of being a member of the board for the Texas Department of Information Resources, under the leadership of CIO Larry Olson.)
At 7-Eleven, business transformation goes by the term "model market," and IT allows the company to integrate and execute the initiatives that make up this concept. The goal, Morrow said, is to serve customers. The company meets this goal by blending proven technology with knowledge and information sharing, allowing store managers to choose products that are right for their customers, manage their inventory and train employees through e-learning.
At the core is the Retail Information System, a proprietary computer system that allows individual store managers to keep their shelves stocked. The system includes a plethora of IT tools -- including mobile scanners for inventory and weather tracking software -- designed to keep information flowing and products moving as fast as possible.
"The question we keep asking ourselves is, 'Will our time-to-market capabilities keep us relevant to our convenience store customers?'" said Morrow. "It's a challenge and opportunity."
Portal Transforms Financial Institution
If 7-Eleven provides its customers with the many little things they need to get through the day, MassHousing helps a segment of the population with perhaps the most important thing they need to live: affordable housing. Since 1970, the independent public authority has provided more than $8.5 billion in financing for mixed income rental housing and mortgage loans for first-time buyers in Massachusetts.
However, in recent years, MassHousing's ability to operate was slowly choking on paperwork with its partners -- more than 150 banks -- that take the capital raised by MassHousing in the form of investment bonds and provide below-market-rate loans and mortgages to low-income families.
Costs skyrocketed as high as $1,600 per loan, and processing a single application took nearly two days, according to MassHousing IT director David O'Connor. While O'Connor doesn't describe himself as a change agent, he clearly has taken on that role as part of MassHousing's strategy to reinvent itself as an affordable housing provider.
For the last two years, O'Connor has aligned his IT department of 30 with the agency's business side to develop an Internet portal -- eMassHousing.com launched in April 2003. The portal has replaced the paper-based loan application process with its business partners. With the portal, MassHousing cut the time it takes to complete an application down to 10 minutes and slashed the processing cost down to a more manageable $600 per loan.
Not only has the strategy saved MassHousing lots of money, it also allowed it to expand business, which is crucial in Massachusetts where the housing market is extremely tight, especially for low-income families.
"We are known as the folks who implement the strategy," said O'Connor, adding that his relationship with other executives in the agency is much stronger than in the past.
IT Helps Dell Beat the Competition
Financial institutions typically have large IT budgets as a percentage of their revenue, according to CIO.com. That's not the case, however, with the manufacturing sector. Randy Mott, senior vice president and CIO of Dell, knows the numbers. "The amount we spend on IT at Dell is 1.4 percent of revenue. That's down from 2 percent in 2000," he explained.
Compare that with your typical government IT budget, which runs about 6.3 percent of revenue, according to CIO.com, and you realize even one of the most profitable PC firms in the country is stingy when it comes to IT.
Being fiscally tight, however, doesn't mean lacking in innovation and benefits. Mott said the annualized return from Dell's IT projects has hit $1.6 billion. In 2005, his staff of 3,500 IT employees, based in 34 countries, will undertake nearly 800 projects. Mott said his team tightly manages and measures every initiative to squeeze such benefit out of so many projects while operating with such a tight budget. "We have a closed-loop feedback on managing and evaluating projects," he explained.
But it's more than just being good IT managers with a critical eye on performance. Mott's IT department is an integral part of Dell's business strategy. "We have to understand the business we're in because we're part of the business. We sit at the table with the other executives, look at IT strategically and make sure we are aligned with the different business units," he said. And Mott's not the only one at the table. His team members are also in tune with what Dell's various business units are doing. That level of involvement has earned them respect from Dell's corporate executives.
Integrating IT with Dell's business is crucial if the company is going to retain its lead as a PC manufacturer. Mott said the company is expanding in terms of product offerings, and it's growing globally. "Supporting all that will be a challenge," he admitted. "We need to get applications in place that add value, not cost."
Upsizing Individuals at Energy Firm
When global consulting company Gartner surveyed 1,300 CIOs earlier this year, they rated three issues as the most critical challenges. One was the CIO's relationship with his or her CEO. Another was the changing role of IT. The third had to do with people and skills. "Only 39 percent of CIOs believe they have the right people to meet current and future business needs," Gartner reported.
Lynne Ellyn, senior vice president and CIO of DTE Energy, a Detroit-based diversified energy company, knows how critical skilled IT staff is for a company with 11,000 employees and $7 billion in revenue. Four years ago, she had 1,100 people on her staff. Today, the number has been whittled down to 800. "We're smaller in size and budget, but have greater responsibility," she remarked.
The rightsizing of DTE's IT organization comes when the firm is trying to transform itself through enterprise-level decision-making. This has led to a more rigorous financial analysis to justify IT spending on a business case. As a result, DTE operates on a new model: Business decides what gets done, and IT decides how it gets done.
So how does Ellyn do that with less staff? "My belief is that you can downsize an organization if you upsize the individual," she said. Now IT staff undergoes rigorous training to create cross-functional IT teams -- and not just IT training, but also business training. "Everybody is cross-trained and has a better understanding of how different services affect other services," she said. "As a result, our IT workers have to think broadly."
Another change Ellyn implemented was more insourcing of jobs. "We've moved from a model of having approximately 50 percent of staff contracted out down to just 30 percent. That has improved both motivation and productivity in the work force. And we have strengthened our project management and portfolio management skills."
Ellyn is counting on those skills to help her staff execute a number of enterprise application projects in the months ahead. "We are under never-ending pressure to do more with less," she said. "Our budget is 50 percent smaller than it was in 2000, but our workload has increased significantly."
Collaboration Key to Success
Making sure Ellyn's staff perform as expected won't be easy. As CIO, Ellyn's role has changed to one in which she must constantly communicate to her staff and the rest of the firm. She calls it "evangelizing," but she's dead on in identifying effective communications as an essential skill for any CIO. In fact, it's the most important skill a CIO can have, according to a survey by CIO.com.
Gartner's Graham Waller agrees, in part, because being a change agent today doesn't mean charging ahead unilaterally, but working collaboratively. "CIOs that want to play a more transformative role can only do it by leading collaboratively," he said. "Those who try to lead on their own will end up with a big target on their back."
By working collaboratively, CIOs can act as a catalyst and arbitrator for enterprise strategies by working through issues and finding common ground. But it won't be easy, Waller said. CIOs must use a business process improvement model and portfolio management tools to manage outcomes. Standing in their way are organizational politics and cultural resistance to change, which is endemic in any institution, public or private.
"CIOs have a lot to bring to the table when it comes to making transformation happen, but changing people and culture will be their biggest challenge," Waller concluded.
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