Approaching the board
Managing the board of directors’ expectations can be a tricky task for a CTO — and one that requires some advance planning
As a result, the role of a good CTO is to try to influence how the board thinks — or at least try to manage its expectations — by building credibility, offering insights into current trends, and helping identify key decision points.
CTOs can build credibility with their boards by being sensitive to current ROI needs. By focusing on IT projects that show a tangible benefit in a relatively short period of time, a CTO seems less a spendthrift and more like a partner of the board.
“Most of the board investments I see must have payback in a calendar year, and a lot of strategic investments are on hold,” says Kevin Vasconi, CTO and senior vice president of technology at Covisint, a Southfield, Mich., e-business exchange for auto industry suppliers owned by a consortium of car manufacturers. “If the payback will take more than a year, I will not take it to the board,” he adds.
Vasconi knows that to build credibility, he must approach board members differently these days because the boardroom climate has changed.
“Everybody is more risk-averse than they were a year ago. Obviously it’s got something to do with the dot-com bubble bursting, and the equity positions that were taken before that, [which were] based on superinflated valuations. So now boards of directors are back to basics,” Vasconi says.
One way to boost credibility and ease the concerns of risk-averse boards is to show that the CTO understands the business, says Deb Mukherjee, CTO of consulting company Cognizant Technology Solutions in Teaneck, N.J., who was, until earlier this year, the CTO of Farmers Insurance Group in Los Angeles.
At Farmers, Mukherjee used the relative costs of selling insurance policies via the Internet compared to selling them through Farmers’ 14,000 independent sales agents. It was less expensive using the Internet, but Net sales were likely to alienate traditional sales agents. So, to win board approval, he advocated an Internet pricing strategy that pacified independent agents by giving them compensation for Internet sales made within their sales territories. It was a technology solution married to a business one, and it won board approval.
Another way to gain a board’s trust is to identify and address its fears. “Boards today are more worried about the ROI of e-business and about buying technology products from firms that may not be around in a few months,” Mukherjee says. “As a result, you have to give them a lot of data about vendors and produce a lot of research material. When Farmers invested in a Seybold CRM system, I had to make a big case about the opportunity it presented.”
Technology plus business
CTOs can increase their value to boards and boost their own positions by giving board members insight into the intersection of technology and market forces during the coming 12 months to 18 months. This makes a CTO stand out as someone who is more than a techie, and therefore worth listening to when it comes to strategies for future success.
“What makes a great CTO is the ability to meld what is happening with the technology with what is happening in the marketplace,” says Phil Carrai, a board member at Internosis, an Arlington, Va.-based systems integrator that represents the venture capitalist Morino Group in Reston, Va. “The bad CTOs are purely technology focused.”
To convince board members he’s a big-picture guy, Mukherjee offered the Farmers board a vision of his job as a technology strategist.
“I told them my job was to ensure that every technology investment we made was related to past and future investments, that we were using a road map, and that the choices to be made were in the types of technologies, products, and vendors we used,” Mukherjee says. “I always used one chart, and made sure they knew it by heart. That was the trust element — I always used the same chart that I had used the last time I talked about an IT investment. I knew that if I ever changed that chart I would have a credibility problem.”
Sometimes IT executives find that their span of control, and thus the breadth of their business understanding, gives them more credibility with the board. At HIP Health Plan of New York, the CTO doesn’t deal with the board of directors. Instead, the CTO’s boss, Executive Vice President for Operations and CIO John Steber, says he can speak more broadly to the board because he heads both business and IT operations.
“We don’t have the situation you find in some companies where the operational departments are fighting IT. Here there is a common strategy for business units and IT,” Steber says.
The other thing giving Steber clout is that IT infrastructure investments for the past four years — about $15 million a year — were used to shift employee computer use from 3,270 mainframe terminals to PC Web browsers and have dramatically lowered the firm’s administrative costs. These kinds of big-picture results give CTOs breathing room, he says.
“We showed the board that they didn’t have to look over our shoulder,” Steber says. “There is still board oversight, but the board members are more comfortable that we can produce what we say we can.”
CTOs who know their own businesses can help the board crystallize critical decisions, such as whether to keep IT functions in-house or to outsource them. By being out in front on such issues, CTOs can influence future IT budgets.
For example, Allan McLaughlin, senior vice president and CTO of online information service LexisNexis in Dayton, Ohio, convinced the board of parent company London-based Reed Elsevier of his IT department’s worth through an internal growth vs. outsourcing analysis. Part of his success came by using past experience, gained while educating Reed Elsevier’s board about Y2K.
McLaughlin advanced a business case for basing disaster recovery plans on new in-house computer equipment rather than an outsourcer’s infrastructure. McLaughlin’s idea was that a second in-house datacenter constructed for disaster recovery could be used in the meantime to generate additional online business services. The board bought it, and IT spending will take a new direction as a result.
“I think my recommendation made a difference, because a lot of people on the board weren’t sure what to do [about disaster recovery],” McLaughlin says. The project resonated with the board because it would do more than just save money, he adds.
It also pays to know the board’s hot buttons. Another reason LexisNexis executives succeeded with the datacenter project is because they played to the board’s well-known reluctance to fund small IT projects that benefit only part of the business, notes Keith McGarr, global CTO of Reed Elsevier.
“These days the board is focused more on global, larger-scale IT projects that involve sharing between divisions. The board is very supportive of those types of initiatives, and so we were able to sell [the datacenter project] to them,” McGarr says.
“The big question that’s being asked by boards these days is, ‘How much revenue is technology really driving?’ So for your project to get funded, it has to be doing more than just saving costs. It’s got to be adding value to the business in the form of more revenues,” McLaughlin says.
