Mid-Market Report: Best Practices for Tech Operations

By Baselinemag  |  Posted 2006-11-06

Some are public, some are family run, some are owned by private equity firms. Their ranks include manufacturing companies, service providers and government contractors. They would seem to have more differences than similarities.

But from the perspective of their information-technology efforts, mid-market companies have more in common than not. Their I.T. budgets are usually limited. They're usually better at responding to immediate needs than formulating long-term strategy. They often let their technology systems evolve on a decentralized basis. This reduces their efficiency, increases the time staff has to spend putting out fires and can make their CIOs look ineffective and expendable. Some of these challenges were evident in an August survey by Ziff Davis Media's CIO Insight in which 51% of small-company I.T. professionals said they work in departments that are changing faster than ever before.

To learn how these companies are addressing their I.T. challenges, Baseline sought out two management experts and four CIOs currently working at midsize companies—those with $200 million to $700 million in revenue and with about 100 to 2,500 employees. Here's a distillation of their best-practice advice for managing I.T. in a half-dozen areas.

1. IDENTIFY CORE PROCESSES Every company has at least one process that's central to how efficient it is across its businesses. For a brokerage firm, this might involve how it handles client data. For a cable provider, this might be how quickly the company gets new customers up and running and adds them to its billing system.

At defense company VSE Corp. (2005 sales: $280 million), the core process is purchasing from subcontractors. The Alexandria, Va.-based company retrofits Navy ships for sale to other countries, and often buys parts and labor from other companies en route to fulfilling a contract. But its bidding process, which must comply with federal regulations about the use of taxpayer money, has largely been done via paperwork. That is not efficient, says CIO David Chivers. If a bid gets lost, work has to be re-created. Even a simple delay in approval signatures can put a project behind schedule and force it over cost.

Six months ago, VSE decided to automate the bidding process and move it to a secure Web-based system. This will reduce the amount of time VSE has to spend making copies of different bids, gathering them into folders and sending them to the government agency that made the requisition. It will also reduce the likelihood of bids being lost altogether—they'll be sitting on a server, accessible to the many parties involved in government work. VSE is paying TSA of Mechanicsburg, Pa., about $190,000 to provide consulting and build the system, which Chivers expects to roll out early in 2007. "This will help improve the efficiency of what we do," Chivers says.

Next page: Centralize Decision Making

2. CENTRALIZE Decentralized decision-making is a corporate catch-phrase, but for small-company I.T. departments it can be a dangerous strategy. The gaming company Churchill Downs (2005 sales: $409 million) used to let each of its five racetracks and its television unit buy technology independently. As a result, its I.T. department ended up having to support three different operating-system platforms—Microsoft, Unix and Linux—and a half-dozen wide-area networks. Jay Rollins went about changing this after he joined Churchill Downs as vice president of information technology in June 2004. "We weren't really leveraging the size of the company on vendor management purchasing," he says.

Rollins standardized on two vendors: Microsoft for computing and Verizon for telecommunications. The Microsoft decision was strictly pragmatic: Microsoft expertise was readily available near Churchill Downs' home base of Louisville, Ky. The Verizon decision was more explicitly economic: By offering the company "a full book of business," Rollins was able to negotiate a discount and save about $600,000 a year.

Another mid-size company that has found a way to centralize I.T. is Installed Building Products, a privately held subcontractor that sells and installs insulation, garage doors and other products and has offices in 29 states. Every time Columbus, Ohio-based IBP buys another company, it inherits another computing environment. The acquired businesses generally aren't big—some have as few as 20 employees—but CIO Marty Luffy says, "You have the same set of problems you'd have at a big company, just on a different scale."

Unaddressed, the differences in systems—especially for financial controls—would make it hard for top management to be certain how the company as a whole was doing. So every time IBP buys a new company, Luffy dispatches a team of two to three I.T. workers who install IBP's core database system (it's based on Microsoft SQL) and stay around to train the new company on using it.

Next page: Outsource When Possible

3. OUTSOURCE Getting outside firms to handle routine I.T. matters—the help desk is one example; commodity infrastructure is another—can be a great idea. It's a mistake, though, for midsize companies to entrust mission-critical I.T. work to outsiders. For one thing, firms in a position to provide affordable I.T. contract services to midsize companies may not have the skills to do complicated custom work. And sometimes their deficiencies aren't obvious until a project's completion date is frighteningly near.

There are exceptions to this rule about not giving key assignments to third parties. The customer relationship management system at Churchill Downs is a core application, providing information that helps management get racetrack customers to wager more. Yet the Web-based system the company uses, Epiphany, runs off complex application servers, and the e-mail campaigns it enables often require JavaScript development. Rollins' 28-person staff was not used to dealing with these technologies, so he handed off the Epiphany implementation to Knowledge Tranzfer, a Dallas-based consulting firm. "We still have employees on staff that drive where we go with this application," Rollins says. He adds that while he'd like his team "to eventually manage more of the system," he's not rushing things.

Next page: Adopt New Technologies

4. ADOPT NEW TECHNOLOGIES Companies don't necessarily need an elaborate system for evaluating new technologies. The problem comes when they have no process at all. "I'm working with an insurance carrier in the $10 billion range that does not have a regular defined process for gathering business requirements," such as the design of a system or the number of users it will ultimately have to support, says consultant Chris Curran at Diamond Management and Technology Consultants. "It doesn't have to be fancy," he adds. "But you do need a standard process," whatever the company's size.

Dismayed by the babble of systems that resulted from his company's ad-hoc procurement approach, Churchill Downs CIO Rollins established a two-step process and a project management office to oversee it. In the first step, managers seeking new technology create a one-page document that explains the business benefit—usually a productivity gain, revenue increase or cost savings. The projects that pass muster get evaluated by a management committee, which assigns a priority to projects it approves.

Next page: Manage the Budget

5. MANAGE THE BUDGET At big companies, it's standard operating procedure for a CIO to sit down with the chief executive or chief operating officer and discuss the I.T. budget for the coming year. The same thing should happen at midsize companies, according to Curran. Cost-plus budgeting—in which the chief financial officer calculates a percentage increase over the previous year and "just hands the head I.T. guy his budget"—is a bad sign. While that calculation needs to be done, it is insufficient without a separate bottom-up analysis, Curran says.

CIOs should also have the discipline to do periodic checks of their I.T. budgets during the year, perhaps on a quarterly basis. The point is not just to see whether expenses are under control. It's also to determine if modifications are needed to support new needs that have arisen on the business side.

"At the end of the day, I.T. is a support organization," says Gabrielle Wolfson, CIO of $433 million (2005 sales) Par Pharmaceutical in Spring Valley, N.Y. "You try to work up front, but nothing is perfect."

Next page: Just Say No

6. JUST SAY NO Information technology at medium-sized companies may be primarily a support function, as Wolfson says, but that doesn't mean "Yes, we can" is always the right answer. Jeanne Ross, principal research scientist at MIT's Center for Information Systems Research, recalls how the incoming CIO of a consumer products company once objected to the decision to plow ahead with a global human-resources system. "He said, 'Who's going to take blame for this if it fails?' They said, 'You.' He was able to push back," Ross says. "CIOs have to be savvy enough to say, 'I can't take responsibility for that.'"

Of course, as with a lot of situations in business, you also need to be savvy about how you say something isn't going to happen. "The ability to say no or to force management to prioritize is important to the well-being of the staff and the CIO in particular," agrees Luffy of Installed Building Products. "But you have to have done enough for them so that when you do say, 'Wait a minute,' they'll listen."

Business Smarts Help Tech Staff

There is so much hands-on technical work at a medium-sized company that you'd be crazy to join its tech department without being well-versed in Microsoft software, BlackBerry support and Internet security. But if technical know-how is a prerequisite, an ability to understand business is increasingly the key to getting ahead.

Nowhere is this more obvious than at Par Pharmaceutical, a drugmaker in the process of adding branded prescription drugs to its lineup of generics. While business-I.T. dialogues are limited to a few high-level executives at many medium-sized companies, at Par such conversations are now part of the job description of many I.T. workers.

Since joining Par four years ago, chief information officer Gabrielle Wolfson has been increasing the I.T. department's use of such staff, whom she calls business analysts. "It could be someone who has been in purchasing for 10 years, or a CPA who decides to go into technology," she says.

About one-third of the 30 I.T. staffers at Par now have the title of either business analyst or systems analyst. Wolfson expects that percentage to rise, helped by a jump in the quality of commercial software that's letting I.T. focus on deployment, rather than immerse itself in development.

In the past, Wolfson says, a manager in Par's procurement department might go to I.T. with a request. While the request might have made sense from the individual manager's perspective, it didn't take account of the whole "procure to pay" process at Par—which flows through not only procurement but also raw materials, inventory, the manufacturing resource planning system and accounts payable. Now, before Par's I.T. department develops a solution to a problem, a business analyst assembles managers in all of those areas. "In many cases, we end up with a solution that may not even include technology," Wolfson says.

Par may be unusual among midsize companies in the complexity of its business—and the systems needed to manage them. In addition to running laboratory management and enterprise resource planning programs, the $433 million company also expects to implement a sales-force automation system to support its expansion into branded drugs. Last year, Par, based in Spring Valley, N.Y., got approval for Megace ES, a drug that combats weight loss from conditions like anorexia and AIDS.

Still, the imperative for I.T. workers to understand business as well as technology isn't limited to any particular sector. "It's going to apply in all industries," says Wolfson, a former PricewaterhouseCoopers consultant. "I've seen it."

And it may be that a company like Par offers the best chance for young technologists to see how well they can span the disciplines. According to Jeanne Ross, principal research scientist at MIT's Center for Information Systems Research, "The great thing about smaller companies is that a person could get their arms around the business with less experience."