B00AZRBLHO EBOK

by Kim, Gene

  * * *

  I can barely contain my sense of excitement. John’s crazy meeting with Dick seems to have revealed something genuinely important.

  I believe with utter certainty that whatever we’re trying to figure out is critical to the First Way. He talked about the need to understand the true business context that IT resides in.

  I’m pretty sure no one has linked Dick’s top measurements to the prerequisite IT objectives.

  No wonder Dick just has a vague sense that IT is screwing up—it’s a dull, throbbing ache that he can’t localize. Our next step is obvious: We must make those pains very specific and visible to convince Dick that IT is capable of not just screwing up less often but helping all of the business win.

  This is too important and urgent to struggle blindly in the dark, and I need to call Erik for advice. Standing in the lobby of Building 2, I speed-dial him.

  “Yeah?” I hear him answer.

  I say, “Good morning, Erik. I’ve just had a remarkable meeting with Dick. Do you have some time to help me think this through?”

  When he grunts, “Yes,” I describe to him the meeting and how it came about and my certainty that it has uncovered something critical.

  “Well, good for Jimmy. Or maybe I should call him ‘John.’ He finally got his head far enough out of his ass to begin to see,” I hear Erik say as he laughs, not unkindly. “As part of the First Way, you must gain a true understanding of the business system that IT operates in. W. Edwards Deming called this ‘appreciation for the system.’ When it comes to IT, you face two difficulties: On the one hand, in Dick’s second slide, you now see that there are organizational commitments that IT is responsible for helping uphold and protect that no one has verbalized precisely yet. On the other hand, John has discovered that some IT controls he holds near and dear aren’t needed, because other parts of the organization are adequately mitigating those risks.

  “This is all about scoping what really matters inside of IT. And like when Mr. Sphere told everyone in Flatland, you must leave the realm of IT to discover where the business relies on IT to achieve its goals.” I hear him continue, “Your mission is twofold: You must find where you’ve under-scoped IT—where certain portions of the processes and technology you manage actively jeopardizes the achievement of business goals—as codified by Dick’s measurements. And secondly, John must find where he’s over-scoped IT, such as all those SOX-404 IT controls that weren’t necessary to detect material errors in the financial statements.

  “You may think that we’re mixing apples and oranges, but I assure you that we are not,” he continues. “Some of the wisest auditors say that there are only three internal control objectives: to gain assurance for reliability of financial reporting, compliance with laws and regulations, and efficiency and effectiveness of operations. That’s it. What you and John are talking about are just different slides of what is called the ‘COSO Cube.’”

  I force myself to keep listening, furiously taking notes so I can Google these terms later.

  I hear him continue, “Here’s what you and John need to do: Go talk to the business process owners for the objectives on Dick’s second slide. Find out what their exact roles are, what business processes underpin their goals, and then get from them the top list of things that jeopardize those goals.

  “You must understand the value chains required to achieve each of Dick’s goals, including the ones that aren’t so visible, like those in IT. For instance, if you were a cross-country freight shipping company that delivers packages using a fleet of one hundred trucks, one of your corporate goals would be customer satisfaction and on-time delivery.”

  I hear him continue, “Everybody knows that one factor jeopardizing on-time delivery is vehicle breakdowns. A key causal factor for vehicle breakdowns is failure to change the oil. So, to mitigate that risk, you’d create an SLA for vehicle operations to change the oil every five thousand miles.”

  Obviously enjoying himself, he keeps explaining, “Our organizational key performance indicator (KPI) is on-time delivery. So to achieve it, you would create a new forward-looking KPI of, say, the percentage of vehicles that have had their required oil changes performed.

  “After all, if only fifty percent of our vehicles are complying with the required maintenance policies, it’s a good bet that in the near future, our on-time delivery KPIs are going to take a dive, when trucks start getting stranded on the side of the road, along with all the packages they’re carrying.

  “People think that just because IT doesn’t use motor oil and carry physical packages that it doesn’t need preventive maintenance,” Erik says, chuckling to himself. “That somehow, because the work and the cargo that IT carries are invisible, you just need to sprinkle more magic dust on the computers to get them running again.

  “Metaphors like oil changes help people make that connection. Preventive oil changes and vehicle maintenance policies are like preventive vendor patches and change management policies. By showing how IT risks jeopardize business performance measures, you can start making better business decisions.

  “Okay, one last thing before I go,” he says. “Make sure John fulfills his mission. He must talk with the finance side of the SOX-404 audit team. He must learn exactly how the business managed to dodge the last audit bullet and what the actual control environment looks like and where reliance is really placed. And he must then explain it to you.

  “You’ll be ready for your meeting with Dick when you’ve built out the value chains, linking his objectives to how IT jeopardizes it. Assembling concrete examples of how IT issues have jeopardized those goals in the past. Make sure you’re prepared.”

  And with that, he says, “In fact, feel free to invite me to that meeting. I want to see Dick’s face when you present what you learn,” and he hangs up the phone.

  Chapter 26

  • Friday, October 17

  When Patty enters the conference room, she gasps loudly when she sees John’s transformed appearance. “Oh my God, John. You look fantastic!”

  Surprisingly, when Wes arrives, he doesn’t seem to notice anything different.

  When everyone is here, I quickly share what I had learned from Erik. We decide that Patty and I will start the business process-owner interviews for “understanding customer needs and wants,” “product portfolio,” “time to market,” and “sales pipeline,” while John will research the business SOX-404 control environment, as directed by Erik.

  It’s Friday and we’re scheduled to interview Ron Johnson, the VP of Manufacturing Sales. I worked with him years ago as part of the acquisition integration project and am surprised he’s in town. He’s usually out and about, traveling the world, helping to negotiate deals and save troubled accounts. He has a well-deserved reputation as one of the most fun people in the company to travel with. The size of his expense reports proves it.

  Patty and I are sitting in front of his desk in Building 2. As we listen to him bellow at his colleagues on a conference call, I look at the many pictures of him on the wall: on golf courses, with his top sales people in exotic locales from decades of President’s Clubs, and shaking hands with customers. In the corner is a fake potted tree, completely covered with hundreds of conference badges and lanyards.

  This is definitely the office of someone who loves being in front of people. He’s a large, gregarious guy with an even larger laugh.

  Over many scotches with him one evening in Chicago, I was surprised to learn that much of his demeanor is a carefully crafted persona. While he’s outwardly very loud and outspoken, he’s actually an introvert by nature, very analytic and passionate about sales discipline. Hearing him chastise yet another person on the phone, I think about how odd it is that even a discipline like sales, known for its chaotic and unpredictable nature, is more predictable than IT.

  There’s at least a predictable funnel that comes from marketing campaigns, generating prospects, leads, qua
lified leads, and sales opportunities that leads to a sales pipeline. One sales person missing their number rarely jeopardizes the entire department.

  On the other hand, any of my engineers can get me fired by making a seemingly small, harmless change that results in a crippling, enterprise-wide outage.

  Ron slams down the phone. “Sorry, guys. Despite all the training I do, sometimes my team behaves like a bunch of wild animals,” he says, still exasperated. He rips the stapled document he’s holding in two, and then tosses it into his trash can.

  “Jesus Christ, Ron,” I can’t help but say. “Your recycling bin is right next to you!”

  “I’ll be dead long before the landfills are full!” he says with a large laugh.

  He may be dead soon, but my kids won’t be. As I explain to him why we’re here, I reach under the desk to grab the papers from the wastebasket, putting them in the recycling bin. “You’re listed as the owner of the ‘sales pipeline’ and ‘sales forecast accuracy’ measures on Dick’s spreadsheet. What can you tell me about the challenges of hitting those numbers?”

  “Look, I don’t know much about IT. Someone on my staff might be better for you to talk to,” he responds.

  “Don’t worry, I’m not asking about anything IT-related. Let’s just talk about your measures,” I assure him.

  “Okay, it’s your nickel…” he says. “If you want to talk about sales forecast accuracy, you first need to know why it’s so inaccurate. It starts when Steve and Dick hand me a crazy revenue target, leaving me to figure out how to deliver on it. For years, I’ve had to assign way too much quota capacity to my team, so of course we keep missing our numbers! I tell Steve and Dick this, year after year, but they don’t listen. Probably because they’re having some arbitrary revenue target jammed down their throats by the board.

  “It’s a crappy way to run a company. It demoralizes my team, and my top performers are quitting in droves. Of course, we’ll replace them, but it takes at least a year for replacements to perform at full quota capacity. Even in this lousy economy, it takes too long to find qualified sales people.

  “You know what chaps my hide?” he continues. “Sarah promised that acquiring the retail stores would accelerate our sales. And has it happened? Hell, no!

  “We’re completely screwing up the execution. This morning, a district manager was screaming that they need truckloads of our new fuel injector kits because all his stores are completely stocked out. We’re losing the easiest sales we can make! Our customers want to buy, but they’re walking out empty-handed, probably buying something crappier from one of our competitors.”

  Ron says angrily, “We are clueless about what our customers want! We have too much product that will never sell and never enough of the ones that do.”

  His words sounding familiar, I look down at Dick’s slide again. “You’re saying that ‘sales forecast accuracy’ is being jeopardized by our poor grasp of ‘understanding our customer needs and wants?’ And that if we know what products were out of stock in the stores, we could increase sales?”

  “Damned right,” he says. “With the traffic we get in the stores, that’s the fastest and easiest way to increase revenue. It’s a lot easier than dealing with the fickle whims of our large automotive buyers, that’s for sure.”

  I make a note to myself to find out how stockout data are generated, and I see Patty furiously taking notes as well.

  I ask Ron about the sales pipeline process and its challenges, and I get an earful. He tells us at length how difficult it is for his managers to get the reports they need out of our customer relationship management system (CRM) and the endless battle to make sure his entire sales force uses it in their daily work.

  But the floodgates really open when I ask him what a bad day for him looks like.

  “A bad day?” he repeats, staring at me disapprovingly. “Why, Bill, it’s positively catastrophic when the MRP and phone systems that you manage go down like they did a few weeks ago. For just the MRP outage, we had customers screaming about delayed orders, and two of them canceled a quarter-million dollars of orders outright. We’re scrambling to keep some of our best customers from putting $1.5 million of contracts up for rebid.”

  He leans across his desk. “And when the phones went down in the last few days of the quarter, and customers couldn’t give us orders or make last-minute changes! That’s delayed another $1.5 million of orders, and ten customers are reevaluating their contracts, putting another $5 million of contracts at risk.”

  “You’re making my job much, much harder, pal,” he says. “A lot of my sales people missed their quota by the tiniest fractions, due to things totally outside of their control. To keep morale up, I’m demanding Steve give quota credit for any order that was delayed because of our screwups.”

  I grimace. Steve’s going to love that idea as much as he loved Sarah giving away vouchers to disgruntled Phoenix customers.

  “I’m really sorry that happened on my watch. There’s no excuse for it,” I say sincerely. I tell him what happened with the vendor making the unauthorized change to the phone switch, and the steps we’re taking to ensure that it doesn’t happen again.

  I explain, “We have change control policies, but as you know, training and trust only go so far—at some point, we need monitoring to enforce those policies. The trouble is, we need to expand the licensing beyond what Information Security has deployed, and emergency capital is hard to get these days. Especially for IT Operations.”

  Ron turns bright red. “Why? What are they saving it for? Probably another goddamned acquisition that Sarah is dreaming up.” He laughs humorlessly. “How much money are we talking about?”

  When I tell him, he looks disgusted. “We spend more money watering the damned lawns at the manufacturing plants every week! Dick is going to hear from me about this. If he’s not willing to spend money, we may lose orders—even if your project is just insurance so we can collect on all the hard work my sales team does—it’s a goddamned no-brainer!”

  “We sure think so. Thanks for the support,” I say. “We’re about out of time. Are there any other challenges or impediments that we can help with?”

  He looks at his watch for a moment. “No, just keep those damned vendors from crashing our phone systems again, you hear?”

  Patty looks invigorated as she flips through all her notes by the elevator banks. She says, “Ron mentioned how critical the phones and the MRP systems are, but I’m sure there’s more, like the inventory management systems. I’ll work on creating the complete list of applications and infrastructure that support Ron. If any of them are fragile, we need to get them added to our replacement list. This is a great opportunity to be proactive.”

  “You read my mind,” I say, smiling. “That preventive work supports the most important objectives of the company. How do we know? We started from the measures that Dick cares about most.”

  I’m pleased. Now I’m really looking forward to our next interview, which is with Maggie Lee, who sponsored Phoenix.

  Patty and I meet with Maggie on the following Monday. Over the weekend, Sarah e-mailed me, demanding to know the agenda for the meeting, threatening to cancel it. When I start copying Dick and Steve on my replies, she relents, but warns me not to meddle with her department.

  I’m not worried. Both Patty and I work with Maggie regularly. She’s the business sponsor of over half the IT projects. Among other things, Maggie is responsible for making sure that the company has the best possible assortment of merchandise in each of our stores, and she owns the category and pricing roadmaps.

  In describing her responsibilities, she summarizes, “Ultimately, the way I measure our understanding of customer needs and wants is whether customers would recommend us to their friends. Any way you cut it, our metrics aren’t very good.”

  When I ask why, she sighs. “Most of the time, we’re flying blind. Ideally, our sales data would tell us wh
at customers want. You’d think that with all the data in our order entry and inventory management systems, we could do this. But we can’t, because the data are almost always wrong.”

  Patty glances my way meaningfully as Maggie continues, “Our data quality is so bad that we can’t rely on it to do any sort of forecasting. The best data that we have right now come from interviewing our store managers every two months and the customer focus groups we do twice a year. You can’t run a billion-dollar business this way and expect to succeed!

  “At my last job, we received sales and stockout reports every day,” she continues. “Here, we get them once a month from Finance, but they’re full of errors. What do you expect? They’re done by a bunch of college interns, copying and pasting numbers between a million spreadsheets.”

  “If you could wave a magic wand, what would you do instead?” I ask.

  “How big of a magic wand?” she asks.

  “It can do anything you want,” I reply, smiling.

  “That’s a big magic wand,” she says, laughing. “I want accurate and timely order information from our stores and online channels. I want to press a button and get it, instead of running it through the circus we’ve created. I’d use that data to create marketing campaigns that continually do A/B testing of offers, finding the ones that our customers jump at. When we find out what works, we’d replicate it across our entire customer list. By doing this, we’d be creating a huge and predictable sales funnel for Ron.

  “I’d use that information to drive our production schedule, so we can manage our supply and demand curves. We’d keep the right products on the right store shelves and keep them stocked. Our revenue per customer would go through the roof. Our average order sizes would go up. We’d finally increase our market share and start beating the competition again.”

  As she’s telling us this, she looks animated and excited. Then her exuberance disappears. Sounding defeated, she says, “But we’re stuck with the systems we have, unfortunately.”