McKesson's Randy Spratt: Where IT Nirvana Meets Business NirvanaBy Peter High | Posted 10-24-2011
McKesson's Randy Spratt: Where IT Nirvana Meets Business Nirvana
Randy Spratt is the EVP, CIO and CTO of McKesson Corporation, a $112 billion company based in San Francisco, providing medicines, pharmaceutical supplies, information and care management products and services across the healthcare industry. Spratt had been CIO since July of 2005, responsible for the global applications that serve the entire corporation and for the overall IT strategy and information security for the company. In April 2009, he added the chief technology officer role. In the company's Technology segment and, to a limited degree, in its Distribution segment, Spratt is responsible for guiding the technology direction, strategy, and quality of the medical systems that the company sells, implements, and supports in the healthcare community.
Given dual internal- and external-facing roles, Spratt has had a chance to think a lot about the value the IT departments ought to deliver to the companies and customers that they serve. He also recognizes that they must solve the riddle of both remaining efficient and secure, while also forging efforts to innovate and add to the top-line of the company, as well. CIO Insight contributor and Metis Strategy President Peter high recently spoke with Spratt about his perspectives on "IT Nirvana" and how it can be attained by any CIO.
CIO Insight: Randy, you have spoken about the two sources of value that a CIO must bear in mind, one is growth oriented, and the other is leverage oriented. These can be at odds. How have you successfully managed this paradox?
RANDY SPRATT: It truly is a paradox. But it is the paradox that any business leader, any CEO faces. On the one hand, you need to innovate and be agile to serve the strategies of the business. On the other hand, you have a lot of activities that are commodity driven, and if you are not competitive with other entities that can provide those services, then you will be at a competitive disadvantage as a company. The more you can standardize, the more you can gain economies of scale and render the IT operation more efficient. On the other hand, the business needs non-standard technologies for innovation.
In my mind, business Nirvana is top-line growth. This suggests business-driven IT activity, and a high degree of IT agility. The businesses will want and expect new devices, new capabilities, new applications, new tools to reach and delight their customers. They are looking for social networking, iPad apps, smartphone apps, and linking into cloud-based services to reach their markets and deliver innovative products and services. IT nirvana is making everything the same, efficient, secure, leveraging economies of scale. In this scenario, IT controls things to a greater extent.
In many organizations, there is a pendulum that swings between these two scenarios, between Business Nirvana and IT Nirvana, never quite reaching either side before the momentum shifts in the other direction every three to five years. An innovative CIO is hired who focuses almost exclusively on enabling the business vision, and, for a time, achieves tremendous things for the organization. In many cases, this is a CIO within a business unit that is seceding from an overly controlled central function. In the process, our innovative CIO creates a shadow infrastructure, replicates existing functionality, and buys products and services at sub-optimal purchasing power and from unproven vendors. Projects fall behind, costs accelerate, and the desired speed and agility are not attained.
Next, a cost conscious CIO is brought in to rectify these issues. The business executives speak with great frustration about the cost and inefficiencies of the IT department and demand double-digit percentage cost reductions. That new CIO spends a lot of time fixing the mess, cleaning up the architecture and infrastructure, cutting staff, and instituting practices to make things more efficient. That CIO de-emphasizes innovative, top-line growth opportunities in favor of more efficient operations, greater buying power through standardization and scale, and more stable, reliable operations through solid IT processes. After a period with a lack of innovation, however, that CIO's business leader peers become antsy about the lack of velocity and agility and the unproven top-line value IT is achieving, and the pendulum swings back again.
CIO Insight: You have said that CIOs must get off of the pendulum and to drive a technology lifecycle that takes its place. Please explain.
SPRATT: That's right. The lifecycle is tricky, mind you, as IT plays a different role at each stage of the lifecycle.
Innovation, I think, starts in the business, where the customers are best understood. At the early stage of it, our business colleagues are the clear leader, and IT is there to consult. IT needs to give insights into the kinds of solutions that might be possible for the problems that the businesses are trying to solve. They also need to offer guidance about which technologies have the staying power to be leveraged for years to come, and how they best fit into existing systems. IT must take the role of assisting with experimentation. As some of the experiments become successes, and they become adopted either by our colleagues or our customers, IT must then work to make these solutions more robust and scalable.
As these solutions reach maturity, IT must provide these successfully adopted systems in a robust and stable production environment, surrounded by good IT operational support. [This] includes finding the lowest-cost providers, either internally or externally. From there on, IT must compress costs, driving to make management of these solutions ever more efficient. By the time solutions have been in production for four or five years, it stands to reason that vendors will have gotten into the space. These vendors may be able to manage these solutions cheaper and better than we can. At that point, we should contemplate outsourcing. Put differently, once we feel we have taken all cost out of managing a solution, we need to investigate if it is worthwhile letting an external party run it for us.
So, at the beginning of the lifecycle, IT advises. Then we help build experiments. Then we make successful experiments scalable and solid. Then we take cost out and, as the systems become commodities, we operate them at maximum efficiency and minimum innovation.
The Staffing Model for IT Nirvana
CIO Insight: How does your staffing model reflect this lifecycle?
SPRATT: On our team, we have a group of people who are dedicated to each of our businesses. These employees are highly visible and influential within IT, and are essentially our "account representatives" -- they call on the business unit, which we consider an account. He or she has to understand [each] business unit leader's strategic imperatives, their needs, their plans for the foreseeable future, and the business pressures, issues, and trends. Our representative needs to take those inputs and develop an overall view of IT's role in contributing to that business unit's success. That is an ongoing dialogue that they must facilitate. They also must determine if we are meeting our service level agreements and commitments, and take an advocate role to assure that IT leadership corrects issues and delivers on promises.
They then are the interlocutors between our business units and the service lines that we provide, which might include items as granular as Windows Hosting or as broad as SAP services. These services then have a service manager who is responsible for delivering against service level agreements, specifications, and costs. There is also a product manager who is responsible for managing the roadmap for those services. The service manager and product manager are in constant contact, as you might expect. The product manager needs to reliably predict how the service needs to evolve. The product manager explores leading edge ideas and solutions with the businesses through the relationship manager.
Let me give you an example. Our US Pharmaceutical business is going to expand by a certain percentage, and generics will expand by a different percentage. In order to link manufacturers to retailers to understand demand and take actions accordingly, technology has a role to play. These include some entirely new capabilities (online web capabilities to gather the relevant data, for example). The relationship managers bring in the business leaders to talk about these potential innovations with the product managers, and to craft solutions and experiments. After the idea is implemented, and as these solutions mature, the service manager engineers the production environment and begins the process of eliminating cost wherever possible.
The underlying question to contemplate is, "if your IT shop were a business, what information would you need to run it effectively?" This includes knowing services costs and ensuring that they are competitive with the marketplace, pricing them appropriately. Though we don't have a profit motive, we still need to price our services. To increase the level of transparency with our colleagues, we have an incredibly granular level of billing detail that we provide for our services, and our partners have more confidence in us, as solid business people. It is important to note that without that information, the product managers and service managers would not know what a competitive level of operation is. They can't know if they are as good or better than IBM Global Services, for instance. We need to be able to prove that.
CIO Insight: Given the diversity of the business units, how do you forge innovation across them?
SPRATT: Each year during our CIO Council Meetings, all of the business unit CIOs get together. Each of them present their three-year strategic plan aligned with [the plans of] their business units. Corporate IT then presents ideas for single solutions that can address the needs of multiple business units. By having these common conversations with everyone in the room, more new ideas come to light. This stimulates greater idea sharing, more innovative solutions, and ultimately it also eliminates waste, since the natural tendency would be to invest in or develop a new technology irrespective of what the other organizations need or want.
An example can be found in the call centers. As three of our businesses were growing, they needed to rethink their strategies and their solutions. Each business-unit CIO had conversations with their respective vendors, and three different plans took shape. By bringing these up with the larger group, a single solution was devised. A second example is our mobility task force. Each of the nine business units hired people to develop apps. New ideas and strategies were vetted with the broader group, and we were able to define common tools for all of the business units to leverage. This stimulated cross-business unit innovation and reduced costs at the same time.
CIO Insight: How do you define and measure innovation?
SPRATT: We define innovation as bringing a new capability to the market. You may introduce cloud computing into your organization for the first time, but that does not make it innovative. Many others have done so already. As one surveys a solidly defined roadmap for IT, a good portion of the roadmap includes changes in well-vetted directions. Again, these may be value enhancing, but they are not innovations. It is only that foamy edge at the very beginning of a wave that represents true innovation. Usually, the business strategists and business managers are the innovators; IT's role is to bring proven technologies to bear to enable and drive those innovations.
As for the question of measurement, in order to utilize metrics, one must define the target. This requires deep collaboration with our colleagues in the business units. They know what they will need to be successful. They know what success looks like. We may need to press them on their assumptions, and help guide them in terms of what is realistic, but they must drive that conversation.
Every year we keep our core budget relatively stable. Even though demand for IT is increasing, that demand should be offset typically by the drop in technology prices. On top of that figure, we then work with our colleagues in the business to understand what they are willing to spend to develop new capabilities, new products, and new services. This gives us an idea of the amount of discretionary funds that will be put toward innovation.
About the Author
Peter High is president of Metis Strategy, a boutique IT-strategy consultancy based in Washington, DC. A contributor to CIO Insight, High is also the author of World Class IT: Why Businesses Succeed When IT Triumphs, and the moderator of the podcast, The Forum on World Class IT. He can be reached at firstname.lastname@example.org.