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By Elizabeth Wasserman  |  Posted 03-01-2004

Groom or Recruit?

In late 2002, top executives at Georgia-Pacific Corp. decided it was time to hire a new CIO. The goal: to help rein in costs and increase innovation. And with its long history of succession planning—grooming managers across divisions for tougher jobs and promoting from within—the Atlanta-based forest-products company didn't have to look far. Twenty-year veteran James Dallas had started out with Georgia-Pacific in 1984 as an accountant, learning the business over the next two decades by working his way up to transportation division general manager, successive IT directorships and president of the lumber division before being named CIO.

But the task ahead of Dallas was daunting.

Georgia-Pacific, which employs 61,000 people in Europe, North America and China, had reported steep losses in 2001 and 2002— thanks to the weak economy, high levels of debt and significant asbestos liabilities—and dramatic cost-cutting steps were needed company-wide. Executives at Georgia-Pacific chose to promote a proven performer steeped in the company's culture whom they believed could best make things happen—fast.

And change is what Georgia-Pacific got.

Since he took on the job, Dallas has lowered IT costs by a third by consolidating divisional IT operations to cut redundancies and help share innovations. He saved $8 million by bringing the company's outsourced data-center operations back inside. He renegotiated the firm's telecom contracts and completed an SAP integration project across the company's consumer-products, tissue-towel-napkin and Dixie divisions for order and warehouse management, tracking and shipping. And he moved the company from Unix to the Linux open-source platform in a number of areas, most notably in running the SAP servers.

In Dallas's view, being an insider made all the difference. Dallas knew Georgia-Pacific's various businesses—from the lumber the company sells to Home Depot, to the paper products it sells to Staples, to the tissue products it delivers to Wal-Mart—inside and out. He had relationships with the other C-level executives as well as the middle managers who were instrumental in rolling up their sleeves and making the changes happen. And with two decades at the company, including several stints in IT, Dallas knew most of his direct reports well. And they knew him. "The key to any leader is the team he or she has," Dallas says. "We didn't have to go through that learning phase. We were able to move fast. They knew what they needed to do. I provided them support and air cover."

To download a chart of recent CIO promotions, click here.

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Out with the Old
Despite the success stories at companies like Georgia-Pacific, most companies in similar economic straits continue to bring in CIOs from the outside to make the tough decisions about costly IT installations and needed cuts in spending.

According to a recent CIO Insight survey of close to 500 top IT executives, two-thirds came to their current jobs from outside, while just 30 percent of the companies they work for have adequate succession plans in place for choosing their successors.

"We're seeing an increasing number of companies look outside for CIOs," says Marc Lewis, North America president for executive-recruitment firm Morgan Howard Worldwide. "There's a not-invented-here syndrome that can hold many top performers back, and make the No. 2 in line to the CIO highly vulnerable to recruiting calls from other companies."

When William Nuti, a former senior vice president at Cisco Systems Inc., took over as COO and president of beleaguered Symbol Technologies Inc., in July 2002, he turned the negative of a federal securities probe into an opportunity to redesign IT's governance, strategy and leadership team.

Preferring to hire an outsider, Nuti named a former colleague, John G. Bruno, then Cisco's vice president of technology marketing, to be Symbol's new CIO. Then Nuti redrew the lines on the organizational chart so that Bruno reported directly to him. And most unusual of all, Nuti took note of Bruno's business and technology background at Bristol-Myers Squibb Co. and United Parcel Service Inc., and gave Bruno a dual role: CIO and senior vice president of business development, charged with identifying and developing new market initiatives and business opportunities.

"Symbol had buried IT under the finance organization," Nuti says. "But I wanted the CIO to sit on the senior staff, to become operationally proficient and to understand how this company works."

With much of Symbol's former management gone as a result of the company's troubles with the Securities and Exchange Commission, Nuti and his new executive team represent a clean slate.

Still, the company continues to face regulatory and competitive hurdles. It remains under investigation by the Department of Justice and the SEC for its accounting practices between 1998 and 2001. Its mainstay bar-code business is under pressure from new technologies such as RFID. And a new set of regulatory compliance issues need to be addressed as a result of implementation of the Sarbanes-Oxley Act of 2002.

Bruno sees these problems as an opportunity to hold ongoing discussions about the company's business processes and how to rethink those processes to develop new products more efficiently.

"The CIO role now is no different from that of the COO or CFO," says Bruno, who joined the company at the end of 2002, after the SEC investigation was already under way. "They all use the tools of the day in order to cause business transformation and increase shareholder value. The tools of the day happen to be IT systems processing and tools."

Indeed, there's no one-size-fits-all model for hiring a new CIO. Where companies look, what type of leader they need and how they manage change have more to do with their corporate culture than with broader trends in IT operations. If breadth of external experience matters throughout the organization—at companies that typically look outside for other C-level executives, for instance—then looking outside for a CIO makes sense.

Some companies must also recognize that they simply don't have an adequate plan in place for growing future executives. Other companies fear that by promoting from within the IT department, they will get an executive who will only maintain the status quo—and not someone who can look critically at what the company has been doing for the past few years.

"It's this feeling that they will not be willing to shake up things that need to be shaken," says M. Eric Johnson, director of the Center for Digital Strategies at the Tuck School of Business at Dartmouth University, which holds regular summits for CIOs and their business counterparts.

Johnson adds, "Here's the guy who has been part of the ERP implementation for the past five years, and now has to decide whether to kill it. If he or she has been inside this thing the whole time, how is that going to work? Are they really going to be able to make the tough decisions?"

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Nothing Succeeds Like Succession

Given the value of continuity, however, promoting from within can make sense. The problem is that succession planning is inadequate in most organizations. Less than a third of CIOs surveyed by CIO Insight said their organizations did sufficient succession planning (though that percentage rose to 47 percent among CIOs from businesses with more than $1 billion in annual revenues). Yet more than half of those surveyed said they believed their successor would be one of their direct reports, while just 44 percent said they spent enough time preparing these would-be successors to take the reins someday.

The lax emphasis on succession planning—grooming successors and developing the careers of direct reports (who, after all, might someday be considered ready to handle the job of CIO)—is the primary reason that many organizations look outside when they have a CIO post to fill.

Some large companies pride themselves on strong succession planning, and many CIOs understand the importance of mentoring a new generation of leaders to follow in their footsteps. "Going with an insider is the best way to get a culture fit," says Mark Polansky, managing director of the information technology practice at executive-recruitment firm Korn/Ferry International. General Electric Co., perhaps the most prominent proponent of succession planning, carefully plots replacements for all C-level executives, as well as vice presidents and directors. "GE believes in building bench strength," says Jason Richardson, president of Cutting Edge Information, a Durham, N.C.-based research firm, "and we agree that there are benefits to succession planning all the way down as far as you can go."

The general guidelines of succession planning hold in IT as anywhere else. They include grooming CIO succession candidates and rotating them through the business departments. Richardson's advice: Figure out what your succession priorities are, define the skills the position will require, review your bench strengths, design the succession plan and then roll the plan out to the organization.

For CIOs, the benefits of circulating a succession-planning strategy are two-fold, Richardson says. Getting support from the board and the CEO for cross-training IT staffers underlines the relationship between IT and the business, and that allows the CIO to better help solve problems, suggest ways to improve manufacturing or delivery, and ultimately affect the bottom line. "Succession planning in IT can help counter the 'Dilbert perception' that there's a struggle between commercial operations and information operations," Richardson says. "Every IT person doesn't have to be a master of marketing and sales. But you should at least have the flavor of what it's like to be in those positions."

FedEx Corp.'s Robert Carter worked his way up through the IT ranks for seven years before being named executive vice president and CIO in 2000. "We do have a formal succession planning process," Carter says. "One of the things this allows you to do is interact with the next level of management on a formal basis. You become the sit-in at important meetings. You have the opportunity to go stand in at functions where you get experience and get to learn the types of interactions that take place at that next level."

In order to make the transition as smooth as possible, Carter also worked side-by-side with his predecessor, Dennis Jones, for several months before taking over completely. "Dennis was very gracious in letting me have as much rope I needed," Carter says. "Very quickly, he let me step to the forefront. But he was there for me if needed."

In some companies with active succession planning, the CIO takes a pivotal role in identifying and training a successor. After all, the right candidates won't necessarily be located just down the hall. At Whirlpool Corp., when former CIO David Butler wanted to retire, he helped recruit Esat Sezer, former director of global IT for Colgate-Palmolive Co. Earlier in his career with Colgate-Palmolive, Sezer had led projects in South Africa, Russia, Poland and Turkey. He had also worked as a senior consultant for Andersen Consulting (now Accenture) in London. That breadth of international experience was needed at Whirlpool, where 40 percent of revenues now come from outside North America.

But before Sezer took over the CIO's job at Whirlpool, he worked for nearly two years hand-in-hand with Butler, until Butler retired last September. The result was a smooth transition during which Sezer gradually took over the CIO's duties and, according to company officials, was mentored by Butler at the same time. The two attended meetings together both at Whirlpool and externally with clients, and, last year, at a CIO leadership summit at Dartmouth University, Butler introduced his successor to CIOs from other organizations and discussed the benefits of succession planning, according to the Center for Digital Strategies' Johnson.

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In with the New
In CIO searches these days, 80 percent of the candidate specifications involve building business relationships inside and outside the organization, demonstrating business skills, planning and execution, according to Carl Gilchrist, a CIO practice leader at search firm Spencer Stuart. What companies are looking for, Gilchrist says, are "CIOs with track records of coming into difficult situations and getting things done."

At Georgia-Pacific, executives had the same criteria. But that led them to look within the company's ranks for the next CIO. James Dallas, with his 20 years at the company, came into his new role as CIO with a mission to run IT like any of the company's other units—meaning like a business. In addition to cutting costs, he put in a program to create "centers of excellence" around key IT functions such as e-commerce, business intelligence and global platform services. Through these centers, the company can share best IT practices throughout business units.

"We looked across our businesses and started seeing similarities between our consumer business selling to Wal-Mart, our building products that we sell to Home Depot and Lowe's, and, on the paper side, where we sell to Staples," Dallas says. "In each of those channels, on-time delivery and supply-chain management is a competitive differentiator. We realized we could solve similar problems across the company in different business units at the same time."

For Dallas, the differentiating factor as a new CIO was that his long tenure at Georgia-Pacific gave him a leg up when it came to understanding the issues that the company faced in each of its business units. When you're already on the inside, you don't have to wait to implement change by first going through that learning curve.

Elizabeth Wasserman is a Washington, D.C.-based writer. Formerly, she was Washington Bureau Chief for The Industry Standard.