CIO May 1 2007 Issue by Sreekanth Sastry

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From The Editor

Top management expects CIOs to be more business savvy. Business managers are getting more clued into IT. Organizations are beginning to outsource all or a significant amount of their internal IT.

How would you look at these three data points? Taken in isolation, they signify the evolving

Threatened Existence Can the CIO role justify its existence in future?

world of business-technology as we know it; combined, they represent a threat to the existence of the CIO role. The evolution of the CIO beyond ‘Career Is Over’ has formed the subject of multiple discussions between CIOs and me over the past few weeks. What will happen next isn’t just about tossing around worst case scenarios. In the eyes of some CIOs, I do see more than a glint of frustration and desperation as they tend to organizations in a maintenance mode or those that have taken the call to move on from internal IT teams. The situation has both sides to it. Alagu Balaraman, executive VP (IT & corporate In the eyes of some development) of Godfrey Phillips, feels that CIOs, I see a glint of the job of the CIO is transient in nature, frustration as they tend required because business managers lack the to organizations in a awareness and confidence in dealing with maintenance mode. technology. “As we move to an era of services and SLAs, and as business managers get more IT savvy, they will take over the ‘I’ in the CIO role,” he predicts (Inbox, Page 18). However, Alagu’s is not a cry of despair. He believes that this is the best thing that could happen. Drawing an analogy to what would happen if cars could be driven only by those with a degree in automotive engineering, he states that “the break out in technology adoption achievable by getting the IT people out of the door would be transformational to the world we live in.” A CIO I met in Delhi not only disagreed with this hypothesis, but also felt that these moves will help to consolidate a CIO’s role as a member of the top management. Interestingly, Peter Sondergaard, Gartner’s senior VP of global research, recently said that “certain functions may be taken as aspects of the business, so that the remaining traditional IT functions will have to focus increasingly on efficiency and well-defined levels of service.” Sondergaard also sounded a warning: IT managers will quickly become irrelevant unless they choose technology on the basis of improving business performance. Do you feel that the very existence of a CIO role shows that technology is still not as usable as it ought to be? I await your thoughts on this issue. Write in and let me know.

Vijay Ramachandran, Editor-in-Chief vijay_r@cio.in

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Integration | mix and shake |

Executive Expectations 32

Ph oto by Srivatsa Sh an dilya

On the heels of an acquisition, a CIO has a critical task that goes beyond integrating two independent systems: unifying two cultures. For, the synergies are only as good as the users of the newborn entity.

Cover: Imagin g by Bin esh Sreedh aran

Feature by Kunal N. Talgeri

VIEW FROM THE TOP | 40 The best cures across the world can converge in India to make it a global healthcare destination, believes Dr. Prathap C. Reddy, chairman of Apollo Hospitals. Interview by Kunal N. Talgeri

Executive Coach True Colors | 26 Character is an essential element of leadership. Here’s how to develop yours and let it shine. Column by Susan Cramm

CIO Confidential HONESTY IS A GREAT POLICY| 28 The excellence of any business depends on the willingness of its customers and employees to provide direct and honest feedback. But are you and your managers ready to listen? Column by Jerry Gregoire

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content

Essential Technology | 58 Open Source | Open Source VoIP Connects to

Business By Paul Venezia IT Strategy | Risk, Not Security By Christopher Koch

From the Editor | 8 Threatened Existence | Can the CIO role justify its

existence in future? By Vijay Ramachandran

Inbox | 18

NOW ONLINE For more opinions, features, analyses and updates, log on to our companion website and discover content designed to help you and your organization deploy IT strategically. Go to www.cio.in

c o.in

Govern Healthcare goes horizontal | 52 An ongoing reorganization of Ontario’s 14 fledgling Local Health Integration Networks (LHINs) on regional lines is showing its impact in many areas. and will continue to grow as they integrate disjointed parts into a provincial system.

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Interview by Rosie Lombardi

IT-Business Alignment Close Fast, Close Smart | 44 When it comes to closing the books, the benefits of speed are undeniable. And CIOs are uniquely positioned to help their organizations reap them. Feature by Galen Gruman

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ADVISORY BOARD Manage ment

Publisher & editor N. Bringi Dev

COO Louis D’Mello Editorial Editor-IN-CHIEF Vijay Ramachandran

Bureau Head - North Sanjay Gupta

Special Correspondents Balaji Narasimhan

Kanika Goswami Senior Correspondent Gunjan Trivedi Chief COPY EDITOR Kunal N. Talgeri

Abnash Singh

Advertiser Index Akamai

Group CIO, Mphasis Alaganandan Balaraman Executive VP (IT & Corporate Development), Godfrey

AMD

APC

Phillips Alok Kumar Global Head-Internal IT, Tata Consultancy Services Anwer Bagdadi Senior VP & CTO, CFC International India Services

Avaya

4&5

SENIOR COPY EDITOR Sunil Shah Arun Gupta D esign & Production

Creative Director Jayan K Narayanan

Designers Binesh Sreedharan

Vikas Kapoor; Anil V.K. Jinan K. Vijayan; Sani Mani Unnikrishnan A.V.

Customer Care Associate & CTO, Shopper’s Stop

PC Anoop; Jithesh C.C. Suresh Nair, Prasanth T.R

Photography Srivatsa Shandilya

Production T.K. Karunakaran

T.K. Jayadeep

Marketing and Sales P, Intl’ & Special Projects Naveen Chand Singh V VP Sales Sudhir Kamath brand Manager Alok Anand Marketing Siddharth Singh Bangalore Mahantesh Godi Santosh Malleswara Ashish Kumar, Kishore Venkat Delhi Nitin Walia; Aveek Bhose; Neeraj Puri; Anandram B; Muneet Pal Singh; Gaurav Mehta Mumbai Parul Singh, Chetan T. Rai, Rishi Kapoor Japan Tomoko Fujikawa USA Larry Arthur; Jo Ben-Atar

Singapore Michael Mullaney UK Shane Hannam

Events General Manager Rupesh Sreedharan Managers Chetan Acharya Pooja Chhabra

Arvind Tawde VP & CIO, Mahindra & Mahindra

13, 15 & 17

Ashish K. Chauhan President & CIO — IT Applications, Reliance Industries

Girish A.V. MM Shanith; Anil T

Finnair

Inflow

C. N. Ram Head–IT, HDFC Bank Chinar S. Deshpande

Intel

RGF & IFC

CIO, Pantaloon Retail Dr. Jai Menon

Interface

Microsoft

10 & 11

Director (IT & Innovation) & Group CIO, Bharti Tele-Ventures Manish Choksi Chief-Corporate Strategy & CIO, Asian Paints M.D. Agrawal CM–IT, Refineries, Bharat Petroleum Corporation Limited

Oracle

IBC

Wipro

6&7

Rajeev Shirodkar VP-IT, Raymond Rajesh Uppal Chief GM IT & Distribution, Maruti Udyog Prof. R. T. Krishnan Professor, Corporate Strategy, IIM-Bangalore S. Gopalakrishnan President, CEO and Joint MD, Infosys Technologies Prof. S. Sadagopan Director, IIIT-Bangalore S. R. Balasubramnian Group CIO, ISG NovaSoft Satish Das CSO, Cognizant Technology Solutions Sivarama Krishnan

All rights reserved. No part of this publication may be reproduced by any means without prior written permission from the publisher. Address requests for customized reprints to IDG Media Private Limited, 10th Floor, Vayudooth Chambers, 15–16, Mahatma Gandhi Road, Bangalore 560 001, India. IDG Media Private Limited is an IDG (International Data Group) company.

Printed and Published by N Bringi Dev on behalf of IDG Media Private Limited,

10th Floor, Vayudooth Chambers, 15–16, Mahatma Gandhi Road, Bangalore 560 001, India. Editor: N. Bringi Dev. Printed at Rajhans Enterprises, No. 134, 4th Main Road, Industrial Town, Rajajinagar, Bangalore 560 044, India

Executive Director, PricewaterhouseCoopers Dr. Sridhar Mitta MD & CTO, e4e S.S. Mathur GM–IT, Centre for Railway Information Systems Sunil Mehta

This index is provided as an additional service. The publisher does not assume any liabilities for errors or omissions.

Sr. VP & Area Systems Director (Central Asia), JWT V. V. R. Babu

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reader feedback

Future of the CIO The threat to the CIO is still in the future. Until business managers get comfortable with outsourcing the innards of their companies, they will want in-house resources. Even when things move out, until vendors standardize a lot more and improve interoperability, technical problems will still require technical support. However, I still believe that the role of the CIO will gradually get more technology-focused and get driven to lower levels of the organization — exactly the opposite of what they are being urged to do. The job of the CIO is a transient one. It is needed because business managers lack technical awareness and confidence in dealing with technology. As we move to an era of services and SLAs, and as business managers get more IT savvy, they will take over the 'I' in the CIO role. That will contribute to the CIO becoming a CTO. Most of them are just that, in any case. How do I feel about this? I think it’s the best thing that could happen to technology. The need for a CIO means that technology is still black magic. Imagine if cars could only be driven by people with a degree in automotive motoring. What would that have done to the automobile industry? The break out in technology adoption achievable by getting 18

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the IT people out of the door would be transformational to the world we live in. Not that they are bad people. It’s that their existence shows that technology is still not as usable as it should be. It might be interesting to see how other roles have changed over the years. Factory managers have given way to supply chain managers. Outsourcing has bitten a big chunk out of their existence. They don’t sit at the top table, but I’m sure if we went back 50 years they did. It might be interesting to research that one out.

as business managers get more IT savvy, they will take over the 'I' in cIO. It will contribute to cIOs becoming cTOs, which is the best thing that could happen to technology.

AlAgAnAndAn BAlArAmAn Executive VP (IT & corporate development) Godfrey Phillips

Security and the role of the CIO The article on Six Sigma approaches for handling IT security issues made for interesting reading (Ideas You Can Steal From Six Sigma, March 1, 2007). Several companies have used Six Sigma tools to reduce defects in their deliverables, but for the first time I came across usage in handling and improving security and risk. The suggestions given in the article can definitely be considered in monitoring and controlling security issues in an organization. The article on tech-savvy users was also was interesting (Users Who Know Too Much, March 1, 2007). We are living in an age where prevalence of IT has become all pervasive with users accessing computers not only at the place of work but also at

home. It is a situation that is difficult to avoid and will only increase in coming years. There are two aspects to it: Should the central IT be burdened with small, local day to day applications which are of convenience to the users? Should these applications not be developed and managed by the users themselves? On the other hand, once the user leaves or relocates, who will maintain these applications? What to do with islands of small applications and lack of standards in development and issues related to security? There cannot be a single answer to these questions. The debate will go on. n. KAIlASAnAth A An Ath VP & CIO, head–business excellence and KM, Titan Industries

What Do You Think? We welcome your feedback on our articles, apart from your thoughts and suggestions. Write in to editor@cio.in. Letters may be edited for length or clarity.

editor@c o.in Vol/2 | ISSUE/12

new

hot

unexpected

There's a new way to spot spam and it takes a cue from detective work. Barracuda Networks recently announced new features on its spam firewall e-mail security appliance that can help detect spam even when senders try to hide their identity. One new feature is predictive sender profiling, a technique that relies on Barracuda’s network of 40,000 customer in-boxes to analyze sender behavior and

A n t i - s pA m

detect when a spammer is trying to evade reputation systems by hiding behind another sender’s identity. Barracuda says spammer identity obfuscation will be as big a trend in 2007 as image spam was in 2006. Spammers’ ability to forge the ‘from’ aspect of an e-mail means that reputation analysis of a sender isn’t always effective. Barracuda’s new features augment reputation analysis with behavior profiling. This profiling determines when a single network address is suddenly sending large volumes of e-mail, an event that usually signals the PC has been taken over by a botnet and turned into a spam server, officials say. It also automatically rejects

SMTP connection attempts to send e-mails to a large number of invalid recipients; this could indicate a possible directory harvest attack where a spammer trolls for legitimate e-mail addresses by sending out message blasts to guessed-at e-mail addresses and noting which ones do not give an invalid address notice in response. Barracuda’s predictive sender profiling also determines when e-mail blasts are coming from newly created domains — another sign of spam — by leveraging the company’s database of domain reputations. The company’s multi-level intent analysis can follow URL redirections from free Internet services and analyze the reputation of the location where the visitor is being sent, officials say. — By Cara Garretson

IllustratIon by unn IkrIshnan aV

Profiling Spam

Cleaner Power for Data Centers In years to come, instead of a battery, a bottle of hydrogen may keep your systems running. t tru Vue, a picture framing and glazing product manufacturer, is the first us company to use american Power Conversion’s Infrastruxure with integrated fuel cells in its data center. the original Infrastruxure solution is a rack-optimized data center enclosure that offers power and cooling management. Polymer electrolyte membrane (PEM) fuel cells, incorporated into the new design, make Infrastruxure a more efficient way to keep data centers running during a power failure. how does it work? hydrogen is stored outside the data center and carried through pipes to the cells, which replace batteries and generators for backup power. t tru Vue has used the system since March. Jacob nelson, lead network administrator at t tru Vue, says his company needed to affordably provide extended run time to its data center, a critical factor as it supports multiple remote sites. Fuel cells make the most sense in cities where diesel generators are not feasible, when run-time requirements would EnERGY

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call for batteries that are too large or costly, or for environmental sustainability reasons, says aPC product line manager randy Wyatt. because their only byproducts are heat and water, fuel cells have zero carbon emissions. Generators and batteries can produce toxins. Why haven’t fuel cell solutions gone mainstream? aPC’s Wyatt says acquisition costs remain high, since the young technology is produced at low volume. however, Wyatt predicts that lower lifecycle maintenance cost will help. as the first us customer (aPC has a few fuel cell customers in Canada and Japan), tru t Vue received some price breaks plus tax credits. the price tag, including installation, came to about rs 30.15 lakh, says nelson. “We don’t run a very large data center, so for our size, the cost of the fuel cells was appropriate,” he says.

— by katherine Walsh

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Last July, the Rs 315-crore 24/7 Customer announced a tie-up with online conversion solutions provider LivePerson. This was the first of 14 partnerships, inked to demonstrate an intent of focusing on innovation in customer lifecycle management, says Mohit Jain, chief 'innovation' officer of 24/7 Customer. Further, the BPO outfit has invested 20 percent more on IT in 2006-07 than it did in 2005-06. Here, he reflects on the benefits of such tie-ups and the dynamic market. L E A D E R S H IP

CIO: As chief innovation officer, how do you see innovation driving business in the BPO domain? Mohit Jain: One of the key things today is a player’s ability to predict. When we started, it was important to do what we were required to do, and meet SLAs as defined by customers. After this phase, the mandate focused on building process efficiency and doing what others haven’t. Now, we’re in the third stage, where we’d like to see how we can completely change the game and the manner in which it is being played. It is important then for us to stop reacting, and we need to know how to predict. So, we use a mass of artificial intelligence tools to be able to predict what’s going to happen ‘x’ days from now, or what is going to happen in a particular call, or what will happen with a customer in the course of his next interaction with our organization.

Mohit Jain

CIO, 24/7 Customer

What is the broad area that these partnerships address? A consumer presents different identities to different people, and interacts with multiple systems through multiple channels, displaying multiple identities. We are looking to build the ability to identify a consumer as the same person coming to me (at a different channel of interaction), knowing what he’s said or done or experienced during the past interaction and mining what the customer has done to use it for our next interaction.

Illust ratio n by MM Shanith

What did the tie-up with Live Person entail – in terms of value addition? LivePerson has been one of 14 tie-ups we entered into over a period of time, all of which are in the domain of the Web. Our strengths have been email systems, inbound voice and outbound voice, and we have had a dialogue system with the customer across these channels. We saw that there is yet another distinctive channel of interaction: a customer’s website, through which comes in the chat engine. We’ve enabled this through LivePerson’s Timpani platform. What are the challenges thrown up by a new channel of interaction? At the base, we are trying to exploit the core domain expertise that an agent has. By asking the same agent to use the same knowledge across multiple channels, I am increasing the efficiency with which the person is able to sell. So, he could be selling through a voice inbound channel or a chat channel, he ends up using the same core competency. However, as we shift our focus from voice- to non-voice domain, we will increasingly see the need to have people who are good in written English rather than spoken English. — Kunal N. Talgeri 20

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t re n dl i n e s

Changing the Game

CEOs Rate IT: Steady But Uncreative re p o r t If your CEO is happy with your work, then you should be happy too, right? Maybe not. Forrester Research recently asked CEOs what they thought of their IT organization, and their answers, per the report “Closing the CEO-CIO Gap,” were surprising. The good news: 59 percent of the 71 respondents (who represented companies with more than Rs 450 crore in revenue) were either satisfied or very satisfied with IT’s performance. But at the same time, just 28 percent of the CEOs reported IT was proactive regarding business innovation, and just 30 percent called IT proactive on process improvement. That’s bad news. The CIO must take an active part in moving the company forward, the report states, or the IT department — and the CIO’s career — will stagnate. “If you maintain the status quo and change nothing, that ultimately results in decline,” says Laurie Orlov, Forrester's VP and principal analyst and the report’s primary author. Orlov advises CEOs to educate themselves about IT’s potential, but points out that CIOs bear half the responsibility for fixing the situation. What’s Forrester’s advice for CIOs, beyond the usual directives to get IT people out in the business trenches, and make sure IT is connected to the business strategy? First, if you’re doing more than the CEO realizes, market your achievements. And if the CEO and other execs don’t understand what you’re doing, educate them. Don’t alienate other execs with techspeak: When the CEO felt the CIO was a good or excellent communicator, the CEO was more likely to view him as a proactive leader on process improvement (41 percent, versus 30 percent overall). m a n age m e n t

—By Sara Shay Vol/2 | I SSUE/12

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Competing On Analytics Thomas Davenport & Jeanne Harris Harvard Business School Press, 2007 Rs 1,350

Here's a differentiator: better business processes. And CIOs can hlep. B OO K R EV I EW Tom Davenport may be a business strategy guru, but he’s also a fierce Boston Red Sox fan. In his new book, Competing on Analytics: The New Science of Winning, written with Jeanne Harris, he notes that the numbers prove pitcher Pedro Martinez should have been pulled earlier from the ill-fated game 7 of the 2003 American League Championship Series. The current Red Sox organization’s ability to crunch numbers — and create new recruiting metrics — fueled

its 2004 World Series victory, he says. Could your business do the same: use analytics to outsmart competitors, strengthen staff and optimize key business processes? You not only can, but you must, Davenport argues. Better business processes are one of the last ways to differentiate yourself from close competitors in today’s global economy, he states. Firms that are successful analytical competitors select one or two distinct capabilities — attributes where they outshine rivals

— and then apply extensive data and systematic analysis to bolster those capabilities, says Davenport. Companies like Anheuser-Busch (which uses a mobile workforce to feed data into a closely-held analytics system called BudNet to optimize beer sales across geographies) are proving the value of the approach, he says. Davenport shares satisfying examples of how companies like Capital One, Harrah’s Entertainment, E.&J. Gallo Winery and American Express use analytics to create advantage.

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Crunch Time: Winning With Analytics

The second half of the book, a how-to guide, details getting started and executing. A concise discussion of the architecture of business intelligence explains key technology issues. As Davenport notes, CIOs will shape the analytical future. Without a consistent, enterprise-wide approach to data management and a flexible BI architecture, a company can’t become an analytics champ.

—By Laurianne McLaughlin

Skype Connects

Il lustrat io n by pc an oop

with the Enterprise

V OIP Skype says business users grab 30 percent of its downloads, but is the enterprise ready for wider use? There are many good reasons why Skype is slowly making its way into the corporate world: it’s free, and you can forget about country codes, telephone numbers, and long-distance bills. With a mouse click, you’re talking, or even videoconferencing, with any of the 170 million Skype users worldwide. But there are also good reasons why corporate IT views Skype skeptically.

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For starters, it can be a bandwidth hog. Another problem: most security products don’t yet monitor Skype traffic, meaning that Skype’s file-transfer capability may make an end-run around your company’s firewall. Now Skype is vying to address these concerns. Consider the case at Holly Corp.: the petroleum refiner blocked Skype outright when it first noticed employees sneaking the software onto the corporate network two years ago. “We started noticing that bandwidth was not available,” says Paul Sheth, network and systems lead with Holly. “And before it started causing a problem that people would notice, we blocked it.” Up until recently, pulling the plug was the only way corporate IT could control the software, but lately eBay, Skype’s parent company, has been jazzing up Skype so that

people like Sheth will take a second look. In December, eBay released a new version of Skype that gave outside programmers some level of control over the software, and those changes are already making Skype easier to manage. For example, FaceTime Communications now sells software that can be used to centrally control which Skype features are permitted on the network. With FaceTime, Holly can turn off videoconferencing at regional offices with low bandwidth or block file-sharing with Skype. Still, security remains an issue: Sheth says he still doesn’t quite have the level of control over Skype that he wants. “It’s making a stride in the right direction,” he says. “As far as mass acceptance, it will still be another year or two off.” —By Robert McMillan

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tREnDLinEs

thE Wo W rlD’s

Best WANs Optimizing a WAN has never been more important. Newer technologies like IP VPN, MPLS and Ethernet WAN are forcing companies to reconsider the trade-offs of class of service, speed, security, flexibility, architecture and cost. According to Aberdeen Group, the typical Fortune 500 firm dishes out 3.6 percent of revenue on network services, equipment and assets. That represents more than Rs 1,471,500 crore per year, and the largest recurring cost within the network environment is the WAN. Those who manage WANs the best truly stand out from their peers, according to Aberdeen’s recent study Latency Matters: The WAN Benchmark Report. Best-in-class companies see WAN services as a necessary business infrastructure and don’t let price get in the way as much as average companies do. “Cost is still the number-one challenge for the best-inclass companies, says Peter Brockmann, VP and research director at Aberdeen and author of the study. But these firms measure their WAN availability and performance better, to get the most from each dollar, he says. “They have the processes, organization, knowledge and technologies to respond more directly to the challenges of operating WANs, and managing the transition to advanced services like Ethernet WAN or MPLS.” Those newer services offer benefits including lower network complexity and higher scalability, he says. Ninety-four percent of survey respondents expect bandwidth requirements within the WAN to grow in the next year. But the best-in-class companies predict 19 percent bandwidth growth on average, compared with 31 percent growth for the other companies. Moreover, these best-in-class firms predict no spending growth on WAN services, compared with 7 percent spending growth for the other companies. —By Margaret Locher

nEtWoRKinG

Deploy tools and processes to frequently measure WAN availability, audio quality and service performance. This should include a 24/7 network operations center (NOC), Aberdeen advises. Integrate service provider escalation processes into the NOC for best-in-class management.

Deploy a total telecom cost management application or service. This will reduce avoidable service provider costs by up to 10 percent, according to Aberdeen’s research.

Suppress the rate of bandwidth growth by deploying application acceleration or WAN optimization tools.

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in a Box E m E R G i n G t E C H The data center at Bryant University developed, as many do, on a piecemeal basis. A server here, a server there, until the school had 78 servers and other equipment scattered across its 420-acre campus. Bryant is now undertaking a Rs 405-lakh data center project using a modular design — an idea it thinks merits top grades. A modular data center features a preconfigured collection of servers, storage devices, and power and cooling equipment that can be quickly set up and easily maintained at a lower cost than a custom-made data center. If this sounds like a far-out idea, consider that IBM and HP each have modular data center offerings, and by June, Sun Microsystems is scheduled to make available Project Blackbox — a data center assembled inside a shipping container that can be delivered to a customer on a truck, parked next to the customer’s building, plugged in and turned on. For its part, Bryant brought in IBM and American Power Conversion, which jointly build preconfigured centers of approximately 500 to 1,000 square feet. HP’s ‘ship to site’ program lets a customer make one call to order a modular data center. When a bank whose branches were taken out of service by Hurricane Katrina wanted a temporary branch, HP shipped a modular center “with a drive-through window and everything,” says Belinda Wilson, executive director of business continuity and availability solutions. One hitch: while modular data centers may help customers add capacity quickly, says Andreas Antonopoulos, a senior VP at Nemertes Research, they don’t address the problem of access to electricity, particularly in urban areas. In such locales, the local power company may not be able to deliver the necessary juice, says Antonopoulos. —By Robert Mullins

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Best Practices

Data ata Cent a nte nt ter

tREnDLinEs

RFID-enableD

Vend i ng Machi nes thirsty travelers passing through hartsfield-Jackson atlanta International airport can now buy their soft drinks without having to fumble for exact change. skyetek tek recently announced that its t radio frequency identification (rFID) readers have been installed in more than 50 soft drink vending machines throughout the airport. the readers will let customers purchase products from the machines using rFID-chipped credit cards. according to skyetek, tek, it has developed t the system jointly with Isochron, a maker of networked technology for the food and beverage industry. the atlanta airport’s machines are each equipped with a skyetek tek embedded M2 t RFiD

reader, a network blade that slips into a vending machine. the M2 card can support sessions with rFID-enabled debit and credit cards issued from financial services companies like bank of america Corp. and Discover Financial services. the new system permits digitally encrypted communications between the card and the M2 reader, notes rob balgley, CEo of skyetek. t tek. the rFID technology speeds transactions and is more reliable and secure than magnetically striped credit cards, he adds. “It’s [rFID card technology] more reliable than magnetic stripe and it’s less expensive,” he says. “any type of magnetic stripe is insecure. With rFID, you’ve got a

digital memory in the card that connects wirelessly using the same security as is used in e-commerce transactions over the Web,” he explains. the M2 blades are linked to Isochron’s network payment system, which processes the transaction with the appropriate bank. In turn, data generated by the purchase can be used by soft drink bottlers to, for example, personalize transactions by flashing messages on the vending machine’s screen, he says.

— by Marc l. songini

how CIos Can Fight Smart Conflict is often the elephant in the room that executives strive to ignore. But no matter how tempting this may be, avoiding conflict gets you nowhere. CIOs must learn the art of productive fighting, says Lynne Eisaguirre, author of The Power of a Good Fight and president of human resources consultancy Workplaces That Work. Eisaguirre has a few tips for “eating the elephant bite by bite.” Accept conflict as normal. People too often associate conflict with dysfunction, says Eisaguirre, but heated discussions are necessary for business success. “The main reason why many companies are not more productive is because they don’t know how to manage conflict effectively,” says Eisaguirre. Great innovation requires working through tough conversations and making collaborative decisions with your chief executive, CFO and IT staff. Be proactive. Unresolved conflicts can quickly spiral out of control and require the support of a third party. avoid this destructive path by planning conflict resolution strategies before a confrontation occurs. If your company has hired a new chief executive, brainstorm ahead of time how you will handle your inevitable first fight, advises Eisaguirre. Harness your conflict management skills. Effectively managing conflict takes practice, because it’s counterintuitive CAREER

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to our gut responses. When we are in conflict, our instinct is to go into fight or flight mode, says Eisaguirre, but neither approach works well in the workplace. Participate in a conflict training course, and encourage your IT managers to do the same, she says. Don’t fight via e-mail. Email is useful for many things, but resolving conflict is not one of them. “People say things in email that they would never say face-to-face. It is important to see people, or at least hear the tone in someone’s voice” during a conflict, says Eisaguirre. So the next time you have the urge to unload on your CFO in writing, step away from the computer.

— By Lauren Capotosto

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4/27/2007 9:06:33 PM

By Susan Cramm

Executive Coach

True Colors Character is an essential element of leadership. Here’s how to develop yours and let it shine.

Illust ration Un nik rish nan A.V

rom experience, most people are good. Walk the halls of any company and you will find committed parents, involved community members and hardworking professionals. How then to explain the fact that on a daily basis many of us behave badly, demonstrating such selfdefeating behaviors as pessimism, selfishness and insecurity? Consider an IT executive named Carl. Carl loves to learn new things and make a difference. He is a huge asset to his organization and gets the hard work done. Unfortunately, many who work with him don’t trust him because of his ‘Lone Ranger’ tendencies. While impressed with his ability to deliver, others criticize his motives. They assume, based on his behaviors, that he is concerned only with promoting his career. Carl’s challenge is one of character, and it is one that he must address. Character is essential to leading others and contributing productively over the long term. In fact, research concludes that it’s impossible to be an effective leader without strong character. Character is defined as having high integrity, as exhibited in the following behaviors, according to the Centre for Leadership Solutions and the book The Extraordinary Leader: Making decisions based on what is best for the company versus personal gain Stating opinions honestly Delivering on commitments Taking a stand on tough issues Being approachable and asking for feedback Treating everyone the same Trusting and working collaboratively with others Being emotionally resilient in changing situations 26

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Vol/2 | I SSUE/12

4/27/2007 8:06:25 PM

By Susan H. Cramm

Executive Coach

It may seem as if it’s easy to evaluate the character of others based on their behaviors, but it isn’t. Carl has outstanding character. He bleeds the company colors and treats his staff like his kids. He isn’t really concerned about power — he just wants to make a difference, do interesting work and be recognized for his efforts. His integrity is in question because he is hard to get to know and does much of his thinking on his own. He isn’t very approachable or skilled at working collaboratively. When he states opinions, he sounds harsh and judgmental. Carl’s not the only one getting a bad rap in the character department. We are pre-disposed to judge others negatively in the heat of the battle because there is little time to communicate and much to get done. For those who would lead, the challenge is to adopt or emphasize behaviors that allow character to shine through. In my experience, there are three behaviors that, when demonstrated consistently, ensure that a leader’s true colors are visible to others. Break through the negativity. It’s easier to question, dissect and disregard than to embrace, enhance and support. Great leaders express excitement about the future and confidence in the abilities of others. I have heard many CIOs talk in one breath about alignment and in the next disparage their business partners. I have also heard CIOs interested in improving internal collaboration within IT gossip about their direct reports with others in their department. If you have a dark side, take it home and share it with your dog. Learn together. Nothing says 'It’s all about me' faster than the show-and-tell kind of collaboration. This occurs when a leader analyzes a problem and makes decisions without feedback from those most affected by the issue at hand. Show-and-tell leadership is in play when the primary form of collaboration occurs in large meetings where leaders pitch their ideas using PowerPoint or when typical leadership lingo includes the terms communication strategy, buy-in and managing expectations. Learning together shows consideration and respect for others and results in better decisions, stronger commitment and more successful outcomes. Challenge the status quo. Leaders who stay behind their desks compromise the enterprise’s long-term interests. Leadership requires situational awareness and the courage to articulate what others are thinking. Leaders who maintain a distance from their organization rarely hear what they need to hear. Get real by hanging out with your staff and peers, asking questions and sharing your mistakes, and speaking up when those around you are losing their grip on reality. Carl has adopted new behaviors that let his finer qualities shine through. It hasn’t been easy for him, but as a result, the image that others have of Carl is improving. By keeping a few key behaviors in mind, we all can better project our core values to the benefit of our people, our organizations and ourselves.

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Reader Q&A Q: Your column did not discuss accountability. But taking responsibility for your actions — particularly mistakes — is never easy. How does one overcome that? A: Interesting point. It’s difficult to admit to mistakes because we all work to avoid the discomfort that comes from doing so. We aim to be in control. We try to ignore the little voice in our heads that asks: “Am I good enough?” On an organizational basis, you can encourage others to take responsibility for their actions by admitting your own mistakes and sharing what you’ve learned. Remind yourself that success isn’t the absence of weaknesses but the presence of clear strengths. Keep in mind that the inability to learn from mistakes has derailed many careers. It’s also comforting to remember that taking responsibility for outcomes, paradoxically, increases the perception of trustworthiness and, therefore, character. Q: You talk about character as a prerequisite for leadership. So why is it that so many 'leaders' fall short and yet still manage to rise to the top? A: It’s true that individuals with questionable character

have risen to the top of many organizations. However, in his book Good to Great , Jim Collins argues that companies that prevail long term have a leadership culture based on humility and trust. Great companies have broad and deep leadership teams of talented peers who are able to confront the brutal facts, engage in vigorous debate and support each other despite differences of opinion. Collins underscores that good to great companies place “greater weight on character attributes” than on specific knowledge or skills. Q: Carl’s character sounds unimpeachable. Isn’t his problem a failure to communicate? A: Carl’s character is unimpeachable, but his actions

are confusing to others because he isn’t inclusive in his process of making decisions. Leaders who think and act alone often fall victim to others attributing negative motives to their actions. CIO Susan Cram is founder and president of Valuedance, a California-based executive coaching firm. Send feedback on this column to editor@cio.in

REAL CIO WORLD | m a y 1 , 2 0 0 7

4/27/2007 8:06:25 PM

Jerry Gregoire

CIO confidential

Honesty is a Great Policy The excellence of any business depends on the willingness of its customers and employees to provide direct and honest feedback. But are you and your managers ready to listen?

Il lustration PC An oop

ucky me. I've had the fortune to live, work and hang out in both Manhattans — as in New York and Kansas — which makes me kind of an expert on how you can tell the difference between the two. For instance, while you might not be surprised to learn that the restaurants in Manhattan, New York, are better than the restaurants in Manhattan, Kansas, the disparity between the two is probably bigger and perhaps more mysterious than you think. It’s not an exaggeration to say that the 10 highest ranked restaurants in Manhattan, Kansas, are not as good as the 10 lowest ranked in Manhattan, New York. To the casual observer, there might be a few seemingly obvious reasons why this is so, such as concentration of wealth or concentration and diversity of population. But Manhattan, Kansas, has some advantages too, like proximity to (hence freshness of) the ingredients as well as fewer distractions. But that’s not the important distinction. The fact is that the differences are actually caused by bad attitudes and a general lack of empathy. Not by the restaurants; by the customers. And not by the customers in New York; by the customers in Kansas. More on this restaurant thing in a minute. I’m terrible at small talk and as awkward as Joe Cocker in a conga line when I have to walk into a room full of strangers. I’m always glad to attend CIO conferences, but I’m only good for about 15 minutes at those ‘networking’ receptions sponsored by this or that vendor. My coping mechanism is to enter the room, move slowly into a circle of people and pretend to listen. Most of what you hear among any circle 28

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Vol/2 | ISSUE/12

4/27/2007 8:05:19 PM

Jerry Gregoire

CIO confidential

of strangers as they carefully sail clear of the ‘never talk about’ topics like politics, religion, race, gender, social issues and, of course, Fight Club, is an amazing amount of chatter with very little usable information or ideas being exchanged. This isn’t because there aren’t great ideas or powerful intellects present, but because you never know, in a situation like this, whom you might offend by offering an opinion. Sadly, many are cowed by the threat of disapproval for expressing even the most traditional point of view. What results is conversational chloroform. Examples of pure and unambiguous communication can be hard to find, but it happens occasionally. For instance, there are our horses. We love our horses here on the ranch in Texas, but we’d be the first ones to admit that they’re pretty dumb. For the most part, horses have one thing going through their little minds, 24 hours a day, and it explains a lot about their sometimes strange behaviour. It is: “I’m a horse, I taste good.” I don’t know what they’re so afraid of. We’re not French! Horses are absolute geniuses about one thing, though. That is, the specific location and placement of their feet. It’s what allows them to navigate rough, vertical terrain at breakneck speeds or walk carefully around a newborn foal in a tiny birthing stall. So, it is absolutely, 100 percent true that if a horse steps on your foot, it is because he meant to. The horse is attempting to communicate. This is attitude as a figure of speech, and if you don’t understand the message, you might be in for a very bad day. What he’s asking is: “Who’s going to be in charge today? Who gets to crowd whom, and which one of us is going to step aside?” These are questions that horses ask of each other every morning as they’re turned out in a pasture. Most of our horses weigh between 450 and 550 kilograms. I weigh 77 kilograms. So, it’s important that I make myself clear about who’s in charge when I get a question like this. But back to the Manhattan thing . . . This past summer a couple of other IT executives and I left Austin, Texas, on motorcycles headed for northern Colorado via the back roads of western Texas and New Mexico. This was ‘middle-aged guy’ high adventure complete with a ride to the top of Pikes Peak, on gravel roads with no guardrails, that left us shaky in the knees. (I’m sure it must have been the thin air.) Road trips like this through small, shabby towns separated by the emptiest stretches you can imagine feature lots of pretty unhealthy ‘country cookin’ and motels so rundown we were grateful our wives hadn’t come along. After about three days, we finally pulled into the midsize town of Durango and decided to treat ourselves to the best steak dinner we could find. On the desk clerk’s recommendation, we found ourselves seated in what looked like a fairly new place in a strip mall — not terribly busy for a Friday night — with the usual steak house selection 30

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Getting the message across doesn’t depend on articulation, or eloquence or the impeccable logic of your argument, but on the emotional context in which the message is being heard. and astonishingly high prices. Even more astonishing was that, somehow, the chef managed to ruin the tenderloin I ordered. Ordering a tenderloin is usually a pretty safe bet because they’re tender right out of the cow, and preparation is simply a matter of searing it on both sides (and sometimes adding that strip of bacon that nobody eats). But, somehow, someway, the chef managed to transform a filet into a hockey puck, except less tasty than a hockey puck, and he compounded his mistake by stopping by the table to ask us how our meals were.

Don’t Ask If You Don’t Want to Know Before I tell you what happened next, I should mention that I’ve got a fair amount of experience in the restaurant business, having served as CIO for PepsiCo’s restaurant divisions, Pizza Hut, Taco Bell, KFC and assorted others when they still owned them. As industries go, few are as tough, competitive, hazardous or fickle as the restaurant business — generally, more than 70 percent of new restaurants fail in their first year. Also, according to studies I’ve seen, customers who have an unsatisfactory meal on their first visit to a new restaurant will not return to try again, on average, for two and a half years, by which time the new restaurant has probably closed. Ever heard the expression: “Nothing you say will ever teach you anything”? Not true. I turned to Chef Cinder and calmly and politely said: “This is, without a doubt, the worst filet I’ve ever had, anywhere.” This was followed by a silence so loud it was making the other guys wince. The chef then mumbled something and walked on to the next table. My travelling companions began glaring at me like I’d just strangled a kitten while I made silent gestures back that said: “What? Was it something I said?” This was one of those cases where I was clearly right and the chef and my companions clearly wrong. The chef was wrong in that he didn’t visit our table because he wanted to know how the meal tasted, he wanted to hear that we liked it. Had I known that, I wouldn’t have bothered to speak. It’s just one of those things you learn on your way to becoming a CIO and one that managers with less experience trip over all the time. It is the pervasive and persistent misunderstanding among young managers at all levels that insight will work with people who are unmotivated to listen. Getting the

Vol/2 | ISSUE/12

4/27/2007 8:05:20 PM

Jerry Gregoire

CIO confidential

message across doesn’t depend on articulation, or eloquence or the impeccable logic of your argument, but on the emotional context in which the message is being heard. It’s absolutely true that your boss, your peers and your team can hear you only when they are moving toward you, and they are not likely to when your words have to chase them. My friends were also wrong in this case, because they thought I was being impolite. I was being nothing of the sort.

It’s Not Rude to Be Direct In fairness, both of these guys grew up and lived most of their lives in the Midwest, and this kind of direct, seemingly harsh communication is considered unmannerly and New

more direct real-time feedback. “My feedback,” I said, “just might save these guys from going out of business.” To which one of the guys said: “What if you don’t care if they go out of business?” This might be the most insightful thing I’ve heard him say in 20 years. Silence as an argument carried out by other means. The revenge of the passive-aggressive. How many businesses have been lost, how many careers have been damaged, because feedback was not forthcoming? Was it not forthcoming because of malevolence or a belief that it would not be well-received? Depending on the nature of your business or geography or whatever, it might be pretty tough to get meaningful feedback from your customers, but your managers and employees are a

If a restaurateur in New York serves a bad meal, he is going to hear about it right then and there. Real-time feedback is crucial to addressing the customer’s complaint and fixing the problem before the next customer comes through the door. Yorky. Where does this dopey idea come from, anyway? This difference in ability to provide direct, unfiltered feedback is why the restaurants in New York are better than the ones in Kansas. This is the Manhattan effect. The inherent advantage a restaurateur in New York has is that if he serves a bad meal, or serves it too slowly, he is going to hear about it right then and there. Real-time feedback is crucial to addressing the customer’s complaint and fixing the problem before the next customer comes through the door. The ability to measure things begets new behaviours. The restaurateur in Kansas, on the other hand, is at a huge disadvantage. When served a bad meal in Kansas, the customer is far more likely to tell the waiter that the meal was ‘fine’, quietly pay the bill and never come back. The only indication to the restaurant that there might be a problem with the food is that they are going broke. This is the bad attitude and lack of empathy that the silent individual can inflict. Even restaurants that succeed, such as this purportedly great steak house in Durango, will never be as good — or as successful — as they could be. That there must be some genuinely good restaurants in Kansas is a testament to those individual owners’ talent and self-critical natures, and their ability to attract the handful of diners in their geography willing to engage them with critical feedback (probably transplants from the East). In an effort to keep them from stabbing me with their steak knives, I tried to explain this thinking to my two cornfed friends and relate it to how we might have all done things better in our jobs had we the benefit of receiving and giving

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different story. If you’re not getting meaningful feedback from them, there’s no point in spending a lot of time wondering why. The reason is you. Being lucky enough to get real-time feedback doesn’t mean much without some measure of receptivity to the negative message. I imagine that the owner of a successful restaurant in New York probably has to have a pretty thick skin. I’m not sure whether this is something you have to be born with or something you can learn. I certainly could have used a thicker skin when I was an active CIO. Even though I knew better, I still had a tendency to take negative news pretty hard. I had a terrific career, but there’s little doubt that I could have done some things better. To all of my ex-teammates who might have been afraid to knock on my door because of the way they thought I might receive negative news, I’m sorry for that, and I wish I had it to do over. I suppose it doesn’t do any good to close the barn door after the horses have got out, but you might as well. For most of the IT leaders reading this column, you’re in luck. It’s not too late. CIO

Jerry Gregoire is the former CIO of Dell Computer and the beverage division of PepsiCo. Send feedback on this column to editor@cio.in

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11/16/2011 11:56:19 AM

Cover Story | Integration

head

CoCktail On the heels of an acquisition, a CIO has a critical task that goes beyond integrating two independent systems: unifying two cultures. For, the synergies are only as good as the users of the newborn entity.

Photos by s rIvatsa sha ndIlya

Imag Ing by bInesh sreedharan

BY Kunal n. Talgeri

“For example,” he explains, “we keep our servers on 24/7 across T. K. SubramanIan is an old hand at the UB 80 different locations, 45 to 50 manufacturing units, and for Group. The divisional vice-president (information dispatches that happen round the clock. We have to ensure systems) of United Spirits and a cricket enthusiast joined connectivity, and see to it that servers hold correct data in terms the organization when an Indian cricket team last won the of pricing, stock, etcetera.” This setup in the Rs 3,600-crore World Cup. A long time ago, yes. liquor company has been segregated by geography: into five In the course of the past 24 years, he has seen an IT regional profit centers (RPCs). In March 2005, organization start from scratch, molding it the structure would get a huge organizationthereafter into a reliable and conspicuously Reader ROI: wide fillip, throwing up a new challenge for invisible influence on what is today known Change management in a Subramanian’s team. The challenge stemmed as United Spirits. “There are processes at new entity from the group’s Rs 1,300-crore acquisition of its United Spirits that have been automated Value of fine-tuning closest domestic competitor, Shaw Wallace. to such a degree that IT may not be very existing business processes For Subramanian’s team, though, it was visible, but in the absence of IT, will become yesterday once more. visible,” he says. User management

T.K. Subramanian, divisional VP-IS of United Spirits, took on an internal consolidation project and an acquisition â&#x20AC;&#x201D; and made both work.

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REAL CIO WORLD | m a y 1 , 2 0 0 7

4/27/2007 8:42:06 PM

Cover Story | Integration

a ToaST To InTegraTIon

here are few things better for a CIO than to have a major initiative at hand in the knowledge that his homework is complete. Two years prior to the Shaw Wallace acquisition, the IT organization of the UB Group’s spirits division had put the finishing touches to its SAP implementation — the largest change management exercise in its history until then. In doing so, all the units of company — which encompassed 111 servers — were, for the first time, on one unified IT system. This integration exercise would turn out to be timely, and serve as the foundation if and when the UB Group acquired its competitor. With Shaw Wallace within its reach, United Spirits’ IT organization was looking at a task that involved reining in a new set of users, not to mention 10 additional manufacturing units, regional offices and branch offices onto its system. The IT team already had its hands full with another consolidation initiative, internally: the consolidation of Herbertsons, McDowell and other units in UB’s spirits division. Still, the excitement was palpable in the UB Group. In March 2005, the UB Group announced its plan to acquire Shaw Wallace. Even in the midst of UB Group's own consolidation, Subramanian’s immediate focus would be Shaw Wallace. Says Sivarama Krishnan, executive director (business solutions), PricewaterhouseCoopers (PwC), “The first 100 days after an MoU is signed are very crucial. What you do in this period — how you embrace the new stakeholders and supply chain, and how you plan integration — contributes to the benefits of the M&A.” For UB Group’s IT team, however, it was also important to know the path of consolidation. “At the time, we had to combine the UB entities into one company called United Spirits. It was a technical merger. So, there was confusion whether we should implement one ERP platform for Shaw Wallace and UB — as our organization stood at that point of time,” he recalls. Evidently, two choices arose before the UB management. First it could consolidate the UB companies, and then integrate the amalgamated entity with Shaw Wallace. This plan hinged on a court order recognizing the amalgamation. In the meanwhile, it would delay

the process of integrating Shaw Wallace in the UB fold. Or, UB could focus on integrating Shaw Wallace and let the internal amalgamation process follow. The management went with the second option — and asked Subramanian to integrate the two companies’ systems before the end of the financial year. That was only three months away! Subramanian, at least, had clarity for the task at hand. By October 2005, his team and a managing committee had debated options before deciding to forego the Shaw Wallace home-bred IT system and, instead, bring it onto the UB Group’s SAP platform — as opposed to merely consolidating two diverse systems using a third IT system. The immediate course of action was to address the diametrically opposite organizational structures of both entities (UB followed a decentralized approach and Shaw Wallace believed in centralization) — and cultures. This called for, first, identifying the business processes at Shaw Wallace. Subramanian was keen to begin with the ‘process owners’ at Shaw Wallace. No one would know the process and styles of functioning at Shaw Wallace better than its own people, he reasoned. In November, he organized a workshop-meeting of the process owners at Shaw Wallace. “We asked them to shed light on their business processes. The process owners were functional heads like a representative from manufacturing, materials and finance. They also nominated some people who came to the workshop,” he says. The IT team followed this up by discussing common areas in the two entities, and how the transition to UB’s systems could be brought into effect. Such a discussion is key to the technical solution of integration, asserts Abnash Singh, group CIO of Mphasis, an ITeS company that was acquired by EDS in 2006. “The first thing is to do a ‘gap analysis’ of the different processes in the two organizations, and then work with the business stakeholders to reach an understanding of the path ahead. This discussion must happen before integration,” he asserts. At this stage, a transparent and open environment paves the way for smoother integration, adds Rishikesha T. Krishnan, professor of corporate strategy at the Indian Institute of Management-Bangalore (see Making of a Good Blend Blend). “The most important thing is communication,” he says. If the acquiring company can communicate its intentions to the

History of a true vintage A good integration plan is as much about the foundation

July 2002

January 2003

2004

March 2005

The UB Group’s spirits division undertakes a project to bring its country-wide IT systems onto a SAP platform with the help of Accenture. The implementation is carried out across one factory, corporate office and branch office.

The vendor hands over the project to UB's IT team, and makes itself available for consulting. The IT organization begins its exercise to consolidate 111 servers across the spirits division.

The project is complete, with all five of UB Spirits’ regional profit centers on one ERP platform. IT assesses usage and creates an intranet portal for information users at senior levels who don’t utilize the ERP functionality — saving 120 SAP licenses.

The UB Group announces the Shaw Wallace acquisition. It aims to benefit from economies-of-scale and optimizing purchases and logistics. IT, in the midst of an amalgamation project within UB Spirits, looks to bring Shaw Wallace onto its own ERP platform.

Cover Story - 01.indd 34

4/27/2007 8:42:08 PM

Cover Story | Integration acquired entity clearly and be transparent about its integration process, it benefits both entities,” he elaborates. Singh agrees: “The change in processes needs to be socialized and communicated across the board. A strong project team and governance model needs to be in place to manage and execute change — it needs to be involved in testing new processes and training programs to familiarize new employees with the new environment.” “In some cases, there were genuine problems with Shaw Wallace accepting our business processes." Subramanian recalls. "So, we took their version of what should be the business process, and convinced UB's management it would be better to adapt and go with what they are following. This meant changes to our SAP configuration.” After the workshop, the IT organization defined common business processes across the two entities. “Determining this took about 20 to 30 days,” says Subramanian.

The m&a bInge

tHirst for expansion The UB Group isn’t alone at the M&A party. Indian companies have begun buying like never before. 2004 Number of M&A deals: 360 Value of deals: Rs 55,350 crore 2005 Number of M&A deals: 467 Value of deals: Rs 81,900 crore 2006 Number of M&A deals: 782 Value of deals: Rs 126,900 crore

Largest Deals in 2006 Acquirer

Target

Stake (%)

Price (Rs cr.)

Aditya Birla Group

Idea Cellular

Increasing Stake

4,406

Essar Oil

Increasing stake to 87%

3,424

Essar group

n the corporate playfield, the UB Group Mylan Laboratories Matrix Laboratories Majority stake 3,312 was merely whetting its appetite with Videocon Industriesthe Shaw Wallace purchase. In the following Daewoo Electronics N.A. 3,280 led consortium year, it would acquire French wine company Tata Tea Energy Brands Significant stake 3.047 Bouvet-Ladubay. Most recently, the UB Group has put in a Rs 1,760-crore bid for Note: All valuations converted at present value of rupee Source: Grant Thornton Invergordon, the scotch company of Whyte & Mackay in Europe. economy, conducive investment climate, strengthening of the finances This acquisition binge, over the past two years, has not been unique of Indian companies and a strong urge among them to be globally to the UB Group (See Thirst for Expansion). In the first half of 2006, competitive have resulted in heightened M&A activity,” states a India witnessed a record number of M&A deals. “A fast growing PwC report. Typically, with the economy being more competitive, Indian as it is about planning. companies are searching for advantages of scale and scope, both of which are possible with the M&A route, says Krishnan. The vibrant M&A scene November 2005 April 2006 November 2006 might also be a reaction The IT team recommends prioritizing Ten Shaw Wallace locations are The integration of Shaw Wallace with to the Competition Act, the Shaw Wallace integration over the brought onto the UB Group’s IT McDowell, Herbertsons, Triumph 2002 and related policies, Distillers & Vintners and its Baramati amalgamation project. platform. he feels. “It’s quite likely unit is complete. They have one face: It conducts a workshop with The 120 SAP saved licenses are for the competition United Spirits. Shaw Wallace process owners to extended to Shaw Wallace users. commission to scrutinize assess and standardize business The IT organization now focuses on and stop mergers that processes across both entities. its internal consolidation project. would result in highly dominant or monopolistic

Cover Story - 01.indd 35

Cover Story | Integration entities in future. So, one driver in the short run is that many companies are trying to position themselves very strongly before competition policies are enforced,” explains Krishnan. The most apparent reason is the acquirer’s intent to increase size and leverage the synergies of the target enterprise. Abnash Singh cites availability of larger infrastructure — more and different sites — and increased capability as the immediate benefits of an M&A. For the UB Group, Shaw Wallace was its biggest acquisition at that time. It came with implications that arise from buying out your closest competitor. Apart from a boost to the size of its spirits division, the management had already identified the areas of synergy for the IT team. “The immediate goal was to derive benefits from synergies in terms of economies of scale, purchases, optimization of manufacturing locations and logistics, and so on,” says Subramanian, who readied himself for a second change management exercise in three years — a natural outcome of an M&A.

ShaKe & mIx

he IT organization began the Shaw Wallace-integration initiative by drawing from the lessons of its in-house experience while implementing SAP. “There are two ways to implement SAP. One, a pure technical implementation: map the processes and simply implement it. The other is to critically analyze business processes, and identify areas that can be streamlined and improved. The second method brings more value to the enterprise,” Subramanian says. One of the obvious findings from their analysis was the centralized

“The first thing is to do a ‘gap analysis’ of the different processes in the two organizations. This discussion must happen before integration.” — Abnash Singh Group CIo, mphasis

3 6 m A y 1 , 2 0 0 7 | REAL CIO WORLD

structure in the Shaw Wallace expanse. Its structure was the polar opposite of the culture in UB that takes pride in the independence of its regional profit centers. While Shaw Wallace had an all-India sales manager who looked after sales (and equivalent roles across functions), UB’s spirits division was independent at an operational level with a COO heading each of its five regional profit centers (RPCs). “This gave way to a complication because UB operates by region and Shaw Wallace was consolidated across our defined regions. In effect, for UB, the Hyderabad and Bangalore branch offices would fall under different regions while Shaw Wallace consolidated them at Hospet, which is in the south. Getting the opening balance, by itself, was a challenge,” explains Subramanian. Further, business models vary from state to state because levies and duties are determined by state governments. The systems at the Shaw Wallace units had to factor in such nuances, innate to a decentralized setup, during the integration process. “When it came to financials — balance sheet and other accounting — Shaw Wallace was organized differently from us. They had a concept of a mother distillery, where one distillery — for instance, the Hospet Distillery — consolidated the accounting of the Hospet distillery, the Hyderabad branch office and the Bangalore branch office. They had several such consolidation points, which were eventually aggregated at the corporate level.” The one-week workshop involving process-owners had been instrumental in understanding such processes at Shaw Wallace. The core IT team backed this by visiting each Shaw Wallace distillery and office, and making presentations to tell users about SAP and how it was different from their home-bred system. "That is a huge change management issue and we had faced it even while implementing SAP within the spirits division,” says Subramanian In this context, an issue that the IT team addressed at Shaw Wallace was: a legacy system that accepted invoices at the end of a month. With the SAP setup, everything would be real-time. “The effect also becomes visible in several other systems. The users needed to absorb that change and learn to record entries at every level of the supply chain,” says Subramanian. “The kind of operational problems we faced at the start was tremendous,” points out Subramanian. “From general ledger code, supplier code…everything had to be streamlined. At Shaw Wallace, each distillery had a different code. This had to be standardized and brought in line with our business processes,” he explains. All this translated to an organization-wide culture change in Shaw Wallace. Unsurprisingly, as in any integration initiative, Subramanian’s team placed change management well over the task of technical implementation. In comparison,

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Cover Story | Strategy

Making of a Good Blend For the IT team of an enterprise that is on an acquisition spree, each M&A reins in a new set of users and calls for a holistic view. Here are best practices identified by CIOs, analysts and corporate strategists:

an acquisition. The IT team can utilize it to identify areas of synergy — as recognized by management.

concerned. There has to be an open environment for new users to better understand the integration process.

Don’t Delay Integration: After an M&A is announced, it is important to work towards a process to integrate. "The first 100 days after the MoU is signed are crucial to define your plans, especially operational ones," says Sivarama Krishnan, executive director at PwC. Then, focus on execution. “Till you integrate, the synergies are entirely hypothetical,” notes Krishnan.

Instill a process to quantify the synergies: This could range from efficiencies in the supply chain and those relating to time or to usage of the target company’s resources. "These need to be captured in your systems," says Krishnan of IIM-B, “If you want to measure the progress of M&A, you need to have good data availability, which depends on whether you have the right systems in place. Decision-makers stand to benefit by this immensely, immediately.”

Understand where the synergies lie: Acquirers are best advised to have an ‘investment thesis’ ready, which spells out the rationale of

Communicate: T.K. Subramanian of United Spirits used a workshop-meeting of process owners of both entities

bringing the Shaw Wallace units onto the UB Group’s SAP platform was a no-brainer.

Long Live the User

he change management initiative at Shaw Wallace left Subramanian with a sense of déjà vu — for good reason. “The implementation was much smoother than we expected. The real question was: were users taking advantage of the SAP environment to derive business value?” It was a question that had arisen even when the IT organization first implemented SAP within the UB Group. To quantify usage in the new environment, the IT organization first divided users in two categories: operational users and information users. The former comprises production managers, accounts managers and material managers among other middle-level personnel at the operations level. Typically, usage is high among them as they not only cull information from SAP modules, but are also instrumental in updating it after their respective transactions. The information users are typically senior personnel in finance and administration who access amassed information — not add to it — to use it. This category did not completely cotton on to the SAP environment. The IT organization identified them and created a more user-friendly source of the same data: an intranet portal. In the process, it saved 120 SAP licenses, which it passed onto the new users from the erstwhile Shaw Wallace. 38

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Identify users and their needs. This helps determine the extent to which new users (and even existing ones) adapt to the integration environment.

Be involved in creating a wing for leveraging M&As: Enterprises that are very successful in M&As tend to have a separate business department that specializes in acquisitions and integration — complete with integration managers. Krishnan cites GE and Cisco. This has immense benefits in tackling cultural issues and other matters relating to integration. – K.N.T.

At the very least, the integration and standardization process helped bring users on the same page and enabled data availability across the restructured organization. It is too early to talk about ROI and synergies, says Subramanian, since the integration is just over a year old. “Typically, it takes three to six months for an integration program to rollout and begin to deliver synergies of the common sets of processes,” says Abnash Singh of Mphasis. This can get extended in pockets because of processes that need more time to change, he adds. With the integration, Subramanian's team had created a common view of the two organizations, as every Shaw Wallace unit and its users became part of the regional proft center (RPC) in their geographic location. Shaw Wallace's IT folk too joined the IT team in their RPC. Shortly after integrating Shaw Wallace in the UB fold, the IT organization came full circle as the court orders on the internal amalgamation came through. “This was a matter of technical implementation as the IT systems were already one across the UB spirits companies,” says Subramanian. It proved to be the icing on the cake — the spirits division was reborn as United Spirits. The new entity continues to be a hungry acquirer in the global marketplace. For IT though, integration is not always a matter of invention, the proverbial son of necessity. On the contrary, as in the United Spirits experience, it might not be wrong to say that providence is the mother of expansion. CIO Chief copy editor Kunal N. Talgeri can be contacted at kunal_t@cio.in

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View from the top is a series of interviews with CEOs and other C-level executives about the role of IT in their companies and what they expect from their CIOs.

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Global Medicine at Home

BY Kunal N. Talgeri In early April this year, the Apollo Hospitals Group announced a joint initiative with IBM to rope in mid-sized hospitals onto a national health data network called ‘Health Hiway’. The step is a reaffirmation of the price that the Indian healthcare major puts on a central repository of patient data in the country. And, IT has been a key driver for the Apollo Group in this quest. In this interview with CIO, chairman of the Apollo Group Dr. Prathap C. Reddy delves on the value of such IT-driven healthcare goals, and reminisces some key milestones in Indian healthcare and the challenges ahead — for Apollo and the sector in general. It can all add up towards making India a global heathcare destination, he asserts.

CIO: How has IT, as a part of world-class medical infrastructure, evolved in India over the past two decades? Dr. Prathap C. Reddy: Information technology (IT) has made a significant difference to the quality and standards of

medical care and infrastructure in India. When I came back to India in 1983, the healthcare scenario was only dotted with the large government hospitals and smaller private clinics and nursing homes. I recall my days at government institutions when all we had was multitudes of registers (including a register to list all the registers there were), and everything was handwritten. There was no way a patient’s

Imagin g by Bi n esh Sreedharan

The best cures across the world can converge in India to make it a global healthcare destination, believes Dr. Prathap C. Reddy, chairman of Apollo Hospitals. And IT, he believes, is critical in making it happen.

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View from the Top

Dr. Prathap Reddy expects I.T. to: Provide comprehensive and standard patient data Ensure smooth automated workflow Help the organization meet patient expectations

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View from the Top

case record could be maintained cohesively, updated or transmitted to another location in those days — when computers were kept in glass cases and had a ‘Handle with Care’ tag on them! Then, the IT and telecom revolution happened in the country and, suddenly, information and communication systems across the country entered a magical transformation phase. However, if we look at the healthcare industry, I’m afraid only a small percentage of private sector hospitals have realized the massive potential of IT in healthcare and adopted IT in their systems. We have to widen the utilization of IT in the healthcare sector across all categories of hospitals and across the country.

Do you see a shift in perception among users — non-medical and medical — vis-à-vis IT applications in healthcare? Yes, there is a major shift in customer expectations. Today, patients who walk into hospitals are aware of the conveniences and enhanced service quality that IT brings to several aspects of their daily lives — banking, communications, Internet, entertainment and travel, for example. Therefore, their expectations are extremely high when it comes to a crucial service like healthcare. It is here that IT can fulfil a lot of those expectations because whether the healthcare facility is large or small, having the right IT infrastructure can provide: C omprehensive information on an individual’s health that is accessible in a standard format Universal but secure access to medical information Improved infrastructure, systems and processes in a hospital, and enabling a smooth automated workflow to ensure customer satisfaction Advanced treatment tools such as computer-assisted diagnoses, and pattern and trend recognition. 42

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“India should become the global healthcare destination. And I think it is eminently possible as we have most of the essentials right.” — Dr. Prathap C. Reddy

What is your vision for the healthcare domain? How do you see Apollo Hospitals growing as a global player? India should become the global healthcare destination. That is my vision for the healthcare domain in India. And I think it is eminently possible as we have most of the essentials right: medical and nursing professionals with a very high standard of skills and talent, infrastructure and technology that matches the best in the world. Though healthcare, as an industry, enjoys much governmental and institutional support today, an intensified focus from them would really hasten our progress to fulfilment of my vision. In the next five years, I see Apollo hospitals taking a leadership role in India’s journey towards global leadership in healthcare. We have, and will continue, to spearhead several

efforts in clinical medicine, infrastructure, IT, research, technology and innovative services such as disease management and preventive healthcare. Most importantly, we want to bring trans-national medicine for the benefit of patients.

What role do you see technology playing in this quest? Technology is obviously a major driver in fulfilling this vision. Apollo Hospitals utilizes technology in several forms — for diagnostic and therapeutic purposes, to begin with. Second, we leverage the benefits of IT in healthcare: in integrated and seamless electronic medical records, or our telemedicine initiative for enhanced access to medical care. Further, our automated systems and processes help in enhancing patient satisfaction, and improving their experience. Apollo is also one of the largest medical business outsourcing companies doing billing, costing and adjudication for US hospitals, doctors, and insurance companies.

How do you emphasize innovation? We believe that research is also a very crucial driver in our path to become world leaders in healthcare. We have the Spectra Clinical Research Centre (SCRC), which is responsible for conducting clinical trials and research for Apollo Hospitals. Spectra’s activities encompass site monitoring, coordination and facilitation of clinical drug trials. Drug trials are conducted in order to ascertain the safety, efficacy and adverse effects, if any, of a drug. There are currently 15 international and 55 domestic drug trials being conducted at SCRC. The international trials are multi-centric, global, phase II and phase III trials, working towards FDA and European Union registration. We have also entered into a tieup with the Johns Hopkins Medicine

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View from the Top

International, US, to undertake a collaborative study on cardiovascular diseases in India. Incidence of cardiovascular diseases has been found to be rapidly increasing among Indians and carries a high mortality rate. Expert estimates put India as having the highest incidence of cardiovascular diseases in the world, more so among the younger generation. This would be the first c o mp r e h e n s ive st u dy to look into the several theories that are attributed to influencing a higher rate of cardiovascular diseases prevalence in the country. This collaborative research is aimed at studying in detail and documenting the key risk factors and providing a greater insight to develop appropriate steps towards control and prevention.

SNAPSHOT

Apollo Group Turnover:

Rs 1,009 crore Group companies:

Hospitals:

Clinics:

No. of pharmacies:

Total no. of beds:

4,148

Employees:

> 10,000

IT-intensive units:

Apollo Hospitals Enterprise Apollo Telemedicine Enterprises Apollo Health Street Executive Directoroperations:

Sangita Reddy Souce: Company

How are you looking to invest on IT in the years ahead? IT will play a more and more important role in healthcare delivery in each of our hospitals, so we will continue to invest in this area. One area we hope to make major progress in is the Healthcare Hiway, an extremely ambitious venture where we hope to integrate every small unit, nursing home, or private practitioner in any remote location in India with our tertiary care locations, so that the expertise and strengths of Apollo Hospitals can be utilized for the community at large. By this process, opinions can be sought, records and investigations can be shared, and screening as well as followup care can be provided.

What were the IT investments that Apollo made in its initial years?

When did you see the need for Apollo Hospitals to comply with global regulations?

As I said, being the first corporate hospital in the country, Apollo Hospitals was one of the first to start processes of automation, computerization: an electronic medical record system, a sophisticated billing system that was fully automated, and also a sophisticated medication management system at the wards. Telemedicine too has been a major successful initiative. And, we are committed to updating each of these areas to keep up with the latest innovations in ITrelated processes â&#x20AC;&#x201D; including the current upgrade to the next level of advancement in the HIS, which is currently going on across the entire group.

When the vision is to become the preferred medical destination for the world, it becomes necessary to surpass the worldâ&#x20AC;&#x2122;s benchmarks for healthcare standards and outcomes. We have to be truly global because our patient population is becoming increasingly global. So, we decided to acquire for ourselves the best of the worldâ&#x20AC;&#x2122;s standards. The starting point was the accreditation from the Joint Commission International (JCI), a US-based accreditation body dedicated to improving healthcare quality and safety around the world. The accreditation is an international gold standard for hospitals and has been achieved by only 24 hospitals in the

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world. The Apollo Hospitals group has also achieved the unique distinction of achieving accreditation for four of its hospitals.

What are your views on the medical regulations in the country? I think the current medical regulations are to be modified, especially quality standards. As far as Apollo is concerned, though governmental regulations are important, we also have a number of stringent self-regulatory practices for the benefit of patient safety, confidentiality and best practices.

How do you see the role of a CIO? Should the technology leader be part of your overall strategy-building process? Yes, indeed. The role of a CIO is very crucial for a global and multidimensional healthcare chain like Apollo. Since technology and IT are an integral part of our growth and operational strategies, it is but natural that the CIO would be a major driving force in helping us attain our goal and realizing our vision. CIO

Chief copy editor Kunal N. Talgeri can be reached at kunal_t@cio.in

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Fast, Smart Close

When it comes to closing the books, the benefits of speed are undeniable. And CIOs are uniquely positioned to help their organizations reap them. By Galen Gruman

Il lustrat ion by ANIL T

As long as they’re

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that many companies don’t, even those making meeting their huge IT investments and supporting equally large regulatory reporting deadlines, most enterprises IT departments. don’t think a lot about closing their books faster. World-class companies can close their books Maybe they should start. internally in five days, while top Increasingly, the speed with which performers can do it in three, says an organization closes its books Reader ROI: Scott Holland, IT practice leader and reports its financial results is How a fast close can lead to a at the Hackett Group, a strategic being looked at by practitioners, better IT-business alignment advisory firm. But only about 10 analysts and investors as a defining Why good integration percent of US enterprises are in that metric for evaluating whether the doesn’t always produce fast class, Holland says. organization possesses the best reporting Ask a typical CIO how his company possible processes and enabling How XBRL can help a company report faster could improve its financial technologies. And it turns out REAL CIO WORLD | m a y 1 , 2 0 0 7

4/27/2007 8:56:08 PM

IT-Business Alignment reporting and his recommendations most likely will focus on mechanics: normalizing data, collecting it and passing it on to some central repository. Some CIOs will go a little further to suggest that the data generation and gathering systems be reviewed for compliance requirements. And that’s fine as far as it goes — except it doesn’t go very far. It doesn’t address what most CFOs need; it doesn’t help the business run more intelligently; it doesn’t cement IT-business alignment. No matter how integrated a company’s financial streams are, CFOs still struggle to close the books and issue the reports. Their staffs will still spend countless hours reconciling data gathered from multiple departments and systems — all under deadlines that are shrinking even as regulators ask for more data. For many companies, meeting complex requirements such as evaluating the effectiveness of newly required accuracy controls in the same amount of time — or even in less time than before — forces executives to rethink their closing and reporting processes At the very least, what the business needs from IT is a way to make the financial close and reporting process more efficient and accurate in order to lower costs and minimize the risk of providing incorrect information to stockholders and regulators.

CIO Larry Shutzberg says the real benefit of speeding RockTenn's close (apart from meeting SOX requirements) was consolidating accounts by reducing headcount.

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But that’s merely a tactical improvement. The real opportunities lie elsewhere. By redesigning the organization’s financial processes and then implementing the technology infrastructure to execute them, business managers and executives can gain a near-real-time view of financial performance, enabling them to identify problems and opportunities much earlier. A second opportunity is to understand the relationships of all financial information so managers and executives can do analysis outside the box. Lastly, by providing accurate filings more quickly than your competitors, your company will increase investor confidence, and that will put a smile on the face of every business executive and make the CIO king for (at least) a day.

Needed: The Big Picture Noel Gorvett is well aware of how an organization can miss the opportunities offered by speeding the close. In 2002, Gorvett, the group business systems manager at book publisher Pearson, began exploring centralizing group reporting. The idea was to replace the more than 400 general ledgers and 80 ERP systems in use throughout the global publisher’s operating units in 60 countries to track Rs 31,500 crore in annual revenue.

The IT group’s goal was more efficient maintenance through a common technology base. But the focus on platform integration overlooked a key business need: a way to report the financial information flowing through the systems in a meaningful, consistent way at the departmental and executive levels. “Each Pearson department was working off its own assumptions,” Gorvett recalls, such as the criteria for sales forecasts and profit margins. That made it difficult to create a consolidated financial report, much less to identify variations from plan so managers could act quickly while there was still time to do so usefully. It became clear to Pearson’s group CFO in mid-2003 that a different approach was needed, one that focused on fixing inefficiencies in the financial reporting process itself and standardizing processes across Pearson. That way, executives could work from the same financial assumptions, no matter what applications they used to manage their books. This in turn would enable them to quickly identify significant differences across divisions and adjust strategies if needed. And the processes would gather the information that would be needed for compliance, regulatory and stockholder filings — no more scrambling to retrieve this information at each close from buried Excel spreadsheets or by running queries against transaction systems. So Gorvett — working as a liaison between the CFO and the CIO — led Pearson on a tack that determined standard financial transaction, auditing and reporting processes for the whole company — creating, for the first time, a standard chart of accounts. This provided a unified list of all accounting data tracked to ensure that everyone used the same definitions and categories and that the enterprise captured all the financial information it needed at all locations. The next step was to set up the technical requirements for what data needed to be captured from what sources, how it would be presented to the central financial reporting tool and what processes had to be followed to generate the results. That way, no matter what technology platform a division happened to use, the data that management was receiving would be consistent, accurate and timely.

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IT-Business Alignment The result: Pearson was able to close its quarterly books in six days (down from about 20) and reduce its year-end reporting time from eight weeks to six weeks. And because everyone was working from the same chart of accounts, financial staffers no longer had to burn the midnight oil to translate their financial information into what the executive team needed.

The ROI of Speed The Hackett Group’s studies show that “world-class companies spend 45 percent less” on closing and reporting than other companies, which on average saves Rs 24.75 crore per Rs 4,500 crore in revenue. These savings come, in part, from needing fewer people and systems to scrub data. There’s a compliance payoff as well: consistent, self-auditing processes help companies more easily conform to regulatory mandates such as SarbanesOxley by reducing the risk of errors, says Peter Harries, a partner at accounting consultancy PricewaterhouseCoopers. A faster close also helps large, public companies — typically those whose stock is worth more than Rs 3,150 crore — meet new and more stringent regulatory reporting deadlines from the Securities and Exchange Commission. As of December 15, 2006, such ‘large accelerated filers’ had to complete their annual 10-K reports within 60 days of the fiscal year end, down from 75. (The schedule for quarterly 10-Q reports was maintained at 40 days.) A 2006 Hyperion survey of SEC filings (covering 2003 to 2005) shows that the average Fortune 500 company takes 67 days to file its annual reports, with 76 percent taking more than 60 days. These statistics show how close to the edge many companies live. Reducing the time it takes to close helps free up time for reporting, says Joe Kuehn, an advisory partner at accountancy KPMG. Finally, a fast close builds investor confidence. Investors are right to make the inference, Kuehn says, that if the close is slow, it means processes are broken. And if the processes are broken, he says, chances are the data is broken. There’s another hard-to-quantify but critical payoff: smarter business management.

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Alignment Speeding

When the CIO and CFO work together, you get a better-managed company, not to mention a faster close. As companies accelerate their close, improve the ubiquity of the financial process and lower their costs, “you move to a shared service centre,” says Peter Harries, a partner at PricewaterhouseCoopers. And that evolution depends on business and IT being closely aligned. The benefits of alignment go beyond increasing the likelihood of identifying opportunities or dangers earlier, says Terry Flood, COO of IT integration provider Logicalis Group. “Good relations between the CIO organization and the CFO organization just cost less. You’ll have infrastructures that save the company money, and you’ll get focused on how to make the company money,” he says. In this partnership, though, the CIO is typically the junior partner. “For financial reporting, the buck stops with the CFO and other executive management, so they drive the show,” says Steven Kursh, executive professor of finance and insurance at Northeastern University. That doesn’t mean, however, that the CIO is merely an executor. “Having a CIO who understands the needs of finance for reporting and daily financial needs will help the CIO bring the right technology and packages to meet these needs,” says Joe Kuehn, an advisory partner at accountancy KPMG. He’s seen simple examples of that with his clients. For example, reports are historically created monthly, and people have grown accustomed to waiting for the next report before formulating their strategies. “No one ever asks for more frequent reports,” he says, but a tuned-in CIO will notice that decisions are being held up and use automation to make reports available more frequently. And sometimes the CIO takes a larger role. For example, at paperboard manufacturer Rock-Tenn, CIO Larry Shutzberg was heavily involved with defining the financial process. “But if I followed the traditional role of the CIO, I’m not sure I would have had the same role in the revised financial process,” he says. —G.G.

“World-class organizations go from transaction mode to analysis mode,” says Hackett Group’s Holland, using financial data for analysis that highlights problems, identifies opportunities and considers potential shifts in customer behaviour, marketing effectiveness and product requirements. “A close is a step in time, and it’s only meaningful if it’s close enough to the present,” says Terry Flood, COO and president of Logicalis Group, an IT consultancy. “As business expands, it becomes imperative to have credible snapshots of

performance. The close is the lens,” says Logicalis CFO Greg Baker. So Logicalis has established both common processes and a common technology platform. The result: a four-day close. “All our managers are tied into the metrics of our company. If we waited a month, we’d miss those key measurements,” Baker says.

A Cure for Mandate Madness For many companies, meeting complex requirements, such as evaluating the REAL CIO WORLD | m a y 1 , 2 0 0 7

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World-class companies spend 45 percent less on their closing and reporting efforts than other companies, which on average saves Rs 24.75 crore per Rs 4,500 crore in revenue. effectiveness of newly required accuracy controls, in the same amount of time — or even in less time than before — forces executives to rethink their closing and reporting processes. That was the case at Rock-Tenn, a Rs 945 crore manufacturer of paperboard products such as packaging and retail displays. “The close had been a perfunctory process — no one really looked at it. Then Sarbox came along,” recalls CIO Larry Shutzberg. Sarbanes-Oxley exposed all the touchpoints in the process where errors could creep in. “We have 90-plus locations, with people doing accounting functions in the field. Getting everybody to do what they need to do is like herding cats,” Shutzberg notes. Add to that challenge a string of acquisitions and management’s attention was diverted from the increasingly patchwork financial processes that were taking root. So Shutzberg, working with his CFO, led an effort to identify and standardize RockTenn’s financial controls. “It was a painful process,” he says, overcoming people’s resistance to let go of systems they had used for years. Shutzberg uses software from Movaris to determine what Sarbanes-Oxley would require of the revamped processes, and then to test the new processes against the requirements. “The first thing you need to do is understand your current state,” advises PricewaterhouseCoopers’ Harries. Shutzberg’s first step was to create standard Excel checklists for all Rock-Tenn financial and accounting staff. But truly adhering to Sarbanes-Oxley’s requirements “was impossible to do with spreadsheets, e-mail and PowerPoints”, he notes, because it’s extremely difficult to validate the accuracy and consistency of such disparate, individually maintained data. So Rock-Tenn launched a project to replace its aging ERP system with one that supports Sarbanes48

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Oxley processes out of the box. When it’s deployed later this year, “we’ll see if it’s good enough”, Shutzberg says.

The Bottom Line Payoff The process efforts at Rock-Tenn have reduced its closing time from 15 days to 10. But “the business didn’t feel disadvantaged when we were closing in 15,” Shutzberg says. The real benefit for Rock-Tenn (in addition to meeting Sarbanes-Oxley requirements), he says, was “in consolidating accounting by reducing headcount”. An efficient financial process typically lowers costs by eliminating the need for reconciliation across systems and processes, thus reducing demands on staff, and by eliminating duplication of effort across organizations. Common processes and systems allow for more automation and shift responsibility to a smaller set of managers. At Accenture, sales, general and administrative expenses have dropped 1 percent a year as a share of revenue, says Tony Coughlan, controller and chief

As of Dec. 15 2006, “large accelerated filers” had to complete their annual 10-K reports within 60 days of the fiscal year end, down from 7.5. But the average Fortune 500 company takes 67 days to file its annual report, with 76% taking more than 60

days.

Source: 2006 Hyperion study of SEC filings

accounting officer — that’s a Rs 747 crore drop for Accenture in 2006, given its Rs 7,470 crore in revenue. In essence, Accenture’s accounting costs have stayed flat as the business has grown, he notes. Coughlan attributes this payoff, in part, to reworked financial processes and a consolidated technology platform: “We’ve cut finance headcount even as we grew, and a significant driver was our ability to leverage the infrastructure better.” IT costs relative to corporate revenue have also dropped by half, says Accenture CIO Frank Modruson. “And we have better technology than we did before,” he notes.

Managing Smarter Accenture wasn’t just looking for cost reductions. When it converted from a private partnership to a publicly held company in 2001, “we were publishing our reports 40 days after closing, and the deadline then was 45 days,” recalls Coughlan. “That didn’t look as good as we wanted.” A big reason reporting took so long was that Accenture’s decentralized organization — designed for a partnership — didn’t support the visibility that investors and regulators demanded and that senior executives could use to be more nimble. “You end up with different versions of the truth. With different systems, you get timing differences that make it hard to cross-check your financial data,” says Modruson. That slowed both the close and reporting processes and risked incomplete, conflicting information that could hobble the company. Coughlan, Modruson and management reporting chief David Rowland tackled the problem on two fronts over a threeyear effort that ended in September 2004. The first front was to rework a series of sequential processes into a single one, thereby reducing touchpoints. The second

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IT-Business Alignment was to consolidate various financial systems into a single instance of SAP’s ERP system, converting 450 systems into one ERP implementation. In addition to reducing expenses, these efforts lowered the reporting time from 40 to 22 days, letting Accenture’s financial staff go on vacation for Christmas 2006 — a first, Coughlan notes. United Technologies Corporation (UTC), a Rs 21,600 crore diversified manufacturer, also gained a quality-of-life ROI from its financial integration efforts, notes CIO John Doucette. “People no longer work until 2 a.m. to meet reporting deadlines,” Doucette says. “They go home on time.” But the critical business advantage UTC reaped from its faster close is actionable insight. “It’s about getting information quickly, to be able to act on it,” says Greg Hayes, UTC’s VP for accounting and finance. For example, in the northern autumn of 2006, he noted a drop-off in air conditioning orders just as external data showed a decline in new-home construction across the United States. Armed with current sales shifts, UTC adjusted its orders so it wouldn’t get stuck with inventory, and it adjusted factory schedules so it wouldn’t produce as many air conditioners. “Knowing only the general trend wouldn’t have shown us the specific implications for our business,” says Hayes. To achieve that degree of agility, UTC consolidated 250 instances of Hyperion financial reporting tools into one instance of Hyperion Financial Management (HFM) across its six subsidiaries, such as helicopter maker Sikorsky, aircraft engine maker Pratt & Whitney and air conditioning maker Carrier. By having a common reporting and analysis tool into which all subsidiaries feed consistent financial data, the company has achieved a five-day close, down from eight. “If we had a single ERP system, I think we could close the books in one day,” Hayes says. But he doesn’t think it makes sense to impose the cost of conversion to a single ERP platform on six distinct subsidiaries given how fast the organization closes already. As Pearson’s and UTC’s experiences show, a unified technology base can make an efficient process execute faster, but Holland advises that CIOs first identify the right business processes for the ERP or other systems to execute.

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In fact, that’s Pearson’s strategy, says Gorvett. With a consistent financial process in place that delivers what’s needed, the company is now able to focus on consolidating its ERP platforms. And while UTC doesn’t expect to see a single instance of ERP across all six subsidiaries, it is moving to consolidate each unit on just one ERP system.

Why Reporting is Different Even organizations that have fast closes find it hard to reduce the time it takes to report results to investors and regulators. UTC takes only five days to close its books each quarter, but it takes another 17 days

track and make such information easily available, says KPMG’s Kuehn. To speed the process and improve filing accuracy, UTC deployed a legal case tracking system so the status of all legal issues can be found quickly. The company is also using a two-year-old technology standard called the Extensible Business Reporting Language (XBRL) to tag its filings, and that’s a horse of still another colour (for more on XBRL, see Lingua Banca).

A New Business Language XBRL has been touted by the SEC as a way to make information more easily accessible

By speeding UTC's close, CIO John Doucette reports, "People no longer work until 2 a.m. to meet reporting deadlines. They go home on time."

to prepare the 10-Q quarterly filings for the SEC. And the annual 10-K takes a few days more. The review process relies largely on human effort. Lots of people — executives, legal staff, board members — have to go through the financial data and projections, as well as the legal, labour, personnel and other issues that may need to be disclosed. Even if automated tools are used to gather all the financial data for these filings (rather than just the data needed to close the books), this other information requires human judgment to articulate. And not all organizations have knowledge management systems that can

to investors and regulators, but there’s a direct benefit to the enterprise itself. XBRL makes all information in a filing accessible through standard, tag-based formatting, as XML does for transaction data. But XBRL also provides structure for validation rules, queries and analysis rules, notes Mike Willis, a PricewaterhouseCoopers partner. If XBRL were introduced throughout the enterprise’s financial closing and reporting process, rather than simply used as a report format after the fact, users would gain new controls and insights into their data, Willis says. “They can automate analytic rules rather than auditing manually, which would REAL CIO WORLD | m a y 1 , 2 0 0 7

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IT-Business Alignment reduce costs and speed the process,” he adds. Plus, the use of XBRL would ensure that a company’s reports reach their stockholders (and analysts) unfiltered by third-party aggregators. “It lets companies tell their own stories,” says Willis. That scenario is probably a year or two away, predicts John Stantial, UTC’s director of financial reporting, since the SEC currently does not accept XBRL reports as the official filing (they can be filed in addition as part of a testing program). In the meantime, companies can use XBRL and convert the data to the SEC’s official format. Stantial believes an XBRL-based reporting workflow would reduce the time to produce quarterly reports by 20 percent, because the tagged data would let the reporting systems automatically update the financials. Stantial says that companies like UTC typically spend one to three weeks per report on all sorts of government-required information, such as labour statistics, unemployment statistics and tax reporting. “With XBRL, I could push a button and get that in five minutes,” he says. The SEC is spending Rs 243 crore to make its electronic Edgar reporting system XBRL-capable, and the effort to complete the standard SEC reporting taxonomies should be done by June, so Stantial speculates that XBRL-based reporting will begin by 2008. (Gartner has made similar predictions.) And he expects the Department of Labour and the IRS to follow suit. Beyond making reporting easier, XBRL will improve internal visibility into company financials, Stantial predicts. Although UTC has a fast, five-day close with standard processes, there’s still room for interpretation in what’s reported. For example, an executive may want to know the operating expenses as a percentage of sales for all UTC’s major locations. But ‘operating expenses’ could be interpreted differently. Plus, it can take several days to respond to requests, and the answers may come back in different forms, such as e-mails and Excel spreadsheets, that must then be consolidated manually. But if the various general ledgers and ERP systems in use throughout UTC’s 50

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Champion Closers The average Fortune 500 company between 2003 and 2005 took 67 days to report its annual earnings. Twenty-three companies took more than 90 days to report their results. (Reporting includes the closing process.) Here are the top 15 fastest closers. Sears Holdings

15 days

Loews

20 days

News Corp.

21 days

Mohawk Industries

22 days

Mosaic

22 days

Ashland

23 days

Caterpillar

24 days

Liberty Global

24 days

Automatic Data Processing

25 days

Viacom

25 days

Southwest Airlines

32 days

Freescale Semiconductor

35 days

Qualcomm

38 days

Genworth Financial

39 days

United Technologies Corp.

39 days

Source: Hyperion study of SEC data from the Edgar database; based on 2006 data from 451 of the 500 companies.

subsidiaries were XBRL-enabled, Stantial wouldn’t have to wait for the financial data to be prepared in UTC’s standard format; XBRL makes it automatically accessible. Several commercial tools now come with XBRL capabilities, including Hyperion Financial Management, Oracle Financials and Cartes is. Willis and Stantial expect XBRL capability to be built into most commercial financial applications as they are upgraded. “XBRL is not expensive, and it’s not technical; it’s all there for a layperson. And

there’s a very impressive support network out there,” Stantial says, which is why he’s frustrated that few companies have adopted it. Most view XBRL simply as a new data format that no one is required to use, so why spend time looking into it? But there are signs of increasing interest. “Usage picked up substantially in 2006,” says Jeff Neumann, an SEC technology specialist. He suspects that Burl’s release around the time of Sarbanes-Oxley doomed it to the back burner for the past two years.

Go Fast for the Right Reasons A faster close is a good indicator of successful financial processes, says PricewaterhouseCoopers’ Harries. But going faster for its own sake should not become an enterprise goal. “If you improve quality and cost, [speed] usually improves, but if you drive for [speed], the others may not improve,” he says. “When we think about closing, quality comes first,” says Dow Chemical CIO David Kepler. “In no way should speed ever sacrifice quality. If there’s one lesson learned over the last several years, it’s that the integrity of financial reporting is paramount,” concurs Harries. “Garbage in, garbage out,” warns KPMG’s Kuehn. When it comes to a fast close, the bottom line is to empower companies with trustworthy, current information. “Yes, we close faster today, but what we really did is to get information to people faster,” says Kepler, drawing an important distinction for all CIOs and enterprises chasing the faster close. CIO

Galen Gruman is a frequent contributor to CIO. Send feedback on this feature to editor@cio.in

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Healthcare G

Horizo n Systems developed in isolation within an area lead to fragmented environments lacking interoperability. Ask the folks at Ontario, whose healthcare network operated in silos — until the Canadian province developed a unified healthcare system. By Rosie Lombardi

Back in the 1970s,

Reader ROI:

Value of interoperability in among sector silos Funding of large-scale integration projects Measuring benefits to public-private stakeholders

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US Secretary of State Henry Kissinger, frustrated with the baffling multiplicity of people to consult, grumbled: “When I want to speak to Europe, who do I call?” A similar state of affairs prevailed until recently in the healthcare sector of Ontario, located in east-central Canada. Organized in sectoral silos, there was no central entity concerned with common interests. “It wasn’t clear who to call, so everyone would be called,” says Hy Eliasoph, CEO of the Central LHIN (Local Health Integration Network) in northern Toronto.

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Healthcare

e Goes

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Financial Teething Pains

A milestone was reached recently when the 14 LHINs assumed responsibility for funding healthcare organizations within their regions. Recognizing that the province can’t continue to micro-manage this enormous area, the Ontario Ministry of Health and Long-Term Care transferred about Rs 94,500 crore of the Rs 159,300-crore operation into LHIN hands. “Just from a financial accountability perspective, this is a huge undertaking,” says Eliasoph, adding that LHINs have been putting financial systems in place for this area of responsibility. These evolving organizations will play a larger strategic role in the future. “Any additional funding that hospitals or other organizations may want will be directed to us.” But there isn’t much discretionary funding, at least for this first fiscal year, says Matthew Anderson, e-health lead for the Toronto Central LHIN and CIO of the University Health Network. “All that money is already spoken for,” he says.

Il lustrat io n by b in esh sreedh aran

“Things got replicated over and over.” This made it difficult to take e-health initiatives forward across the continuum of healthcare providers. Decisions made in isolation created fragmented IT environments lacking interoperability, says Eliasoph. As a consequence, Ontario lags behind other provinces in developing a unified healthcare system. “Looking across Canada, there is a high correlation between regional integration and IT systems integration,” says Michael Martineau, e-health practice leader at Branham Group, an Ottawa-based IT research consultancy. Shifting from a vertical to a horizontal regional model is a major change for Ontario. Now over two years into reorganization along regional lines, the 14 fledgling LHINs must learn to speak with one voice and their systems must talk to one another. Their impact is being felt in many areas and will continue to grow as they integrate disjointed parts into a provincial system.

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Healthcare islands of information, he says. Projections Agreements were signed with the Ministry of diabetes, for example, are making last October, specifying the services headlines. With an increasingly aging expected for the funding. “For the most part, population, about 10 percent of Ontarians it means maintaining last year’s volumes will be diagnosed with the disease by 2010. of transplants, cardiac procedures and so SNAPSHOT “IT will be the investment required on, plus or minus a few things — so we’ll be Central to support diabetes management. We dealing with the deltas.” Health don’t need all of the money for all of the All administrative funding is in that Integration databases required for that — many pot, including money for IT projects Network are already constructed,” he says. To which are not funded separately by the Geography Canada understand patterns of the disease, a first ministry. In the past, if hospitals wanted step is building a population health model to implement a system, they had to find Administrative Budget aggregating information from all sources: the money themselves, says Eliasoph. Rs 94,500 crore from hospitals to clinics to nursing homes. This independent approach to systems Organizations: But organizations struggling to meet development has created the cacophony of 143 their own IT needs will have a tough time systems in Ontario, he says. Local networks: coming up with funds to support broader “Over time, we’re thinking of a different 14 integration projects. IT budgets in the funding model for hospitals and other healthcare sector are already at bare-bone organizations. IT funding will come with levels, about half what is typically allocated strings attached, which will be this: you can’t in other industry sectors, says Martineau. just do whatever you think is right for your organization So extra funding would be useful in getting cash— there’s a broader health system to consider.” strapped organizations onside, adds Anderson. “Then Ultimately, LHINs are political vehicles to influence we could go to organizations with those diabetes their organizations to operate with a more regional databases and say, ‘We’re not asking you to cough up rather than local focus, since they have no delivery the dough yourself; we’ve got a bit here to move on responsibilities themselves, says Anderson. the diabetes management agenda’.” Martineau agrees LHINs do have the authority to shift money around funding levels and models are a major issue. “The within their regions based on the priorities of the whole: biggest challenge the LHINs face from an IT perspective to close or consolidate healthcare organizations, start is dollars: inadequate funds to move on the e-health joint programs and so on. But extra funding has not agenda,” he says. been provided for integration projects, he says. Other provinces fund IT projects separately from administrative budgets. Ontario alone lumps these together, he says. “You need to spend more money on Funding is a central issue. More money would give IT today to get savings down the road. LHINs more wiggle room to help fulfil their e-health “But hospitals get their knuckles rapped if they spend integration mandates, says Anderson. “The ministry too much on administration. There’s a lot of discussion will say, there they go again. But the reality is it doesn’t going on at the ministry to say, no, we should break out have to be a lot,” he says, pointing to the successful waitthe IT budget so we can analyze it separately.” Many times program as an example. such funding and strategic issues are pending before In response to citizen pressure, extra funding was government for decision, says Adalsteinn Brown, assistant provided to help hospitals perform more high-priority deputy mnister with Ontario’s Health Ministry. procedures within defined timeframes. But to achieve that Eliasoph says: “The ministry’s view has always been, clinical outcome, a comprehensive information system ‘We’re in the healthcare business, not the IT business’. was developed to support it. “They didn’t say, ‘let’s put in But that’s an archaic view: if you’re in the healthcare a measuring system; they said, let’s reduce wait-times.’” business, then you’re in the IT business.” The lesson learned is that a small percentage of overall funding can be very useful as incentive for systemic IT improvements, says Anderson. “If you look at the actual amount of money the wait-times program The government’s position is clear. “We want to see controls around doing more cancer procedures, for systems oriented to patient needs, so it means the systems example, it’s actually a fraction of the overall budget that support the care people receive in different settings for cancer treatment in Ontario.” must be able to talk to each other,” says Brown, adding the There are other areas where a similar approach can ministry isn’t concerned how systems are knitted together help build the information bridges needed to connect so long as this end-goal is achieved.

Cost or Investment?

Joining the Islands

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Healthcare Many integration projects on the table predate LHIN restructuring, so there is tremendous goodwill to get on with the job, says Martineau. With it comes a major behavioural change. Learning to work in teams across organizations to fulfil systemwide goals is the biggest challenge in the IT community, says Sam Marafioti, CIO at Sunnybrook Health Sciences Centre in the Toronto Central LHIN. Different LHINs are at different starting points on the road to integration, as are different organizations within them. Most hospitals have advanced IT systems, but community care access centres have virtually no infrastructure. Many LHINs need basic plumbing and wiring such as secure e-mail and health information management networks to achieve a minimum level of interoperability within their own regions. On top of intra-LHIN integration, there are many cross-LHIN dependencies to be considered in strategic planning. Toronto Central LHIN receives patients for specialized care from across the province at the Hospital for Sick Children and other downtown hospitals. Beyond Ontario, it also contains some of the biggest teaching hospitals in Canada. One of the top priorities is building a common ereferral system, says Marafioti. Still largely handled by paper and fax, this project will define and digitize the patient information that needs to be transmitted and moved around as one organization refers a patient to another for tests, secondary follow-up care, and so on. “This will really help people understand wait-times and moving patients based on priority. A referral will either get you immediate attention or get you on a waiting list,” he says. System integration will need to be done within the context of privacy and security legislation. “We know how to secure information within our local systems, but how to secure it when it’s moving around dynamically among many partners is very new to all of us,” he says. Dealing with the tension between local and regional priorities is another major challenge for the IT community, says Anderson. Organizations have their internal strategies to fulfil, but with limited resources. “These are all committed to moving your organization forward, and now you have to parse off some resources to go over and build an interface,” he says. These projects are rarely as easy as they sound, as IT folks often run into data quality issues and other timeconsuming problems, Anderson adds. This may delay local projects that clinical staff want to launch. “Then you must tell someone local, ‘I can’t put in your departmental system because I have to shift my resources over to this regional priority’, which may or may not have great value back to my organization,” he says.

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Decisions, Decisions Another major issue is how to create interoperability out of disparate proprietary systems, and how to handle legacy systems. Decisions will need to be made by LHINs about whether to invest further in extending existing systems or replacing them outright. Most LHINs have inherited multiple systems from different vendors that are not always compatible. At major hospitals, users have learned how to operate their particular systems and are heavily invested in them, so getting a common system will be tough, says Anderson. “In our LHIN, we’re not telling our hospitals to get rid of systems and move to new ones. We’ll instead build interfaces — but there’s a cost to that,” says Eliasoph. Decision-making has been simplified considerably on other fronts. The LHIN structure is effective at giving the rallying cry to move on languishing projects, says Linda Weaver, CIO at Smart Systems for Health. Charged with providing common infrastructure such as networks and data centres to Ontario’s healthcare sector, Smart Systems often had difficulties coming to a decision. “In the past, we had to deal with hundreds of individual endpoints. Now when we’re talking about what we have to deliver next year, it’s to a roomful of about 20 people, so we can get some consensus,” she says. Building a common client registry, for example, so that patients can be identified and tracked as the same person while they move through the healthcare system, is a straightforward technology problem. But solving it means agreeing on a unique numerical identifier, and most parties have a vested interest in their own: hospital cards, health cards, insurance cards, and so on. Dealing with parties one at a time stymied this process. Whichever one picked created a problem for another. With 20 people in the room charged with finding the best communal solution, progress can be made on this front, says Weaver. “We can say we have to make a decision to pick one or create something new. But we can’t keep waffling.” Weaver notes government

Different networks are at different starting points on the road to integration, as are different organizations within them. Most hospitals have advanced IT systems, but community care access centres have virtually no infrastructure.

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Healthcare priorities may not be the same as other players’, and these will ultimately direct decision-making. “The ministry doesn’t have a provincial strategy in place yet, and most other provinces do,” says Eliasoph, adding this is expected in the near future. “Until then, we’re working on the assumption that certain things will appear in it. So another challenge is developing our own strategies in the absence of an overarching one.”

Work in Progress To avoid creating 14 new silos, an e-health leads council has been established to provide IT governance for the regionalization effort in Ontario as a whole.

Senior I.T. staff help foster the standardization and interoperability needed for electronic health records. Consisting of a leading CIO from each LHIN, the council meets regularly with the ministry and Smart Systems. Counterparts in other provinces further along in their regionalization efforts are frequently consulted. This consolidation of IT leadership will make a huge difference, says Eliasoph. The e-health lead at Central represents 143 organizations and is currently the joint CIO for three hospitals, he says. Senior IT staff with the big picture view will help foster the standardization and interoperability needed for the next step: developing common electronic health records (EHRs), which are the building blocks for a fully integrated healthcare system. At this point, e-health leads have a collegial working relationship with the CIOs in their regions, not a direct reporting relationship, says Anderson. Eliasoph expects the CIO’s role will evolve in the future. “We used to have directors of IT; now we have CIOs. I think the next iteration will be moving to chief integration officer roles.” 56

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Different regions are taking different approaches. Many e-health leads are CIOs with day jobs who chair a regional committee, while others are looking to appoint formal regional CIOs as a dedicated full-time position. The North Simcoe Muskoka LHIN, for example, has only about a dozen IT staff at its community hospitals, and a lot of work to do across a large geographic region. “We aren’t even at the starting gate without a CIO,” says CEO Jean Trimnell. While larger LHINs may be in a position to assign staff to the e-health lead role, this may create a conflict of interest. These leaders are co-opted from the provider sector that the LHIN will be funding, instead of LHIN staff or leadership, says Neil Stuart, healthcare leader at IBM Canada. “You’re asking for direction to be set by the people the LHINs are supposed to be directing. It’s an odd inversion and raises challenges in the long run about accountability.” But he points out this is part of a larger issue: the LHINs themselves are small organizations from a staffing point of view. There are also questions about LHINs receiving funding to develop their own operations. “They’re start-up organizations at this point and their mandates are still being rolled out,” says Stuart. Whether LHINs will remain as they’re currently structured is an open question. Most provinces have fullblown regional health authorities who are responsible for healthcare service delivery and operations, not just planning and coordination. Martineau points out other provinces that have regionalized have restructured at least once, some several times. “Whatever they came out of the starting gate with is not what they have today. You learn as you go along about what works and what doesn’t.” Anderson agrees time will tell how effective the LHIN model will be. “But the regional focus is here to stay, and I don’t think the model matters very much. One way or another, regional integration is coming.”

The Market’s Response LHIN restructuring is also having an impact on another IT community that is eyeing developments closely: vendors. The private sector is also responding to the call for interoperability, says Smart Systems CIO Weaver. “Over the past few years, vendors have realized the healthcare sector isn’t going to remain proprietary forever, and they must deploy standard tools and products. “Rather than seeing how much they can sell, they are now helping solve some fundamental problems.” There are some areas of uncertainty for vendors. The procurement process is not well established, as the LHINs don’t have the administrative infrastructure for it yet, says Stuart.

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Healthcare “We can safely assume the government and LHINs will be looking for IT consolidation, and you only get that through planning and effective procurement,” adds David Brown, a senior associate at the Ottawa-based Public Policy Forum. The larger projects that come with regionalization give LHINs greater purchasing power and a market influence in areas that have been overlooked in the past, suggests David Thomas, vicepresident of Montrealbased Emergis. Historically, hospitals have been the biggest purchasers of healthcare IT products and services, so vendors catered to these key customers, he explains. “The market wasn’t nursing homes, access clinics and so on. Although these are major components of the healthcare system, they were too small individually to warrant attention. This left them bereft of choices and competition.” Folding them into larger structures like LHINs gives them more purchasing clout, and they are now getting more attention and product options, he says. “So the market is responding to this change; and not just in Canada, as it’s happening worldwide.” Thomas believes dealing with legacy systems is a major challenge for LHINs. “Ontario has far too many different systems, so some of the smaller systems won’t make it,” he says, noting these will likely be replaced with systems that comply with service-oriented architecture (SOA) standards. But a recent survey of 150 healthcare CIOs reveals interest in SOA is low, says Branham’s Martineau. About half said they weren’t interested, 18 percent were interested but had no plans, and 32 percent said they had SOA projects planned. Martineau says he was surprised by the result, as Canada Health Infoway has embraced SOA in its EHR reference architecture and the Ontario government has adopted SOA to develop interoperable systems. “There’s a chicken-and-egg problem around standards,” he suggests. “Healthcare CIOs say they feel vendors are driving the SOA agenda, while vendors say they’re waiting for users.” Infoway is aware of the need to increase SOA awareness in the sector, adds Martineau.

So What’s Next? Healthcare system reform has a checkered history. In the UK, disastrous failures of several massive IT projects undertaken by the National Health Service made headlines recently. The big-bang approach to systems development doesn’t work, says Anderson. “It’s a real danger and we’ve seen this before: You can’t go on the ‘if you build it, they will come’ philosophy.” Conversely, Denmark’s healthcare system is a poster child in this area, says Stuart. “They came at it modestly, step by step, in a very incremental approach over time. This is arguably Ontario’s approach.” Some critics say the creation of LHINs just adds an extra layer of bureaucracy and a new area to blame if things go wrong. “I think the feeling is LHINs offer the potential for more rational use of public resources, and there’s a lot of good leader-ship and followership in this area,” says Brown. “But it’s true that if it’s not done well, if we make a mess of integration on the technology side and things get worse, then it does become another layer of bureaucracy.” CIO

restructuring of Local Health Integration networks also impacts another IT community: vendors. they have realized the healthcare sector isn’t going to remain proprietary forever.

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essential

technology IllustratIOn by MM shanIth

From InceptIon to ImplementatIon — I.t. that matters

Open source VoIP is slowly making gains in enterprise adoption.

Open Source VoIP Connects to Business By Paul Venezia Open sOurce | Nearly three years since Jon ‘maddog’ Hall predicted that “VoIP using an

open source solution, such as Asterisk, will generate more business than the entire Linux marketplace today,” OS VoIP for the enterprise remains a wild frontier. SMB uptake has been considerable, as OS VoIP’s promise of control and cost savings make it a natural fit. But when it comes to large-scale implementations, it still has to get most enterprises to listen. That’s not to say that the enterprise is deaf to the benefits of OS itself. More companies are vetting OS alternatives before considering commercial wares. But despite this interest in OS elsewhere in the enterprise, the phone system has, by and large, remained off-limits to trial. When it comes to open-sourcing dial tone, the feeling among most enterprises is that there’s just too much at stake. Network troubles translate to help desk calls and lost revenue, but if the phones go down, it could mean life or death. And when it comes to melding the lockstep world of traditional five-nines PBXes into the land of Patch Tuesday, calling on 58

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essential technology

a commercial vendor can feel a lot more comforting than signing off on that level of responsibility yourself. That said, the notion of an all-out VoIP implementation — ripping and replacing to the core — is fast fading away. Yes, dial tone has crossed the network boundary, but not pervasively. And, many traditional PBX vendors are backing into the VoIP market, allowing telephony admins the comfort of tried-and-true PBXes with some VoIP the benefits. VoIP modules that permit VoIP trunks between locations is becoming common, yielding cost reductions without disrupting the status quo for local voice. Largely, VoIP is becoming a PBX replacement on an as-needed basis. And such targeted installations could prove a sweet spot for OS VoIP. As the technology gathers steam, convincing enterprises of its efficacy in increments, it will most

Asterisk, eliminating phone licensing costs and increasing customization control and security. And Summer Bay Resorts, a time-share vacation property company, logs more than a million voice minutes per month on its 13-server Asterisk system. But despite such proof that large-scale implementations of Asterisk are viable, Digium remains focused predominantly on the midmarket. “Anything larger is a great opportunity for us, but that’s not our core customer base,” says Mark Spencer, founder of the Asterisk IP PBX project and chairman and CTO of Digium. “Asterisk can scale to those levels, but we’re looking more toward the middle of the market.” Digium’s tempered stance toward widespread Asterisk adoption is justified, given reservations enterprises have about OS VoIP. These include a perceived lack of support, questions about the availability

Perhaps the most fundamental misconception about Asterisk is that it requires Linux expertise. The open source PBX runs as a service on many platforms, including Windows. certainly join the pack of large-scale go-to VoIP candidates down the line. After all, the considerable cost savings and flexibility of OS VoIP are just too great to ignore.

Asterisk: The OS Top Choice Digium’s Asterisk is the most mature and popular OS IP PBX currently available. Other OS projects are under development — many, such as OpenPBX, forking the Asterisk code base; others, such as FreeSwitch, being built from the ground up. But despite increasing competition among OS IP PBXes, Asterisk remains the most compelling enterprise VoIP play. So much so that Sam Houston State University last year migrated 6,000-plus extensions from Cisco CallManager to

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of features, concerns over skills for implementation and management and reservations over platform compatibilities. A closer look at Asterisk and its evolving base of developers suggests that these anxieties are unfounded.

The Enterprise Contender Created by Spencer in 1999, Asterisk is a complete IP PBX released as OS under the GNU General Public License. It is built to run on commodity hardware, providing considerable cost savings when compared with commercial IP PBXes, and it leverages the OS community for additional testing, bug fixes, and feature development. Asterisk is available both as a business edition just like any other

IP PBX — with seat licenses, warranties, support contracts, and shiny-binder reference materials — and as a free download, allowing you test runs. In terms of replacing your traditional PBX, Asterisk can tie analog phones to a central switch, but scalability is an issue. It can interface with analog handsets through use of FXS (foreign exchange station) line cards; IP-to-analog converters, such as Digium’s IAXy ATA (analog telephony adapter); or competing products from Grandstream Networks and Linksys, among others. That said, Asterisk is built primarily for IP phones based either on its native IAX (Inter-Asterisk eXchange) VoIP protocol or standard SIP. Asterisk modules that can talk SCCP (Skinny Client Control Protocol) to Cisco phones are generally less reliable, given the protocol’s proprietary nature. Despite Asterisk’s IP phone bias, outbound trunks do not have to be IP. Not only can Asterisk link with commercial VoIP providers such as BroadVoice and VoicePulse, but with the right hardware, it can also handle TDM circuits such as channelized T1s to deliver dial tone from the PSTN. Individual analog PSTN lines can also be brought into play with PCI line cards within the Asterisk server or via outboard FXO (foreign exchange office) ATAs such as the Grandstream GXW-4108, which can handle eight POTS lines, each addressable as a unique SIP trunk within Asterisk. Due to gaps in communication between the PSTN and SIP, however, most Asterisk implementations rely on PCI line cards rather than outboard adapters. For example, it isn’t possible to send a SIP equivalent of a hook flash from Asterisk to an ATA, meaning that phone features that require hook flashes to the PSTN — such as call waiting — won’t work. For most businesses, this isn’t a problem. With PCI interfaces in place, however, these problems dissipate.

Light on Linux Requirements Perhaps the most fundamental misconception about Asterisk is that it requires Linux expertise. Not true. The OS PBX runs as a service on many platforms, including REAL CIO WORLD | m a y 1 , 2 0 0 7

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essential technology

Windows, as there are projects available to enable Asterisk to run on 32-bit Windows. Constructed much like your traditional PBX, Asterisk is based on a Unix-like OS hidden by a CLI or GUI management layer. You can deploy a standard Linux server and install the Asterisk package to create your own PBX or go with one of the several customized Linux distributions based around Asterisk. Today’s most popular distribution is Trixbox, which consolidates a CentOS Linux platform, Asterisk, a bevy of OS Asterisk management tools, and custom code to make rollouts easier. With Trixbox, you can go from bare metal to a fully functional Asterisk IP PBX in 20 minutes. The same can be said for Digium’s recently released AsteriskONE, which takes a similar tack as Trixbox but offers different management tools. In delineating differences between Trixbox and AsteriskONE, Spencer points out that, although Trixbox uses Asterisk, it is completely separate from Asterisk itself. “AsteriskONE is basically an HTML gateway between Asterisk and your Web browser,” he says. “If you make a manual change, it’s reflected in both Asterisk and the Web UI. Trixbox doesn’t have that.” Trixbox does, however, offer significant features AsteriskONE lacks, such as easy implementation and configuration of the HUDLite user GUI, SugarCRM integration, and configuration tools for popular IP phone models. That said, AsteriskONE is still in beta. As for managing an Asterisk deployment, a baseline grasp of Linux is advisable but not required. OS tools such as FreePBX offer a full Web UI for managing Asterisk, from simple extension and trunk configuration to complex dial plans, IVR (interactive voice response) functions, voice mail, and more. In fact, you can build and deploy an Asterisk PBX without touching a command line, although familiarity with the Linux and Asterisk shells are necessary for large deployments. Smaller shops will likely never see what’s behind the scenes, much as they don’t worry about Linux running on security appliances. 60

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The Value of Community Support may be the most substantive knock against OS VoIP for the enterprise. Even then, Asterisk is an exception to the rule. Whereas support for OS projects typically consists of online forums, mailing lists, and books, Asterisk has a company behind it. Digium offers support services plus hardware vetted for Asterisk use, such as analog and digital interface cards to connect Asterisk with the PSTN. Whether Digium’s support scales to enterprise levels is yet to be seen, but it will at least lend Asterisk proposals legitimacy as they wend their way through the corporate food chain in quest of funding. But the major boon for Asterisk adopters — besides cost savings — is that, with the right admins in place, the OS IP PBX can be modified to do just about anything. In fact, much of Asterisk is already modular, using AGI (Asterisk Gateway Interface), which is patterned on the CGI intrinsic to Web servers. AGI allows admins to write plug-ins for Asterisk in just about any language, including Python, PHP, Ruby, Java, C, and Perl. As such, customizing your PBX’s feature set is relatively easy, and with the community of developers designing tools for Asterisk growing rapidly, ready-made features abound. Examples include a troubleticket management app that accepts ticket number input from a dial pad and another that performs an Amazon lookup of keyedin 10-digit ISBN numbers and recites book prices back to the caller.

Open for Experimentation The phone system may very well remain the most commonly used and relied-on corporate app. Interaction with the phone system is constant, and the features, performance, and stability of the system are under constant subconscious scrutiny. Voice mail features and ease of use, voice mail/e-mail gateways, call quality, and follow-me features are all highly visible components of any PBX, to users on both sides of the dial tone, and IVR functions and reliability can make or break sales and business relationships. As

India's VoIP market is valued at Rs 13,500 crore. IP apps are estimated to grow at a CAGR of 52.3 percent for the next six years.

such, commitment to an IP PBX should by no means be taken lightly — especially when it comes to assessing how well a VoIP solution will adapt to future evolutions in your enterprise. As with all OS solutions, the beauty of Asterisk is that it allows you to try before you buy. What’s more, Asterisk is available in a dozen different forms, via packaged solutions such as Trixbox and AsteriskNOW or as raw source code. Trixbox and AsteriskNOW are also available as prepared VMware images — simply download and boot them on a VMware workstation or server. It couldn’t be easier to set aside your misgivings and investigate the viability of OS VoIP yourself. Soon enough, as more and more companies become comfortable widening their search beyond commercial fare, they will find that OS dial tone is a worthwhile alternative, in it for the long haul. The cost savings are that compelling, as is the promise of greater customization and control. And as voice penetrates deeper into the enterprise in the years to come, the ability to quickly code customized features could give companies employing OS IP PBXes such as Asterisk a significant leg up in fulfilling the muchdiscussed promise of VoIP apps. CIO Send feedback on this feature to editor@cio.in

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4/27/2007 8:29:43 PM

Pundit

essential technology

Risk, Not Security Dealing with security piecemeal is like putting out a thousand fires. Now, are you a fireman or a CIO? By Christopher Koch

| We have to shift the emphasis on IT security to larger discussion about business risk. Why? Because we associate IT security with things that have become a very small subset of a much larger and continually growing circle of information technology risk. Think this is just pointless semantics? Consider this: we have been trained over time to associate IT security with certain actions — protecting the perimeter of the data center, for example — and

I.T. Strategy

50 percent of consumers changed the default settings of their wireless routers to switch on encryption and rewrite the default administrator passwords that are easily available to anyone with an internet connection and a Web browser. It’s also pretty easy to find people’s router locations — there are maps of them available. Wireless routers represent a huge, emerging risk even though we still don’t think of them as part of security. An open router is like a key to the kingdom, “a

to open routers? Provide consumers with detailed instructions on how to set up encryption — which most router manufacturers do. But is that really the best way to address the risk? Not at all, say Shah and Sandvig. Consumers choose default settings in software and hardware 96 to 99 percent of the time. If this problem was viewed from a strategic risk perspective, the router manufacturers would make encryption the default setting and the problem would

By limiting our scope to IT security rather than risk, we ensure that emphasis stays tactical rather than strategic. certain products — intrusion detection, encryption, firewalls, anti-virus software, etcetera — that are all merely tactical and do not address any of the real strategic issues in protecting people and organizations from threats. Here’s an example: ask consumers what they should be doing about Internet security and they’ll probably say (if they even know) that they should install firewall and anti-virus software on their computers and keep them updated. Few, if any, of these people would consider a wireless router to be a security device, yet the risk that wireless routers pose to their safety online is much higher than the risk that something will sneak through anti-virus software. In a study, researchers Rajiv Shah and Christian Sandvig found that only about 62

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gateway for eavesdropping, redirection to fraudulent websites, and traffic profiling. These capabilities grant the attacker nearly total control over how the network’s clients interact with the Internet,” writes Markus Jackobsson, an academic and security consultant in this chilling report. But there’s been no shift in the configuration of routers since they were originally introduced — when the extent of their risk was considered to be only that some freeloader would jump on and hog your bandwidth. Routers haven’t made it into that small circle that we think of as IT security, so the larger risks aren’t addressed. By limiting our scope to IT security rather than risk, we ensure that the emphasis remains tactical rather than strategic. What’s the tactical response

be solved. But since it would make setup slightly more complicated and since the perception is that routers aren’t central to security, it doesn’t happen. But let’s not get stuck on fixing routers, because that’s the trap we’ve fallen into for years in IT security. Thinking about risk prompts us to think bigger: who has the best shot at mitigating the router risk? Who is best qualified to shoulder the responsibility for owning the risk? CIO

(To be concluded) Christopher Koch is CIO’s Executive Editor. Send feedback about this column to editor@cio.in

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4/27/2007 8:28:50 PM