Like many companies today, Textron Inc. is undertaking a consolidation. And as with all such efforts, it is fraught with political risks and leadership challenges. But at Textron, a US$10.7 billion global enterprise with 41 business units under its roof, the difficulty of balancing the closer alignment of IT services systemwide with the disparate business needs is truly daunting.
The Providence, R.I.-based conglomerate is spending approximately $320 million on its IT shared services organization, which it established at the start of 2002. Such centralization efforts are nothing new. For decades, the IT community has gone through waves of decentralization followed by centralization. Right now, consolidation is the buzzword. “Most com- panies are looking at this because, as a general statement, the more you centralize the more you can manage costs,” says Michael Gerrard, vice president and chief of information technology management research at Gartner.
Textron is no different in its reasoning. But where Textron does diverge is in the scope. Founded in 1923, the company went on to become the first modern conglomerate, as founder Royal Little snatched up more than 70 discrete businesses, from aircraft and golf cart manufacturers to tool and fastener makers.
Today, each Textron company has its own IT management processes, pet applications, disparate technology standards and concerns about centralization. Nine business units have their own CIOs. And after years of operating independently, changing course is tricky. “To take this whole flotilla of ships and turn them all around so that we become a networked enterprise is something that’s very difficult,” says Phyllis Michaelides, chief technologist in charge of promoting technology standards. “It’s not just about the number of data centers you have. It’s a mind change.”
Though it may seem counterintuitive to move away from having distributed IT to supporting diverse business units, Textron CIO Ken Bohlen says that his own research into IT best practices dictates otherwise. “All the data suggests that the way to the future is through common and standard processes,” he says, adding that the new shared services department will take into account differing business needs. “The rule is start small, get successes and build in shared services only where appropriate,” Bohlen explains. “There will be business-specific things that we won’t touch. But the competitive advantage is not the systems you use but the agility and speed with which the business can implement the necessary technology to keep growing.”
Thus, Textron’s new shared services department is focused not so much on technology, but business alignment. The ultimate success or failure of consolidation hinges on putting three important pieces in place: good governance, solid relationships with the businesses, and leaders who support the vision. And that’s exactly what the shared services organization spent its first year creating.
PREREQUISITE NO. 1: Good Governance
Solid IT governance–perhaps the most important factor in the success or failure of centralization efforts–was often lacking in previous consolidation attempts. For a consolidation effort the size of Textron’s–in 2001, the company had 87 data centers, 1,314 servers, 1,540 applications, 11 CIOs and 55,000 end users–deciding how consolidation decisions should be made is often more important than the decisions themselves. This is because successful IT consolidations must include the participation, and ultimate satisfaction, of the majority of IT constituents. Predictably, the biggest risk to successful consolidation is opposition from the business unit IT managers and users who are reluctant to give up control. “Without a good governance model, everything falls apart quickly,” Bohlen says. “People need to understand their roles in the intended outcome.”
Bohlen, who joined Textron in 1999, set up the Information Management (IM) Council at the beginning of 2002 when the IT shared services effort began in earnest. Populated by Bohlen, Michaelides and nine business unit CIOs, the IM Council is the top-level guiding force behind consolidation efforts and meets on a monthly basis (face-to-face when budgets were plumper, and now via teleconference). “With a shared services effort, you have to make sure that IT and all the businesses are aligned,” explains Bohlen, who headed up shared services departments previously as CIO at John Deere and AlliedSignal. “It’s an almost daily initiative to keep everyone aware of and involved in what we’re doing.”
The first step for the group was goal-setting. Textron hired The Hackett Group, to deliver a baseline of reasonable IT spending for a centralized IT organization in a global, multi-industry company, and The Concours Group, to provide best practices for IT governance and project management. Every member of the IM Council is also working toward or has achieved Six Sigma green belt status, and the group employs Six Sigma Transformation Excellence processes, such as recording action items arrived at in each meeting, to guide its decisions.
The IM Council decided on some basic operating principles–for example, Textron IT shared services would operate on open standards. The group also created the concept of centers of excellence, which ensure that once a decision is made to implement a certain technology, it is implemented in the same manner across the enterprise.
The move resulted in additional assignments for once-siloed business unit CIOs. For instance, David Raspallo, CIO of Textron Financial, also took over as CIO of Textron’s corporate center headquarters. Now Raspallo, in addition to reporting to the CEO of his business unit, reports to Textron CIO Bohlen. And the new reporting relationships extend throughout their organizations. Six of the IT employees on Raspallo’s Textron Financial payroll now work for the HR center of excellence.
The matrixed teams ensure that the best talent is applied to each project, but it can get a bit confusing. “It’s all new to us, and we’re collectively stumbling our way through it,” says Raspallo, noting that even with the solid governance practices in place, you “have to accept some of the ambiguity that goes along with this.”
The IM Council also set up subcommittees to investigate certain areas of consolidation on a more granular level, such as the security leadership team and the infrastructure leadership team. Like the IM Council, these groups are populated with IT representatives from each business unit and are subject to enterprise standards. They make recommendations, the IM Council debates them–and either supports the ideas or makes some changes–and goes forward.
At each level of IT governance, “some decisions are easier and some take forever,” says Raspallo. One of the “easier” efforts was deciding on a common desktop system for the entire company.
In this case, members of the infrastructure team entered a conference room. “One person stands up and tells you why Dell’s the best computer to buy. Someone else tells you why IBM is better,” Raspallo says. But the new regime requires that team members leave that meeting with a compromise. In this case, the vendor of choice was IBM. The subcommittee presented its recommendation to CIO Bohlen, who then presented it to the IM Council. Once the decision was final, Bohlen required all business units to replace their desktops, as needed, with the new company standard.
Broader decisions must be made at the IM Council level, such as determining just how far Textron should go in its centralization efforts. Michaelides, who, like Bohlen, was previously at John Deere and AlliedSignal, has lived through waves of centralization and decentralization, and has seen such efforts go to extremes. “Here we’re trying to find some middle ground, and it isn’t easy,” she says. In the IM Council, business unit CIOs had the chance to explain why, for example, some servers need to remain on factory floors. So although centralizing most data centers makes sense, Textron will never go to 100 percent data center centralization. Ultimately, the IM Council is aiming for “loose centralization,” Michaelides says. “And maybe it will be a key differentiator for us that we recognize some of the intrinsic value of our diverse businesses.”
PREREQUISITE NO. 2: Pressing the Flesh
Strong governance processes and cross-company teams to carry them out aren’t enough. Relationship-building–with everyone from concerned IT employees to end users to the CFO of subsidiary E-Z-Go golf carts–ranks a close second in consequence. “You cannot for one minute slack on the relationship side,” says Bohlen.
Bohlen now spends about 65 percent of his time on building relationships with folks in IT and the business. Though high, it is just about par for the course when making a change of this magnitude. “When each of these businesses has to do its own P&L, it’s only natural that they want control of everything,” he says. “When you introduce shared services, you have to spend a lot of time relationship-building so they trust you. You can never do too much of this.”
Within the scattered business unit IT departments, the concerns are no different that those that arise during an outsourcing arrangement: What does this mean for me and my job? With a very public staff reduction across the enterprise of 16 percent (9,500 workers) planned to happen by 2004 and Bohlen’s recent hiring of a vice president of sourcing to look into offshore possibilities, IT workers have reason to be uneasy.
This summer, Bohlen went on one-day trips to each of Textron’s businesses. He sat in on IT talent reviews and talked to those identified as “high potential” managers. He helmed selective “skip level” meetings with lower-level employees. He hosted town hall meetings with IT staffs.
For his part, Raspallo meets weekly with the coordinators for each corporate center department, on a monthly basis with senior department managers, and on a quarterly basis with the entire corporate center. The meetings are necessary, Raspallo says, because of the amount of change users must absorb. And with a retention rate across the company of 96 percent during the past 10 years, says Raspallo (himself in his 19th year), more people are set in the old Textron ways than not.
PREREQUISITE NO. 3: Zero Tolerance
George Washington once said: “Government is not reason, it is not eloquence. It is force.” At some level, Textron’s IT consolidation is no different. Bohlen has made the participation of business unit CIOs paramount in his creation of the IM Council. And relationships are developing at all levels throughout the enterprise. But at a certain point, Bohlen believes, you have to eliminate detractors.
Chairman, President and CEO Lewis Campbell has put new CEOs at many of Textron’s various business units during the past two years. The stakes are high. Campbell was recently quoted as saying that nearly 20 percent of the company’s 150 executives (a group that includes Bohlen and Michaelides) are not performing well and may be laid off.
In certain cases, Bohlen has followed suit, placing new business unit CIOs in charge. “Take the new CEO at Bell Helicopter. As soon as he came over from Honeywell, we got together and made changes within Bell’s IT department,” says Bohlen. “In large organizations you will always have those people with differing opinions, which is good…until you have finally decided to do something. Then the time for debate is over.”
It’s no secret that ultimate compliance is what Bohlen and his boss, Campbell, expect. “By virtue of being on the IM Council, if you are part of deciding that something is right for Textron, that’s what you’re going to do,” says Raspallo. “There is no tolerance for those people who nod their heads and say, I’m on board, and go back to their facility and do their own thing. You can’t play that game, and if you do, you’ll be the subject of a very public execution.”
This is another area where Bohlen’s efforts to get out into the business units help him out. Visiting local sites and conducting meetings with lower-level IT employees who are actually working on the consolidation efforts give him clues about where leadership may be lacking. “I find the best data where the work is being done,” Bohlen says. “They will tell you exactly what is happening and not happening.” Bottom line, what Bohlen looks for is “a good attitude. It carries you a long way.”
In some cases, Bohlen brings in one person from another company with a fresh perspective. In other cases, he’s worked with employees to think about their jobs in a different way. If all else fails, he fires those who cannot work within the new shared services world.
It sounds a bit frightening, but Raspallo points out, “today’s business environment is scary for CIOs both inside and outside of Textron. But if you perform, you are afforded an opportunity to look at either expanding your role in Textron or changing your assignment.”
There’s no special treatment for business unit CIOs who find this consolidation effort–and the amount of investment required to make it work–more of a challenge financially. Cessna Aircraft, struggling since 9/11, must make the same IT investments as business units in better financial shape. But by all accounts, they’re making them. “It’s been a wonder,” says Michaelides. “Companies like Cessna have just had to suck it up.”
In other cases, business units that have grown through an acquisition may have many more systems to replace and consolidate than others, and therefore more money to convince their business unit boards to spend. But in the new Textron world order, everyone must make whatever investment is required to meet new standards. Once the decision was made to go to PeopleSoft as Textron’s enterprisewide HR system (which IT executives will only say has been an eight-figure investment enterprisewide), for instance, the cost was relatively easy for Textron Financial CIO Raspallo to justify to his CEO. They were already running on PeopleSoft 7.5 and would simply upgrade to 8.3. It is a significant investment to be sure, but not as substantial as it will be for other business units with multiple or customized HR systems already in place.
Still the inherent lack of autonomy for business unit CIOs in the new environment is an adjustment. “I’ve been in the technology world for 23 years. I can be one of those individuals who goes up there and explains why product X is absolutely the best choice and collectively we decide to go another way. But I have to put my technical pride and ego aside to work for the common good,” Raspallo says. “I have to just look at this as a new opportunity to contribute to an even bigger business.”
The Road Ahead
With all the necessary pieces in place, significant changes are beginning to occur at Textron. Eighty-seven data centers have been reduced to fewer than 50, with the ultimate goal of six; 1,314 servers have been consolidated into 844, with the ideal being fewer than 200; and the company’s 1,540 applications have been reduced to 1,400, with the ultimate goal of rolling out a handful of enterprise solutions. Just looking at the numbers, it’s clear that there’s a lot of work to do if Textron is to meet its 2004 goals. And the shared services team has had to make some adjustments to its original goals. The infrastructure team found that Textron had too many mail servers, creating concerns about the ability to communicate worldwide. So Bohlen had to divert some resources to remedy that situation, slowing the pace of data center consolidation.
Textron’s IT leaders will tell you most of the really hard work has been done, and Bohlen says he plans to accelerate consolidation efforts during the next year. The good news is that the governance processes, the relationship-building and even the pressure to perform in the new environment are beginning to become second nature for Textron’s IT leaders, which bodes well for the ultimate success of Textron shared services. “It’s my job. It’s what I do,” says Raspallo, sitting in a conference room that used to be a redundant server room and marveling about the fact that his security key card now allows him to get on any floor at headquarters, not just those belonging to Textron Financial. “We used to talk about this transformation, these governing groups, Six Sigma, the IM Council, meetings–all the things we’re doing to change Textron–as something else to do. Now it’s what I do.”
“We’ve made a lot of strides, and much of it has been structural,” Michaelides says. “Structures had to be put in place peoplewise–the IM Council and subcommittees and centers of excellence and IT leaders and decision-making processes–before we went off chasing windmills. But now we have an organized pattern of bringing about the changes necessary for shared services.”