Mergers and other IT disruptions don’t have to spell chaos

IT pros are usually the ones introducing disruptive technologies into the enterprise. But what happens when the disruptors are the disruptees?

When mortgage lender Master Financial moved from a traditional PBX switch to a Sphere Communications VoIP system in 2002, it did so for three reasons: “Cost, cost, and cost,” says then-CIO Chris Mullins.

Using VoIP over a wide area network, the mortgage company slashed its monthly local and long-distance bill from $42,000 to about $12,000. Instead of needing a telecom team to run wires and install phones in every cubicle, a single network engineer was able to provision an entire office in less than 45 minutes, Mullins says.

But the move also meant Master Financial no longer needed five employees to manage its telecom system. Two were absorbed into the company’s 35-person IT department, but the others were let go.

“I was lucky in that my senior people were able to adapt to the new technology and become very proficient at it,” says Mullins, who left Master Financial to start, a VoIP consulting company. “The lesson here is: Don’t let yourself get married to a particular technology because it’s going to go away.”

It may be a cliché, but the saying “change is the only constant” is probably truer in technology than anywhere else. Unfortunately, IT departments are often ill-equipped to handle large-scale changes, such as transitioning from a legacy system, acquiring another company, or adopting an outsourcing solution.

“Often it’s technology pros who are imposing changes on other people, but it’s a whole different matter when change is imposed on them,” says Pam Butterfield, a longtime consultant and president of Business Success Tools. “Resistance is a normal reaction, especially with tech people who are more task-oriented and conflict-averse. Instead of coming up with a way to actively communicate change, they send out a memo and then sort of hide. That can be very disruptive in itself.”

Managing the message

Companies ignore the communications aspect of disruption at their peril, Butterfield says. When word hits the water cooler that change is afoot, people may start farming out résumés, and your best employees can get snapped up by the competition.

“I was consulting at a firm where the top management had announced there would be layoffs but then said nothing for three months,” Butterfield says. “One day a middle manager -- I’ll call her ‘Susie’ -- went into the senior VP’s office and shut the door. A few minutes later she came out sobbing. The rumor immediately flew around the office that Susie had just been fired. It turns out her dog had just died.”

“You need to paint a clear picture of what the new world’s going to look like, and the steps you’re going to take to get there,” Butterfield says.

Tom Shelman knows the value of communication in the midst of disruption. As executive vice president and CIO of Northrop Grumman, he’s seen the defense contractor grow from $6 billion to $31 billion in revenue, thanks largely to a string of mergers and acquisitions with companies that include Westinghouse, Teledyne Ryan, and TRW.

“There are two paths you have to go through,” Shelman says. “One is around how you manage the technology, and the other path is around how you manage people and culture. And if you don’t manage the people and the culture, the technology won’t matter because you’ll never get there.”

Long before the ink is dry on any acquisition agreement, Northrop Grumman creates a technology road map detailing what changes should be made immediately, and which ones can wait 12 or 18 months.

“In our most recent acquisition, we were able to deliver Day One connectivity for e-mail and other core services,” Shelman says. That in turn inspires confidence that the rest of the merger will go smoothly.

“On the cultural side, the challenge was figuring out whether employees were engaged or not,” Shelman says. “When they come to work, are they all rowing the boat in the same direction, or are they just showing up?”

After multiple mergers -- and some painful mistakes -- the company developed a multipronged approach to measuring employee engagement. Shelman’s IT group created its own communications department, set up an e-mail address where employees could post questions or air grievances anonymously, held town hall meetings, hired outside companies to survey employees, and brought in HR specialists.

Forced reductions

Because Northrop Grumman is in a growth phase -- and has its own technology outsourcing division -- Shelman says IT employees who find that their positions have become redundant can usually transition to another part of the company. But with some disruptive changes, particularly outsourcing, head-count reduction is a key part of the equation.

“Contrary to popular belief, outsourcing is not slowing down,” says Paul Horowitz, national leader of PricewaterhouseCoopers’ outsourcing and offshoring practice. “We’re just seeing the tip of the iceberg.”

In some cases, outsourcing can free up IT pros to do more strategic, higher-level work. But the cost savings of offshoring are too compelling to ignore, says Dr. Michael Campo, CEO for Kitcoff-APSI, which administers retirement plans for numerous corporate clients. The company employs 23 people in Florida, and another eight in India via a contract with Patni Computer Systems. The overseas staff handles administrative tasks, basic IT maintenance, and database management, Campo says.

Outsourcing freed up Kitcoff-APSI’s highly skilled plan administrators to spend less time shuffling paper and more time talking to clients. But it also allowed the company to cut 10 jobs -- or about a third of its domestic workforce. Campo estimates the move will cut his expenses nearly in half.

“There’s no easy way to put a smiling face on this,” Campo notes. “If we go under, there’s no business, period. As a business owner, it’s the only decision to make.”

Managed poorly, however, outsourcing can prove disruptive in other ways. Too many companies buy into the “your mess for less” concept, taking a process that’s broken and simply tossing it over the wall to cheaper environments in India, China, or the Philippines, PwC’s Horowitz says. If they do it too fast, with unreasonable expectations and too little training, the results can be disastrous.

In one well-known example, Dell suffered a setback in 2003 when it had to bring some of its India-based call centers back onshore due to customer complaints.

“Training, acculturation, and HR on-boarding are critical,” Horowitz adds. “Success and failure around offshoring have more to do with people than anything else.”

People power

Everyone remembers the horror stories: companies that force terminated employees to train their overseas replacements, holding their severance packages hostage; or those who deliberately cut more jobs than needed so they can hire “fresh blood” who aren’t embittered by the layoffs.

But adopting new technology doesn’t have to mean abandoning techies, and cutting costs doesn’t necessarily lead to cutting jobs.

For example, adopting an SOA can save money by making it cheaper to operate and maintain applications over their lifecycles and to bring new products to market, says Paul Patrick, chief architect for SOA at BEA Systems.

“Companies are looking at SOA not just to cut costs but also as a way to eat into their backlog of IT projects or initiate new ones they had never had the capacity to deal with before,” Patrick says. “We don’t typically see our customers using SOA to reduce head count, but we have seen them retraining or shifting personnel.”

Retraining is on the rise, and not just for tech workers whose expertise lies with legacy systems, says Katherine Spencer Lee, executive director at Robert Half Technology, an IT staffing company.

“Technology changes every nine to 12 months, so there’s a constant need for retraining,” Lee says, adding that it’s usually cheaper and more effective to retrain current employees than to recruit new ones. “When you have someone who already understands how your company works, they’re often worth their weight in gold.”

Yet training in new technology or applications isn’t enough. To effectively manage change, employees must also develop so-called soft skills such as active listening and the ability to ask questions in a nonconfrontational way -- areas where IT pros are typically perceived as weak.

Northrop Grumman’s Shelman says learning how to manage change involved some trial and error and a lot of training in interpersonal skills.

“We recognized early on that something wasn’t working, so we had personal coaches come in and educate us,” Shelman says. “They’d sit in on the town halls and say, ‘This is what you said; let me tell you what people heard.’ It’s amazing to hear the difference between the words that came out of your mouth and the ones that went into other peoples’ heads.”

Adapt or die

Ultimately, Shelman says, it’s up to IT staffers themselves to hone their knowledge and get up to speed -- to see change as an opportunity rather than an obstacle.

“Most techs want to become part of whatever the ‘new’ is,” Shelman adds. “We try to encourage them, but we hold them accountable. My job is to help them. It’s not my job to do it for them.”

“Even as we move into an SOA-type world, the core skills are the same,” says Keith Glennan, CTO of Northrop Grumman. “Some of our most advanced technology folks came out of legacy backgrounds. They were good at what they did then, they’ve taken responsibility for managing their marketability, and they do a great job today.”

Mullins says one of Master Financial’s former telecom employees trained himself to become a networking geek after he’d been let go. “He realized that the move to VoIP wasn’t an isolated incident, so he’d better retool himself,” he says.

When techs are willing to adapt, disruptive technologies and tactics can be a boon for both them and the organizations that employ them.

“If done the right way, you rarely have to send out pink slips,” says PwC’s Horowitz. “More often than not, the guys you have doing lower-level IT jobs are able to move up to doing more knowledge-based work, things that truly add value to the organization.”

Copyright © 2006 IDG Communications, Inc.

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