The Role of the CIO in Fighting Fiefdoms

By Robert Herbold.
Originally published in Optimize™ Magazine 2003.

While the term may conjure up visions of lords in feudal Europe, the fiefdom in its modern incarnation exists in companies and organizations large and small today.

Fiefdoms have been, and continue to be, an enormous problem in all facets of business, and can occur everywhere. Some of the world’s leading companies, including Microsoft and Procter & Gamble, where I have worked, have been victims, and so have governments, non-profit organizations, and education.

I believe there are three basic human tendencies hardwired in every human that seem to cause fiefdoms:

• We have an innate need to control the data or information that reflects on our work
• We have a natural desire to be independent and in control of our destiny
• We have a natural tendency to exaggerate the quality of our work and its importance to our organization.

These may seem natural enough, but when the resulting fiefdoms are left untouched, the condition can cause more damage to the organization than economic downturns, management upheavals, or global business shifts.

For example, if different groups of people in a company go off on their own, they tend to become fixated on their own activities and lose perspective of what ís happening outside of their own circle. They also lose the ability to act consistently on behalf of the greater good and in a way that enhances the effectiveness of the larger organization. This is the opposite of teamwork and collaboration. Determined to do things their own way, people who create fiefdoms tend to hoard resources like IT staff or build their own IT systems, complicating what should be streamlined throughout the organization.

This can lead to runaway costs, increased bureaucracy, slower response times and duplication of people and equipment. No organization, no matter its size or balance sheet, is immune to this. In fact, oftentimes, the more successful, and larger, an organization, the more likely a fiefdom will grow and prosper.

CIO’s are in an excellent position to see this fiefdom-like behavior in an organization since systems and data networks typically touch virtually every part of an organization. Hence, we will elaborate on some key approaches the CIO should be advocating with top management to avoid/eliminate the ravages of fiefdoms.

THE DISCIPLINE OF CREATING LEAN COMPANY-WIDE PROCESSES AND SYSTEMS WITH EASY ACCESS TO KEY DATA

Fiefdoms often try to create their own information systems to reflect how “unique” their work is, making it difficult for management to have access to basic information that would help them understand the health of the department/group/division. To fight this tendency, companies need to implement the core information systems (financial measures, personnel data, procurement procedures) company-wide (i.e., one set of basic systems for each of these areas) that make available all crucial data across every part of the organization and are easy to access and use.

When, for example, I joined Microsoft as COO in 1994, the company’s sales subsidiaries in most countries were feeling very confident of their abilities to run their businesses, and they were growing very fast. These organizations were intentionally made independent to ensure that they could grow fast, unencumbered by corporate directives. Unfortunately, this created the perfect environment for fiefdoms to take hold. This led them to take on their own resources in a variety of areas. Microsoft Germany, for example, set up their own data center, complete with its own information systems and an IT staff of 70 people. Their data center and information systems were completely independent, duplicating resources available at headquarters.

To a varying degree, the same thing happened in all the subsidiaries. They designed their own ways to analyze their business, and each institutionalized and used them to report on their business. Most of them decided they needed their own financial “chart of accounts”, different from that used by corporate headquarters, to reflect the “nuances” of their business. Many of these variations were small, but created real confusion when pulling together company-wide results. For example, in some countries, revenue was booked on a monthly basis starting with the first day of the month: others reported on a weekly basis. Comparing performances was like comparing apples and oranges.

What was happening was that the subsidiary managers perceived themselves as “kings” in their countries and wanted to act independently. It not only made it difficult to pull together key company-wide financial data, HR data, etc., it created a real problem when customers would visit Microsoft for a day to learn about Microsoft products. They would often want to know what kind of financial systems, or HR systems, etc. that Microsoft had (thinking this leadership software company would have some great processes and systems. When they asked such questions, we had to quickly change the subject!

So how did we fix it? I selected one financial person and one IT person and each of them had deep experience and was a very strong performer. I told them to use no committees or task forces, but instead, the finance person should take a few days and define how the basic financial data should be defined and how it should flow. I asked the IT person to design the architecture, using vendor-supplied financial systems connected to a financial database, with the database being accessed by easy-to-use web-based menus. Within a few weeks, they assembled their small implementation team and the effort was complete in 10 months and hundreds of systems and databases were scrapped and Finance and IT manpower was greatly reduced (the German sub went from 70 IT people to 3).

So how did we fix it? I selected one financial person and one IT person and each of them had deep experience and was a very strong performer. I told them to use no committees or task forces, but instead, the finance person should take a few days and define how the basic financial data should be defined and how it should flow. I asked the IT person to design the architecture, using vendor-supplied financial systems connected to a financial database, with the database being accessed by easy-to-use web-based menus. Within a few weeks, they assembled their small implementation team and the effort was complete in 10 months and hundreds of systems and databases were scrapped and Finance and IT manpower was greatly reduced (the German sub went from 70 IT people to 3). With a few clicks of the mouse, you could have any of the key financial measures by product or subsidiary for a select time period, and you could be anywhere in the world when making the request; all you needed was your laptop and a phone line. This enabled everyone, including top management to always have an up-to-date, objective picture of the health of the business.

Was there pushback on this approach? You bet! My key role as COO was to address the organization why we were doing this. Said another way, what is the crisis forcing this change? I made it clear that we need to make Microsoft a showcase with respect to the information systems we use to run the company, so we didn’t have to change the subject when customers asked. They understood that very well and they, somewhat reluctantly, shed their treasured IT resources.

THE DISCIPLINE OF STANDARD TEMPLATES AND DATA

Nothing retards the formation of a fiefdom or breaks up an existing fiefdom better than standardized data available to all. Each functional area, such as finance, human resources, procurement, etc., should carefully define the 10 to 12 templates of data, or charts, that answer 98% of the questions that commonly occur in their area. It should then develop basic systems and databases that make the data available across the entire organization to authorized employees. With such databases in place, it becomes difficult for fiefdoms to hoard information. While business units or subsidiaries may need to have limited number of “unique” systems or data to help them run their business, this should be kept to a minimum. The goal is to help keep the business as focused as possible. When everyone in the management chain has easy access to such data, they can all better understand what’s working and what isn’t.

To accomplish this goal, CIOs can implement the following steps:

1) Assign a very small group (2 or 3 people) of experienced and strong performing individuals in each functional area (finance, manufacturing, HR, etc) to design the key data/templates and the IT architecture. Once they are finished (target for a few weeks), they should form a small, talented team to do the implementation and maintenance of these company-wide processes and systems. This group should not rely on committees to do their work. Too often, organizations let everyone in a whole variety of departments provide input, creating heated debate among people who do not understand the workings of these areas. The leaders of the groups should report directly to the heads of the functional areas, and to the CIO.

2) Be sure that the top management is in full agreement with the plan. Let me make this point via an example. I recently did some consulting work with an aerospace/defense firm. It had fiefdoms within fiefdoms. Each business unit had developed a huge number of expensive-to-maintain information systems that had minor impact on improving the company, and most of these systems duplicated what was available to them via the existing corporate systems. Incredibly, the company had more than 4,000 information systems driving IT costs to 9% of its net revenue (compared to a 3.5% industry average).

Once management realized how out of control the IT situation was they agreed with the CIO’s plan of creating a small team to implement new, company-wide easy-to-use systems, with standardized data definitions and valuable templates to answer the majority of information needs. When the IT organization briefed the business units about the pending changes, they faced resistance. Wisely, the CIO promptly reported the cold reception to the CEO and asked him to intervene. The CEO then made it clear to all business units that IT costs of 9% of revenue was totally unacceptable and the company must get down to the industry average of 3.5%. Had the CIO lacked the nerve to ask the CEO to intervene, these fiefdoms would have suffocated the effort. In circumstances like these, it is important for the CIO and the CEO to jointly explain to all units why the change is happening.

3) The number of information systems of each functional area needs to be drastically reduced to a very small number of company-wide systems. This reduction needs to encompass the systems in the subsidiaries, the business units, and the central functional organization. This streamlining can be easily accomplished using vendor-supplied software operating in the background and interacting with key databases that users access through easy-to-use web menus. It is critical to not allow modifications of the vendor-supplied software.

4) Do not build bridges to old systems. Watch out for legacy employees protecting old legacy systems. Efficiency is a key focus of this exercise.

For example, when one Fortune 500 company I consulted with wanted to move to SAP software to achieve greater efficiencies, its CFO resisted. He wanted his financial organization to be exempt from this effort and continue to use the fifteen-year-old, antiquated legacy financial systems. The CFO suggested IT should build bridges from the old financial system to the new SAP implementation. This would increase the costs of the SAP project by 60 percent.

This is a classic case of a company-wide SAP project that was to get much more expensive than planned because of the resistance of one fiefdom (finance in this case). In a typical reaction, the CFO took constant swipes at the CIO for being wrong about SAP. In fact, his attempted blocking of the streamlining effort was also triggered by his wish to have the CIO report to him. The CEO, however, did not want to fight the CFO, and told the CIO to go ahead and spend the extra money. Needless to say, this devastated morale within IT. Believe it or not, eventually the CIO lost his job because of the cost overruns!

Being a proponent of these steps will enable the CIO to play a critical role in helping the organization tear down fiefdoms and put more effective processes in place.

It is critical however to keep in mind that to revolutionize processes, it is often necessary to move people out of legacy jobs and bring in strong performers. People performing may have to change as well. The way people are developed, managed, and evaluated is critical in fighting fiefdoms. Here are some of the tips covered in my book The Fiefdom Syndrome that should be helpful:

ROTATE PERSONNEL ON A REGULAR BASIS
Moving personnel to new assignments is a critical tool for braking up possible fiefdoms. Organizations can be held hostage by individual employees who build their own fiefdoms around their expertise. When people are left in their jobs too long, they tend to form territorial fiefdoms. They fear that if they are moved from their jobs, they won’t be able to do anything else. But counterintuitive as this may sound, too much experience can stifle innovation. The longer people are left in their role, the more complacent and proud they become of what they do. Subsequently, the notion that change is needed, in order to take advantage of a certain technology or new ideas or a changing marketplace, can cause these individuals to get very defensive and claim the organization is at risk because of their extensive experience.

AVOID OVERCONFIDENCE
Humans naturally want to do well, and they want others to perceive that they are succeeding, so they tend to be biased positively toward their own work. It is the same with groups. They tend to form an inflated sense of self worth. Any problems they might be having tend to be blamed on external forces. They become blind to what is happening outside of their world, and don’t see competitive threats emerging. They get lulled into a false sense of satisfaction and confidence and that leads to a reduced interest in improving and they fall behind.

One example is Digital Equipment Corporation (DEC). In the late 70s and early 80s the company was on top of its game with its VAX mini-computer system. The VAX was wildly successful, enabling departments to separate themselves from the corporate mainframe. By the mid-eighties however, DEC corporate management was refusing to acknowledge the emergence of a world where their mini-computer architecture could be replaced by something better (namely, networked PC’s). The company was so caught up in its own success that it made derogatory statements about the personal computer, predicting that it would never amount to much. Needless to say, by 1990 the company was struggling to find a role in an industry that had passed it by. They had a huge case of over-confidence.

IDENTIFY STRONG PERFORMERS EARLY AND AGGRESSIVELY DEVELOP THEM
Often, strong performers get trapped in fiefdoms and can’t get out. They stay in their job too long and they are the victim of the “lord” of the fiefdom hoarding people and not pushing the organization to improve and increase their impact. One way to counter this is to have personnel development meetings each six months, with focus on earmarking future leaders early on, and putting development plans in place to expose these people to as many different responsibilities as possible. It will inspire fresh perspectives for your organization and really stretch people. Also, never underestimate the ability of an individual to dive in and learn a new area very quickly. Don’t hesitate to stretch people so they can grow and be as impactful as they can possibly be.

IMPLEMENT STANDARDIZED APPRAISAL SYSTEMS
Strengthening your talent pool also includes confronting poor performance. Just as much as hoarding data, there is a natural tendency in fiefdoms to hoard people. Rather than confronting poor performance, fiefdoms tend to offer protection in exchange for loyalty. Combine this with a basic human reluctance to conduct performance appraisals, and it is no surprise that fiefdoms seldom lead to a performance-driven environment. A strong standardized performance appraisal system driven from the top of the organization is one of the major ways fiefdoms can be broken up.

We have talked a lot about disciplined ways to make an organization operate better. In doing so, we need to make sure we don’t detract from the need for innovation and creativity. The key is to find the right balance. Particular emphasis needs to be placed on innovation in the areas of product development, sales, and marketing, and in the book The Fiefdom Syndrome there are numerous tips for doing this. Putting too many constraints around people, especially those who are supposed to be generating innovation, can stifle their creativity and suffocate innovation.

Fostering both discipline and creativity, in the right areas of the organization, is a critical part in fighting the fiefdom syndrome.

In the end, overcoming the fiefdom syndrome can produce significant measurable results. Individuals will benefit as well, as employees will be more freed to make the most of their talents and see their efforts rewarded.