What The Big Boys Can Teach A CIO

by drjim on December 7, 2009

Image Credit Thinking Like A Private Equity Investor Can Make A CIO Rich

Thinking Like A Private Equity Investor Can Make A CIO Rich

What makes you think that when you become the CIO that you’ll be able to run things better than the current CIO is doing? Do you posses some magical management ring or have a bag of IT / business alignment powder that you can sprinkle on your staff that will transform today’s issues into tomorrow’s pillars of success? I don’t think so.

Maybe a better approach would be to go look for some help. One place where you can find out how to run a successful IT department comes from, of all places, the world of finance. Let’s talk with the big and powerful private equity firms and see what they have to teach us…

Just What Is A Private Equity Firm?

You’re good at IT; however, you may not be in the business of keeping up with just what private equity firms do. Let me explain. Private equity firms are basically combo consulting / banking firms. They scour the market looking for under performing companies. When they find one, they swoop in and buy them. Often times they need to borrow a lot of money to make this purchase so it’s called a “leveraged buy-out”.

Once they are in control, more often than not they take the company private — that means that they buy back all of the outstanding public stock. When they no longer have to worry about what the shareholders think, they get to work. Their overall goal is to boost the company’s profits so that they can turn around and sell it for more than they paid for it.

One way to boost profits is to slash costs to the bone, the other way is to boost profits. If you can do both, then you’ve succeeded. A few years down the road when the company is sold, the money from that sale is used to pay off the remaining bank loan and then everything left over is pure profit. A lot of profit.

Run Your IT Department Like A Private Equity Firm Would

So if you were a CIO who wanted to wring the maximum value out of your department, just how could you go about doing this? The big boy private equity firms (Blackstone; Kohlberg, Kravis, Roberts; and Bain Capital) have basically boiled what you need to do down to six steps:

  1. Define Your Department’s Full Potential: If you want to maximize the value of your IT department, then you are going to have to do the due diligence needed to know what that “full value” looks like otherwise you’ll never know if you’ve reached it.
  2. Create a blueprint: Once you know what you want to achieve, you’re going to need a plan for how you’re going to get there. The key here is that the blueprint needs to be detailed — who is going to do what and when are they going to do it.
  3. Match: you’ve got to move fast if you want to have any hope of pulling this transformation off. That means that you’re going to have to match the right people to the right jobs and you’re going to have to start measuring the right things.
  4. Hiring: you can’t get “there” if you don’t have the right people working in your department. This is why you always see such staff turnover after private equity gets involved — they don’t tolerate slackers.
  5. Make Your Money Work: Although your IT department can’t borrow the way that a private equity firm does, you sure can make the capital that you have work as hard as possible for you. If it doesn’t contribute to your bottom line, you shouldn’t be spending on it.
  6. Results: Make it so everyone in the IT department has a results focus — adopt the mindset of a private equity investor.

What All Of This Means For You

One of the big challenges of being the CIO is that it can be very unclear just exactly what you are supposed to do after your big promotion. The rest of the company thinks that you will just magically make all of their IT problems go away. The IT department thinks that you’ll provide them with clear strategic direction. Great — what’s a CIO to do?

In a nutshell, you can’t go wrong if you adopt the mindset of a private equity investor. Since they view a business completely from a revenue generating perspective, they are able to see through all of the clutter and focus on only the parts that really matter. This is exactly what you need to do.

No, you can’t do a leveraged buy-out of the IT department and then turn it around and sell it back to the company in a couple of years. However, you can work with your staff and using private equity thinking to pull off an amazing transformation. Once you’ve done this, it will be time for you to move on to your next challenge. How’s that for a Wall Street pay off?

Do you think that you’d have the guts to run your IT department like a private equity firm would?

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What We’ll Be Talking About Next Time

One of life’s great mysteries is “just exactly what do CIOs do” I’m pretty sure that we all think that we know what they do, but do we REALLY know? In order to prepare you for your future job as a CIO, I have undertaken a dangerous field study in order to observe the wild CIO in their natural habitat and I’m now prepared to make my report back to you. Listen and learn…

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