CARLSBAD, Calif. -- It's a given: Today's CIO must use information technology to support and enhance business goals.
Rich Hoffman, president and CEO of Hyundai Information Service North America, has taken the mandate a step further.
A former CIO for two of Hyundai Motor Co.'s affiliates in North America, Hoffman was charged with turning Hyundai's dispersed, disparate and in some cases deficient IT operations into a standalone business. He proposed a centralized IT company that would provide services to all 23 Hyundai North American affiliates.
In the process he learned to think like a CEO -- a mind-set he believes all CIOs would be smart to adopt.
"A revolution is taking place in IT today," Hoffman told the roomful of more than 200 IT executives. Citing new data from research consultancy Gartner Inc., he pointed out that organizations continue to expect IT to enhance business processes and contain IT costs. "But look what's showing up on the radar screen -- revenue contribution and market differentiation. It's a whole new way of thinking about IT."
At Hyundai, the new IT model parallels what was happening with other divisions throughout the fast-growing South Korea-based car company during the past decade, Hoffman said. As Hyundai morphed from the butt of late-night jokes to a global powerhouse, it has spun off many of its operations, essentially turning the divisions into small and medium-sized companies. The marching orders?
"Every company has to make money in the first year. Hyundai doesn't fool around," he said.
Hoffman said the goal at Hyundai and Kia Motors Corp., acquired in 1998, is to be a Tier 1 global automotive company. "IT needed a new vision. Our global CIO threw out a challenge that by 2008, our technology had to be a top-tier company too," he said.
The job -- while not complete -- is ahead of schedule. Hoffman put together a group to hammer out a plan in November 2003. Four months later he delivered a vision for a centralized IT company for the Hyundai affiliates in North America, which range from sales districts and manufacturing plants to logistics companies. By January 2005, his vision became official and he was put in charge of building Hyundai Information Service North America (HISNA).
Building a business was new territory. Hoffman had to create the administrative infrastructure for the new company, hiring people to handle human resources, accounting, finance and other functions. He had to put the right business processes in place -- how to invoice and pay suppliers. And he had to get his customers -- the 23 Hyundai affiliates accustomed to their own IT departments -- to treat the new standalone company as a business.
At the end of its first year in business, HISNA is profitable and expanding, with plans to add Hyundai operations in Central and South America to its customer roster. In its first nine months of operation, the company saved Hyundai millions of dollars by improving the procurement processes for IT, including going offshore for some of its labor and insourcing Hyundai's Web site. Affiliates that were accustomed to a nine-to-five IT department now have round-the-clock support. The throughput on IT requests has improved from a mediocre 40% to around 85%.
Everybody's 'ugly puppy'
There have been plenty of challenges and missteps along the way, Hoffman told the audience. Bringing a shared-service IT approach has taken longer than expected. So far, HISNA has assimilated only eight of the 23 affiliates, he said. The fledgling company also did not make its revenue goal its first year, largely because it had the wrong mix of staff and not have enough suppliers lined up to handle the work, Hoffman said. The new IT company has gotten smarter along the way, adding project managers and business analysts.
One of the hardest tasks has been getting affiliates -- in particular mid- and low-level management -- to accept HISNA as a revenue-generating business out there hustling for customer contracts just like any service provider and making money for Hyundai. Under the old model, IT was everybody's "ugly puppy," Hoffman said, maligned and there to kick around. "But when I showed up to take away the puppy, people pushed back," he said, afraid they would lose control. "They needed assurance. It was a matter of trust."
IT with money
Others agree. Hoffman's talk resonated with conference-goer Francois Chevalier, vice president retail systems at Rogers Video, the retail arm of Toronto-based Rogers Communications Inc. Rogers Video, Canada's No. 1 movie rental chain, includes 300 stores as well as wireless and cable stores.
"I found it interesting how he pushed into the business issues. As a shared-service model, you end up competing with external companies for business, but the perception within your company is very different. They expect you to deliver what they want, introducing a whole new set of problems which are not technical but political," Chevalier said.
The push back from middle management did not surprise Chevalier. "At that level there are a lot of workarounds. You want them to follow standard process, and they say they know a friend who can get the job done in half the time and half the price. It's a conflict between the need for a sustainable IT infrastructure and the nimbleness that outsiders can provide -- and that is a business issue."
Vadim Kozyrkov, vice president of IT at Grand Vehicle Works Holdings Corp. (GVW), a Highland Park, Ill.-based company that buys and sells manufacturing companies, knows firsthand the pains of offering IT as a shared service. A year ago, he became head of Aculocity, a standalone IT company that provides services for GVW companies and outside customers. The independence has allowed him to make "better IT decisions," he said, but getting his internal GVW customers to acknowledge Aculocity's autonomy has been a hard sell. "We were the puppy they were used to kicking around. When they see us making a profit, the first instinct is to ask us why aren't we lowering their cost. But our rates are competitive with any other service provider they would hire."
Despite the road bumps, Hoffman is a champion of independent IT companies. The experience, he said, has brought him "enormous clarity" about what IT should be about.
"Profitability changes the view of IT and how you view yourself. I sit down with the CEOs as a peer," Hoffman said, adding that he also looks at prospective employees with a new lens.
"Hyundai is one of the hardest-working companies I've seen, and IT was no exception," he said. But with a standalone company that had to generate its own revenue and produce a profit, Hoffman realized, "I needed aggressive people who could go out and get the business."
The new model has actually helped Hoffman attract higher-caliber people, because he can offer them job mobility -- a 20-year career path. The upshot is HISNA is getting people from its larger competitors.
Let us know what you think about the story; e-mail: Linda Tucci, Senior News Writer