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Their First CIO

Fortune favored fortitude at FFF, a biopharmaceutical distributor that hired its first IT executive last year. Here's how the business team set the stage for his success.

When FFF Enterprises Inc. grew sales by 400% in four years, the need for IT to support this rapid growth began mushrooming out of control. So executives sought out an IT leader to restore order. "We called in the Marines," laughs Kit-Bacon Gressitt, FFF's vice president of marketing.

Specifically, they hired Bob Coates.

Coates became the first technology executive at the Temecula, Calif., distributor of biopharmaceutical products. The ex-Marine even exemplifies the basis for the company's name: the Latin fortuna favet fordibus, or fortune favors fortitude.

Now, a little more than a year into his tenure as vice president of technology, FFF estimates that nearly a dozen new IT initiatives contribute to the firm's continuing growth of about 20% per year. That's no small feat in an industry besieged by supply shortages and widely fluctuating pricing, not to mention the threat of drug counterfeiting.

Early on, Coates brought business intelligence to FFF, whose primary business -- the distribution of human plasma products -- is most susceptible to those threatening market forces. He pioneered an electronic tracking application that demonstrates the integrity of the supply chain through which FFF distributes those products. He engaged technology with many familiar industry acronyms: CRM, HRIS, VoIP. He brought discipline to the process of evaluating technology offerings. Yet Coates is no drill sergeant. Colleagues attribute his success to listening, teamwork and process. CEO Patrick M. Schmidt calls him "indispensable, innovative and essential."

Here's how FFF embraced this technology executive and empowered him to succeed.

Tackling The 'To Do' List
Bob Coates arrived at FFF Enterprises Inc. in March 2004 to find a long list of technology objectives awaiting him. Choosing what to do first and how to do it was a collaborative effort with the business executives who had built the list. They knew in essence what they wanted, but they needed help.

"We realized that we had to have someone at the executive level who could help us realize our vision by supporting it with technology," says Kit-Bacon Gressitt, vice president of marketing, whose projects included an intranet and patient-facing systems.

That someone was Coates. "In his very subtle and humble way, he makes his recommendation based on his extensive knowledge of the product or the process or whatever it is. He also takes it to the next level -- 'well, if you added this and this, x is what you would get' -- and then we all scramble and look for the budget," says Chris Ground, senior vice president of national accounts. Ground has gotten a CRM system (salesforce.com), a business intelligence tool to track key performance indicators such as sales (Qlicktech Inc.'s Qlikview dashboard) and BlackBerry handheld devices, which sales reps can use to enter data into salesforce.com via an application from Cendia Software Inc.

So how did the group get their mission accomplished?

"What we counted on Bob for was to listen to the need, identify the options and cost -- and cost is of course always a factor -- and guide us toward prioritizing [what we wanted]," Gressitt says. "It's not a paper matrix in our heads, coming up with just the priority list, because we wanted so much. There was both an art and a science to it. And Bob led that process very well and helped us home in on our where we could best invest in technology to achieve our end goals."

Jumping into the HR project, where software selection was almost complete, Coates created the process that the organization now uses to evaluate any technology project. That includes selecting a project team and both a project owner and sub-owner. It involves vetting a host of choices and, as with the CRM project, on-site demos and trials, with a user vote picking the winner. These steps have made technology selection take longer-with the HR project, winner Employease Inc. wasn't selected until October, and it just went live in January -- but it ensures buy-in from the beginning.

Coates is now invited to meetings of all kinds.

"One of the benefits Bob brought was putting us through a rigorous decision-making process that both got us invested in the end result, but also gave him time to better understand what the people on the ground needed," Gressitt notes.

Yet in typical humble fashion, Coates gives credit elsewhere -- to the business execs. "They downplay their abilities when it comes to technology, but believe me, I live with it on a daily basis," he says. "They're always asking questions about stuff that throws me for a loop. They know what they want, and that's what drives it."

--A.M.

Call of Duty

Midmarket organizations like FFF often go for years without an IT leader, slowly adding IT staff as the number of employees and systems grows. It's after four or five years of active growth or when revenues grow beyond $200 million a year that they start to think about a CIO, says Dan Gingras, a five-time CIO who is now with consultancy Tatum Partners. That's the point at which technology becomes more complex, more pervasive and, critically, more strategic to a company's corporate health. (The other primary reason: to recoup from a technology disaster, Gingras says.)

Yet giving a person the CIO title or related vice president/ CTO status doesn't always mean a company seeks a truly strategic partner. Among firms with $500 million or less in annual revenues, only 10% to 15% have true IT executives who engage in strategy. That number rises only to about 50% in companies with revenues up to $1 billion, according to analyst Mika Krammer of Stamford, Conn.-based Gartner Inc. The balance can be little more than IT caretakers.

Part of the problem is that business executives often don't know what to look for, and thus post job descriptions littered with technical certifications. "They don't understand [the difference between] infrastructure computing and technology for competitive advantage. They're focused on running the computer infrastructure," Gingras says. "To succeed [in a strategic role], you must be extremely good at an antithetical role, and that is the role of salesman."

Using IT to Accelerate the Business

At FFF, a relaxed, Southern California dress code and a spunky, collaborative culture underlie a passion for helping the sick. The company already had a capable IT staff and even an ERP system before Coates came on board. What it lacked was a team player to bring a vision of how IT could accelerate the business. "We knew where we wanted to go, technologically, but we didn't know how to speak the language; we didn't know what things were out there; we didn't know how to put it in place," says Chris Ground, senior vice president of national accounts. "We didn't have the horsepower to do that."

Ground himself had arrived in 1999, when then 11-year-old FFF changed its distribution model and saw its sales spike. "We got into large group purchasing organization contracts," Ground says, and "our volume went up quantumly," from about $100 million that year to about $500 million in 2003. "That's like 0-60 in about three seconds."

Growing pains ensued. For example, the company had to upgrade its ERP system, a massive effort that "took a toll on a lot of things," Ground recalls. "It became very apparent that technology was here to stay, and therefore we needed somebody to really weave a common thread throughout, to take a really high-level view of all the different divisions and to put a vision of technology together."

At the time, Coates, a former CIO at cinema chain Edwards Theatres Inc., was working as a lead engineer on Navy C41 systems at defense contractor Titan Systems Corp. He'd retired from a full career in the Marines after 21 years of service in 1997. Tall and soft-spoken, deeply knowledgeable yet quick to credit others for their contributions while downplaying his own, Coates had set out to become a fighter pilot. He landed in information systems when his A6 Intruder jet training abruptly ended after an eye exam revealed a form of colorblindness. It was a crushing disappointment for a 22-year-old. "As a lark I [put in for] the systems route, and I ended up getting it," he says.

Thus began his career in IT as a data systems and communications officer, during which he designed all manner of systems in military and, then, civilian life. He learned of the opportunity at FFF when a co-worker and fellow ex-Marine heard about it via the Marine Executive Network, a networking and jobs board.

At first, FFF's ambitious technology agenda concerned the cautious Coates, who employed strong listening skills to make up for his lack of a health care background. "When I first came here, I didn't think I'd be here very long. I thought, 'What can I contribute?'" Coates says. "During the first six weeks here, there was a lot of angst on my part."

Some projects were not industry-specific, however. Early on, Coates met with human resources, which was looking for a software package and had pretty much settled on one. But Coates recalled that CEO Schmidt had mentioned a need for "process" during his job interview, and so he offered to evaluate some competitive offerings. By the time the company selected a system from Employease Inc. some months later, he had developed a project template. It included choosing a project team and appointing a project owner and subowner.

Yet for an organization that has just hired its first CIO, nearer-term wins are essential to build faith among business colleagues, observers say. These low-risk, high-visibility projects should be completed in the first 30-60 days.

Coates had a project that fit this bill. It involved FFF's core business and key differentiator: supply chain integrity.

Enabling Success, The First Time Around
Companies often go looking to hire their first true IT executive either when they reach a certain size or when there's been an IT disaster that calls for a more seasoned hand. Here are some guidelines to make the first experience a good one:

FOR HIRING EXECS:
Define the job properly. If you want a true IT strategist, don't weigh down the job description with requirements for numerous technical certifications. If a super techie is what you need, you're looking for an IT director, not a CIO, says Dan Gingras, a five-time CIO and partner at Tatum Partners.

Don't require industry experience. Many of the skills you need are transferable across industries, and someone with a different background may actually bring more fresh ideas.

Don't hyperfocus on cost. If you're located in a rural area and refuse to pay relocation costs, you limit yourself to the local talent pool and reduce the chances of finding what you really need. You may also benefit from using an executive recruiter. Hiring well is difficult.

FOR CIO CANDIDATES:
Examine the job description. One that requires too many certifications or specific skills may keep you in the back office.

While interviewing, take note of whom you meet with. How high level are the executives? How do they refer to the existing IT group? This should tell you how seriously they take IT.

Evaluate the landscape. Look at historical IT spending (less than 2% of revenue is lean; more than 7%, aggressive) as well as what internal and external customers think of IT, says analyst Mika Krammer at Gartner Inc.

Consider your own background and the particular challenges you may face as a result. If you are "downsizing" from a large organization to a smaller one, you may be frustrated by a slower technology adoption curve, Krammer notes. If moving up the size ladder, you might feel stymied by the processes, roles and policies at a larger organization.

Once you take the job, build credibility. Seek small wins in the first 30-60 days, choosing low-risk, high-visibility projects. "You have to start collecting chips," Gingras says. "When you make a mistake later, you have something in the bag."

--A.M.

From Latex Gloves to Miracle Cures

FFF got its start in 1988, with CEO Schmidt, an $80,000 loan and a big shipment of latex gloves. It was the thick of the domestic AIDS crisis, and Schmidt sought to supply the health care sector with a suddenly essential item. Unfortunately, a lot of other people had the same idea, and a frustrated Schmidt had trouble unloading the gloves on the market. At a diabetes clinic one day, he asked a nurse what, if not gloves, they needed. Her answer -- human serum albumin -- was to turn FFF into the largest distributor of that plasma protein, according to the company. FFF also offers e-clinical services for clinical trials in its LifeTree division, pharmacy services in its NuFactor unit, and, still, gloves via Alpine Gloves.

In the U.S., three major distributors -- Cardinal Health Inc., McKesson Corp. and AmerisourceBergen Corp. -- own 90% of the drug supply chain, according to the U.S. Food and Drug Administration (FDA). The remaining 10% comprise a host of regional or specialty players. FFF, according to its CEO, is the largest distributor of albumin and intravenous immune globulin, with a market share of 34%. The products are used by those with bleeding disorders and illnesses such as multiple sclerosis or Lou Gehrig's disease. "It's one of the most miraculous substances in the world," Schmidt says.

FFF cites as its competition not just the largest players but a network of secondary distributors, a gray market known for unscrupulous business practices such as holding on to products in short supply until prices spike. Improper temperature control and even counterfeiting are also risks in FFF's market, posing huge dangers for patients who rely on the products to sustain their lives.

All of this underscores the need for fortune and fortitude in the pharmaceutical supply chain. Channel integrity -- the assurance that the products have gone directly from the manufacturer to FFF to the end customer, in a temperature controlled environment -- is thus a big part of FFF's business strategy. Demonstrating that integrity via IT became Coates' first and most visible charge.

It was on a Saturday last March that Coates went to meet with Schmidt to discuss what's now known as the Verified Electronic Pedigree (VEP) application. Coates then designed the Web-based application, which tracks a product's lineage through the supply chain and is accessible to customers via a password-protected Web site. VEP remains unique in the marketplace today, FFF says.

"We're proving that we do what we do, and technology was the backbone for that," CEO Schmidt says.

An FDA official who hadn't heard of FFF's electronic pedigree notes that most drug pedigrees today are tracked on paper. A congressional mandate for electronic tracking, with a deadline of 2007, embraces RFID and is likely to take effect about a year later as efforts to establish standards continue. Pilot projects are also under way to ensure that RFID's radio waves don't interfere with the molecular structure or temperature of biological products, the official says.

Today, RFID is but one of a number of technologies on FFF's radar screen for future channel integrity initiatives. And numerous IT projects beyond the channel have become essential to business enhancement as well. The business intelligence project, for instance, uses QlikTech Inc.'s QlikView software to keep business executives on top of real-time data, so they can juggle resources to capitalize on sudden opportunities or respond to market trends. "That kind of efficiency, to be able to react to the market faster, will pay for itself in the long run," says Ground.

FFF's strides in IT haven't been cheap. Company officials won't comment on the costs -- even as a percentage of revenue -- except to say that they planned ahead for them and are incurring both capital and operating costs. "We have a capex [capital expenditure] budget here that we plan on exceeding, and most of that is directed toward technology," CEO Schmidt says. "The only risk that I see [in the tech investments] is if we don't do it." To which Ground adds, "There's no doubt in my mind that the technology will pay for itself 10 times over."

Of course, with all the new technologies, new processes and continued growth, there have been challenges. Even with strong business advocates, getting users' time for projects can be a struggle; getting funding and keeping costs down can require some creativity. There's also the perpetual uncertainty in the biopharma space, like the flu vaccine shortage last winter. "We don't know what our market is going to do this year, but something will happen," Ground says. "From a technology standpoint, we will have to be able to deploy Bob and his team at a moment's notice. Technology," he says, "is one of the things we are using to set us apart."

Anne McCrory is editorial director of CIO Decisions and the CIO Decisions conference. Write to her at amccrory@ciodecisions.com.

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