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Leading business transformation: How to make IT a strategic partner

Nortel's CIO consolidates IT, creates a PMO and powers innovation, all to drive radical change at the global company.

CIO Steven Bandrowczak arrived at Nortel Networks Corp. in June 2007 with a plan to bring radical change to the troubled Toronto-based telecom equipment maker. Nortel, which was laid low when the tech bubble burst in 2000, has been struggling since to reinvent itself. Bandrowczak says he believes IT can play an important role in that business transformation.

Steven Bandrowczak

But first he had to transform Nortel IT from a "back office" function to strategic partner. The cleanup work includes reducing a tangle of 1,100 applications to 100 during the next 18 months, consolidating 15 data centers to one and shifting 15% of his IT budget to projects that bring value to the business. In a wide-ranging interview, Bandrowczak talked about the power of the "burning platform" to bring change, the right way to outsource, and what American CIOs can learn from working in China.

Here is a guide to Bandrowczak's interview with SearchCIO.com Senior News Writer Linda Tucci:

0.0-1:24: Intro and Bandrowczak's bio.

1.30-2:56: Bandrowczak talks about his background and how it prepared him for bringing "radical change" to Nortel.

2:59-3:25: From back-office IT to valued partner.

3:25-5:57: The burning platform.

6:04-7:27: Rationalizing applications, consolidating data centers.

7:30-8:27: Budgeting for innovation.

8:27-9:58: Outsourcing the right way.

9:59-13:15: Shared services.

13:16-15:05: Lessons from China.

15:11-18:10: IT's role in M&A's.

18:10-end: What's next?

Read the full transcript from this podcast below:

Linda Tucci:This is Linda Tucci, senior news writer for SearchCIO.com. Thanks for joining me. Today I'm talking with Stephen Bandrowczak, chief information officer for Nortel Networks Corporation, a telecom equipment maker based in Toronto, Canada.

Steve was hired by Nortel in June. He is responsible for the company's technology strategy and operations, overseeing Nortel's internal network infrastructure, business applications, and data security. Prior to joining Nortel, Steve served as CIO for Lenovo Group. At Lenovo he helped lead the company through the initial stages of its $11 billion IBM spin-off in 2005, enacting a two-year plan to build the company's IT infrastructure. He has also served as the global CIO for DHL Worldwide, the express delivery and logistics powerhouse.

Prior to that, he spent 14 years at Avnet, the electronics distributor, culminating as the company's [00:01:00] CIO. Well-known in the industry as a change maker, Steve has hit the ground running at troubled Nortel launching efforts to dramatically reduce applications, consolidate data centers, and free up 15 percent of his budget for innovation. He talks to SearchCIO today about his blueprint for radical change at Nortel, and what American CIOs can learn from working in China. I wonder whether we could start at just a little bit with your biography at Nortel, [00:01:30] why were you brought in?

Steven Bandrowczak: I think a couple of things prior to  Nortel, just about two and a half years with Lenovo as the global CIO. I also was responsible for the spin-off of the IBM PC division out of IBM, and integrating it into Lenovo, which as you know is a China-based domestic company. I also had end-to-end business processes, so driving that transformation, setting up the IT strategy, and then ultimately creating the IT infrastructure and the business process that you see there today as a company.

Prior to that, just over four and a half years as the global CIO for DHL and driving significant transformation in terms of IT consolidation. We were doing about one data center consolidationper month in two key locations: Kuala Lumpur and into Prague, Czech Republic. Application rationalization took over $500 million dollars out of P&L over three and half years, that we implemented the strategy there; then prior to that, the global CIO for Avnet. In the last ten years at Avnet, we'd do about 40 M&A activities, literally creating one company per quarter in the last ten years.

The nadir of all that, large transformation, large driver of IT strategy in getting very significant value out of my team, more than just a traditional operation; coming here to Nortel, probably a couple of things. [00:03:00] One is to drive Nortel IT from what I would call back office operation focused, really trying to drive value from the company standpoint in terms of creating end-to-end business processes, optimizing and streamlining cycle times, driving revenue, and getting to a point where IT actually is creating channels of value for the company.

Linda Tucci: Let's dig down into that a little bit. You've been a CIO with either [00:03:30] very tech-centric or tech-savvy companies. It's no secret that Nortel really has suffered since its tech bubble in 2000 and is in the midst of this huge business turnaround. The fourth quarter results that were recently reported still didn't bring great news: a loss of $844 million and another 2,100 job cuts.Here you are, you need to drive value in IT and also at some point help drive revenue. How do these company results impact [00:04:00] and influence your IT strategy?

Steven Bandrowczak:  Well, candidly, I think it does a couple of things. Anytime you are challenged in any industry, whether it's in high tech or it's the airline industry, the finance industry, you're motivated and many [inaudible 00:04:14] great companies. There's HP and IBM came out of and got to a period of greatness from a very difficult period in time.

I think that's one of things that Nortel today is looking at, and that is very, very open to significant business change [00:04:30], business process change, doing things, optimizing all those. Purely from an IT perspective, I think the business today is more than receptive to radical change. That's one of things I'm trying to drive here at Nortel, and that is radical change. I'm doing things dramatically differently than we ever did before. I call it the burning platform. If you've got that burning platform either from a financial standpoint, or from a competitive standpoint, or changes in the industry, and we've got all of the above, [00:05:00] you get an opportunity to really get the entire business to listen to radical change.

I think companies that are great can change while they're doing well, and recreate themselves when they're doing well. Other companies, they need their burning platform to go drive that change and to get to a point where you say, you know what, we've just got to do things differently. We've got to compete at a different level whether it's market created, whether it's competitor created, [00:05:30] it doesn't really matter.

For me, I think the opportunity today, where we are as a company, and candidly one of the reasons why I joined, is a great opportunity to do something different. We have fantastic R&D products. We have fantastic technology, but as you know the best technology doesn't win; just as digital (sp), as O/S2, just as a lot of different technologies that have been out there through the years. The best technology doesn't always win. You've got to create value in the industry, and I think we're at a great time here at Nortel.

Linda Tucci: Can you describe, what are the radical [00:06:00] changes in IT that you're hoping to make?

Steven Bandrowczak:  I'll change the word "hoping" to "we've all got to do it." I don't mean to be arrogant about it, but I've got a history of doing it, and we will deliver it here; so probably four or five key streams that we're doing. It starts with the rationalization of the services that we deliver, very specifically around applications. We've got about 1,100 applications today in support of our business. What we've done is we have mapped the first three levels of our business [00:06:30] processes. Then we've aligned the applications to those processes. Really, we do find that you get a lot of overlap by geography, by region, by business units. We'll go to 1,100 applications down to 100. We're going to try to drive them in the next 18 months.

Linda Tucci:Wow.

Steven Bandrowczak: We are going to collapse and consolidate everything into one single data center from about 15 today. We are dramatically reducing the number of servers and the type of servers that we provide back to the business, [00:07:00] so standard virtualization and driving it. We went and we did a complete organizational re-org in terms of how we do business: what we in source, what we outsource, where we service the business from, how we service the business, and looking at how service level is based on business criticality. From a broad brush standpoint, those are the things we're doing at a high level.

Linda Tucci: I'm curious. How big is your IT budget? [00:07:30] Is it calculated as a percentage of revenue?

Steven Bandrowczak:  Well, I won't give you specific numbers, but yes. We try to drive it as expense to revenue ratio. We're trying to stay in the two to two-and-a-half percent range in terms of overall budget. More importantly for me is not how much we're spending, but how we're driving value for the business.

When I joined the company, we were spending north of 80-plus percent of our IT budget keeping things up and running. [00:08:00] I'm trying to get to 65/35. Even if I spend the same amount, at least I'll have 35 percent of my budget that is going towards driving value for the business as opposed to 20 percent today.

If I can just take 15 more percent of my budget and drive it towards new projects, and I have the right projects with the right return on investment, I could drive $100 million of value for the corporation very, very easily with the same budget.

Linda Tucci: You mentioned that you've changed the way you're sourcing stuff, [00:08:30] including some outsourcing. Did Nortel have a culture of outsourcing before you came? Has that been a tough thing to do?

Steven Bandrowczak:  No, it's not a tough thing to do. What I think we've had was we had a culture of creating companies that did tacit work for us rather as opposed to outsourcing. What do I mean by that? We would have companies do things, and then we would do the same things internally, or we would put checks and balances to make sure that company did it right. [00:09:00]

The reality is, if you're going to outsource, you're going to team up with any one of the large partners in development or data center management. You know what? They do that for a living. Don't spend half your life doing checks and balances or whether they are CMMI-level certified or they have data center capability. You know what? They can do it. What we need to do is understand how to put the right framework in place, that it doesn't take an army to go manage the strategic partners that you have. [00:09:30]

I think that's one of the challenges we have here at Nortel. When you'd outsource something and you'd really look at that total outsource as a part of the IT engine, and you're spending an awful lot of time checking, validating, and wondering whether somebody can do something. Therefore, you are creating a whole lot of extra cycle.

We had to learn, and we have learned, and continue to learn. How to partner and do the right things and have the right touch points along your development life cycle.

Linda Tucci: You have what sounds like a huge [00:10:00] plate in front of you: IT re-organization. The company, as we've said, is in the midst of its own business re-organization.

Steven Bandrowczak: Yes.

Linda Tucci: If you can free up some of that money to be a strategic partner to the business, what do you have in mind? What could IT do for Nortel?

Steven Bandrowczak:  Sure. First of all, I own more than IT. I also own shared services. I was asked at the beginning of the year to consolidate and build our [00:10:30] shared services strategy worldwide for Nortel. I have that piece of it as well. If you think about it, think about what we've done in the IT community, it's a natural fit. That is: How do you create the most effective transaction engine? How do you get your cost per unit down? How do you make sure you drive the most efficiency?

It's what we've been doing in the IT space for a long time. I now have shared services. To answer your question, what we're trying to do is to free up dollars, and we're trying to drive a portfolio for the first time in within the company. [00:11:00] We have what we call a portfolio review board, which is literally Mike, the CEO of the company, and four of his direct reports actually looking at the portfolio of IT projects that we're working on and making sure that we have the right investments and the right projects.

Prior to the board being put in place, we get projects from anywhere in the business, but it was strategically aligned to IT. It was strategically aligned to the business or had a heart on the line. We would sort of just open the [inaudible 00:11:30] and the projects.

Today we have a portfolio that projects have an alignment to the business, have an alignment to IT strategy, and must have a minimum of a one-year payback. If they don't have those criteria, they don't make the list. Then what we do as we go implement projects, which is the dramatic change. We actually baked into the P&L of the business the savings of that project. If you're in finance, you'll re-implement the new finance system, and [00:12:00] it says we're supposed to have a $4 million savings; we will go in and reduce your budget by $4 million, equal to the one-year period of time.

We absolutely will guarantee and enforce a return on investment on IT projects that we do. That is changing a significant amount of discipline in the business in terms of, hey, if I'm saying I'm going to save three jobs, five jobs, or I'm going to blow revenue by three percent, when they know it's actually baked into the budget. It has a dramatic difference and a dramatic impact on the panel. [00:12:30]

Linda Tucci: So they had to take ownership of these projects that your department is executing for them.

Steven Bandrowczak: Absolutely right.

Linda Tucci: It's very impressive that your CEO is now reviewing your portfolio of projects. I have to ask you for my CIOs out there, are you using any PPN software?

Steven Bandrowczak:  We are. We've done a bunch of stuff. We've kind of stitched some stuff together. I'll be honest, I won't endorse one or the other, but the answer is yes. We've kind of stitched a bunch of stuff together.

I would like to [00:13:00] get to a single, both time recording in terms of hours, which is really a culture change inside the IT community, starting to track hours. That's the only way you know how much is applied to your project and whether you're getting the real value out of your IT resources. [inaudible 00:13:13].

Linda Tucci: You helped Lenovo through the initial stages of its spin-off from IBM, and you actually came up with a two-hear plan that helped rebuild the company's infrastructure. Are there any lessons learned from that experience that are really applicable to Nortel? [00:13:30]

Steven Bandrowczak: Well, I think it's interesting when you work with a company that is based out of China. You learn an awful lot about how do you do things the most efficient way. When I was at Lenovo, we had an IT to expense revenue ratio of .8 percent on the domestic Lenovo side. When I left, we were just north of about 1.5, the combined IBM PC division and Lenovo. You can see what happened with the Lenovo stock. [00:14:00] It's absolutely gone through the roof over the last two and a half years.

We clearly understand how to drive a totally efficient operation, a totally different perspective. You understand the different value drivers around the decision that you make. When you're in that industry, especially when you're in the PC industry, you learn an awful lot about how do you run on the most effective infrastructure, make the right trade-offs between labor and automation. You learn an awful lot about what your cost per unit [00:14:30] should be in a competitive environment.

I don't care whether you're in high tech, whether you're in the finance community. It doesn't really matter; the cost per email serves the cost per your disk storage, the cost per your licensing, your big vendors. It is all the same. We should all be looking at service catalogs across industries that drives a per-unit cost, and then understand what those things are.

Working with Lenovo, I absolutely understood and understand today what [00:15:00] you can get in terms of your cost per unit, your labor cost, et cetera.

Linda Tucci:You're well accustomed to talking in dollars and cents to your CEO.

Steven Bandrowczak:  Absolutely.

Linda Tucci:There's been some chatter about Nortel and Motorola combining their wireless infrastructure units. Obviously you're not going to tell me anything about that. In a merger situation, when should a CIO be involved in the talks, in your view?

Steven Bandrowczak: In my history I've always been part of the [00:15:30] due diligence team. When I was at DHL, I was part of the due diligence team that acquired XL and acquired Airborne. Clearly as part of the due diligence, we have a lot of input in terms of how do you get synergies out. Not just the IT strategy, but clearly in the company: finance systems, HR systems, back office business unit systems.

As early as possible, you should have some sort of IT representation on the overall due diligence. You could have [00:16:00] very material integration costs and very difficult time of integrating if you don't have compatible systems, you don't have compatible business processes, or you have certain Ts and Cs in contracts. A lot of material costs that if you don't do it up front in due diligence, it will certainly cost you as you try to put the two companies together.

The other thing that it'll cost you is time in terms of integration. If you're doing any M&A activity and you can start up front with [00:16:30]
one of the possible scenarios on how you can integrate the two companies, and you can get it well aligned when you can execute it or not. At least you can get the strategy aligned. You hit the ground running pretty quickly once the close happens. My recommendation is anybody, from an IT standpoint, should be getting involved up front once the talks become serious.

Linda Tucci:These costs can be significant. They can even torpedo an idea if you haven't factored them all in while you're considering the M&A. Any advice for [00:17:00] CIOs about how they might put their case across in companies that typically don't look to IT to be at the table in one of these deals?

Steven Bandrowczak: Well I think, there's a couple of things there; I think as you set up your business case, as you go through your due diligence, there's obviously IT synergies that . There's also a variety of different things that you can do a lot quicker. Some examples of that is the day that the company closes, [00:17:30] putting two email systems together; putting two websites together so that you can help your customers.

There are a lot of things that as soon as the close happens, your customers, your employees are looking for. You can enable a tremendous amount of cross-company communications, cross-customer communications, et cetera when you start to put the two infrastructures together.

My advice is be prepared, literally on day one, as quickly as possible, is how do you put the two entities together. At least from [00:18:00] from a communications standpoint and from some of the employee and customer-facing technology as fast as you can.

Linda Tucci: You talked a lot about business and IT alignment. Where do you see yourself going next, if not at Nortel, or even at Nortel? A different role, do you anticipate being the CIO always?

Steven Bandrowczak: No. I enjoy a challenge, whatever that challenge is. Certainly here at Nortel right now my challenge is to help [00:18:30] transform the business. If you look at my vision and my strategy, it doesn't say change for IT; it says radically transformation of Nortel. Owning shared services and driving change around shared services gives me a business hat. It gives me a business unit, if you will, that is different than IT. Right now, I guess I'm scratching that other itch, and that is to be a part of the business unit.

To answer your question, from a career standpoint, I'd love to run a business unit someday, whether [00:19:00] it's here at Nortel or other companies. I would definitely enjoy running a business unit. Would I aspire to be a CEO? Possibly, for me it's the challenge; the challenge outside of IT would be running a business unit.

Let us know what you think about the interview; email: Linda Tucci, Senior News Writer

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