Case Studies

Taking IT to the Next Level

Growing companies grapple with grooming in-house IT talent or hiring heavy hitters from the outside.
This story appears in the August 2005 issue of BizTech Magazine.
Scott Happ, President and CEO, MortgageBot
Credit: James Schnepf

Scott Happ faced a turning point. Since April 2001, his company had gone from serving 35 customers to more than 500, including 15 of the top 100 banks in the country. Major financial institutions such as Citicorp, Union Bank of California and TD Banknorth were using the services of his company, MortgageBot, to enable their customers to apply for mortgage loans online. Growth was running at 40 percent and showed no signs of slowing.

But by MortgageBot's third anniversary, that growth was creating some information technology leadership problems. MortgageBot's service allows loan shoppers to compare prices, get a quote, complete their application, get their application approved, lock in a rate and receive government-mandated disclosures. Issues such as uptime, redundancy and security were of great importance to Happ's growing and increasingly sophisticated customer base. Although MortgageBot's IT system was operating reliably, Happ thought his IT staff didn't respond with enough initiative and anticipation to system outage problems. His entire business relied on IT, so he wanted more vigorous, proactive IT management.

"Our IT leadership team was excellent in many ways, but it operated with what I would call a 'start-up mentality,'" says Happ, president and CEO of the Cedarburg, Wis., company with 55 employees. "People have a hard time making the migration from early stage to intermediate stage, which is where I would characterize us at the moment."

Happ is not alone. Most successful small businesses reach a stage in their growth that demands higher-level IT talent, whether it is simply upgrading the qualifications required of the IT manager or creating a full-blown CIO position.

"After the CFO, this is the most critical job," says John Sullivan, a professor at San Francisco State University and an expert in recruiting. "You can't afford a mistake and years of pain in this area," he says. "You can't afford someone who is going to learn from his mistakes on this job."

But what's the best way to take your IT management to the next level? There are pros and cons to both grooming a current staffer for this leadership position and hiring an experienced C-level executive from outside the company, according to a number of senior executives and recruiters. In-house staffers know the company's technology and corporate culture. They've proven their technological chops, and management knows their strengths and weaknesses. On the other hand, in-house staffers may have little senior management or business experience. Their viewpoint may be more focused on day-to-day operations rather than long-term strategy.

Grooming someone in-house takes a lot of time and attention, not to mention a senior person who understands IT. When a company is growing quickly, management may not have the time for trial and error. Would management's attention be better applied in other areas? "Velocity is the number one business issue today," says George Danforth, an experienced former CIO at Tatum CIO Partners of Atlanta, which supplies veteran CIOs on an as-needed consulting basis to its clients. "It trumps money in almost every case."

But there's no guarantee that outside CIOs will do any better. Sure, they may come with high-level managerial experience, a familiarity with different vendors and an ability to think strategically. But such experts are expensive. They may be more accustomed to holding meetings than rolling up their sleeves, crawling under a desk and making the IT system work right now. They may not fit the company's culture. And they may not be able to function effectively without the level of staff and resources typical of a large company.

Fortunately, it doesn't have to be a black or white decision. Many small businesses are finding a middle ground—a creative approach that combines elements of both "make" and "buy" that suits their organization and that can grow with their companies. They blend hiring from outside with promotion from within in a way that meets their needs and enables them to retain a talented IT staff.

Divide and Conquer

Although Happ wanted more proactive and attentive IT management, he also felt that MortgageBot had some talented people who didn't need to be supervised by an outside CIO with more seniority. "We didn't think we had to house this under a single IT czar," he says.

His hybrid approach was to split the IT staff into three parts: hardware, operations and software development. To run the first two parts, he promoted two junior people. He empowered them to get state-of-the-art equipment, to monitor and fine-tune it, and to upgrade infrastructure to make it the best in the industry.

For software development—the applications that had to be used easily by the customers of MortgageBot's clients—he hired from outside. "We were looking for someone with experience building software solutions to handle high transaction volumes with high performance," he says. In addition to doubling his software development staff in nine months, he used an executive recruiter to hire Jeff Wagner, vice president and chief software architect, who developed the automated futures exchange system used by the Chicago Mercantile Exchange. Under this arrangement, Wagner is not required to grapple with pressing hardware issues, as a new-hire CIO would. That leaves him free to supervise his area and to develop MortgageBot's next-generation applications.

This combined approach seems to be working for MortgageBot. According to Happ, Wagner and everybody inside the firm have risen to the challenge.

Strategic Vision

Marietta Eye Clinic took a similar approach. The group of eye doctors' offices (plus optical shops) with six locations in Cobb County, the sprawling northwestern suburbs of Atlanta, had grown from two doctors to 14 through mergers and consolidation since 1997. Unfortunately, the consolidation produced an unwieldy IT system that had become a business liability. Patients' data were lost. Payments and charges would disappear. Many service fee claims weren't filed with payers, reducing revenues by hundreds of thousands of dollars. Overdue accounts that should have been sent for collection were falling through the cracks.


Photo: Bob Mahoney
Lloyd Pugh, Senior Network Engineer, Marietta Eye Clinic

The 100-plus employees of Marietta were using a networked, dumb terminal-based practice management system with PCs and an RS-232 serial communications protocol. "You know, the kind Noah used to network the ark," jokes Lloyd Pugh, an independent contractor who is Marietta's part-time senior network engineer. Besides being slow, the system's client-server application didn't work reliably. "Before, there was no such thing as remote access to look up patient information or get e-mail," says Pugh.

Before making any changes, Marietta engaged a health-care IT consulting firm, Quantrex, in Lilburn, Ga., to evaluate the situation. President Tessie Quattlebaum recommended a completely new practice-

enabling system to gain full functionality and facilitate growth. Specifically, she specified a thin client-server system architecture using a Citrix system to deploy high-powered, high-bandwidth applications to remote offices. All the operating power and applications reside at Marietta's centralized server farm. The hardware runs a medical practice management system. This configuration runs without the errors and omissions that plagued the former setup and sends data fast to all outlying clinics as well as to at least 15 people who work at home.

The system also enables troubleshooting from remote locations. That is handy because Quattlebaum decided that, rather than hire an outside CIO, Marietta would work fine by combining one full-time, in-house applications specialist with a high-powered independent contractor to serve as network administrator. That's Pugh, who, when he is not helping out at Marietta, is a multi-engine-certified charter pilot who might be flying clients up to Canada's Hudson Bay for goose hunting.

One day, Pugh landed at 7:30 a.m. at an airport in Columbus, Ohio, and learned that one of Marietta's mail servers wasn't working. Using a computer at the airport, Pugh spent the next four hours repairing a Microsoft Exchange database, completing the fix from 500 miles away.

The system has worked well for more than two years. So has the mixture of full- and part-time personnel. "Lloyd came in as an independent contractor, but he has functioned as if he were an employee," says Quattlebaum. "Right from the start, he was seen as someone who could get the job done."

Experienced CIO to the Rescue

Sometimes a business needs the fresh insight of a seasoned professional from outside to shape up its IT systems. That was the choice made by Valutec Card Solutions, of Franklin, Tenn. The company sells and processes loyalty and gift cards for small retailers, such as restaurants, spas, hotels and Harley-Davidson dealers.

Valutec's booming business was giving it a lot of IT operating headaches. In summer 2002, the company's system crashed a lot, there were no proper processing procedures, the transaction reporting was

error-ridden, and it had only one full-time staffer—a harried programmer who spent much of his time trying to coordinate the work of outside contractors and cope with outages.

Valutec had climbed on a horse galloping so fast that the company never managed to complete the development of its system. It was in a great market, but its system couldn't support the business it had, let alone the growth it was envisioning. The company was losing money despite its great positioning, and the IT problems were limiting growth.

According to CEO Bill Horne, Valutec needed a CIO who could develop a capacity plan, manage disparate data processing locations and manage multiple projects at the same time. One of the company's owners knew of a seasoned IT executive who might be interested. This IT executive, Cris Crosswy, joined Valutec as CIO in December 2002.

Since then, Crosswy has upgraded Valutec's transaction-processing operations by setting up backup systems for the transaction and database servers, rewriting the transaction engines and redesigning the architecture around high-speed networks with fully redundant configurations. "It was not rocket science," says Crosswy, "but it had to be well designed." What's more, says Horne, the IT staff has welcomed an expert who could get into the trenches and show them what needed to be done. "I call him 'Radar' because he does so many things himself," says Horne.

Now Valutec is growing at 60 percent a year and handling it. "We've really seen the benefit of having someone with his leadership and capabilities," says Horne. "Cris is readying our small company for the next level of growth—that is worth a ton to us."

CEO Takeaway

When considering taking IT to the next level:

Make sure your corporate strategy is sufficiently well developed before making the decision. A well-worked-out strategy will guide how you want to build your IT management.
Resist the temptation to think of this decision as strictly make or buy. You can be as creative as you choose and should focus on suiting your company's needs.
Be realistic. Don't choose to groom an in-house candidate, however promising, if senior management does not have the time, temperament or IT knowledge required.
Think strategically. Don't hire someone to do the job "for the moment." Whatever approach you take, this decision is a chance to provide a competitive advantage for your firm, not just to fill an operational void.
Ask candidates to write their own "ideal" job description. It reveals how objective candidates can be about themselves and the demands they will face, how strategically they think about the future, and how willing and eager they are to take on heavy responsibilities.
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