What are the differences between your role in information technology at Sea-Land and your same role at AT&T?
MANDL: At Sea-Land, the IT function reported to me directly. Information technology resources are one of the very fundamental aspects of that business. The business is hinged upon linking together the ships and trucks and trains and terminals that are all important pieces of that industry. An integrated global network supported by information technology provides the undergirding for making that an integrated transportation for making that an integrated transportation network. It's a critical resource. I spent a lot of time on it. Information technology was a cost function that provide systems throughout the various businesses. We had four geographically oriented divisions that had some level of autonomy, but there were enough commonalities to require a central information technology perspective.
At AT&T, the central information resource function, Information Management Services (IMS), reports to me. But, because IMS is a multi-billion-dollar central service function that contracts services to the various business units, it's very different organization. It's still a very critical function. We feel it's positioned well. Because most of it's in one place, we get the benefit of economies of scale and efficiency and we can leverage new technologies.
The critical part here is that this central group has to be competitive. The business units have the option to go elsewhere if that's what they prefer. IMS is not their captive supplier. The service has to earn and keep customer respect and build customer relationships every day in the market-place. So far, we're making good progress in that area.
Sea-Land was a $3.5-billion enterprise; AT&T is a $65-billion business. The various business units of AT&T represent $8- to $10-billion businesses. The scale is a very different one.
Does the AT&T IMS division have a profit and loss statement like any other business unit?
MANDL: It in effect has a profit and loss statement. The division contracts out its services on an arm's-length basis. It's mostly a cost center in that it has specific targets it wants to achieve and it's held accountable for those. It makes a small margin on some aspects of its business.
What's your level of involvement with IMS?
MANDL: I look after a number of things in this company, and this is only one of them. I'm actually spending a fair amount of time on that function because we've had a major evaluation across the company in terms of what should be the corporate overhead, or what we call the corporate center. I've spearheaded that over the last six or eight months. We're looking at what functions or resources should be at a corporate center and what should be out with the business units. It's a large, comprehensive effort with the idea that the corporate center should be very small compared to what it is today and the lion's share of the resources should be in effect linked with the business units.
As part of that study, the way we think about information resources is a relevant issue. We are therefore giving a lot of thought to how we position that set of resources throughout AT&T. We don't have the answer yet, but a likely path is, on the one hand, we'll have a stronger chief information officer role than we have today and, on the other hand, we'll try to find ways to link the services closer to the business units. That doesn't necessarily mean we'll move them into the business units. But we're looking at decentralizing our information technology resources and efforts consistent with the business unit concept. We also see the need for a stronger, more prominent coordinating role at the top of the corporation.
We may have all the basic data processing pushed out to the units. At the same time, we'll have a small policy-setting, tone-setting, standard-setting, architecture-setting group at a very senior level. That's directionally how we're thinking.
There's a debate in the information systems community that when you decentralize operations, you tend to weaken the power of the CIO because he or she loses direct control over hardware and direct reports. Are you concerned about this issue?
MANDL: There are conflicts in everything. The trick is to use good judgement to balance those conflicts, so you can run the business. In our company, we have four major groups, underneath those are 22 business units, underneath those are many more sub-business units. It's clear that the core information technology has to be linked with the business units in a very interwoven manner to ensure that the benefits of information technology can be translated into the day-to-day business activities.
The tradeoff as I see it is, yes, the CIO may have less direct control over some of those resources, but I think that's balanced by having the CIO be responsible for policy and leadership decisions, as well as standards and architecture decisions. It's a balance of ensuring that, in those areas where there are benefits to be gained by coordinating and having a central theme or policy, those opportunities are fully realized. The information technology group should not become a barrier to business units' aggressively deploying information technology consistent with their needs. The business units' and the customers' needs have to be addressed first. As a company, we have to continue to find ways to take out the system any barriers that slow things down. We have to allow decision cycle times to accelerate. Everything we do has to be assessed in that context.
Yes, there are tradeoffs. Yes, the CIO role may not be as all-powerful and potent in a more decentralized environment, but that's true for almost any role. Decentralization implies that you shift more power into those parts of the company that are close to the front, to the customer base where the decisions need to be made. That's the reality of decentralization. It's true for operating heads, financial officers, for any role. To some extent, it's for the chairman. Decision-making should be better, quicker, and linked with what will make the company successful.
What was the impetus for this look at the role of the corporate center?
MANDL: As we address where we want this company to go in terms of its growth opportunities, we see that we're in an industry that's growing faster--at an average of 12 percent--than most industries. The existing core segments are growing at 9 to 10 percent, and many newer parts are growing at 15 to 20 percent. The opportunity that AT&T has more than any company in the world is to exploit this growth with our unique set of resources. As we address these growth opportunities, we recognize that a decentralized business unit environment is much more appropriate. It allows the various subgroups to focus on the market segment, on the resources required, on their own financial opportunities, and so forth. It allows them to be more nimble and responsive to the opportunities within their particular business units.
This growth imperative and the business unit approach to it presents us with the issue of a corporate overhead that might, to some extent, get in the way of those growth opportunities and requirements. We've assessed which functions belong in the center and which belong with the units. We've decided that most of the things we do ought to be linked to the business units.
How did you end up spearheading this effort?
MANDL: We discussed it in the operating committee and, as the new member of the team and as the executive presumably bringing some new perspective to the challenge, I got the nod. At Sea-Land, I had a fairly significant decentralization effort underway. Plus, when you step into a new environment, you tend not to be burdened by all the history and ideas of the past. You have a bit more objectivity on some of the issues.
How do you decide how much you should be investing in information technology, especially as you move to this new environment of decentralization?
MANDL: The rules of thumb that spending on information technology should be 3 or 4 percent of revenue are fairly arbitrary and, from my point of view, they're meaningless numbers. The amount of the investment varies from business to business. By far the more important issue is to infuse the information technology capabilities and perspective into the businesses as closely as possible. The critical information technology people should be part of the business unit management team, helping to shape and implement strategy. They should truly be at the table of those teams to address opportunities.
Rather than ask what percentage of revenue should be invested in technology, the question should be where are the opportunities to deploy technology more efficiently to make a successful business. How do we get that done? That's the more important decision. Whether that's X percent or Y percent of something is irrelevant. The issue is how can that resource in today's world make that business a more successful business. This is true whether it's a cost issue, efficiency issue, or quick-to-market issue--all are technology related and competitiveness is linked to how well that resource is being deployed.
It's probably every business manager's dream to be able to fund all his technology projects when he sees business opportunities. Isn't there a need for some kind of ceiling on technology spending?
MANDL: That's the point. As a business manager, you have certain financial accountability targets to achieve. You can set up the targets in a number of ways, but we have a more comprehensive measure called economic value added (EVA) that truly measures the economic value that's being created in the business. It's the business manager's challenge to figure out how to deploy resources to achieve those kinds of targets and objectives. How much he uses information technology to achieve those targets is up to him. If it's 20 percent of the business and he can achieve his targets, so be it.
The point of decentralization and smaller units is to assign those people the targets and accountabilities that we expect from them and then give them the opportunity to pull together resources in a way that allows them to achieve those accountabilities. That includes access to information technology. The targets are the governor. They're the control factor.
How do you define economic value added?
MANDL: EVA simply describes performance in terms of how much the business unit produces in returns that exceed the cost of capital. If you employ X amount of capital in a business, that capital has a cost attached to it. If the business earns a return on capital greater than X, then you're creating economic value. If the return is less than X, then in effect you're destroying economic value or diluting it. The challenge is to make as many investments as you can into businesses with returns that are in excess of the cost of capital. Those that are not earning the cost of capital have to be moved into a position where they at least do that and hopefully more.
As we have infused the EVA measure into our company over the last few months, it has driven the whole resource allocation process in a very different way. Now people develop a business plan, make investment and acquisition decisions, and make all resource allocation decisions in the context of how we can maximize economic value added across the company. Clearly, the closest linkage or indicator to shareholder value is an EVA type of measurement. It's a tool that will help us make better decisions consistent with maximizing shareholder value.
Before EVA, we used more traditional operating income measures. EVA provides a more comprehensive view of all the variables that need to come together to measure investment decisions or business plans.
To determine the cost of capital, we use a combination of the cost of debt and equity weighted by how much we have of each. That varies as interest rates move and the stock market changes. You try to average it out over time; you can't adjust it every month or every quarter.
What would you say is your leadership style with regard to your overall responsibilities and the information management function?
MANDL: My style is very much one of a team concept. I put a lot of emphasis on working in a team environment and making sure all the team members have input to the decision. Obviously, in the end somebody has to make a call and I'm not hesitant to do that. Usually, if you have the right team assembled and encourage open discussion, you can come up with a much better decision.
Managers should be sure they get as much candid input as they can from the people involved in the decision. They should then make the decision based on that informed perspective. I place a lot of importance on having an open communication process that leads to a final decision. I tell people working with me that the only way our working relationship can be a successful one over time is if I believe they're telling me what they honestly think, so I can count on their real perspectives. If I don't get that sense over time, it's going to be a much more difficult working relationship.
Decentralization requires a lot of delegation. Is delegation a major part of your style?
MANDL: Call it delegation if you want. In a leadership role, you have to set the tone, help set the direction, and then find, motivate, and empower people to get things done. In any organization, you can't do it all yourself. The only way this company can move forward with the enormous opportunities it has is to empower people and have everyone move forward with the progress of the company. You set a tone for that to happen.
Listening to the customer is also very important, and our information technology group does that fairly well. It's just as important to listen to internal customers as to those outside.
Some executives look at the information technology function strictly from a numbers standpoint. How important are statistical measures?
MANDL: Statistical questions are not bad questions to ask. The person who runs the business group or unit, who has direct profit and loss responsibility for the unit, has to ask those kinds of questions. He's spending millions of dollars and he needs to know whether he's getting the full value from that. And he needs to have access to the resources to make those assessments.
FINANCIAL EXECUTIVE: Are there investments in information technology you feel can provide strategic advantage for AT&T?
MANDL: Absolutely. There are enormous opportunities on many fronts. Technology used to provide more of a cost-efficiency dimension. That's still very much the case, and you can't rule it out. We've announced publicly our ability to replace telephone operators with technology, for example. Those kinds of innovations can address efficiency and cost opportunities. But it goes way beyond that. Information technology will allow us to much more effectively globalize the business.
As we think about the acceleration of globalization, one of the critical enablers is the movement of information. As technology can enhance that movement, it's a critical resource. As customers ask for integrated services and account management, information technology will help companies provide that. Information technology will be a growing and more critical part of AT&T for the future.
Are there key technologies you feel will be important in the future?
MANDL: Distributed technologies are the wave of the future. The notion of having huge boxes sit in one place and centralize all the data around the globe is not practical. It's inefficient, slow, and costly. The decentralized capabilities that open systems can offer are really the keys to running the business in the future.
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|Title Annotation:||Special Report: Information Management; AT&T's Chief Financial Officer Alex J. Mandl|
|Date:||Jul 1, 1992|
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