Firms Seek IT-Structure Holy Grail

In a decade of change, featuring everything from expansive growth and shifting technologies to tough competition, mergers, layoffs and belt tightening, one thing has remained constant: chief information officers continually restructure their departments in search of the perfect model by which to govern operations.

"We're always looking," says Rich Malone, chief information officer at Edward Jones in St. Louis, Mo. "It's something you're always looking at - how can you make yourself more effective? I believe you have to restructure from time to time just to accommodate your organization and the changes in technology."

Malone, who overseas an 1,100-person tech department has divided it along five key lines. The anchor is the infrastructure group, which covers mainframes, client/server, branch installations, operating-system software and things like telecommunications. Malone describes it as overseeing "all the things that are behind the scenes that you take for granted."

The processes and measurement group oversees things like quality assurance, security and software life cycles. "It makes sure we keep everything in line."

Third is the business-software-development group, with a director who is responsible for each business area.

The costs and contracts group oversees negotiating issues, such as licenses, and then there's a dedicated HR team for the IT group.

Overall, Malone has about 150 managers and each group is overseen by a leader and broken down further into different lines of responsibility. For example, the vast Edward Jones telecommunications system falls under infrastructure, but it is a large segment within that group.

Over at Ameritrade, Inc., new chief information officer Asiff Hirji is using the recent merger with Datek as a chance to create a new organizational structure.

"I took a clean sheet of paper to the thing," instead of adopting the organizational structure of Ameritrade or Datek, says Hirji, who joined Ameritrade from Bain Consulting after advising Ameritrade on the merger.

He started with the premise that the department engages in three basic functions: product development, applications development and infrastructure. Those three areas formed the basis for the department. He topped it off with an office of CIO and a securities group. Each of those five areas has a vice president-level person who reports directly to Hirji.

Within each group, there is responsibility for different operations. For example, product development liaises with business analysts and product managers who have expertise in areas like options or delivering automated advice.

Applications development is divided into things like systems clearing, middleware and networking. "There's never a right answer to organizational structure," he says, noting that it's easier to model a perfect IT department when everybody is in one location.

Since the merged firm decided to keep Datek's New Jersey facility, it meant adjusting his plans to fit his staffing strengths. As well, he took the tech department down from 600 people post-merger to about 350, which he took into consideration when structuring the new operations.

Rob Hegarty, vice president of securities and investments at the TowerGroup in Needham, Mass., says that industry cutbacks are "forcing people to wear more hats than they used to."

As a result, Hegarty says, CIOs likely have "more direct reports than they used to because layers of management are being eliminated."

In growth times, he says, business lines will often expand beyond their normal scope and add technologists responsible to them, not the IT department. That has reversed. "We're seeing much more centralization of IT."

The CIO reporting lines to top management provide insight into the culture of a firm and "say a lot about how a firm views technology," Hegarty says.

For example, if the CIO reports to the chief financial officer, the firm is "very cost conscious." If the reporting line is to the chief operating officer, then technology is simply viewed as "part of the operations." If the CIO reports directly to the CEO, then it's one of two things, he says: Either IT is viewed as a "strategic consideration," or "the top guy in the firm has a keen interest in technology as an enabler."

In this era of Sarbannes-Oxley and concerns over compliance, Hegarty says that he is "seeing more board (of director) interest in technology. Boards are recognizing that technology plays a big role in the future of the firm" and good governance is high on the agenda.

At Mellon Financial Corporation, Allan Woods, vice chairman and CIO at the financial giant, is one of the few IT executives on Wall Street to have a formalized reporting pipeline right into the board of directors.

"We have a technology committee of the board of directors. It's a formally constituted committee and it's chaired by an outside director," explains Woods, who is responsible for the firm's technology, applications development, data processing and networks, as well as the cash management, capital markets and foreign-exchange operations.

He says the committee is intended to "oversee technology performance and technology investment at Mellon and to ensure that we are making the kind of decisions that are appropriate given the businesses we are in and given both the economic and political situation that happens to occur."

According to the committee's mandate, it has general-oversight responsibility for technology and its use throughout the company. The board advises and assists management in formulating and implementing operating and strategic plans designed to take advantage of existing and emerging technologies, and it monitors the performance of technology across the organization.

Woods, who oversees more than 2,000 IT employees, notes that "not many financial institutions have technology committees of the board. It's just like the audit committee or the risk committee." It's a structure that Mellon has had in place since the late 1990s.

It came about over discussion with the firm's former chairman about the important role that technology plays in the financial-services industry.

Woods says it's not the kind of relationship where every day he is sending a report on availability. Rather, it's "really designed more to handle significant strategic issues around safety and soundness, important technology investment and around security."

For example, after Sept. 11, he gave the board an overview of how Mellon was impacted and what it would have done if a data center had been affected.

Woods holds a half dozen dinner meetings a year with the board, where he brings in top technologists from firms like IBM, AT&T and EMC to talk about technology. By having board involvement, he says, it also reinforces the importance of technology with staff.

At Mellon, there's an informal and a formal structure. Informally, there's an executive technology council that Woods chairs, comprising the senior business executives. It meets monthly. "The objective of the group is to create a shared vision of technology so that we can discuss controversial issues that we need to get lines of business and technology alignment on."

Formally, the firm has designed its organizational structure around two principles. The first is ensuring a shared infrastructure that can be leveraged across all lines of business. That covers things like mainframes, desktop support and server management. "It's fully allocated, so the lines of business pay for it by the drink." If they use more, they pay more.

The tech department, he says, is "responsible for process structure, organization and people care. We implement what they like us to implement at price points that add up to how much they want to spend."

Going forward, Woods says, "I think organization structures have to be looked at as evolutionary entities that have to change because the world changes, business changes, requirements change and you really can't be wedded to something to the point where you're not constantly looking at changes taking place and asking yourself, 'Do we have the best structure to enable those changes?'"