John E. McDermott is chief information officer for Xerox Corporation, a position he assumed in January 2007. He is also a vice president of the corporation, appointed in February 2004. As CIO, McDermott leads a worldwide team of information technology professionals and business partners who deliver information technology solutions and enablement of Xerox's business processes.			John McDermott's background and professional experience mirror the profiles of a rapidly growing number of CIOs joining Global 1000 companies. Gartner Fellow Ken McGee met with McDermott to find out how he was conducting his CIO duties, especially during these profoundly difficult economic times. Interview conducted by Ken McGee Ken McGee (Gartner): How did you and Xerox meet? Were you working at Xerox, or were you elsewhere? John McDermott: In 2002, I became Xerox's chief strategy officer after working at a strategy consulting firm where I ran the technology practice for a number of years. My firm had been working at Xerox, although I had not been working on the account during the early turnaround period at the company. Xerox had a very difficult time, a near-death experience, right around 2000. Lots of aspects to that, but when Anne Mulcahy came on board as the chief executive, she began to act very decisively and, now in retrospect, very wisely to bring the company back. Gartner: How long have you been the CIO at Xerox? McDermott: I was appointed to this position in January of 2007. Gartner: So, how did it come to pass that you became the CIO, given your strategy background? McDermott: Well, in 2006, I was on a search committee that was evaluating resumes of people from the outside that might come in and be our next CIO. We looked at some very talented candidates. In fact, we made an offer to an extremely talented individual who eventually joined another company, actually a significantly larger company than Xerox, and that person has done very well there. After losing the competition for that individual, Anne came into my office and said, "You seem to know an awful lot about this area of information technology and information technology management. Maybe we could resolve this search here if you were interested in the position." And as those discussions go, there's only one answer. It's just a matter of how long before you give the right answer. Gartner: Are you an officer of the corporation? McDermott: Yes. Gartner: Are you responsible for information technology only, or are there other aspects of the company for which you also have responsibility? McDermott: My responsibilities include our information technology – that being hardware platforms; our application portfolio; our existing application portfolio; the management of all of our IT-intensive transformation projects, which I lead, of course, jointly with my business partners, but the budgets for those fall to me. And I also play some other roles in sitting on our management committee, and I tend to be a continuing contributor to our corporate strategy, although I don't own that function anymore. Gartner: I thought I was hearing that there were other areas like supply chain, etc., for which you had responsibility. There are CIOs, as you well know, that in addition to information technology are taking on "non-IT" responsibilities such as supply chain. McDermott: Actually, that's a model that we have toyed around with a little bit. I think we've experimented with it as an idea but have not yet decided that it has a clear application in Xerox. But, yes, I am aware of the trend in some companies to, in effect, combine aspects of a chief operating officer role with a CIO role, and give that individual sort of end-to-end process management responsibilities, including the IT enablement. Gartner: To which corporate role do you directly report? McDermott: I previously reported to the chief executive officer, and then, as our new chief executive took over, she reorganized and created a corporate operations division that's led by a gentleman named Jim Firestone. And Jim has my organization, the IT organization, R&D, marketing and human resources. So an interesting collection of services, basically that are provided around the world and that benefit from a central coordination. Gartner: With regard to that recent reporting structure shift, what, if any, concerns did you have by no longer reporting to the CEO? McDermott: Xerox is a pretty collaborative place by nature. If I had been coming in new and saw that this was the org design, I think I would have been concerned about that. But knowing the individuals and the culture of the place – it really isn't a problem. Our CEO is deeply aware of my most important change initiatives, and is a very helpful ally in helping us get those complicated things done. Org charts are one thing; how a company actually operates is sometimes different. And in this case, Xerox's org chart doesn't really reflect the way in which some of the operations and decisions get made. Gartner: Is it your view that there is a trend under way of hiring non-engineers, non-computer specialists from an educational background perspective? Are you seeing any of this in your own interactions? McDermott: Yes, I am. I engage with lots and lots of CIOs, particularly as Xerox builds relationships with those customers. And I would say I see more people now with a mixed educational and business background than people who come straight from a computer science degree or exclusively through an IT career path. I guess I would attribute that to the fact that computer science degrees do an outstanding job of teaching people how the bits and bytes get moved around, but they don't tend to cover how businesses create shareholder value or customer value, how change happens, how change gets let in. Computer science programs often don't even do a particularly good job of teaching people the intricacies of program project management. So, there are a lot of skills that are involved in being successful in the modern IT field today, and computer science is only one dimension of it. Gartner: How would you describe the degree to which IT executives were involved in the formulation of strategy prior to your CIO appointment versus after your appointment? McDermott: Well, my immediate predecessor in this role was really the first global CIO that Xerox had had. Prior to that time, Xerox had operated with regional CIOs. Throughout all of its 40-year history, Xerox has had a strong commitment to geographic organization and considerable autonomy for the leaders of its geographic organizations. So, as you would know, that's a prescription for a very diverse set of business processes, a very diverse set of application portfolios, a very diverse set of technology infrastructure and hardware portfolios as well. As a result, we found ourselves in a position where we were reacting regionally – and I say reacting – we were an IT organization that was at the end of the line, the other end of the line from business strategy. Back then, we would conduct projects that had been defined for our organization, and those projects around the world were not, in any way, coordinated or integrated. Gartner: How would you compare 2010's budget relative to 2009's actuals, percentagewise? McDermott: We'll be down about 10%. Gartner: And as far as 2009's actual expenses are concerned, how do they compare from 2008's? McDermott: Down about 10%. Gartner: How would you best describe your understanding of the business expectations for IT and Xerox? McDermott: I would say my understanding is about as close to a tattoo as you can get, without the pen and the ink. I am deeply, deeply involved in how we construct our budgets, which we basically divide between the costs of sustaining operations and the cost of our projects. And we've got a whole bunch of strategies that drive sustaining costs down. And then I know our project portfolio exceedingly well. I sit on the decision committees for all of our largest programs. I have a very capable enterprise project management office that provides me with additional insight and understanding as to where our projects are and what constrains them. And so, I'm deeply involved, as are all of my direct reports. Gartner: What are some of the technologies that are most important, in your view, for Xerox over the next three to five years? McDermott: There are really three big ideas that need to be enabled both in business process and in the technology that enables them: Big Idea No. 1: The first is that many of our largest customers want to buy print and copy as a service rather than as a set of devices. Our recent acquisition of ACS is just a supercharged move against that objective. We have to have business processes and underlying technology that allow us to manage a service business instead of a hardware business. And, as you know, the dynamics of a service business are really very different. There's a longer sales cycle, so the way in which sales process management is done is quite different. It's a much more complex contracting process. Service delivery requires some IT in it to make sure that you can be profitable and get leverage, as well as an ability to keep track of your service levels and how well you have delivered against clients' expectations. So, we're doing lots and lots and lots of work around enabling ourselves as a service business. A fair amount of that actually is stuff that we're doing on SAS platforms. We are, in our service business, a significant salesforce.com user, and I have to say we've been delighted – and I don't use that word frequently – we've been delighted with the flexibility of that platform, how we can configure it, its ease of deployment and the rapid rate of adoption that we have gotten with it. Big Idea No. 2: Xerox has long been a direct face-to-face sales company – predominantly, face-to-face sales. A significant proportion of the market now is moving toward indirect distribution, and the largest-growing customer segment is small and medium businesses, which, by and large, can only be served affordably by indirect distribution. And so we're building out our processes and infrastructures to do channel-based sales in a way that allows our end-user customers and our partners to conclude that doing business with Xerox through these portals and these processes is a fundamentally better experience than doing business with a competitor like HP. That is what we're steering towards, and it's a rapidly moving objective – what constitutes modern channel management and what constitutes a superior customer experience in engaging on a portal – the bar is always being moved up. So lots and lots of work going on there. Big Idea No. 3: The last piece of very important enablement that we're working on is that we have over 4 million Xerox-branded devices in our installed base. We also manage another 2 million devices of other brands in service contracts. So, 6 million devices are out there. And of those devices, many of them present information that can enable remote services, both technical services and value-added services. So, much like your Cisco call manager (or PBX if you are still on old technology), your router, and increasingly, your servers are managed by remote means, we're targeting to manage a lot of our devices through remote means in the future. Very complicated, because there are obviously technology enablements; there are security concerns on the part of our customers; there are infrastructures to be built; so on and so forth. But a huge, huge business value to be achieved through that. And so, that's another one of our major focal points that have a big technology dimension. Gartner: Would I be able to go to a business unit manager or managers on whose behalf a project is being undertaken and say, "Can you please tell me how much that project will cost to implement?" Would they be able to answer that question? McDermott: Well, let me tell you how we do projects here. The first thing is, we have a principle: "We don't invest in projects; we invest in road maps." A road map is a multigenerational plan – it may have dozens of projects within it, and it links closely and obviously to a set of business imperatives. Our road maps are very thoughtfully constructed. We often engage outside help to bring new perspectives on how those road maps might be built and on what technology we might deploy them, etc. But once a road map is set, it is then governed by an executive body that includes the most senior accountable business executive, myself, and the member of my senior leadership team that relates to that area of the business, as well as a few other people. The road map has its own programmed team that is the entity that we interact with and take status on projects, reallocate resources, etc Gartner: Does that mean that he would not be able to cite the actual cost of a project that is compliant with the pursuit of the road map? McDermott: He could certainly tell you what his annual costs of the whole portfolio are; I bet he'd have a harder time telling you individually what the costs of each project are, but he has a document that tells him that. Gartner: When looking at the project people – the non-sustaining-operations people at the aggregate level – when you consider the aggregate level of activity of those people during 2009, how would you best categorize their activity? Not very busy, busy or very busy? McDermott: These guys are running 110%. And, as always, the rate-limiting capabilities – the rate-limiting issues on these things – are smart people and great project plans. There's always a new and better way to put together a project, to unbottleneck activities and get things moving through, but there are only a handful of people that have those skills. Gartner: But, given your target of coming in 10% below the prior year's actuals, how do you sustain an environment where your project people are very busy but you also have to fulfill on that 10% reduction goal? What's the secret sauce? McDermott: So, of my costs, roughly 75% are sustaining-operations costs, and 25% are project-related. In the sustaining-operations costs, our major initiative is something we call our outsourcing modernization initiative. In 1994, Xerox did a large-scale outsourcing of IT support services and became one of EDS's largest clients. Over time, that changed at the margin, we introduced some other suppliers and so on. But, three years ago, we began a significant modernization initiative, which said, "We're going to become a multivendor shop, and we're going to invest internally to have multivendor coordinations." Breaking it up that way has allowed us to achieve huge savings that are driven by creating transparency as to what the costs of the individual services are. So we broke our monolithic contract down into towers – natural service areas. We were able to benchmark all those towers to understand what the costs should be in optimal states. We then put it to the market, so we let market forces compete to get our cost lower. And we were open to alternative forms of delivery – higher offshore leverage, remote services, providing for our data centers and things of that nature. And out of that, we have gotten an enormous set of opportunities that keep cascading through. Gartner: John, were you at the strategy table when the acquisition of ACS first came up? McDermott: Yes. I have been involved on a couple of occasions in looking at ACS, including this last round that resulted in the merger opportunity. Gartner: What are some of the strategy missteps that take place that you find are primary causes for other IT executives not being at the strategy table? McDermott: I think the biggest trap that companies and CIOs fall into is that they're not banging on the table enough, saying, "We've got a good idea here, but we are insufficiently precise as to how we're going to execute it!" And I think if I were to leave CIOs with one bit of advice, it would be to be unrelenting in saying, "We need to understand, at a process level, how we're going to do this. And if we do, we can be spectacularly successful. But if we don't, we will almost certainly encounter problems that undermine our execution and our profitability and our growth!" Gartner: Then, in closing, whether it's mergers, acquisitions, new directions, new products, new markets, etc., whatever it may be – do you have a sense that there is a common set of skills and capabilities that the average CIO must acquire in order to get at the table, assuming that they're not there already? McDermott: There are a number of crucible experiences that a CIO has to go through in order to be an effective leader in a large company. You need significant experience in managing large, costly organizations, and you need to have been effective in sustaining productivity improvement over time. You've got to have ideas – whether they're transformational, like our outsourcing modernization initiative, or whether they're incremental, just year-over-year productivity, grinding it out. But you've got to have experiences and an inventory of tricks that you can use against your large sustaining-operations cost. The second crucible experience is going through some major change initiatives and coming out the other end with all your body parts. Big, big, hairy change initiatives are scary things, and your success rate on these things is going to be surprisingly low. But the ones that do work successfully – the kind of teamwork and momentum that take shape around those big change initiatives – is something that you really need. You have to know how it feels, you have to know how you got there, because you're going to be called upon to try and inject that experience into an awful lot of situations as you become a large-company CIO. I don't think somebody has to have been a business unit general manager; I don't think somebody has to have come from an IT background; I don't think somebody has to have been a strategy officer. I think any of those things are pathways. What's important are those crucible experiences I just described. If you don't have these, I think you're a little naked in the role.