HOW DOES A company that spends more than half its investments on IT make technology decisions? InfoWorld's Executive Editor Martin LaMonica and Associate News Editor Eugene Grygo spoke to Gregor Bailar, Nasdaq's executive vice president of operations and technology and CIO, to discuss the importance of ROI and a tight IT-business working relationship.

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InfoWorld: What are some of the things that you do to try to make IT and business people work well together? Is it cultural? Is it a management style?


Bailar: There are mechanisms and then there are practices and cultures, if you will. And the culture is one of full disclosure and a yearning for learning. That's one of the underlying cultures of Nasdaq: Listen to what the other party is saying as best you can and try and learn what their pressure points are. Sometimes, very smart people with a lot of complex issues aren't articulating the full details of what their issues are, and in both cases the techies roam off into technospeak and the business folks focus further down, at a level which perhaps may leave behind someone who doesn't have the background in their technical field.

So one thing is getting the people together a lot. Our technologists are directly aligned, individual by individual, with business projects and business products. That alignment is a matrix. They are, in a sense, reporting into a business function at the same time they report into a technology function. So that interaction is a key piece. Mechanisms and, if you will, processes we put in place include things like regular product planning reviews with all the technologists who are involved in delivering those services. But they're listening to the strategic planning and analysis, threats, and customer-interaction issues from the business planning perspective, and they're active participants in that conversation.

We have that specific meeting, which culminates in work that's gone on at the ground level, quarterly. We have a business review of the financials -- again, with most of the technology leadership sitting at the table -- on a quarterly basis as well. And in that realm, almost every project that's reviewed or every financial element that's reviewed is reviewed, again, cross-functionally: What are the technology issues here? What are the business issues here? What are the regulatory issues? What are the customer-impact issues? And so everybody has a voice. A cultural piece that fits into that is the fact that even the junior programmer and the pricing person for a particular product area has a voice in those discussions, and that makes it very dynamic and open. And one of the other mechanisms on this quarterly process is a technology steering committee, which is balanced now more toward the technology team and the operations teams speaking their issues relative to upcoming events, upcoming delivery milestones, operational and capacity concerns. And, again, the terminology is meant to be put in the common language in each of these different meetings, so the technologists are challenged to speak in business language: How does this affect our bottom line margin? How does this affect our ability to deliver a new customer feature? How does this change our positioning strategically? And, in fact, their presentation materials are geared upon that kind of language. So each one of those pushes that integration to almost a natural conversation that encourages interaction and common understanding.

InfoWorld: Do you expect more businesses to take on the same mechanisms and cultures that you have or that other companies in the finance industry have?

Bailar: I think that the successful businesses will have to resolve the fact that if they don't have a conversation that is commonly understood across the disciplines on a particular project, somebody [else] does -- whether that's a small competitor that's going to take a piece of their business or a large competitor that is going to steal their whole business. Increasingly, the fusion of a technical- and a business-oriented solution, the ability to be adept at that, is a reality. It's like saying to a builder or an architect, "Go design buildings, but I'm not going to tell you what the materials are that you're going to use. In fact, I'm not going to give you the code book that says how people have built buildings over the years. You're going to have to invent that every time." Businesses that are built on that kind of stovepipe are anachronistic. They are going to fall greater and greater distances behind the leaders who have the architect and the builders and the operators in a really close conversation at the beginning.

InfoWorld: Could you give me an example of an ROI that you were able to show numerically or describe the process for doing that?

Bailar: Sure. I would say that this is a process that has to be reinvented on a regular basis -- it's a continuing adaptation to the business environment -- and needs to be very, very communicative with the customer. So it's not so rigorous that it can't be innovative in a moment's notice, but the process says for us that a business need should be identified somewhere. It can be identified in a technical person interacting with a technical support call in saying, "Hey, this is an issue. We should do something about it." Or it could be a business person with a customer or a set of customers at one of our many user groups. We have user groups that interact with our customers; [these] bring technology and business people together to listen very carefully to what's going on. But however that innovation comes to mind, it then goes through a pretty lightweight -- so as not to be bureaucratic -- but relatively well-thought-out process of analysis. And the first thing is to scope: What is the business need that we're attacking? And what is the needed initial investment to get to a detail where we could actually do a project?

So there's almost a preproject piece of this because there can be hundreds and hundreds of ideas as you'd think, and they can't all be scoped to the detail. You can't go and design every building here. So that's the first process, and that process is done in the businesses and it's prioritized by a business leader who owns the P&L [profit-and-loss statement] -- there's no necessity for them to vet that across the company. When they believe they've got a project that requires some investment and people and resourcing and scheduling and they've got some ideas about the business implications of it, then they take it to the next level of detail and they prepare an ROI to request for it to enter the portfolio of projects. And this process, by the way, isn't taking months and years; it's taking weeks. So the intention, again, is for the process to be lightweight and responsive and yet have some rigors, so we have some understanding of where we're spending our money and our people.

We have a quarterly process which reviews the largest projects and any of the projects that are in the hundreds of thousands and millions of dollars -- not the ten-thousand dollar change to something. Again, the business [department] has a lot of maneuverability in their own portfolio about supporting their existing products. But if they're going to launch a new product, then there's a quarterly business review and/or the product planning review. So there are again two forms. When I say "quarterly," they happen every month because they're staggered. So there are basically three different meetings. One's happening almost each month; so there's a venue, basically, every month to have a pretty serious discussion with all of the senior technology and all of the senior business management at Nasdaq to say, "OK, here's the pro forma" -- which is a business cash flow and a business capital outlay pro forma -- "and here's what it says it's going to give us. Here's how that product would be integrated into our current planning process."

InfoWorld: Do you think it's getting easier to put an actual number to some business projects and come up with an ROI? Can you say accurately this project will yield x-percent savings or x-percent revenue?

Bailar: I think that certain things are much easier if your company is organized around the right practices and disciplines. And yet, there's always [the concern], "Well, if we build this, people will come to it; but if we don't build it, it's tough to know the value." Let me give you an example: We have all of our technologists manage their effort against projects in a time-capture or a time-card system. Most of our business participants are in that realm as well. [This] gives you the ability to say this particular effort or this product cost us this much. All of our computer systems and our capital assets are also allocated or directly charged to business products. That drill-down lets us see what we call "product profitability." We manage the company based on product profitability, in one dimension. We have a regulatory responsibility as an industry facility, also, but in the area of being commercially viable, we use a product profitability measure. So the revenues and the returns, the costs, the vendor contracts -- all of that -- is aligned with this product picture and a view, a laser-shot through the corporation for each one of those products. And they sum up to the total. So it is increasingly easy for us to say, "That product cost us this much, per transaction, per customer, per CPU cycle, per disk-space utilization, per terminal, per square foot of our space." We're slicing and dicing that every day.

And here's the reason I say it's a constant reinvention: Which one of those parameters is most important today is determined by the business climate. You go to a subscription-based fee, with no per-unit costs, for instance, and then you have different ways of measuring the success of that. But if you're positioning yourself well, it is becoming much easier through tools and time management procedures to assign good costs with your products. And, for us, that's almost a revolution within the company during the last few years, as we went from a utility to a commercial entity. It's taken us some good heavy lifting there, but at this point we even produce a daily P&L, and that daily P&L gives us a glimpse of where the revenues are going and where the costs are going, based on these allocations and increasingly more accurate effort alignment.

InfoWorld: Every IT expenditure is aligned with a specific product. Is that the basis of it all?

Bailar: That's right. And there's very little that sits in an unallocated or "other" category. The challenge, of course, is you've got some of those [other categories]. You provide a network; we provide a network that cuts across all of them. But even a network can be measured by the number of messages per each product, by the number of sign-ons for each product. And so we're using those mechanisms that used to be almost onerous and too costly to put in place. The instrumentation -- it's Heisenberg's uncertainty principle - of measuring it changes it. In our case, the measurements are now embedded so well, the measurement itself doesn't cost us money or time. And that takes some effort. There's a hump to get over.

InfoWorld: With your team approach on setting directions and creating strategy, does any individual have a veto power or the final say on projects? How does that work out?

Bailar: Organizationally, we are created so that there is a chain of command. There's no doubt. At the same time, it's rare that that would be used that way. More often, in a situation where someone would call out a decision or say, "Hey, this doesn't look right," we'd get together and we'd discuss it. That's the most common thing to happen here. And anybody, actually, the project manager might do that, might call [Nasdaq President] Rick Ketchum and say, "Rick, I need to talk to you. Let's get a group of players together and talk about this." But there is a chain of command. There obviously has to be a structure in a company like this, but at the same time, there's a lot of permeability of that and a lot of discussion and interaction.

InfoWorld: So in the beginning of the project, who has the final say on whether this spending occurs or not? Is that a business or an IT decision?

Bailar: It's ultimately a business decision. In the end, there's a person who has the responsibility. In that case, the chain of command would be to the P&L. Who owns this P&L? And are you willing to put your money on the table for this project? And if things bubble up to a business champion, with a technology person right by their side, and push that forward. Now there are few areas where I am that person. Capacity is one [area] where I tend to champion the issues in the early stages, but in the end a business person has to basically say, "Yes, I agree with you," and if they don't, then we've agreed to disagree or we change the plan because, in the end, it has to hit a P&L somewhere in our organization. And that person has to say, "Yes, I am going to take the costs and I'm going to produce revenues against those costs and make it work."

Martin LaMonica is executive editor of InfoWorld. Eugene Grygo is associate news editor.