Going Virtual

Ken brown has a secret. A secret so terrible, he believes, that if his customers get wind of it, they'll cut tail and run faster than Pat Buchanan at an ACLU convention.

What's the awful truth? Brown (not his real name) is CEO of a California systems integrator but lives with his family in the Midwest. He simply doesn't think his customers are ready to accept a "remote CEO." "There is a stigma surrounding virtual management," explains David Amsden, managing director of the corporate IT practice at Christian & Timbers, a national executive search firm. "I recently interviewed 10 remote execs, five of them CEOs, and one of the major points they made is that they don't want their customers and investors to know they are not on-site every day [for] fear it will be taken as a lack of commitment."

However, by all accounts, the rationale for that paranoia is disappearing. Today, virtual management—which encompasses remote executives, interim and "rented" executives, and outsourced management—is becoming an accepted business practice. Among resellers and systems integrators, the trend is even more pronounced, notes John Oltman, former head of MCI Systemhouse who serves on the boards of several professional-services companies.

"Whatever stigma once existed has broken down," argues Oltman, citing numerous examples, including Andersen Consulting, whose senior executive team is spread across California, Texas and Illinois. Likewise, Oltman's own start-up integration venture, Redshift Interactive Inc., has a remote management team. Oltman and executive VP Greg Jacobsen are based in Colorado, but most Redshift executives live in Chicago. And as the e-commerce solutions provider expands into the Dallas, Phoenix and Seattle markets, Oltman adds, the search for talent inevitably will lead to an even more dispersed executive committee.

Personnel experts say it's the "talent deficit"that is behind the whole trend. If you want to attract the best executives, says Paul Dinte, a Washington, D.C.-based headhunter who works extensively with Beltway integrators, you've got to be flexible. In most cases, he advises, there's no reason for a senior exec to be based at corporate headquarters, especially when the job demands extensive travel and client interaction. Over the past couple of years, Dinte has come to specialize in placing interim or part-time managers with local integrators that need to create systems, policies and procedures, but don't want the overhead of a full-time exec.

"The bottom line is that any management structure is possible," Dinte says, "as long as it makes sense for your business."

The Bosses Don't Live Here Anymore To have a shot at hiring a "brand-name executive" who understands your company's business model and has successfully run similar companies in the past, offering the remote option can be as critical as equity, says Amsden of Christian & Timbers.

He argues that there is no management function in the company that, under the right organizational structure, can't be handled remotely. Indeed, Amsden says he knows of 100 technology companies in California that are run by off-site executives. However, in his own IT practice, he sees the heaviest demand for these "road warriors" in the sales and professional-services areas, both of which involve a lot of travel and client work.

Nevertheless, he adds, the adjective "remote," in this context, can be somewhat misleading. Typically, even those IT execs who live a thousand miles from home base spend an average of two and a half to three days a week at headquarters. But whether they happen to be present in person or in spirit, the onus is always on the remote executive to create a tight management team.

Indeed, organizations that are managed remotely need to create a venue in which virtual executives can exchange ideas and opinions freely. Experts advise a number of steps that will help to achieve that goal.

First, your presence should be felt when you're on-site. It's the classic yuppie "quality time" rationale. Eat lunch once a month with your junior staff and be open to their input. And when you're not in the office, make sure there is someone behind to handle the grunt work. A CFO, for example, can be constantly off-site, schmoozing bankers and venture capitalists, as long as the controller is monitoring the back office and making sure the financial reports are accurate and on-time. It's also a good idea to have a few outside directors you can rely on to occasionally step into an operational role.

The final piece of the puzzle is to hire only executives with whom you have worked in the past or who have your absolute trust. "You must know your people and be attuned to their thinking processes," says Oltman. "Good recruiting is the secret to remote management."

In For A Penny, Not A Pound The trend toward temporary executive help also falls under the virtual-management banner. Specific flavors include interim (or "acting") gigs, project-based assignments, and "try before you buy" arrangements. A growing number of independents—many of them ex-corporate managers downsized out of the permanent work force—market themselves as short-term virtual executives. They will work on a retainer, a project basis or a milestone payment schedule.

"I'm brought in to fill gaps," says Linda Swerling of Level 2 Solutions in Boston.

Typically, says Swerling, her clients are venture-capital-backed start-ups that need to get up and running fast, to achieve the rigorous goals laid out by the venture partners. For HarvardNet, a local ISP and competitive local-exchange carrier, Swerling came in last May as a de facto human-resources executive, training the company's managers in effective hiring practices.

"We were going from 60 employees in January to about 150 now," says HarvardNet VP of marketing Joe Bartlett. "We needed someone to help us manage that growth."

GMSI, a Bethesda, Md.-based government integrator, had other reasons for going the rented route. The company was embarking on an effort to penetrate the commercial market for solutions-integration, help-desk and document-management services, one result of which was likely to be ramping up staff.

"We were at that stage where we needed HR policy manuals and procedures, and training programs, and had to have someone come in who had done this before at a larger company," says chairman and CEO Hilton Augustine. "However, we weren't large enough to have a full-time human-resources executive."

The experiment worked, says Augustine. Today, the human-resources department serves a staff of 250, more than twice its former size. And the commercial business now accounts for 30 percent of company revenue.

GMSI, in fact, liked the virtual model so much that after a "test drive" with an interim CFO, it hired that executive on a permanent basis. Such try-before-you-buy scenarios are becoming popular.

But there is a downside, notes Augustine. After six months at GMSI, the temporary HR manager did not want to leave. "There is a tendency among some ad hoc executives to ... want to stay on and become full-time. It can be difficult to say goodbye."

One virtual CEO, Jack Derby, doesn't have that problem. The Boston-based consultant likes being a 100-day wonder, coming in to run a company or a department until a permanent replacement is hired. Most recently, he says, he joined a struggling $12 million high-tech firm as a three-day-a-week CEO, charging the client an arm and a leg.

"I was expensive, sure, but not when you consider their strategy," he admits. "The result of my brief stay was they turned around and sold the company for $50 million."

Derby claims to be able to step into any situation and immerse himself in the operation within 10 days. "We know the process, the objectives and the other tricks for getting in and out quick," he says. "For example, my company has worked with a number of distributors in the Boston/Providence/New York area. There, it's two issues—getting efficient in their geographies and reporting out how the field groups are doing."

Take It, It's Yours Today, many executive-committee jobs are successfully outsourced to consultants, most notably sales, marketing, HR, manufacturing and information-systems posts, according to Stephen Cole, research director of business applications for Forrester Research. "Theoretically, you can outsource everything that's tactical," he says.

One problem with outsourcing to a consulting outfit, however, is its cost. An interim exec may get a premium of 20 percent to 40 percent above a full-time manager, says headhunter Paul Dinte. But permanent outsourcing to a management consulting firm costs you threefold: a third for the individual, a third for the overhead and another third for the consulting firm's coffers.

"And for all that, you get a youngster with an M.B.A. who's never run a company," notes Dinte. "It doesn't pay."

That's a worst-case scenario, but one that can't be overlooked as you go virtual.

Verticals vs. Virtuals

The vertically integrated company is characterized by:

• Hierarchical management structures
• Slow reaction times
• A mix of information and physical assets

The virtualized company is characterized by:

• Peer relationships with other companies
• Dynamic networks of suppliers
• Either an information- or an asset-centric strategy.

Source: Forrester Research Inc.