Executive Round Table with Kent Barner and Jay Reed

Participant Profiles

Kent Barner – CIO Suite

Kent is the Founder/CEO of CIO Suite located in Dallas, TX, which was formed in January 2017. As a CIO for 25+ years he was the internal advisor to C-Level Executives of high growth entrepreneurial organizations. Most recently at Behringer’s peak he delivered CIO services to 15 organizations concurrently. He now looks to bring this same service to mid-market companies and companies in the M&A space.

At CIO Suite, Kent’s team (2 resources) offers four core services:

  1. IT Solutions Health Check
  2. Fractional CIO Services (i.e. CIO for hire)
  3. IT Projects
  4. M&A Technology Due Diligence, Post Transaction Integration, and ongoing portfolio company advisory services

Jay Reed – CIO Suite

Jay is a partner in CIO Suite, and brings a long track record of executive and leadership experience in the commercial real estate and hospitality industries. His experience includes CIO roles at Pillar Hotels and Resorts, Omni Hotels, and Aimbridge Hospitality, coupled with client services and IT advisory roles at Centrada Solutions and Noble Royalties, Inc., and Jay now offers his expertise in supplementary executive roles through the unique CIO Suite model. 

Introductions

Kent: Kent Barner, CIO Suite, Jay and I have been in common circles for many years, with slightly different paths. So, 4 areas that CIO Suite focuses on: one would be wellness, and you talked about IT Performance, so that’s kind of the wellness aspect. Leadership, which is more of a fractional CIO role, and as we get into this discussion further, we’re all consultants, many of us trying not to be retired, and so we all kind of share that in common. Most of our experience, Jay and I, is in real estate; I come from commercial real estate, industrial, and multi-family space for many years, and Jay comes from the hospitality (hotels) space for many years. The other pillars are Mergers and Acquisitions, from buy-side due diligence and post-transaction integration. And then lastly, G.S.D., Get Stuff Done, from projects, to augmenting other CIOs, and just helping people get things done in shorter-term engagements, and making things happen.

Jay: My focus has really been hospitality in recent years. Kent and I grew out of the commercial real estate space, and that’s how we got to know each other. We paralleled each other a bit in multi-family, but my bread and butter is really the hospitality space, which is just THRIVING right now (laughs). I really try to help groups in that space prepare for what’s coming. I’m interested in hearing how we might be able to help each other. I’ve done a lot of M&A in my last CIO venture.

Relevant Discussion Transcription:

 The two of you are involved in multiple industries: manufacturing, real estate, hotels; Kent, talk to us a little bit about the level of engagement in the CIO Suite with the manufacturing industry.

Kent: I’ve got one client today that I’ve been working with a little over a year. They’re a mid-market manufacturing company, 2 factories in Dallas, and I’m trying to expand that by targeting more manufacturers in the area, Garland specifically. Garland has somewhere between 3-400 manufacturers, and I’m starting to meet people there and make inroads. I’m moderating an upcoming webinar on the use of robotics in manufacturing, including Omron, a robotics manufacturer, and Olympus, which is an integrator. Just like you all in these times, we’re trying to figure out how to do business development, and this is one way, by sharing knowledge, and hopefully at some point as we pay it forward, as people come back out of the challenges that we face today.

How is your level of engagement in commercial estate space from an IT standpoint? What opportunities do you see in that space?

Kent: So we’ll talk about two different types of real estate. If you look at the space that Jay is in, it’s business to consumer; in the world of hospitality, that’s also B to C, and that’s a space we share in common. And even commercial, but it’s B to B, and those are very different in terms of how they’ve deployed technology in those areas. I would say the commercial piece, B to B, are probably the laggards in terms of deploying technology and digitization in general, mainly because they hope to sign big, long-term corporate leases, 10-15 years. The transaction volume just isn’t high, and some of the needs for technology are lagging. One of the places that you’re going to start seeing more activity in that regard is in smart buildings. A smart building is “a citizen in a smart city”, as I like to say. That’s because every square inch needs to be smart in a smart city. That includes office buildings, that includes hotels, that includes traffic lights, everything. I’m part of an organization called TIA, the Telecommunications Association, and they’ve got an initiative focusing on smart buildings. In their focus on that one effort, they’re trying to develop a way of measuring the intelligence of a building, something like a standard, like LEED standards in the energy sector. It’s a huge challenge, and I’m not so sure I’ll see it come to fruition in my lifetime, but at least somebody’s working on that.

 

You can take that and apply it to real estate. And then when you get into a space that many of us are familiar with, manufacturing, it’s not necessarily in CBD; the CBD is the easier part of making a smart city, but then how do you roll that out to the suburbs and areas where you have manufacturing and distribution? How do you make those smart, and participating in the “smart metroplex”? Building automation systems are improving, getting smarter, and moving in that same direction. A common backbone for all your traffic, high bandwidth, sensors all over the place; the challenge there is that it’s easy to do that with a new building. Doing that with old buildings is a much tougher challenge. The mentality of the owners of the buildings, and the economics of that, where you invest heavily in a building, you spend a bunch of money, and now somebody wants you to go spend millions to upgrade the infrastructure of the building. How do you recoup that economically through leases that roll every 10-15 years? It’s tough in a commercial environment. So from a technology standpoint, commercial is not necessarily the “weak” spot, but it’s the laggard. As you move into multi-family, when you want to rent an apartment, you rarely go anywhere initially, you do all of your research online, and you walk in as a very informed consumer. So there’s a myriad of systems to push your availability and pricing out to consumers to try to attract them in, and the experience they have once they’re in your facility, these are going to drive not only initial leasing, but also retention; you want to keep those people, and generally, their leases are shorter. You use revenue management systems, like airlines use, to have daily pricing. Servicing individuals is an interesting space. Jay can talk about the technology space in hospitality.

 

 

Jay: I think a nice segue coming out of multi-family, the whole B2C concept in the multi-family space, they’re looking to take that excess inventory they have, to see how they can make that into shorter term leases. In the hospitality space, there’s 3 big players:

  • the real estate owner who owns the building
  • the brands that define how you’re going to run hotels
  • and the franchisee that runs the hotel for the owner

 

The brands have a management aspect, where some will provide standards and manage hotels for the owners, but that has gotten smaller over the years. There has also been a trend of consolidation for management companies, and I think with the current state of Covid19, we’re going to see even more of that, where the big players are going to gobble up more of these management companies.

 

From a technology perspective, the brands define the technologies that are deployed at hotels, so Marriott will have a different set of vendors or groups that they put in at hotels; some are proprietary, some are technologies that they’ll say “here’s a list of qualified vendors you can pick from”. That has become the standard across the industry. You’ll see where a single management company partners with a single vendor, and they push that across all of their assets, and you get the buying power with that, as long as it meets the brand standards.

An interesting conundrum in the commercial space is how to increase the net operating income of the asset to drive valuation. Logically, there are some significant automation and technology capabilities that we can embed in the assets where you can sell more services to the tenants and increase that income. Have you seen that in your space, where bringing technologies into the buildings drives higher income levels for the asset?

Kent: I can answer that as it relates to commercial. Back in the dotcom era, let’s say 2000, I was part of a commercial real estate trust REIT. All of the big commercial companies decided they were going to invest in technology companies, and the reason was to bring that technology into their buildings to attract tenants. I invested in companies to bring technology into our portfolio. One of them was an internet provider called Urban Media. We invested in them, and they started focusing on our portfolio, and we got them to about 10% penetration of our 25M sq. ft. portfolio. As our preferred provider, we got them inroads into our tenant base. And then all of a sudden, we had the “Dotcom Bomb”, and Softbank said they’re going to pull the plug, and everybody was resigning from the board as we were running to the airport! I went through at least 3-6 months of crisis management with that 2.5M sq. ft. of tenants that suddenly had to go find service elsewhere. The lesson learned there was that our core business was leasing space and taking care of buildings, and we decided after that that we weren’t going to do that anymore.

The second reason – in real estate trusts, there are certain income parameters that you have to abide by, so you can’t have what’s called “bad income” in excess of 10% of your revenue, and we always had to play games to keep it under that; essentially, it just wasn’t worth it since it didn’t affect the NOI of the building as much as we would have liked. That experiment soured us a bit from that point forward. There are other services, like in multi-family and student housing, where you’re going to bring in an internet provider that’s going to run all of your wifi for you. There are people that bring that level of business into a building and guarantee a certain level of performance, and that’s so important these days. Everybody has multiple devices. You walk into a hotel room or an apartment, and you expect all of that stuff to work; that’s the environment today.

Jay: If you relate that to the hospitality side, obviously wifi has become the number one amenity in a hotel, so the cost to provide that as a service is known, so you see a greater amount of bandwidth go into hotels because that’s the expectation. What drives a lot of the technologies in hotels today is the loyalty programs from the brands.

A good example is the concept of being able to do everything from your phone, to get into your room with bluetooth and your phone and not even having to go to the front desk—you just go straight to your room. The brands are using it as part of a loyalty amenity, where they say “hey, if you’re part of our loyalty program, you get this.” Does it impact the bottom line? That’s where the concept of “how much is loyalty really adding in terms of value?” comes in. Loyalty members typically pay more for hotel services. Those are the technologies they’ve been moving toward. How much usage is going to come out of that? Before Covid19, I heard single digits in terms of acceptance of the mobile apps and concept, but because it’s really driven by the loyalty programs, I think it’s going to continue to increase, along with the fact that it’s contactless. Even guest entertainment (#2 most popular amenity) is ramping up in this area. So there’s a bunch of stuff coming that’s being driven by the brand loyalty programs, but does it affect the bottom line number?

Lastly, with business intelligence, management companies want to pull as much data as possible into analyze because they’ve got hotels across all the brands. The ability to pull data in Marriotts, Hiltons, Hyatts, and more, and consolidate that and make good business decisions, like “how many housekeepers do I need in the typical Marriott Courtyard across the country?”. Doing those types of analytics are really in their infancy but they’re building on that, and it will continue to grow, along with revenue management. Those concepts and Business Intelligence are really starting to gain some momentum in the industry.

Jay, follow-up question for you: in terms of the engagement model, what’s the selling point from an IT perspective between the property owner, the operators, and the brands? You mentioned keyless entry, televisions, those require hardware investments, so who is responsible for which parts of those investments?

Jay: The owner ultimately is responsible for the investment and anything going into the hotel. The management company will do their best to drive the optimum price and works with the owner. The brands define the standards for those technologies, and the timing for when those standards need to be deployed in the hotel. Brands will measure the hotel using guest survey scores, and they use those as a means of measuring the success of a management company in managing that hotel. So if you’re not complying with those brand standards, you get points taken away, and ultimately, your ability to run the hotel for the brand could be at risk.

It seems that the role of the CIO has shifted significantly over the last decade or so, and you have various individual types that are sitting in the CIO seat, some that have grown up in IT, some that have not, and everything in between. Where do you see some of the biggest gaps or challenges some of these CIOs are facing as they’re struggling to create or build the value for the company they’re managing?

Kent: You somewhat described how some of these people have grown up in the technology and infrastructure side of things, and generally, I view them as CTOs. They’re more focused on the technology and not the business, and so those people can use coaching as much as anything, and maybe they need to report to a CIO. A CIO should come from the business side first, and then figure out the technology piece, which is typically the easier part. Aligning with the business strategy is important, so that’s kind of where I start: where is the business trying to go, what’s the 3-5 year look, so now what technologies do we need to support that, and how do we finance it, and get it done in a timely fashion? And all of that with your eye on the ROI. I’ve always thought of the CIO role as more business oriented.

 

I started my career as an accountant, so that gave me a good foundation on the business side of things. There are some CIOs that I’ve done work for that are more just bandwidth (time) challenged. One that Jay and I both know was with a very large multi-family company going through acquisitions worldwide, and he simply didn’t have enough time in the day. He would bring me in to do projects for him, just to get stuff done, because he knew he could trust me to make it happen. So he had the right business acumen and business mind, he just didn’t have the time. So those are two different things I’ve seen—there’s technology guys, and business guys.

What do you see as some of your biggest challenges trying to come in and fill that void, whether for the CIO or CTO? They very well could have a different strategy than you fundamentally agree with. To your point about whether they’re more technology focused vs. business acumen-based, and figuring out what business problem they’re trying to solve before bringing the technology in. How do you approach that with those clients, and how do you overcome some of those differences of opinion while still maintaining a professional relationship?

Kent: In some cases, I’ve walked away from them, because we don’t see eye to eye. A couple of the worst examples were CFOs that wanted to play CIOs, and it’s ridiculous. You come in and you’re seasoned and experienced, and I’m not going to sell myself out just to get a fee, and work for somebody doing something I don’t believe in, so I’ve had to walk away from a couple of those. The biggest challenge coming in as an outsider is the culture thing, understanding the politics, and trying to influence the culture since you can’t necessarily control it. That’s generally one of the bigger challenges. Where I’m a fractional CIO for a manufacturer, they’re trying to grow up and evolve, and a lot of that requires people letting go. A lot of people struggle with that, and it’s frustrating that it takes so much time to change peoples’ mindset to make that happen. I find that to be one of the biggest challenges in an organization that I WANT to go in and work with, but I’m not going to go in and just butt heads with a person I don’t agree with. There’s just no point, and life is too short.

I would suspect you really see that challenge you described when companies start small and the person in charge has had a lot of control. Now they’re growing and have new opportunities, and they really have to let go of that control. It’s what’s enabled them to be successful in the past, but as they go forward, it’s NOT the enabler. That transition can be really challenging.

Kent: If you’re heard of the Enterprise Operating System, EOS, it’s a framework for just what you described. You have a company that started small, and everybody’s doing everything, and then as you grow, that model doesn’t scale, so people have to start letting go, and you need to bring in another level of management, and EOS is a path to do that. And I have to remind business owners “you’re supposed to be letting go of that now that you have this system”; it’s a challenge for them and it puts them in a discomfort zone. But it’s very rewarding to see them grow and evolve.

When you get an engagement with manufacturing sites, sometimes short-term, sometimes long-term, what is that partnership that you would explore in order to be successful, and what does that framework look like when you engage with that manufacturing site? Do you have levers to bring additional resources to achieve X, Y, and Z? Or is it to just manage the operation as is?

Kent: That’s where the frustration is. I would like to go back to my own days as a CIO in Corporate America, where you went through a process, you understand what the business is doing, and everybody gets on the same page. You set a budget, and then you execute against that. Well, that’s not necessarily the case coming in as a fractional CIO. I’d like to see this organization that I’m working with today evolve to that; that’s what they need to do. And that way, people can go and execute, and not have to rely on the owner or the CFO or whoever it is they have to go to to get permission to execute for every little dollar. That would probably be one of the bigger changes I would make in that organization, or ANY organization. It’s just getting them to a different level of maturity. It’s not that they’re immature; they’ve done well to get to where they are. But to take it to the next level, you have to manage it like an enterprise. The level of engagement starts with building trust with the owners, and then building on that after you establish that trust and become part of the team. But it takes a long time, especially in a fractional relationship. You’re not there fulltime.

An important consideration to look at is how the IT organization builds their strategy, with the premise that the IT strategy has to be an enabler to, and support the business strategies. To what degree do you see, when you walk in on the fractional side, that the existing CIO or CTO has the ability to create that strategic framework for the organization? Do you see that as a big piece of what you have to do coming into the organization, to help that person formulate an integrated strategy that supports the business strategy?

Kent: You’ve all seen in big industrial operations, there’s Operational Technologies (OT), and then there’s Information Technologies (IT), and there’s a divide. That’s even the case in real estate. There’s engineers running the building, and then there’s IT stuff, back office accounting, CRM, and everything else. So one of things I’m really working hard on is to try and bridge that gap, and as we see the convergence of technologies, IT and OT have to figure out a way to work together better than they have in the past. I’m actually looking to hire one person to start that with the manufacturer that I’m working with today. They’ll either come from OT or come from IT, and then I’ll try to train them in those areas where they don’t have proficiency, and then start to build a team around that. We’re starting to install sensors, and we’re going to have so much data collection we’re not going to be able to analyze it. So then you’ll need AI, and ML, and all those other technologies that may be coming from more traditional IT or not, but they all have to work together. When you get that many attack surfaces, from a security standpoint, now both sides have to work together, and it’s even more important.

 

That’s where I see adding value. If it’s a CTO from the traditional IT side, they’re viewed as impediments to getting things done in a manufacturing environment. So how do we bridge those relationships? In the commercial office environment, we had that same situation with engineers. I took it upon myself to create an engineering council, and we’d convene engineers from across the country once a month and talk about issues from both sides of things. It built a cooperative environment that all of these people can come together in. I don’t think it’s hard, it’s just understanding people.  It breaks down those barriers and walls.

One of the things we look at when we have a conversation with a business around digitization and the digital journey, is an organizational readiness assessment. “Is this organization, from a leadership perspective on down, ready to take on a transformation that takes them into the digital world?” Do you see the importance of change management in this digital readiness view to get a starting point, or do you see a lot of companies that “get it”, but just don’t know how to get there?

Kent: I think you have both. Whoever is commissioning the effort, it’s got to come from the top that “we need to do this”. You do an assessment at a lower level, and you end with a bunch of results that say “you need to change”. You may even need new people. They may not want to execute against that. They may not have the desire, they don’t want to change. If you have the C-Suite driving that effort, you’re going to have a much better outcome. In order to make change happen, you have to get the support from the top, and have the authority and accountability to execute against that and make those changes. A lot of people just don’t want to change. They say “I’ve been doing it this way for 30 years, and I retire in 5, so I’m not motivated to change.” That’s a challenge across industries.

After you’ve helped an organization evolve in the capacity you’re filling, and you reach a point where they’re in their new state and you’re evaluating what you’re leaving behind in terms of that technology organization: what do you do to help an organization maintain the change in its people, processes, and culture?

Jay: How you sustain the changes based on other experiences I’ve had, it’s a difficult one. You’ve got the top-down alignment with leadership as the first step. If you can achieve that, you can get the right people in for change, and get the right processes and procedures in place, and then you’re set. To me, the biggest issue is getting everything to where there’s a repeatable process documented. I bring that up because I think the big issue we’re all dealing with as it relates to that overall strategy is the whole security space. That has hit our industry hard. Every industry, actually. That’s a spot where if you don’t have good documentation, good policy, good procedures so that you can effect the change, then the people side doesn’t really matter to me. It has to be documented, well-presented, and ready to go.

 

Kent: And you need the incentives to sustain it and reinforce it. You’ve got the carrot and the stick. Like with CRM, for example, your salespeople tell you “We need SalesForce, and we’ll sell more.” Well, not necessarily. You have to use it like we tell you to, and you actually have to USE it, and everybody has to follow the same MO to standardize and report…if not, all of a sudden, you’ve bought a bunch of technology that ultimately fails.

In light of the current pandemic, what is the impact in your industry based on the demands on you as fractional CIOs, and what strategies are you using to have better penetration to all of those verticals?

Jay: In the hospitality industry in particular, there were a lot of departures of IT leadership within management companies. I see that as an opportunity to go in and help these companies and give them fractional CIO guidance on where they’re heading and how they strategically move forward. The hospitality industry is going to be impacted significantly, both on the operational side and the technology side. The labor side in hotels is going to be changing to and utilizing technology to reduce the amount of labor needed to operate a hotel. How they do that, is where they’re going be seeking some CIO guidance. I’m already working with management companies to make them aware of our availability, and some of the key things that they need to be thinking about in that technology front, in the post-Covid side. I know in the hospitality industry, they’re going to need more CIO leadership, and all the brands are talking about it, but on the management side, a lot of the companies have gotten rid of their IT leadership. There’s going to be a need for some guidance, and that’s where we think there will be an opportunity.

 

Kent: You guys have probably experienced this, but when companies start to grapple with cost-cutting, consultants are often one of the first to go. They want to retain their people as best they can, and even that is a challenge in today’s environment. As this time period lingers, it may be Q1 or Q2 2021 before companies can take a breath and step back and assess what they need, but at that point, they’ve lost a full year, whether in technology or other initiatives. I was of the impression that companies would like to have our experience today, after having gone through four economic downturns, as far as what to look for, where to cut, where to renegotiate things, but they just don’t want to spend the money on consulting fees right now. We have a period of time where we still need to wait things out, and I think generating brand awareness and what skills we can bring to the table—it’s important to keep reminding companies of that today so that when they start to come out of this, they’ll have somebody to turn to. They’re not going to be able to hire everybody they need all at once that they’ll need to execute. What is it that you see in this? Do you share that same experience? Or are things completely different, or better?

Based on interactions that we’re having with companies that we’re trying to get access too, we’re seeing the same thing. Obviously a lot of companies are trying to keep and sit on their cash, and they’re trying to clean up what they can. What we’re trying to do is create that proximity with those companies that might be potential customers, to make sure they know what we’re doing and how we can help them. This Executive Round Table format is a good forum to bring leaders in specific industries to showcase what’s going on in those spaces. We want them to understand that we’re available for any issues they’re facing.

Kent: I think we’ve yet to see the second round of unfortunate news that we’ll start to see as the PPP dries up; we’ll probably have another economic stimulus because it’s an election year. But that’s just buying time and delaying some of the inevitables. You’ll start to see more bankruptcies and more layoffs; I think we’ll go through another dip, and then hopefully, a healthy cleansing as we go forward.

A lot of companies are using this time as an opportunity to reinvent themselves. A company that I’m on the board of chose in this downturn, to look at ALL of their business processes, and figure out where it is they need to improve. And other companies that are still cash-rich, they’re still using this time to re-look at themselves. So there are areas where they’re not pressured to do it, but they now have the luxury of doing it. Some companies are seeing this as a time to do innovative things, and the good news is that they’re in the financial position to be able to do that. A lot of companies don’t have that luxury.

Kent: a good example of that is Microsoft shut all of their retail locations down. They were able to cleanse themselves of those leases, and they were able to move a lot those people to digital positions, online ordering, support—they have plenty of money. They didn’t have to do that, but it was a smart thing to do. Jay’s talked to some hotel operators who are saying “Hey, your hotel is only 10% occupied, it’s a good time to do some stuff that would otherwise be disruptive.”

 

Jay: There’s a panic button-type technology that local jurisdictions are starting to require on hotels, and a lot of hotels are saying “hey, I can get this done faster because there’s nobody in the rooms” because it does require installations in the rooms. Providers are offering very discounted pricing, plus, it’s the right thing to do, all of the brands are going to require it anyway. A vendor I was talking to earlier in the hospitality space has folks that do installs all across the country for their technology. They’ve taken this as an opportunity to work with some groups that need the resources they already have in the field, and they’re working on ways to save money for both companies and generate more revenue since they already have the bodies out there anyway. They’re making some pretty cool decisions, and some good partnerships with some groups that they can provide resources to in order to help them.

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