CIOs today live in a world of questions with not a lot of answers. Will demands for cost-cutting never cease? How can you retain (or gain) a seat at the executive table? What does your CEO expect from IT — and how realistic are those expectations? The answers to these and many other conundrums will determine your future and the future of IT in your organization.
In truth, the CIO role has been changing ever since it came into being two decades ago. But “The State of the CIO 2004,” our third annual exclusive survey of more than 500 heads of IT, shows an uptick in the demands being made upon CIOs. For many of you, the pressure has never been greater and the keys to success never harder to find.
Many of the factors behind this changing dynamic are not of your making and some are out of your control: the difficult economy, first and foremost, but also new regulatory challenges such as Sarbanes-Oxley and the maturation of the offshore outsourcing market with all its attendant opportunities and pitfalls.
But other difficulties have arisen in areas that CIOs can address proactively. Alignment between the business and IT remains fragile and sometimes elusive. It’s up to you to improve it. Organizational politics affect CIOs like never before, as your success — and your fate — has become tied increasingly to that of other executives. It’s time to build alliances. And the day-to-day requirements of the CIO role, which now look very much like those of any other business manager, raise the issue of how well the IT background of the typical CIO prepares him for the job. There are ways to build your business skills. Employ them.
Same job, different context
“The State of the CIO 2004” survey shows that in many ways the content of the CIO job hasn’t changed at all. The same three skills for job success have topped the list for three years running: effective communication, strategic thinking and planning capabilities, and an understanding of business processes and operations. For three consecutive years, the top use of your time has been interaction with other CXOs and with business executives.
The most frequently cited best practice for adding value to the enterprise in last year’s survey was serving on the executive management team. This year, the highest-impact practice was a new but related entry in the survey: creating and maintaining healthy relationships with other CXOs. Membership on the executive team was a close second.
The greatest barriers to CIO effectiveness this year were unrealistic or unknown expectations from the business, inadequate budgets, and a lack of time for strategic thinking and planning. These concerns also appeared near the top of the list the previous two years.
Unfortunately for CIOs, one other thing hasn’t changed: pressure to lower IT costs. In “The State of the CIO 2004” survey, you said the major impact IT had on your organization was to reduce the cost of doing business through efficiency gains and increased productivity. Then, you looked at the coming 12 months and said that cost-cutting again would be your major focus. More proactive uses of IT — such as driving innovation, creating competitive advantage and enabling growth — were pushed down the list as your budget fell too, from 6.3 per cent of total revenue last year to 5.6 per cent this year.
But some other aspects of how you do your job have changed greatly. As outsourcing continues to be a cost-cutting strategy of first resort (80 per cent of you reported using outsourcers or contract service providers, sending an average of 20 per cent of the total IT workforce outside), managing this external workforce has become a huge and challenging part of the job.
Who’s in charge?
Most significant, your reporting relationships are undergoing a shift. Just two years ago, over half of CIOs surveyed reported to their CEOs. Only 11 per cent reported to their CFOs. In last year’s survey, the percentage reporting to CEOs dropped to 47 per cent, while the percentage reporting to CFOs doubled.
This trend continued in the 2004 survey. The largest proportion (40 percent) of you still reported to your CEOs, but the number reporting to CFOs grew to 30 percent. This shift toward CFO reporting was most pronounced among CIOs in the manufacturing, government and education sectors.
Taken as a whole, this shift in reporting relationships may reflect a change in how IT is viewed within some organizations. For these enterprises, the need to hold down margins trumps any dream of innovating with IT — at least until the economy recovers more fully. CIOs who report to CFOs laboured with small IT budgets (3.1 per cent of total revenue versus the average of 5.6 percent), outsourced more IT staff and spent less time interacting with other CXOs. Among the problems these CIOs reported were, not surprisingly, the difficulty of proving the value of IT, and a lack of alignment between IT goals and business objectives.
On the other hand, CIOs who reported to CEOs worked with IT budgets higher than the norm (6.6 per cent of total revenue) and received a higher average salary (US$187,436 versus $177,229 for the CFO reporting group). The grass is greener on their side.
What the CEO says
A feature new to “The State of the CIO” survey this year is a pass-along questionnaire from CIOs to their CEOs. The responses from 40 CEOs (responses not viewed by their CIOs) demonstrated significant alignment between CIOs and CEOs, along with a few disconnects.
These CEOs seemed to have a great appreciation for you and for technology. They put a high value on strong working relationships among CIOs and other CXOs and on having CIOs be part of the executive team. In fact, they were more prone to credit IT for creating competitive advantage than even the surveyed CIOs.
While CIOs and CEOs shared many of the same hopes for IT in the coming year, they diverged on a few significant points. Implementing new technologies — such as radio frequency identification chips — was near the bottom of your list of technology priorities, whereas that’s one of the things CEOs want from you. And whereas reduced costs was the top impact you expect from IT, not a single CEO listed controlling IT costs as a top priority. Clearly, not all CEOs view IT as a cost centre and nothing more.
The pass-along questionnaire also uncovered discrepancies between how CIOs see themselves and how others see them. Whereas 72 per cent of you claimed to have healthy relationships with other CXOs, only 55 per cent of the CEOs agreed, which, true or not, is worrisome. In addition, when considering eight high-impact practices for IT, a higher percentage of you believed that these practices were already in place than did your CEOs.
Succeeding by really trying
“The State of the CIO 2004” survey reveals another problem concerning those eight high-impact practices for IT. The best practices, it turned out, were not necessarily being practiced. Being a member of the executive team ranked number two on the CIOs’ list, yet only 58 per cent of you say you are on one. Reporting to the CEO is the fourth best practice, yet only 40 per cent of the survey respondents do so. In fact, only one of the eight high-impact practices was observed by more than 65 per cent of CIOs: establishing healthy working relationships with other CXOs, which nearly three-fourths of you said you do.
You can’t join the executive team or report to your CEO just because you want to, but other issues are more within your power to effect. For example, in the 2003 survey, CIOs said they spent a lot of time developing IT leaders. In this year’s survey, however, staff development fell off sharply both in your priorities and in how you spent your time.
That seems a mistake, given that 69 per cent of you said IT’s proper role in the enterprise was to “envision business opportunities and apply technology to achieve them,” rather than merely support predefined business initiatives. Without the requisite business knowledge and leadership skills, your staff will be hard-pressed to collaborate in that quest.
The survey results also raise a troubling question about your own preparation for the role of IT executive. The need for CIOs to be businesspeople rather than technical wizards is a theme running throughout this year’s survey, yet 70 per cent of you said you came to the job through IT.
To be sure, CIOs with IT backgrounds can learn business skills. Yet the question remains: As the CIO role changes in tandem with the changing business environment, are you changing fast enough?
The pressure is not going to go away.