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Worlds apart

Worlds apart

New research shows a worrying difference between how CIOs see themselves within an organisation and how others see them. This helps explain why so few make the transition to chief executive, particularly through internal promotion.

There can be few things more frustrating for a chief information officer than labouring away in an organisation that doesn't appreciate their skills. For years, CIOs of various standing have bemoaned the problem of working with a chief executive, chief financial officer or board that just doesn't get what they are trying to achieve. But, alas, if new research is to be believed there is still a worrying disconnect between how a CIO believes their IT vision and spending is understood within their own company and the reality of the perceptions among those with ultimate responsibility for the organisation's performance.

The study has been compiled for executive search specialists Korn/Ferry International by the firm's head of CIO practice, Gail Pemberton-Burke. It incorporates responses from Australian Stock Exchange top 100 companies, some large unlisted companies and government departments.

Pemberton-Burke herself knows a thing or two about running a technology department in a tough commercial environment. She held the CIO post at Macquarie Group for 12 years before becoming the chief operating officer of its financial services group.

She also pulled off the much-discussed career move from IT department to CEO's office when she became the Australia and New Zealand managing director for BNP Paribas Securities Services.

When discussing the results of the survey, she says that while CIOs may have been talking relentlessly about the need to speak in clear business language for decades, some are clearly not practising what they preach.

"One of the things that commonly occurs is that what has been presented by the CIO to the board and CEO is so detailed that the board and CEO don't really grasp what the vision is," she says. "Either that or the CIO just hasn't cracked it yet and is not giving the board and CEO what they are seeking."

She is able to come to that conclusion because one question in the survey asks CIOs, CEOs and non-executive directors (NEDs) about whether their organisation has a three- to five-year technology vision and road map.

Seventy-three per cent of CIOs said they had presented the board with such a vision, yet only 47 per cent of NEDs and 49 per cent of CEOs believed they had seen one.

It serves as an example of a communication divide between the groups, Pemberton-Burke says. It is a divide that needs to be closed, given the heightened level of spending expected in the next few years.

The Korn/Ferry study provides a well-rounded look at the work currently on the cards for IT departments across sectors, showing contemporary thinking on key issues such as sourcing strategy, legacy systems replacement, IT spending and governance. Importantly, it provides insight into the differences in perception between CIOs, CEOs and NEDs.

IT spending

A worrying statistic to come out of the study is that about half the respondents, across job roles, believe there is inherent wastage in overall IT spending. Most CEOs surveyed say they are satisfied that they understand the make-up of their IT spend, but one in three NEDs say they receive not enough information about the cause and result of spending to make an informed judgement.

CEOs and NEDs both said they would like a better view of outsourced versus insourced costs, with a majority of CEOs nominating a lack of transparency on fixed versus variable costs.

Pemberton-Burke says this represents an opportunity for CIOs to review the level of information they provide to the board about the make-up of overall IT spend and to seek feedback to ensure there is mutual understanding.

She says the responses of CEOs and NEDs to questions about whether the level of IT spending in their organisation was appropriate indicated a significant amount of uncertainty, which needs to be addressed by CIOs. She suggests engaging in better dialogue about exactly what kind of information will help paint a clear picture of IT investment and to provide more comparative data.

One of the more surprising outcomes of the survey in regard to spending was a general ignorance of how much competitors were spending on technology. Forty-three per cent of CIOs said they didn't know what their rivals were spending and these blinkers are worn by a whopping 70 per cent of CEOs and 77 per cent of NEDs.

"That surprised me," Pemberton-Burke says. "Certainly, as a CEO I would want to know how much my competitors were spending. Even if a rival firm is in a different stage of the investment cycle to your organisation, it is still a useful benchmark to have. "I also found it interesting that more CIOs said they did know what competitors were spending - they obviously aren't sharing that information. Maybe the board and CEOs didn't think it was relevant, but I do."

Legacy system development

Any IT industry observer who has picked up a newspaper in the past year will know there is a wind of change blowing through the technology establishments of Australia's biggest and oldest institutions.

Major banks and numerous government departments are making moves to overhaul creaking legacy systems and the Korn/Ferry study shows that there is plenty more similar investment on the cards.

Of the companies surveyed, the vast majority have ageing technology platforms and will be making substantial capital investments in the next five years to replace them. For many organisations this will represent their largest ever capital outlay on technology, exceeding the billions spent on Y2K compliance, the report says.

Three out of four companies said they had systems that would require replacing in the next three to five years at an average cost of $58 million. But one in four said spending would exceed $100 million.

"For most of the organisations, these legacy platform replacement projects will be the largest, most costly and complex change initiatives that they will have undertaken in their history and will have a wide-ranging impact across their organisation and on their clients," the report says.

Perhaps surprisingly, the research highlights a divergence between the expectations of NEDs and CEOs about the cost incurred when replacing legacy platforms. Across the survey respondents, CEOs thought the cost was the lowest, with an average estimate of $43 million. NEDs had the highest predictions with an average of $75 million anticipated, whereas CIOs fell in the middle with average forecasts of $56 million.

An honest 21 per cent of NEDs admitted to having no idea what the cost of replacing legacy systems would be.

"We didn't ask them how difficult they thought a legacy system upgrade was going to be, which could also have shown a difference in opinion," Pemberton-Burke says.

"The disconnect between expectations and spend is not surprising because there is quite a lot of latency between what the CIO sees and what filters up to the board. The board might see a paper once a year or receive an update twice a year. The CIO will be much more up to date and presumably so would the CEO."

Executive shortage

Pemberton-Burke says an interesting result of the drive towards many organisational transformation projects will be a noticeable shortage in the executive leadership talent required to pilot the moves. She says not all CIOs are equipped to manage this kind of initiative and those with the right talent and experience will become increasingly prized.

The shortage of executives with a track record of driving end-to-end transformations would be a boon for consulting firms, she says, but that even these companies would probably have to go offshore in the hunt for talent.

Pemberton-Burke says there's a potentially critical shortage of program director-level executives - and businesses looking to hire new CIOs are specifying transformation skills.

"They want someone who can keep the trains running, also someone who has been successful in big transformations in the past, and then also someone who has really good communication skills and can articulate the journey that the organisation needs to go on in terms of refreshing or upgrading technology," she says.

"We are also seeing the rise of these enterprise transformation director roles who report directly to the CEO and are a peer of the CIO. They oversee a lot of these legacy platform replacements from a business process change standpoint rather than an IT system change."

The issue of offshoring technology development, support and services had become less political, owing to widespread adoption, before the GFC made it a bit of a hot potato again. Companies were not keen to be seen sending jobs overseas at a time when the papers were filled with ominous articles about local unemployment levels.

The survey highlights this to a certain extent with a marked trend away from offshoring. There was a clear move away from both offshoring as well as internal custom software development, with a majority of CIOs saying they prefer to focus on installed software and a blend of insourcing and outsourcing in the next three years.

While custom software development has been on the decline for the past decade, Pemberton-Burke says the reduced appetite for offshoring was largely unexpected. She says the sentiment was likely to soften once the economy had been in recovery for a little longer and there was less fear about mass redundancies in the air.

When NEDs and CEOs were asked about their level of satisfaction with cost savings and service quality delivered by outsourcing initiatives, less than half were satisfied that saving targets had been hit and service quality had been maintained or improved. This will prick up the ears of many of the bigger outsourcing providers and some of the smaller local players, as numerous long-running outsourcing deals are entering their final years.

Anecdotal evidence suggests that larger deals are frequently being split up to numerous suppliers, and there could be significant churn in the next few years. "As these older contracts are renegotiated there is an opportunity for CIOs and outsourced service providers to provide boards and CEOs with more transparent reporting and high-level scorecards that track service delivery to cost and quality targets and industry benchmarks," the report says.

Leadership attributes

Perhaps one of the most interesting areas of the study comes when the CEO, NEDs and CIOs get to rank the performance and the skills of the CIO.

When the survey asked CEOs and CIOs to rate the relative importance of a list of 12 CIO competencies there was an alignment of responses. However, when the CEO was asked to mark their own CIO against those attributes there was a marked contrast between the CEO's rating and the CIO's view of themselves.

Only about half the CEOs rated their CIO highly in terms of strategic thinking and leadership, yet almost all CIOs rated themselves highly in this area. Other areas where CIOs rate themselves more highly than their bosses do include in building strong business partnerships, being an effective communicator, having a strong commercial and financial focus, and being a driver of business change.

Pemberton-Burke suggests that the gaps in perception go some way towards explaining why relatively few CIOs make the transition to CEO roles - particularly through direct internal promotions.

"One key thing is the 'only running an expense line rather than a revenue line'," Pemberton-Burke says. "The CIO has to somehow get themselves into a position to demonstrate they can run a true P&L [profit and loss] before they'll be considered for a CEO role.

"I think CIOs who have good commercial skills can take a step into businesses that are IT intensive, like tech companies, and also processing organisations like payments companies. The business I ran, which was fund administration, custody and settlements, is a very IT-heavy business."

Return on investment

The top six characteristics of technology/change projects that delivered promised ROI were:

* The project was aligned to business strategy (83 per cent)

* There was strong business ownership (73 per cent)

* Regular updates were provided to all stakeholders on project status and risk (73 per cent)

* A phased approach to implementation was adopted (63 per cent)

* The project sponsor was the CEO or business head (62 per cent)

* The project team had a deep understanding of the business (62 per cent)

MIS Australia

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