At first glance, the view from the CIO seat looks just fine. More of you report to the CEO and sit on executive management committees this year, the 2009 State of the CIO study found. Tenure is up and so is pay. Nearly two-thirds of CIOs also lead a non-IT function, such as operations or customer service.
Technology, you report, is core to your company’s products, to your distribution and sales models — heck, even to the ways your company defines itself against competitors. And, you say, the IT group is pretty darn good. For example, 70 per cent of the 506 CIOs polled (in North America) said that IT is considered an integral business partner by the rest of the company.
It’s looking good, right?
Maybe not. This year we compared your views with those of CEOs and other business executives surveyed by Forrester Research, which asked 600 CEOs to assess the performance of IT in key business areas. Brace yourselves.
While business leaders absolutely agree that tech is important to their company’s products and competitive positioning, they also say IT isn’t performing as well in these areas as CIOs would like to think. For example, 46 per cent of Forrester’s business respondents rated IT ‘fair’ or ‘poor’ at improving the quality of products or processes.
Further, 64 per cent of CIOs we surveyed said senior managers clearly communicate expectations for IT. Yet many of you report spending less time and having less of an impact on the number-one element keeping your company in business: Customers.
Asked which activities IT had the greatest impact on in the past year, only 15 per cent of you chose managing customer relationships and 11 per cent said acquiring and retaining customers. Those who expected to do great work in each of these areas next year: Just 17 per cent. Among CEOs, 53 per cent said acquiring and retaining customers is a business driver that is important to IT decisions. Yet how well did IT support that endeavour in the past year? Forty-nine per cent of the business execs judged IT’s performance as ‘fair’ or ‘poor’. Another 5 per cent said IT did not support acquiring or retaining customers at all. Ratings of IT’s impact on managing customer relationships were just as bad.
At best, these disparities bounce IT out of alignment with business goals. But we aren’t dealing with the best case. With each subprime bankruptcy, federal bailout and nosebleed drop in the Dow, the financial meltdown rewrites the CIO’s agenda. The global collapse in real estate and financial markets, according to the nonprofit economic think tank American Enterprise Institute, has already extracted US$25 trillion from the world economy, with half of that happening in the US. When the carnage ends, maybe by late 2009, AEI estimates, losses will amount to $40 trillion. You don’t fight this menace by waiting for a memo from the boss. CIOs need to stand up and employ skills beyond the basics to align with business and deliver payback.
To survive 2009, you will have to get real about what you do well (or not), starting with the mismatches we’ve identified in our survey. CIOs must be bold in hiring, reorganising and rethinking IT because, already, disruption is everywhere. According to our recent research on CIOs and the economy, 40 per cent of 243 IT leaders plan to cut their budgets from last year’s level. Twenty-three per cent of respondents have reduced staff in the last six months and another 11 per cent plan to by April.
James Sutter, senior partner at The Peer Consulting Group and a former chief information technology executive at Xerox and Rockwell, says IT spending is one of the most visible corporate expenses, the benefits of which — even in good times — are difficult to chart. “The financial crisis,” he says, “will wash out certain initiatives that really don’t stand the needs test.” (Indeed, 72 per cent of IT leaders in the IT budget and staffing survey have already postponed [49 per cent] or are planning to postpone [23 per cent] discretionary projects.)
That, he says, also goes for CIOs. IT spending, which this year is an average 5 per cent of revenue, according to the research, appears to many CFOs like a deep pool of money ready to be siphoned when financial statements need improving. But this is exactly what CIOs have to get ahead of. The risk, according to participants in a recent discussion at CIO magazine’s The Year Ahead Summit in the US, is that IT gets cut in the first wave, but if you cut too deeply — or in the wrong places — the company will be unable to respond to demand in the second wave. Our data points to several ways you can move around this dilemma. Namely, by developing traits that mark a seasoned, change-making CIO: Breadth of knowledge, the ability to sell a story and support it with data and the nerve to take charge. We aren’t saying you’ll be able to avoid cost cutting. Not this year. But if you take cues from CIOs who already practice these skills, you’ll likely cut judiciously, and in a way that allows you to pour your energies into the one thing that will help your company grow out of this mess: Customers. When the financial hell ends, maybe you will find that you yourself have withstood the needs test.
Our survey illustrates several areas where, clearly, CIOs and CEOs work in lockstep. Bravo that three-quarters of both sets of executives polled see technology as essential to the company’s sales and distribution model, for example. Sixty-five per cent of CIOs believe technology is a competitive weapon, as do even more non-IT executives — 72 per cent.
But the numbers also reveal disappointment in IT. For example, CIOs think they’re better at addressing four key business drivers than do their non-IT executive colleagues. This includes using technology as a core part of products and as a competitive weapon.
Fortunately, our data holds clues as to why this is happening and how to correct it. The upshot is that CIOs must sell the rest of the company on the value of the IT department and its work. So what does it take to sell effectively? There are four essential traits.
Trait 1: Range of knowledge
Executives who excel at leading a company through extreme stress tend to be multidisciplinary, says John Baldoni, a leadership coach and author of Lead by Example: 50 Ways Great Leaders Inspire Results. The same is true for CIOs in the current economic turmoil.
“You want your senior people to be deliberative, then decisive,” Baldoni says. Successful CIOs will be those who have rotated through other functions, run a line of business or in some other way learned a little something about life outside the datacentre. That would include CIOs who have climbed up through IT but, along the way, added an MBA or other advanced non-technology degree to that experience. Supply chain, engineering, and operations are all good, says Rich Adduci, CIO at Boston Scientific.
“Know something about everything and relate it all back to IT,” advises Adduci, who was an Accenture consultant before joining Boston Scientific in 2006. He has an MBA in finance and economics, along with an undergraduate degree in manufacturing.
Companies recognise that well-rounded executives can be more effective than deep experts. Among State of the CIO respondents, 64 per cent are responsible for a non-IT function in addition to their responsibility for IT. And this is not just the situation with smaller companies. The ratio of CIOs wearing two hats has increased among the highest-paid CIOs in our annual compensation study; from 46 per cent two years ago to 49 per cent last year.
Yet even if you lack direct experience outside IT, longevity at one company means you can take advantage of wide-reaching institutional knowledge. Be a student of the company you work for, advises Joseph Spagnoletti, SVP and CIO at Campbell Soup.
Spagnoletti, who has been at the company for almost 12 years, was promoted to CIO last August. Now the CIO position has expanded to include the Chief Process Officer role, leading business process optimisation across the company and not just within IT. The technology group at Campbell has, over the years, built a reputation as leaders of change management, he says.
Now when a manufacturing plant, say, has a big question to answer or process to hone, officials call IT for a consultation, he says. “There’s a dialogue where they will say, ‘There’s an outcome that we need. How do we get it?’ Not, ‘We need a new system. Please put it in.’” This improves the reputation of IT and, specifically, the CIO. It also gives IT inside knowledge of non-technology priorities for the rest of the company.
Trait 2: Power of persuasion
Think about your most influential colleagues. Not the ones with power inherent in their titles, but the peer influencers. They are powerful because of how they relay ideas. They tell stories that move you.
CIOs across the board must become better storytellers, says James Sutter, of Peer Consulting Group.
Too often, he says, IT is defined by how much money is in the budget. Don’t get stuck there. Not during a recession.
Accept that IT is almost always considered a cost centre, then move the conversation to what the company gets for that cost and, in turn, what it can offer customers, says Tim Young, vice president of IT at Bright Horizons, a childcare chain. Young likes to tell a story about the role IT can play in winning new deals, in part because of the company’s information security technology and processes. Bright Horizons was up against a rival for a deal with a large potential client. Young sent a member of his staff with the salesperson who was making the presentation to share the company’s views on privacy and risk.
“We were the only ones with a security expert right there on the ground. It blew them away,” he says.
Do security software, procedures and audits cost money? Of course they do. But not having those items, along with someone from IT to talk knowledgeably about them, would likely have cost Bright Horizons a client.
That’s the kind of great story about IT that a CIO needs to tell when the finance chief asks smart questions about expenses, Sutter says. “Shift the discussion from figures on a page to real life.”
Trait 3: Strength in numbers
You must support your command of words with an equally firm grasp of numbers. Like doctors tracking a patient’s heart rate and white blood cell count, CIOs should know their own vital statistics. Items such as IT’s current cost structure, including fixed and variable expenses, and the consumption factors that affect costs show how IT is performing. CIOs should know their own current and past performance metrics, as well as projections for the next three years, says Albert Eng, a former IT executive and senior advisor at Cerberus, the private equity firm that bought Chrysler in 2007. These figures are especially handy should your company become an acquisition target as the economy forces acquisitions and divestitures, Eng says. Having a good assessment of your team, understanding the capacity of your systems, maintaining forensic analysis of past projects and being able to present all of that in a compelling way to an acquirer amounts to “the best chance of survival for the acquired CIO,” he says.
Trait 4: Nerve
You know that leadership table everyone talks about? Create your own. Several CIOs we talked with about the survey note they have designated their own IT steering committees in order to match business goals to actual technology projects. They then invited the CEO to join.
It’s empowering, says Ian Patterson, CIO at online brokerage Scottrade. “I sit at [founder, president and CEO] Rodger Riney’s table, but Rodger sits at my table, too.”
That touch-point recently helped streamline application development work, Patterson says. At a meeting last October, he and Riney, along with various IT managers, were talking about the process of incorporating customer wishes into Scottrade products or services. Traditionally, a product development group outside IT meets with customers and filters requests to IT. “There’s a lot of back and forth, like a game of telephone [tag],” Patterson says.
Riney there and then suggested sending some of his key architects to attend customer conferences, to see and hear the wish lists first-hand.
A CIO and CEO on each other’s strategy committees means “It’s not just me listening and Roger telling. It’s not just one-way,” Patterson says.
The best CIOs tend to two goals: Making employees, also known as internal customers, more efficient, as well as directly helping bring in more paying customers for the company’s products or services.
But right now, most CIOs are doing only one of these tasks well, and they and their bosses know it. Asked in our State of the CIO survey to rank a list of 10 areas where IT had the greatest impact in the past year, CIOs put improving workforce productivity at number one. Managing customer relationships and acquiring and retaining customers took the two bottom spots out of 10. CEOs and business executives in Forrester’s poll agreed IT is far better at improving workforce productivity than getting and keeping money-paying customers. Yet acquiring and retaining customers will be the most important factor driving IT decisions this year, the CEO group says.
For some companies, such as Fandango, the online movie ticket seller, and Sabre, the airline reservation system, IT is the business. Elsewhere, some old-line companies have remade themselves around technology. Geico, for example, has seen its business soar online in the past three years as it built a new web infrastructure.
If CIOs think understanding the customer is someone else’s job, they will soon be out of a job, says Jess Reed, CIO at Geico. In addition to internal IT, Reed also oversees the company’s online division, which is critical to the company’s future. Most of Geico’s insurance quotes are produced online, as is most of the company’s new business.
“I can’t get away from growing the business and retaining customers,” he says. “I live it every day. It is part of my accountability.”
It’s not clear from our survey whether CEOs have given a clear customer mandate to CIOs. But it is clear that CEOs think technology is crucial to acquiring and keeping customers. That’s an opportunity CIOs would be wise to grab, to show some innovative chops at a time when new revenue-generating customers would be most welcome, says Sabre’s Vandevier.
But don’t wait to be invited. Use your nerve. It’ll impress the CEO, says Peer Consulting Group’s James Sutter. Let the CFO stay inside, working his spreadsheets, while you venture to branches, facilities, retail stores, wherever customers gather. “Get out there. The news will get back sooner or later. It wouldn’t hurt if you took some risks.” Tap your most promising staff to come along. This adds more and varied perspective to the knowledge you’re gathering. Plus, a special assignment like this also injects some zing into your staff’s work lives, especially effective as training and travel budgets disappear.
Indeed, the time will come this year to shrink expenses, if it hasn’t already. When it does, cut, yes. Defer, yes. But don’t go into a holding pattern, says Michael Rapken, CIO of YRC Worldwide, a US$9.6 billion transportation company. Enrich existing applications to, you guessed it, please the customer.
Don’t repeat history
Look at what happened the last time the economy tanked. After the dotcom bust in 2001, the view of IT and CIOs by extension, wasn’t exactly favourable. The genesis of that bust was largely IT overspending and promising more than could be delivered, and the rest of the world over-believing.
Close to two decades later, CIOs are wiser about defining new frameworks for generating revenue. That is, for collecting, parsing and interpreting the terabytes of data customers create and then giving salespeople the tools they want on virtually any computing device. But CIOs today must know more about translating business goals into IT projects, measuring the results and translating them back into a business success story.
What happens to CIOs on the other side of this economic bust will be different from 2001 only if you assert yourself, don’t wait for an invitation, certainly don’t wait to be told, says Young of Bright Horizons. “When we don’t rise up and deal with adversity, we will have to adopt someone else’s perspective,” he says. “It comes down to leadership and aggressive passion. If you don’t have those, the world around you is going to define who you are.”
Who you are, or should be, is a partner to the CEO in manoeuvering the company through these tough times. If some CIOs misunderstand the goals of their CEOs or the nuances of company operations, they can cut the wrong expenses and sack the wrong people, says Patterson, Scottrade’s CIO.
Know your business and assert and explain how IT makes a difference. Be an equal.
“You’re going to see CIOs who are just spending time down in the guts and looking at cost cutting and not working with their CEOs to talk about value,” Patterson says. “They’re not going to be long-term in their roles.”
In other words, don’t let yourself fail the needs test.
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