The Evolution Of The CIO

The role of the CIO is at a critical point of change. It's time for CIOs to step up -- or step back.

By John Soat, InformationWeek, Nov. 17, 2007

At the annual meeting last month of the Society for Information Management, rumor had it that a bombshell was buried in the results of the organization's annual IT management survey. And so there was: The percentage of CIOs and other top IT executives reporting directly to CEOs had fallen dramatically from the year-earlier survey, SIM revealed.

Last year, 45% of the business technology executives surveyed said they report to the CEO; this year, it's just 31%. At the same time, the percentage of CIOs reporting to the company CFO has risen, to 29% from 25%.

The implication? The CIO's influence is waning. "If the CEO number is going down, clearly [CIOs are] losing traction," says survey principal Jerry Luftman, associate dean of the Graduate Information Systems Programs at the Stevens Institute of Technology. "I'm hoping it's a blip."

Another interesting result nestled in the SIM study suggests that IT execs aren't feeling altogether secure. For the first time in the 27-year history of the survey, execs were asked about "the evolving CIO leadership role," and they cited it among their top concerns--No. 10, precisely--indicating some uncertainty about how and where they fit within their organizations.

Whether the SIM data is an early indicator or a blip, there are signs that the CIO role is at a crossroads. "The non-business-oriented CIO is about to take a shift down a tick in the reporting structure," predicts Bobby Cameron, a principal with Forrester Research. M.S. Krishnan, chair of business information technology at the University of Michigan's Ross School of Business, presents it as a challenge. CIOs are "going to step up or they're going to step down," he says. "They cannot be where they are."

Because customers will increasingly have more choices, and because of globalization, companies will be forced to change their business models, says Krishnan, who with partner C.K. Prahalad is writing a book on the subject. As part of that transformation, CIOs have an unprecedented opportunity to seize control of their careers and help chart the future of their companies, he says. In order to innovate rapidly, a company's business processes must be docu- mented, understood, and governed, and where does responsibility for most of those processes lie in the modern-day, automated business organization? The CIO.

"It's IT that runs every business process today," Krishnan says. "And while the IT department takes the responsibility for running those processes--the applications are doing fine, transactions are going great--they don't take ownership."

But somebody will take ownership, he predicts, and soon. "As companies become global, this will become a critical position," Krishnan says. The overseer might be called one of several things: chief operating officer, chief process officer--or chief information officer. But if the CIO doesn't step up, he predicts, "the CIO will be subsumed."

THE DEMOCRATIZATION OF TECHNOLOGY

Bruce Rogow, principal of consulting firm Vivaldi Odyssey & Advisory, has been traveling the country for several years interviewing a spreadsheet's worth of CIOs in support of a project he calls his IT Odyssey. Rogow's most recent revelation: an alarming turnover in the CIO positions he's been tracking. "Everything I'm seeing says that we're in a transition period with the CIO," he says.

Some CEOs are beginning to question whether their companies even need a CIO, Rogow says, or at least if they have the right person in the job. That's because more responsibility for technology projects is moving into business units. One indication is that IT vendors increasingly are targeting business unit managers, pitching their products "to the people who use the technology," Rogow says, paraphrasing the vendors, "not to the fool who's keeping them from using it."

End-user-driven technologies such as software as a service, social networking, mashups, and wikis are contributing to what the University of Michigan's Krishnan calls "the democratization of technology," shifting IT responsibilities to business units and pressuring the CIO position to change. Rogow hits on an important point: There's a perception that IT departments in general, and CIOs in particular, are at best order takers and at worst control freaks.

In a survey conducted last month by InformationWeek Research of more 724 business executives--CIOs, CXOs, and line-of-business managers included--43% say that business managers are taking on more responsibility for IT projects; only 11% say they're taking on less.

That's a trend CIOs must be keenly aware of, says Forrester's Cameron. But of those who are, too few take it seriously. He offers the example of a $2 billion-a-year consumer services company in Canada he visited recently. The marketing department had signed up for a Web-based subscription software service, and Cameron summarized the CIO's reaction this way: "They're going to fail. They'll come running back." From another perspective, Aneel Bhusri, president of software-as-a-service startup Workday, says he targets mostly departmental executives but is ever-mindful of CIOs mostly because of the "veto power" they wield--hardly a strategic influence.

The irony is that for years, IT managers have been trying to get business decision-makers more engaged in technology. Now that it's happening, many want to shut it down. "But it's too late," Cameron says.

Mike Cuddy, CIO of Toromont Industries, a Toronto-based distributor of construction equipment, says the biggest change he's seeing from the business executive ranks is "a much greater sensitivity to the potential for the applicability of technology to business."

So what's bad about that? Here's what: Savvy business execs increasingly are aware of new technology trends and eager to have their companies embrace them. If there isn't a focal point for that change--i.e., the CIO--change will happen ad hoc: marketing guys looking at marketing solutions, finance guys looking at finance solutions. All those disparate systems will generate important corporate data that's spread across various business units. The net result: "You get a bit of a dog's breakfast," Cuddy says. In other words, an integration nightmare.

Those integration efforts generate higher infrastructure costs, which sounds all too familiar to senior execs who by now are well aware that "technology decisions made in a vacuum or a silo ultimately drive up costs," Cuddy says. Therefore, it's incumbent on the CIO to lead process changes through IT initiatives across the enterprise, rather than following the lead of departmental executives. Otherwise, the CIO role will be relegated to that of an infrastructure manager, responsible mostly for cleaning up the integration mess. Cuddy says he's seen CIOs replaced because "the perception was that the CIO was just a technology manager."

WHAT'S CHANGED?

John Zarb, a long-time technology manager, now an independent consultant, is unfazed by predictions of the CIO's demise. "When are we going to accept the fact that the CIO is vital, needed, and here to stay?" he says.

Churn in the CIO ranks isn't new and it doesn't necessarily mean the position is in danger of extinction, at least not any time soon. Umesh Ramakrishnan, vice chairman of executive search firm CT Partners, says his company is conducting more CIO searches this year than last, with eight to 12 going on at any given time. Also, the number of companies wanting the CIO to report to the CEO has increased in that time, he says, and current searches indicate an almost even split between the CIO reporting to the CEO and the CFO. That data point in the SIM survey may turn out to be a blip after all.

CIOs seem to be gaining respect, at least at some organizations. In the InformationWeek Research survey of C-level executives, 41% say the influence of the CIO at their company is on the rise, while 40% say there's no appreciable change, and 19% say that influence is declining.

So what's changed in terms of what companies are looking for in a CIO? "We're seeing a lot more business leaders being brought in to fill the CIO role," Ramakrishnan says. Those with proven records of solving business problems and increasing revenue streams are the ones most in demand; those who come in with a new set of toys ... not so much. "There's a bias against those who have implemented the latest technology but not solved any business problems," he says.

Tim Stanley, the hard-charging CIO of Harrah's Entertainment, the hotel and casino company, is a good example of the evolved CIO. Besides holding the title of CIO, Stanley is senior VP of innovation, gaming, and technology. In that role, according to his lengthy corporate profile, he's responsible for "the strategy, architecture, program management, development, support, and operations of the entire portfolio of Harrah's gaming and IT-enabled business capabilities in the U.S. and abroad, as well as the identification and enablement of new business & IT innovation within the company." Back to Krishnan's thesis: Business process ownership and oversight go hand in hand with Stanley's many technical responsibilities.

CIOs who want to step up must refocus the culture of IT, become more of a technology venture capitalist, says Dave Aron, a VP of research at Gartner. As such, they must challenge the value of projects, suggest alternatives, and make sure the proper procedures are in place, both inside and outside the IT department, to ensure success. CIOs must "exercise influence rather than just control," Aron says.

For Ken Harris, senior VP and CIO of Shaklee Corp., it helps that he works in a midsize company, and it isn't just the big-fish, small-pond factor. Harris, the former CIO of Gap and before that Nike, came to Shaklee two years ago, after the company was acquired by a private equity firm, to determine the role IT would play in helping the company "become relevant again to a younger generation" and figure out how to get "the biggest bang for the buck."

What's different about this current position, Harris says, is that it's much more about strategy than tactics. "I can help them make decisions that are doable from a technology standpoint," he says.

Harris is a believer in software as a service, not only for the low up-front costs but also for the rapid deployment capabilities, having implemented several SaaS projects at Shaklee in the last two years, such as RightNow's CRM service, Web analytics from Visual Sciences, and address verification with the help of data services company StrikeIron, which customer service reps had been clamoring for. "On the business side, users are demanding so much more, more quickly," he says.

One of the virtues of Web 2.0 technologies, according to Rod Smith, VP of emerging Internet technologies at IBM, is being able to act quickly on emerging business opportunities. Chief among them are partnerships, but partnerships create integration work, and the time frame for that work is collapsing rapidly, Smith told a group of financial services technology managers at a recent conference. Customers tell him that in the current business environment, 20% of relationships last less than six months, and that "drives IT crazy, because it takes IT six months to get started on a project," Smith said.

Those dynamics--speed, change, partnerships, business process transformation--will only accelerate in the coming years. "The next decade will not be about control. It will be about innovation without permission," says Jeremy Burton, CEO of Serena Software, a vendor of software-configuration and mashup technology. "Guys who made a reputation with control will struggle."

Or maybe they'll just stay where they are, consolidating data centers, maintaining applications, and managing server boxes, instead of leading business-process change through technology innovation. That change agent is a role that will surely be filled by someone. But if not by the CIO, then by whom?

Write to John Soat at jsoat@cmp.com.

Visit our CIOs Uncensored blog at informationweek.com/blogs/cios.htm.