The State of the (IT) Union: CIO to CEO

With growing pressure on profitability, shareholder accountability, and regime changes resulting from the trickle-down effect of accounting irregularities, it is no wonder that CIOs are finding themselves facing restructuring and reorganization. The key to CIO survival is calculating the incoming CEO’s understanding and commitment to IT and having a “state of the union” script ready for the CEO to forge a credible and lasting partnership in meeting competitive challenges.

META Trend: Through 2006, CIOs will build on their IT strengths in pattern recognition, process creation, teamwork, and analytics to gain a seat at the business strategy table. Horizontal integration successes (such as, mergers/acquisitions, joint ventures) will result in most CIOs reporting to CEOs by 2008, with some gaining additional procurement, contracting, and facility management duties. As CIO duties change through 2010, so will their IT organizations, lieutenants, centers of excellence, and staff positions. Executive education complexity, however, will not lessen as markets and customers rapidly change.

As predicted in 2002, the continued demand for seasoned executives will result in a further drain on the existing talent pool of qualified CEO/CxO resources through 2005-07. Although this trend is increasingly creating opportunities for CIOs to move into the executive office as top-level contributors to enterprise success, technology complexity is increasingly difficult to manage. Moving on up may well take a backseat to a CIOs ability to create organizational processes, structures, and competencies that support agility. These too are transferable (and needed) in the corner office. However, in the quest for the corner office or for forging a union with an incoming CEO, the CIO must have a credible playbook – a state-of-the-union address – suitable for a brief presentation to the CEO and the board of directors. Knowing the key signs as to whether the CEO is technology-agnostic or embraces IT as a competitive differentiator can make all the difference in successfully aligning (partnering and allying) the IT organization (ITO) and CIO with the incoming CEO. By 2006, as world-class CIOs enlighten other executives on successful CEO partnerships, the average CIOs tenure will increase to 30 months. By 2008, more than 60 percent of CIOs will report to CEOs (up from the current 41 percent). Many CIOs will become harvesters of their adaptive infrastructures or stewards of corporate growth opportunities.

Understanding the enterprise’s core business values, competitive challenges, and transformation capabilities of IT and contributing to the organization’s ability to reach business objectives and promote brand identity are the hallmarks of a savvy CIO with aspirations to forge a relationship with the CEO, board, and management committee. CIOs should undertake the following: seek opportunities to further align IT resources with business objectives (possibly as complex as proactively defining due diligence checklists for M&As or divestiture). CIOs must balance portraying themselves as team players and projecting themselves into leadership roles. They must be business-savvy and have the ability to negotiate and support sound opportunity-seizing business objectives (see Figure 1).

The Executive Agenda: Sign of the Times

Savvy CIOs conduct a background check on incoming CEOs (such as, prior company SEC filings; annual reports; letters to shareholders; Internet meta search for articles, speeches, biographies, publications). Key questions to keep in mind when determining the CEOs and other executives affinity (or ambivalence) toward IT include:

• How has the CEO demonstrated leadership and commitment to using information technology to advance the organization’s strategic goals?
• Does the CEO actively engage the board, community, and stakeholders in the development of information technology strategy?
• Has the CEO established a long-range financial plan that includes a specified commitment to information technology?
• How has the CEO helped achieve measurable results through leadership and commitment to information technology in the organization? Does the CEO consistently identify information technology outcomes as a key measure of institutional performance, including incentive compensation goals for the senior team?
• How has the CEO shared organization information technology experiences to benefit peers and other members of the industry? Do speaking engagements by the CEO specifically include information technology topics?
• Is the CEO viewed by peers in the industry as an information technology leader? Does the CEO view and promote technology as a strategic market differentiator?

Four Areas of Critical Focus

The first critical element is IT strategy. Strategy is one element of a well-defined, well-understood strategic vision of what the IT environment must be. This vision (environment scan, market review, business needs analysis, and IT prescience) should position the CIO to support and grow or to transform the business. Of course, it must be a vision the CIO is capable of realizing to include closing any gaps. When creating a vision and strategy, the CIO must pay heed to the whole range of artifacts and circumstances relating to both external market/business trends and the ITOs own strengths and abilities to ensure corporate growth and transformation.

The second critical element of focus is IT value creation and portfolio management. IT return on investment capital (ROIC) means growing value for ITO shareholders. Benchmarking and market comparisons may be necessary to assure the CEO that the enterprise is paying the appropriate price, or a reasonable premium, for value-add IT services. This means the CIO must understand and communicate the financial picture of the IT investment portfolio to the CEO and line-of-business (LOB) executives.

The third critical area is IT and ITO integration. For a CIO to realize IT strategies, the ITO must wholly integrate itself into the enterprise as a cohesive, integral part and valued partner (trusted and respected). Of course, this entails paying close attention to the myriad facts about how the business operates and what the business needs are, as well as constantly communicating how IT is aligned and positioned to treating the business as a valued partner and IT services customer.

The fourth area is LOB customer satisfaction. An incoming CEO will certainly look at IT financial performance, IT/LOB investment ratios, benchmarking data, and ITO/LOB strategic alignment. That said, what is truly important is whether the enterprise perceives it is receiving real value for the level of IT investment, whether the ITO is credible (for example, does what it says it will do, manages expectations), and whether the level of dependency of IT services is high (for example, information is timely, accurate, and reliable). CIOs would be well advised to survey the organization annually with special attention paid to key stakeholders perceptions of the ITOs performance and IT ROIC.

CIOs are uniquely positioned to formulate a state-of-the-union communiqué for the incoming CEO that conveys (and forecasts) IT value and the ITOs positive impact on meeting business objectives and managing operations costs. Failure to take a proactive role in establishing a trusted, respected, and credible relationship with the incoming CEO suboptimizes IT value and may result in the CIOs replacement during the inevitable regime change. Savvy CIOs will assess the incoming CEOs traits and seek to establish a credible trusted relationship with the CEO. CIOs should collaborate with LOB colleagues and prepare a state-of-the-union address outlined in a brief and concise CEO/board-level presentation (see Figure 2).

− Business imperatives

− IT initiatives alignment

− Capital

− Expenses

− Depreciation

− Return on investment capital

− Operational performance (by vendors/applications/LOB functions)

− Executive perceptions

− Overall response

− Change/improvement YTY

− Functions

− Key staff

− Succession plans

− Summary description

− Progress

− Financials (allocated versus committed)

− Benefits

− Status

Few CIOs actually do something meaningful to understand their CEOs and influence their perceptions. CIOs must understand the DNA of the incoming CEO and master communications and relationship building during the arriving CEOs first 100 days in office.

Bottom Line: Although information technology has become a vital part of the CEO agenda, CEO turnover is inevitable. CIOs must forge a credible relationship with the incoming CEO or risk being relegated as a commodity provider, or worse, replaced.

Business Impact: CIOs who demonstrate their business acumen and leadership skills while promoting IT business value alignment will find it easier to earn a seat on the executive committee and earn the trust, respect, and confidence of the incoming CEO.