CIOs who underestimate the beastly U.S. economy and overestimate their own prowess risk losing their jobs in the coming year. And the count may be surprisingly high. Senior technology executives feel quite confident in their abilities and reach, according to our eighth annual "State of the CIO" study. But they may not see the dangerous gap between how they and their bosses rate their work.
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At first glance, the view from the CIO seat looks lovely. More of you report to the CEO and
sit on executive management committees this year, our study found. Tenure is up and so is
pay. Nearly two-thirds of you also lead a non-IT function, such as operations or customer
Technology, you report, is core to your company's products, to your distribution and sales models—heck, even to the very ways your company defines itself against competitors. And, you say, the IT group is pretty darn good. For example, 70 percent of the 506 CIOs polled said that IT is considered an integral business partner by the rest of the company.
You got it goin' on, right?
Maybe not. This year we compared your views with those of CEOs and other business executives surveyed by Forrester Research, which asked 600 big bosses 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 think. For example, 46 percent of Forrester's business respondents rated IT "fair" or "poor" at improving the quality of products or processes.
Further, 64 percent 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 alive: customers. Asked which activities IT had the greatest impact on in the past year, only 15 percent of you chose managing customer relationships and 11 percent said acquiring and retaining customers. Those who expected to do great work in each of these areas next year: just 17 percent.
Among CEOs, 53 percent said acquiring and retaining customers is a business driver important to IT decisions. Yet how well did IT support that endeavor in the past year? Forty-nine percent of the business execs judged IT's performance as "fair" or "poor." Another five percent 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 $25 trillion from the world economy, with half of that happening in the United States. 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, reorganizing and rethinking IT because, already, disruption is everywhere. According to our recent research on CIOs and the economy, 40 percent of 243 IT leaders plan to cut their budgets from last year's level. Twenty-three percent of respondents have reduced staff in the last six months and another 11 percent plan to by April.
At real estate developer Lowe Enterprises, for example, CIO Rick Belmonte says he has cut 20 percent of his corporate IT staff, from 15 to 12. Another IT person in the field was laid off, bringing Lowe's total IT staff to about 65. The company also deferred most new development projects to 2010, Belmonte says. Before the federal government rescued insurer AIG from certain bankruptcy with an $85 billion bailout, Patrick Lanza, CIO of an AIG business unit, was working to integrate the separate general insurance IT systems of several lines of business. Now he's helping untangle those systems, he says, as AIG prepares to divest "toxic assets."
Conseco, another insurer, is better off financially than AIG, but still posted a loss of $180 million last year. CIO Russ Bostick gets calls from staffing firms about job candidates he won't hire. "We've been managing backfill requisitions very tightly," Bostick says. At 650 worldwide, IT headcount has drifted to a five-year low.
James Sutter, senior partner at The Peer Consulting Group and a former chief information technology executive at Xerox and Rockwell, points out just what it means that 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 percent of IT leaders in our IT budget and staffing survey have already postponed [49 percent] or are planning to postpone [23 percent] discretionary projects.)
That, he says, also goes for CIOs. IT spending, which this year is an average five percent of revenue, according to our research, looks 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's The Year Ahead Summit, 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. "In times of crisis, the business will try to create new products to get revenue," said June Drewry, former CIO of Chubb. These days, new business initiatives invariably involve IT in some way. In the wake of slashed IT budgets, growth-thirsty executives will find the well dry. In addition to stoking internal dissatisfaction with IT, that syndrome can further distress the business. That's no good for anybody. "That's the problem with centralized IT," said Drewry. "When budgets are tight, they're pointing the finger: 'It's you, not us.'"
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 (
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 (
Such disconnects are "shocking," says Jess Reed, CIO at Geico. "If you truly have alignment, you're not going to have that surprise."
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. "IT leaders struggle with marketing their value," says Ken Zivic, a consultant at the IT advisory firm Forsythe, because they imagine selling an unsavory practice. It doesn't have to be.
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, adding that it helps if they've led through a recession before, which probably means they're over 40. 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 data center. That would include CIOs who have climbed up through IT but, along the way, added an MBA or other advanced nontechnology 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, and an undergraduate degree in manufacturing.
Companies recognize that well-rounded executives can be more effective than deep experts. Among "State of the CIO" respondents, 64 percent are responsible for a non-IT function in addition to their responsibility for IT. And this is not just a phenomenon of smaller companies. The ratio of CIOs wearing two hats has increased among the highest-paid CIOs in our annual compensation study, from 46 percent two years ago to 49 percent last year.
A breadth of knowledge simplifies communication, especially in those heavy strategy meetings where, these days, the pressure to cut, cut, cut spending can be enormous. Senior executives who can spend less time explaining basics and more time adding nuance to each other's points will make sounder choices, says Bostick, CIO of Conseco. "You can make faster decisions with such people."
When Conseco's executive vice president of operations was promoted to president of the company's core insurance group, Conseco divided that executive's duties between Bostick and the head of sales. Bostick recently hired a senior customer service executive who is also a lawyer. "We all wear many different hats, and that's what creates alignment."
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 in August, replacing Doreen Wright, who retired. Now the CIO position has expanded to include the Chief Process Officer role, leading business process optimization across the company, 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 nontechnology 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 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 center, 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. 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."
No one advocates vapid spin. Rather, you collect facts and know your material well enough to fit the pieces together to show something new about your topic, whether it's your project, your staff or yourself.
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.
Even on a daily basis with no M&A scenario at hand, Barry Vandevier, CIO at Sabre, knows how compelling numbers can be. The $3 billion travel marketing and distribution company has been "on a mission," he says, to tamp IT costs for several years, having been dealing with the pressures on the air travel industry for that long.
Labor has been one area of steely focus. Sabre studied the economics of staffing in the U.S. and other countries and concluded that domestic work is more expensive. But Sabre didn't outsource on a mass scale. Instead, the company started hiring in different geographies, such as Poland, South America and India. Decisions about where to staff were tied to the company's focus on broadening its customer base and the possible advantage of having technology and its delivery teams close to their customers. In 2003, 85 percent of Sabre's technology workforce was in the U.S. By 2006, it was 45 percent, about where it stands today, Vandevier says. In part, that's because of a European acquisition, he says. "But also, we had a big move in workforce, pushing for more efficiency. This is nothing new with us."
Trait 4: Nerve
you know that leadership table everyone talks about? Create your own. Several CIOs we talked with about the survey note that 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 in 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," Patterson says.
Riney there and then suggested sending some of his key architects to attend customer conferences, to see and hear the wish lists firsthand.
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.
At Bright Horizons, Young created an information risk committee that he cochaired with a senior attorney in the company, and he asked the chief financial officer, CEO and other senior executives to join. He did it partly to show IT's ability to innovate in the areas of privacy and information risk.
"When are IT leaders going to stand up and define frameworks on their own rather than rely on 'the business' to do it for them?" he asks, emphasizing that "the business" and IT are really one and the same.
By the way, it must be noted that cultivating nerve would also allow CIOs to seek out assignments needed to become multidisciplinary and tell their IT success stories.
The best CIOs tend to two goals: making employees, also known as internal customers, more efficient. And 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 as 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 that 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 Geico's Reed. In addition to internal IT, Reed also oversees the company's online division, which is key 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."
He's not kidding. Reed urges even casual business contacts (such as a reporter interviewing him for an article) to visit Geico.com for a free insurance quote, supplying a special code to type in for data mining purposes.
But in nearly all industries, technology will touch nearly every customer, says Shane O'Neill, chief technology officer at Fandango. "Even if it's company-to-company self-service on the Web, with people just looking for information about you, that's a customer transaction that IT touches directly."
A traditional focus on serving internal users holds some CIOs back from interacting with customers or even researching information about customer trends, says Michael Rapken, CIO of YRC Worldwide, a $9.6 billion transportation company. "As much as we all want to do that, most CIOs are going to think about supporting sales and marketing, not thinking about how can I go generate revenue."
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 key 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 (read: told). Use your nerve. It'll impress the CEO, Sutter says. 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."
Robert Fort, CIO at Virgin Entertainment Group, chats up customers when he drops in at Virgin Megastores, to see how they're using the in-store kiosks and listening stations. Vandevier goes on Sabre sales calls.
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, Rapken says. Enrich existing applications to, you guessed it, please the customer.
Rapken still sends managers from the IT department to visit other departments to listen to their ideas for new features for YRC's new online customer billing system. "You have to be creative and innovative, even if the overall goal is to hunker down and cut costs," he says.
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 favorable. The genesis of that bust was largely IT overspending and overpromising, and the rest of the world over-believing.
The better part of a decade 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 maneuvering 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.