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.