Where IT Reports

Is it really that important to report to the CEO, not the CFO?

Last week, one of my coaching clients, the CIO in a mid-sized manufacturing company, was so frustrated that he was on the verge of quitting his job. Ernie felt he doesn't have the clout he needs to do his job, and this is primarily because he reports to the CFO rather than the CEO.

After talking through the situation, we came to two conclusions. First, "clout" isn't what Ernie needs. The problem that triggered his frustration was a business unit leadera clientwho was not going along with the ERP initiative that IT felt responsible for implementing. After reviewing my prior Beneath the Buzz column on ERP, Ernie realized that IT's job is to sell clients what they want to buy. IT cannot force ERP on them "for the good of the corporation"that mission is doomed from the start.

Second, we agreed that reporting directly to the CEO would not have resolved this situation. Indeed, it isn't even an issue that should concern a CIO. Here's why we came to that conclusion.

Why Report to the CEO

Ernie rightly pointed out the value of reporting directly to the CEO (aside from the obvious ego boost and maybe even better compensation). Direct reporting would give him a "seat at the table"involvement in corporate executive meetings.

If Ernie were involved in corporate strategies at that level, he could not only better support the business; it would give him the chance to contribute to strategy decisions, perhaps pointing out business opportunities that are enabled by IT and otherwise wouldn't be possiblethe opportunities at the top of the stair-steps of IT strategic value (described in another prior Beneath the Buzz column).

Furthermore, it would give Ernie the perceived rank that would help to open doors. He'd be more comfortable calling other corporate executives to resolve issues that occur at lower levels, talk about their businesses and find high-payoff opportunities for IT.

Beyond that, with such a position, other executives might get the message that IT is indeed important to the company. That, too, might open doors. And, of course, there's the matter of "clout." Ernie understands that he can't use power to beat clients into submission; as an internal service provider, he knows he's got to earn clients' business by delivering value, performance and excellent relationships.

Still, clout may be advantageous. As a direct report to the CEO, a CIO might be in a better position to set policies that coordinate and control all IT (even the decentralized IT groups that don't report to him).

But, sigh, despite all these arguments, the reality is that Ernie reports to the CFO. There's no way the CEO is going to take on another direct report.

What's a CFO?

With that understood, we examined his boss's job as CFO.

Of course, the CFO manages the corporate finance function. But in this case, he also has procurement (a big deal in a manufacturing company), facilities, administration and, in this company, the CFO even manages business development (acquisitions).

This CFO is certainly not just a "bean counter." Ernie realized he actually reports to a "chief of staff," not the finance function. And he sits alongside of a number of very strategic functions.

Perhaps the positioning of IT under the CFO isn't a slap in the facea symbol of the lack of appreciation of the importance of IT. Perhaps it's simply a matter of the CEO's span of control. With a variety of business units to manage, the CEO needs a chief of staff to supervise the internal service functions.

By the way, Ernie already is a corporate officer, with all the perquisites and prestige that brings. So reporting a level down doesn't cap his income or limit his ability to call up business unit leaders directly, corporate officer to corporate officer, peer to peer.

With that understood, Ernie's position didn't look so bad.

One Downside

We did find one disadvantage to reporting to the CFO (read "chief of staff"), and that occurred during the budget process.

Since the finance function also reports to the CFO, Ernie's boss is ultimately responsible for extracting cuts from all the business units when money is tight (and it always is). In past years, the CFO felt he should show leadership by volunteering cuts in his own area. It didn't help that the CFO came up through the finance ranks, and at one time was the controller.

As a result, IT didn't always get the funding it needed to do what was expected of it.

Of course, the root cause of this problem is not really where Ernie reports. It's a budget process that depends on political bargaining rather than investment analysis.

The solution is a budget that portrays the full cost of each of IT's products and servicesnot just the traditional expense codes like travel and training. Then he could address the demand to cut his budget by simply asking, "What do you want to not buy from us?"

Typically, we've found that business units (who benefit from IT) then come to the defense of the IT budget, and the "do more with less" fantasy is dispelled.

So even this apparent disadvantage isn't strictly because Ernie reports to the CFO.

A Real CFO

There are other companies where IT reports to a "real" CFO, not a higher-level chief of staff. In these cases, the CIO would have peers with titles like accounting, budget, controller, financial analysis, treasury, tax, etc.nothing but financial functions. Reporting to a real CFO does create real problems.

One common problem is captured in the phrase, "Where you stand depends on where you sit." It's not uncommon to find a disproportionate share of IT resources going into financial applications, and far too little invested in the broader needs of the business. Even the resources that are dedicated to the business tend to focus on cost savings rather than strategic opportunities.

Another common problem is the control mentality that surrounds IT. It's often difficult for a CIO to engender a customer-focused, business-within-a-business culture in this environment.

Additionally, all Ernie's arguments for reporting directly to the CEO (above) certainly do apply in the case of a boss who's really just the finance function.

Earn It

The bottom line is this: It's ideal for IT to report directly to a CEO. But reporting to a chief of staff isn't terrible (even if he/she is titled CFO). On the other hand, it's certainly not good for IT to report to the head of finance. But in all cases, where IT reports should not be something that a CIO worries about.

In the course of our coaching session, Ernie understood that his elevation to the tier-one level is a reward that comes after he earns it. It's not a prerequisite to succeeding in his job, and not something he can demand in advance. Even if the CEO were willing to stretch his span, Ernie hadn't been with the company long enough to earn the credibility it would take to ask for it.

Investing thought and energy in where one reports is like focusing on the trophy at the end of the race rather than on winning the race that's immediately in front of you. That's a sure way to lose the race!

Instead, an effective CIO focuses on building a customer-focused, high-performance internal service providera business within a business that earns the position of clients' vendor of choiceand on helping the entire enterprise understand and glean the strategic value of IT.

Do good work, and rewards will come.

Dean
You can read a version of this article on the author's website, with links to other columns, relevant white papers, books and other resources. Dean Meyer helps IT leadership teams design high-performance organizations. Contact him at dean@ndma.com or visit his website for information that can help you implement these ideas, or with suggestions for other buzzwords to analyze in future.

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