CIOs Need to Snap Out of Complacency

As CIOs cope with digital disruption, the good news is that personal indicators lean positive. Compensation is up 7 percent, tenure holds steady, at about six years, and so does the portion of CIOs reporting to the CEO, at 44 percent, according to our 14th annual State of the CIO survey.

But don’t rest easy. This year’s results also reveal a collection of alarming disparities between what business colleagues want from IT and what CIOs think they’re providing. That gap came to light when we worked with market research firm IDC, a sister company of CIO, to survey 304 non-IT business decision-makers on some of the same questions the State of the CIO survey posed to 558 IT leaders.

When conceiving big projects, CIOs often talk about finding the “pain points” in a process and fixing them. That’s IT Management 101. But it seems CIOs haven’t identified all of the pain points in the interaction between IT and the rest of the company. For example, 54 percent of business leaders see the IT group as an obstacle to getting things done, but only 33 percent of CIOs have the same impression. Business leaders want the CIO to simplify technology; it’s the most important thing CIOs can do to improve relations, they say. They also say it’s much more urgent than CIOs think for the IT group to reorganize, to be easier to work with and to train IT people to focus on external customers.

[ State of the CIO: Research Slideshow ]

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[ State of the CIO: CIOs Still Need to Strengthen the IT-Business Connection ]

[ State of the CIO: Retailers Seem Less Concerned About Data Security ]

[ Opinion: State of the CIO: The Good, the Bad and the Scary ]

Some CIOs have already pointed their departments in the direction of customers. At Deutsche Post DHL, the German logistics and delivery company, a five-year transformation to unified digital systems worldwide was conceived for one constituent: the customer, according to Pablo Ciano, CIO of DHL Express Americas. “It’s an entire philosophy of a customer-centric culture we are promoting,” he says.

CIOs are spending more time overseeing the nitty-gritty of digital transformation work, such as implementing new systems and re­designing business processes, according to our survey. In some cases, that means a diminished role in big-picture strategic activities such as identifying new commercial opportunities. Specifically, 27 percent of our CIO respondents can be classified as business strategists this year, down from 34 percent last year. And 36 percent of CIOs admit they are fighting turf battles against others in the C-suite–a kind of tumult that can arise in times of big change.

What this means for the future of the CIO will depend on how CIOs manage today. When asked to project where the position is headed, 59 percent of business leaders said they see the CIO role becoming that of cloud wrangler, mostly orchestrating various IT service providers. CIOs themselves are almost evenly split on the prospect: 49 percent said they agree, 51 percent did not.

There’s still time, of course, to plot a more palatable future. Minding the gaps we’ve identified can provide touchstones for 2015 and beyond.

Make IT Easier

Thanks to the consumerization of the enterprise, employees today not only want technology that’s so easy to use that it requires no training; they also want the IT team to be easier to work with. Some CIOs recognize that and are taking innovative steps to meet that demand. At The AES Corp. last year, IT overhauled help desk processes and remodeled the group’s physical space to create the Connection Corner, which is similar to Apple’s Genius Bar. Help desk staffers are stationed at counters, and colleagues can pull up a stool to talk about technology problems and try out new gadgets. “We want people to walk by and just stop and ask questions,” says Elizabeth Hackenson, CIO and senior vice president of global business services at the $15.9 billion utility.

Moving traditionally back-office workers out into the open, among the people they serve, has helped make IT more accessible. “At first the guys were uncomfortable, but now they love the attention and the interaction,” Hackenson says.

At least one age-old IT practice appears to have lost its impact. Many business leaders are no longer impressed by the quick win. Pick a small but high-impact project and do it fast to prove IT’s value and generate goodwill, says conventional wisdom. But while 51 percent of CIOs named the quick win as a key tactic for improving relations with other departments, just 31 percent of business leaders said they think it’s an effective tactic. Ouch.

Sustainable change works better, says Jack Wood, CIO of Wayfair, a $916 million online retailer. Wood has a number of approaches. Each month, IT fans out to business groups for informal talks about technology or ideas. Late last year, IT created an offshoot support organization that works like a customer service group. There’s an 800 number and a single point of contact to make working with IT easier, Wood says. IT is held accountable for meeting agreed-upon service levels, such as efficient handling of trouble tickets. If the point of contact isn’t reachable, calls go right to Wood.

For CIOs struggling to correct bad relationships, Wood recommends creating an interdisciplinary staff. For example, when a new project starts, he goes to the business group sponsoring it to find candidates interested in moving to IT to manage the project. He likes those built-in relationships, he says, because they can ease communication and collaboration. The project managers, he says, “go back to those teams and say, ‘I’m now your advocate in the technology organization. What can I do to serve my old colleagues?'”

Similarly, Armstrong World Industries embeds senior IT people in business groups as relationship managers. “They’re not as concerned with the technology pieces as what capabilities they deliver,” says Tony Lombardi, CIO and vice president of global business services at Armstrong, a $2.7 billion manufacturer.

Lombardi takes seriously IT ideas that arise from non-IT colleagues. Last year, for example, marketing and sales people asked for an automated way to pass customer leads on to distributors and retailers via Armstrong’s website. IT also built a mobile tool to let customers visually match older Armstrong products with new ones, to order replacement parts easily. “We can save costs all day long, but IT should also build the company,” he says.

Make IT Smarter

For some years, CIOs have created opportunities for the IT group to learn about customers and envision news ways to keep them happy and help them spend their money. But business colleagues clearly want more. They cited the training of IT staff to focus on customers as an important way to elevate the IT-business relationship nearly twice as often as CIOs did, 30 percent to 16 percent. There was a similar breakdown on the subject of having IT staff call on external customers, 21 percent to 9 percent.

Ciano at DHL says visiting customers produces two major benefits. One is warm relationships between IT and sales. The other is customer loyalty which, when cultivated, results in revenue. He himself visits midsize and large customers with DHL’s field sales team, and he sometimes participates in phone calls with telesales staff. These interactions give him a chance to help solve customer problems.

Recently, a DHL sales rep was talking to a company about regularly shipping packages to multiple countries. The company wanted to present its own customers with shipping rates that include taxes and other destination fees. Ciano’s group had already built a tool that offers such information in real time, but the salesperson didn’t know about it. Ciano explained that the tool could be integrated into the shopping cart function of the customer’s website.

There was no extra revenue in it for DHL, but the customer was impressed and is now piloting another DHL product for international logistics. “Nothing compares to sitting in front of a customer and really understanding the opportunity,” he says.

At Wayfair, in the days before and after Cyber Monday, the IT staff works in customer service. Such “plug-ins,” as the company calls the rotations, often reveal tactical fixes IT can make. Wood recalls that during one of his rotations, he took a call from a woman who had ordered a sofa that turned out to be too big for her room. She hadn’t seen the complete product specifications when she was shopping on Wayfair.com. Wood had his team move the specs nearer to product images on the Web page.

Generating repeat business is key to Wayfair’s growth and so, therefore, is analytics to figure out two things: how to attract loyal customers and how to induce them to buy more than once in a quarter. The payoff is there: In 2013, the cost to acquire one new customer was $46 compared to $36 in 2011. That’s up $10. But revenue per customer increased much more–from $265 to $311, or $46.

IT is hungry for customer feedback. “We look at every piece.” Wood says.

Bill Swislow, CIO of Cars.com, sends IT staffers to sit with product developers and observe the company’s usability lab, where consumers test new website features. Cars.com has 4 million listings of cars for sale in the U.S. and handles 30 million visits to the site each month. IT staffers also go on sales visits to car dealerships and shadow customer service agents in the call center.

IT has as much responsibility as other departments for helping the company meet its business objectives, including Web traffic targets and conversion goals, Swislow says.

This year, the company plans to add a service to connect car owners with dealerships that have promised to guarantee the price repairs will not cost more than what the price estimator on Cars.com says they should. The company decided to enter the services market after hearing from customers who want a reliable, objective source for information about repairs, Swislow says. IT and product developers listened and worked closely to develop the new tools.

“The idea that business and IT are separate is not healthy,” he says. In fact, he adds, “it’s unsustainable” as traditional companies–not just his own Web-based one–become true digital enterprises.

Make Your Own Future

As roles emerge that bump against CIO boundaries–chief digital officer, chief data officer, chief transformation officer–some observers are quick to declare that the strategic value of the CIO is waning.

Caroline Basyn left the CIO title behind last fall when she became SVP of global business services at Mondelez International, a food conglomerate with 53 brands that include Cadbury, Chips Ahoy and Ritz. Mondelez hired Basyn, who was CIO at Bacardi for three years, to help implement a corporate restructuring that’s expected to save at least $1.5 billion by 2018.

“I don’t know if I will have the CIO title again,” Basyn says. “I’m not against it, but I hate to be complacent. I like transformation and building organizations from scratch.”

Because more corporate departments have their fingers in the technology pie, a whopping 36 percent of CIOs say they’re involved in a turf battle in the C-suite. What’s more ominous is that 47 percent of non-IT executives agree, suggesting the struggle is bigger than CIOs realize. Some CIOs are losing the battle, whether they know it or not. Thirty-seven percent of business leaders say the CIO is being sidelined, compared to just 20 percent of CIOs. Knowing for sure that you’ve been sidelined is a little like trying to assess shadow IT. It’s underground by nature and therefore difficult to gauge. It doesn’t help that about half of business and IT executives acknowledge the unfortunate reality that IT gets scapegoated whenever anything goes wrong anywhere in the company.

However, it is possible to counteract those intense forces with a series of well-planned moves. For starters, CIOs this year must come out strong on security to satisfy the CEO, says Armstrong’s Lombardi. After witnessing hacker invasions at Home Depot, J.P. Morgan, Kmart and Target, security rose to No. 4 among the most important issues CEOs want CIOs to address. That’s up from No. 8 last year (see “Retailers Less Focused on Security,” page 26). Now is the time to ask for more money and manpower for security work. More than ever, this year the CIO’s role is to serve and protect.

“Based on what’s happened this year, it’s where you lose your job,” Lombardi says, noting that the audit committee of Armstrong’s board of directors regularly invites him to meetings for security updates. They discuss his strategy and how the internal audit department assesses it. Last year, he got more money for tools and hired more security staffers. “They want to know we take it seriously,” he says.

Another move: Smarter hiring. IT staffing is notoriously difficult because CIOs have to respond to business conditions and customer demands as they shift. Hiring for IT isn’t as predictable as hiring for, say, accounting, where the volume of work stays steady in a given year, says Swislow, CIO at Cars.com. A healthy economy may trigger more business ideas for the technology group to support.

“When you look at technology as your innovation and expansion strategy, there’s no upper limit on that,” he says. There are always new ideas and new customer needs. “No one’s going to say, ‘We only need three units of innovation and that’s it for the next year,'” he says.

At Armstrong, 25 percent of the 145 people in IT are eligible to retire, and they could take important technology and business expertise with them when they go. “You don’t transition that knowledge in a 30-day overlap period,” Lombardi says. “That’s my biggest issue.”

That specter has changed his approach to hiring. He seeks IT professionals who have proven skills in relationship-building and innovation. The ability to influence others is also important. In other words, he wants sophisticated interpersonal skills that usually come later in one’s career.

The IT talent search will only get harder. Our survey says 56 percent of CIOs expect a talent shortage in the coming year, led by shortfalls in big data, security, programming and mobile.

CIOs must also demonstrate deft handling of budgets and a facility with financial matters, says Hackenson. She has spent much of her time in the past several years cutting IT’s costs and helping other groups cut theirs. But this year will be one of growth and, yes, IT spending, she says. AES is getting a new treasury system and an upgraded accounting system. A cloud-based talent management application is also planned.

IT costs will rise, but business units will see cost savings or productivity improvements. The CFO and CEO have to look at the financial ebb and flow holistically across the company, not department by department, Hackenson says. Still, business units should bear some of the costs of projects. Generally, she says, CIOs should be “pushing back and saying, ‘This business case can’t be all on IT.'”

Developing general business skills will enhance a CIO’s value says Wood at Wayfair. Preparing for the retailer’s initial public stock offering last summer gave Wood new skills, such as financial modeling for IT and the company as a whole. He gained a higher-level strategic view of the short- and long-term financial implications of key projects, like building a data center. He also had to make sure the IT group was airtight–staffed up, and running stable systems that didn’t give internal and external auditors anything to flag as potentially troublesome enough to delay the IPO, he says.

Maybe the best thing a CIO can do right now is to stay sharp–especially the 44 percent in our survey who report to the top boss.

Reporting to the CEO may mean you’ve arrived, but it doesn’t mean you’ll stay. The CIO’s tenure often depends on the quality of the CIO-CEO relationship. Hackenson started to report to AES CEO Andres Gluski in 2012, after reporting to him for three years when he was COO. “A CIO has to bring a lot of currency,” she says, meaning trusted, intelligent advice and tangible results. “I’m always thinking, ‘This is a privilege and how do I maintain it?'”

CIOs must pay close attention to the challenges the company faces, and not make every conversation about technology. Corporate strategy, significant financial investments, investor concerns–these now land in a CIO’s lap, Hackenson says. Along the way, she looks for opportune moments to insert an IT accomplishment into the conversation, such as how tele­presence has helped cut travel costs from $70 million per year to $30 million. Big money. “I’m not constantly in his face with KPIs but I look at it as situational leadership,” she says. “You have to stay on your game.”

Retailers Seem Less Concerned About Data Security

Despite the data disasters at Target and Home Depot, retail CIOs have a below-average interest in upgrading cybersecurity

A slew of high-profile data breaches have apparently pushed security higher on the agenda of corporate America, according to our 2015 State of the CIO survey. The survey finds that upgrading security is among the top four priorities that CEOs have for their CIOs in the coming year. But there’s one surprise in the survey results: Despite the headline-grabbing security disasters at retailers such as Target and Home Depot, CIOs in the retail, wholesale and distribution industries are less likely to give security top priority than CIOs in some other industries.

Overall, 23 percent of CIOs say that increasing cybersecurity will be the most significant reason for IT investments this year. But in an industry-by-industry breakdown of the results, only 18 percent of the CIOs in the retail, wholesale and distribution industries said they feel the same way. In contrast, 41 percent of CIOs in high tech, 32 percent of those in financial services and 29 percent of government and nonprofit CIOs said security will drive spending.

In the survey, retail CIOs rank omnichannel projects, business process improvement and customer acquisition and retention ahead of security.

“At the risk of generalizing, retail companies tend to be very reticent to make investments in technology or software that doesn’t appear to have a bold, straight line back to sales or profitability. They tend to be rather shortsighted in terms of investment and payoff on things like data security,” says Doug Stephens, president of Retail Prophet, a management consulting firm. “I do think, however, that there will be a growing realization that data security and respect for consumer information will prove, in the end, to be a powerful competitive advantage and spur greater investment by retailers in the tech and protocols to provide it.”

But for now, the focus is on profits. “Retailers are under enormous strain to keep afloat. Consumers are more conscious and surgical in their buying behavior, price competition is ferocious, and pressure from e-commerce continues to grow,” Stephens says. “In this environment, issues like security, environmental sustainability and employee welfare have all taken a back seat to survival.”

While many retail CIOs did not place security atop their priority lists, they’re not ignoring it. “I definitely put security near the top, in light of recent events like Home Depot,” says Jack Wood, CIO of Wayfair, a $916 million online retailer. “Anything that touches customer data tends to be a priority for us. Cybersecurity ranks among the highest for those.”

But the security challenge can be daunting. “There are so many different vectors that threats can come from,” Wood says. “It’s very hard from a cost perspective and effort perspective to focus on all of them.”

Wood says he’s addressing security by examining Wayfair’s technology stack and making risk assessments to ensure that he has made the right investments.

— Thor Olavsrud