The Status and Pay of CIOs in Different Industries

“IT is IT is IT,” says Doreen Griffith, senior VP and CIO for Securities America, a financial services company. Griffith has worked in several industries, including energy, retail and consulting, and she concludes that the job is similar everywhere. And in fact, CIO’s “State of the CIO 2006” survey finds that regardless of the kind of company CIOs work in, they do face similar challenges and require the same skills to succeed.

But the survey of 545 IT executives is striking because it shows how different the CIO job can be from one industry to another. Some of these differences are not surprising, such as the finding that government CIOs are the lowest paid (making an average annual salary of $125,000). Others are unexpected. For instance, insurance CIOs are the best paid (with an average annual salary of $229,000). And despite the enormous burden placed on IT departments by the Sarbanes-Oxley Act, only CIOs in financial services and, to a lesser extent, health care listed regulatory compliance as a top priority for 2006.

Many differences speak to how an industry operates: Retail CIOs are obsessed with inventory management, while manufacturing is consumed with business process. Read on to learn more about what makes the CIO role in each industry unique and what CIOs say about the kind of executive who is likely to find success in each domain.

Finance: Riding High

IT executives at financial services companies command the highest status. Sixty-three percent hold the CIO title, compared with 50 percent overall, and 60 percent report directly to the CEO (overall, 42 percent do). These results underscore the extent to which information systems have become the lifeblood of financial services. Even CIOs in other industries say that financial services firms are ahead of the pack in establishing the CIO as a strategic leader and using IT to drive the business forward.

It follows that, unlike their counterparts in other fields, financial services CIOs seem to have conquered the challenge of business-IT alignment. As a management priority, this challenge tops the list for CIOs in the six other industries surveyed; financial CIOs rank it fourth. The reason? “[Alignment] is already there,” says Securities America’s Griffith. “The vast majority of our initiatives have an IT component. I’m part of the strategic planning team, and [business executives] know that they have to get us involved.”

But finance CIOs have worries that others don’t—specifically, regulatory compliance. While this challenge barely registered as a top-five priority in other industries (even CIOs in the heavily regulated health-care industry ranked it fifth), compliance is the number-one management priority for finance CIOs. They’re not only concerned about Sarbanes-Oxley. Financial services companies have to comply with a gamut of regulations ranging from Securities and Exchange Commission rules to antiterrorism laws. Griffith estimates that her staff spends 10 percent to 20 percent of its time on compliance-related work. Finance CIOs say that it could take a newcomer to the industry as long as a year to become familiar with all the regulations.

That would leave a new CIO little time to make her mark on the company. According to “The State of the CIO 2006” survey, finance CIOs have by far the shortest tenure, only 3.7 years on average. That’s partly due to the culture of the industry, where everyone is constantly looking for a better-paying or more prestigious job. But it also reflects an industry that values a quick pace and rapid change. Says John Arnold, CIO of FedMed, a small firm that provides financial services to health insurance companies. “You have to be a person who is willing to set aside yesterday’s challenge, perhaps forever, because a new challenge that takes priority came through the door.”

Insurance: Living with Legacy

IT in the insurance industry exists to make accessing old colossal systems easier for agents. It’s a never-ending task, which helps to explain why insurance CIOs have the longest tenure of anyone in our survey. While finance CIOs’ short tenure reflects the fast pace of that industry, insurance CIOs’ long one reflects their industry’s slowness to adopt new technologies.

“You can walk up to a wall anywhere in the world and access your bank account,” says Rob Shoenfelt, CIO of the Celina Insurance Group. “You can’t do that [with your insurance policy].” Insurance systems are massive and complicated. There is no federal agency that regulates insurance, so insurance CIOs must keep track of different regulations for each state. Given that, most insurance companies are loath to replace any system that works. The result is that many companies still run Cobol-based systems, and CIOs spend their time designing Web front ends that make the systems easier for brokers to use. “What we are trying to do is put the lipstick on the pig,” says Shoenfelt. Not surprisingly, 60 percent of insurance CIOs said that application development skills would be their greatest need over the next 12 months.

Because insurance companies rely on systems that have been in place for a while, there is a tendency for business leaders to view IT as a cost center and the CIO’s job as maintaining systems cheaply. Not surprisingly, 20 percent of IT labor for insurance companies is provided by outsourcers or outside contractors, the most of any industry except the government. “At the end of the day I am a service provider,” says Dave Robinson, CIO of The Lockton Cos., and he has to promote IT’s contribution to the business. “I need to show the value of what I do. I end up doing a lot of coaching and education.”

Health Care: A Difficult Patient

The effort to make health care more efficient while improving patient care has spurred the adoption of some cutting-edge technologies, such as sensors that report patient behavior over the Internet and devices that monitor vital signs. But the value of such systems are often difficult to quantify. That explains why health-care CIOs were the only ones to say that one of their top challenges is proving the value of IT projects. “In a lot of cases we go in knowing that there is no return for a project except increased quality [of care],” says Pamela McNutt, senior VP and CIO of Methodist Health System in Dallas. “And while we know that it is the right thing to do, it doesn’t have a measurable ROI.” Meanwhile, doctors, nurses and administrators are always eager to take credit for improvements.

Most health-care CIOs are undertaking projects that will increase the quality of patient care and reduce the cost. Almost every health-care organization in the country is in the process of implementing an electronic medical records system, a big project by any standard, but one exacerbated by the decentralized management structure inherent to the industry. Only 27 percent of health-care CIOs report to the CEO, the fewest of any industry. That is partly because the CEO at most hospitals is focused on fund-raising, but also because doctors drive decision making. They tend to view IT as a utility, CIOs say.

As a result, health-care CIOs often end up as the primary advocates for their projects. “Everything we do requires negotiation,” says Kristine Cerchiara, VP and CIO of the Jewish Home & Hospital Lifecare System in New York City. “There is no real authoritative umbrella, so you can’t accomplish anything by giving an order. You accomplish things by getting buy-in.” Accordingly, having good negotiation skills is more important to the success of health-care CIOs than for IT executives in other industries.

Health-care CIOs are the third lowest paid, ahead only of education and government CIOs. They say that they are motivated instead by the mission of providing better care to patients. Health-care CIOs say that it is an exciting time because so much of what is happening in the industry now involves IT. “The future of health care will be built on a platform of technology,” says John Schrenker, CIO of Lakeside Health System, near Rochester, N.Y. “Of course, not everyone in the industry realizes it yet.”

Education: Little Authority, Lots of Responsibility

More than in any other industry, CIOs in education are on the hook to deliver the ROI from IT projects without sharing accountability with end users. Partly that’s because education CIOs, 58 percent of whom have consulting backgrounds, are among the few executives in academia who have had experience with the concept. Meanwhile, as nonprofits, educational institutions are often willing to accept soft benefits in place of hard returns.

Education CIOs, particularly in higher ed, are concerned about security. Security expertise is number one on the list of skills they want from new hires, while ensuring data security is their number-one technology priority for 2006. “Businesses got religion on security in the ’90s,” says Jack Leifel, formerly CIO of the Cellular Infrastructure Group at Motorola and now CIO of Moraine Valley Community College in Illinois. “When I got here, I wanted to make one of my staff members a security manager, and so I asked a handful of schools to give me a copy of their security job description. No one had one.” Universities’ security weaknesses have been exposed in the past year, as dozens of schools were the targets of identity theft. The security challenge is heightened by the fact that students use different types of computers and very few of them are protected against viruses, says Stephen Fugale, CIO of Villanova University.

The biggest problem for university CIOs is getting resources. The job requires patience to wait through the approval process for their projects. “The decision process inside the university tends to take longer,” says Fugale. And it’s more bureaucratic than in the private sector. At Motorola, Leifel was authorized to make purchases of up to $250,000 for items in his budget plan. At the college, everything over $10,000 has to go through the board of trustees.

For those people who have the patience to operate in this environment, being an education CIO does have its advantages. “[At Motorola] I would be on the telephone at 10 p.m. on New Year’s Eve trying to close a deal,” says Leifel. “Here we shut down for two weeks every Christmas.” He adds, “I took a 40 percent pay cut, but I’m having fun again.”

Government: Money Troubles

Public-sector CIOs can sum up their problems in one word: money. While CIOs in every industry but finance cited inadequate budgets as a barrier to their effectiveness, government CIOs complain about their budgets to a far greater degree. “I look at the reports analyzing dollars per employee or percent of revenue going into IT,” says Rick Leu, CTO for the city of Akron, Ohio. “We are so far below that it is embarrassing.”

That makes budget woes the defining characteristic of working in government. “We have to figure out how to find resources,” says Sharon Trost, CIO of the South Florida Water Management District. “It forces us to set priorities.”

According to “The State of the CIO 2006” survey, the top priority for government CIOs is enabling customer self-service. Forty-one percent of public-sector CIOs listed that as the primary goal of their customer-focused projects. No other industry topped 10 percent. Giving citizens access to services online reduces administrative costs and has the side benefit of helping get citizens more involved with government, says Akron’s Leu. He is planning a project that would give contractors the ability to request and track the status of permits online. Government CIOs also outsource 25 percent of all IT work, more than any other industry. Leu, who doesn’t outsource, says the practice helps keep IT budgets down in part because the costs for in-house labor are reduced.

Private-sector CIOs considering a move to government would have to be willing to change how they work. For one thing, it’s more difficult in the public sector to negotiate a deal with a vendor. Government projects generally have to go through an open bidding process, which slows projects down but also results in lower prices than private-sector CIOs get. “People come in here and can’t believe how slowly we do some things,” says Trost.

Government CIOs may be the lowest paid; however they often have great benefits, such as job security. They also feel that they are contributing to the greater good in ways most private-sector CIOs don’t. And then there is the perk of rubbing shoulders with the nation’s power brokers. Recalls Leu: “Last year I was able to attend the U.S. Conference of Mayors, and I got to meet mayors from cities all over the country.”

Retail: The Supply Chain Gang

Getting goods where they need to be dominates the priorities of retail CIOs and the distributors who support them. Inventory management is retail CIOs’ top choice of business processes that can be improved with IT, while optimizing the supply chain is among their greatest technology priorities for the coming year. “My focus is on the supply chain, sourcing, logistics,” says Rob Janes, VP of information services and CIO for Kirkland’s, which sells home accessories. “It’s in my blood.”

Because technology plays such a big part in facilitating their business, retail CIOs think of themselves as service providers. Janes requested that his IT department be rebranded as the information services department to emphasize this role. Forty-one percent of retail CIOs surveyed said their role is to support and enable predefined business initiatives, while CIOs in other industries overwhelmingly see themselves as proactively envisioning business possibilities.

Because they work in low-margin businesses, the main job of these CIOs is to find ways to make operations more efficient. “There are so many opportunities to create efficiencies that you pretty much have to get that out of the way first,” says Laurel Johnson, director of IT at Cole Harford, a redistribution company.

Retail CIOs face some substantial hurdles, the topmost being that on average they have the smallest staffs of any industry but the public sector. “Our group is so small that I have more of a tactical role here than at other places [I’ve worked],” says Janes. “I have to stick my nose into a lot of things.”

Having a competitive spirit helps retail CIOs survive the pressure. “When you are doing well and the economy is down you can feel good,” Janes says. “Winning is fun.”

Manufacturing: Business Process Experts

Understanding business processes is a higher priority for manufacturing CIOs than for those in any other industry. They rank it higher among the personal skills they deem necessary for success than do other CIOs.

Like CIOs in retail, those in manufacturing are focused on efficiency. Shaving five or 10 minutes off the time it takes to make a product or service an order can have a huge impact on the bottom line, says Vicki Petit, vice president of IS for furniture manufacturer KI. “You have to be intimate with the business process in order to do that.”

There’s plenty of room for improvement. “IT has been a backwater in manufacturing,” says Mike Lecours, director of IS for The Gund Co., which manufactures and distributes electrical insulating products. “For a long time IT existed just to support finance. Now we’re proactive and looking at operations, sales, the shop floor and the shipping bays.” According to “The State of the CIO 2006,” 77 percent of manufacturing CIOs say their philosophy is to proactively envision business opportunities.

That historical backseat role of IT helps explain why manufacturing has the lowest percentage of IT executives with the CIO title: only 42 percent. (Another reason, according to Lecours, is that manufacturers aren’t hung up on titles). The longtime connection to finance also explains why more manufacturing CIOs report to CFOs (39 percent) than in any other industry, and why they’re focused on reducing costs.

Manufacturing CIOs identified reducing business costs as the primary way in which IT impacted the business last year (although reducing costs was the top impact of IT in most industries, manufacturing CIOs cited it to the greatest degree). For Lecours, that means keeping his staff small and outsourcing functions such as application and help desk support. He says he found it funny when server consolidation was the rage a couple of years ago, because many manufacturing companies had done it well before then.

Manufacturing CIOs pride themselves on having a “do more with less” mentality. IT budgets in manufacturing are only 4 percent of revenue, one of the lowest in our sample and half the average for all companies. Meanwhile, there are always new demands. The environment, Petit says, is fast paced. “I’m getting involved in so many new things that I don’t know what next week looks like,” she says.