The State of the CIO: The Agenda

As 2006 dawns, you don’t have to make a New Year’s resolution to get to the gym more. Your cost-cutting diet of the last few years has taught you how to make the most of the resources you’ve got. You’ve shed that tired old “geek” label by developing strategic sensibilities, business acumen and communication skills. You’ve responded to catcalls about whether IT really matters by delivering value for the business and claiming a seat at the executive table.

“The State of the CIO 2006,” our fifth annual exclusive report, finds CIOs in better shape than ever before. IT budgets are strong, and pay and job tenure are up. You are usually part of the management team, and you report more often to the CEO than you do to anyone else—ending a three-year shift toward reporting to CFOs. You spend the bulk of your time interacting with other CXOs and business executives and taking part in strategic business decisions.

Rather than watching helplessly as outsourcing decimates your staff, you’ve learned to arbitrage labor costs, sending lower-value work out of house and devoting your in-house personnel to high-value, visible work such as project management. Your IT department has lowered your enterprise’s business costs, improved its productivity and created competitive advantage.

Sure, there are problems—notably, a backlog of projects and requests and a possible staffing crisis looming—but as you enter 2006, you are starting from a position of strength.

Now You’re the Chief Strategy Officer

Our “State of the CIO” reports, published each year since 2002, are based on annual surveys of more than 500 heads of IT. Each year we query these executives about their positions within the organization and the path they followed to the CIO job. We ask them about their IT staffs and their outsourcing practices, their priorities, their difficulties and the ways they perform their jobs. They tell us about IT’s overall impact within their companies. We use this data, along with many one-on-one interviews, to identify and define best practices, analyze trends and develop an agenda for all CIOs. (To see the complete results for 2006, read “The Survey: It’s All About You,” Page 73.)

The improvement in CIOs’ standing within the enterprise this year is the result of a slow progression along several fronts rather than the consequence of any single factor. Indeed, some aspects of the job have changed little. Your take on IT’s most significant organizational impact—reducing the cost of doing business through increased efficiency and productivity—has been remarkably consistent, the number-one response since 2004. What you believe to be your most important skill for success, your ability to communicate, is unchanged since 2002. And since 2002, the majority of your time has been spent interacting with your company’s CXOs and business executives. But many small shifts in survey responses indicate that a transformation has occurred in how you approach your job.

Perhaps most significantly, the CIOs’ strategic role has grown. In “The State of the CIO 2006” survey, making strategic systems decisions and strategic business planning come in a close second and third in how you spend your time. And you named strategic thinking and planning as the number-two personal skill required for success. Nearly three-quarters of you say IT’s proper role in the organization is proactive: to envision business possibilities and realize them with technology, rather than to simply support business initiatives. For insights into what strategy really means for CIOs—and how that definition has changed since 2002—read “The Changing CIO Role: The Dual Demands of Strategy and Execution,” Page 96.

There has been a corresponding change in your place on the org chart. Just over three-quarters of you now sit on the company’s management committee. Your most prevalent reporting relationship is to the CEO. That’s been true in all of our “State of the CIO” reports, but since 2002, in response to the cost-cutting fixation that gripped many companies and the fearful reaction to Sarbanes-Oxley, the percentage of CIOs reporting to the CEO had been going down while the percentage reporting to CFOs had been going up. This year, however, the percentage of CIOs reporting to the top boss rose from 40 percent to 42 percent, while those reporting to their CFOs dipped sharply from 30 percent to 23 percent.

The significance of this shift is both personal and professional and can be seen in the diverging circumstances of these two groups of CIOs. Of those CIOs who report to their CEOs, 91 percent sit on the company management committee, whereas only 61 percent of CIOs who report to their CFOs do so. The CFO reports say they struggle more with alignment and spend more time putting out fires than do the CEO reports. The CEO reports have much more money to spend (their average annual IT budget is $27.5 million versus $12.5 million for the CFO reports), and they take home more money as well ($196,800 in average annual compensation versus $180,700).

It’s good to report to the CEO, and it’s good to report that this year more of you do.

Commonalities Beneath the Contrasts

Who you report to is an important factor in the content of your job, but not the only one. The industry you work in also makes a difference. On the whole, CIOs in financial services and insurance earn more, have bigger IT budgets, dedicate more time to strategic planning, and will grow their staffs in 2006 to a greater degree than CIOs in most any other sector. Alone among IT executives in the seven industries we examined, finance CIOs seem to have solved the business-IT alignment puzzle. Health care and government CIOs are at the other end of the spectrum. They report to their CEOs far less often than other IT execs, and they struggle with what they term inadequate budgets.

Many of the distinctions between CIOs in different industries have to do with the particular business challenges their companies face. For instance, inventory management is a top concern for CIOs in manufacturing and retail; accounting and finance are most important to health care, insurance and government CIOs. Customer support tops the list for financial services and educational CIOs. For snapshots of the CIO role and situation in these and other industries, see “Industry Snapshots: Contrasts and Commonalities,” Page 86.

Underlying the differences between industries, however, are many commonalities among CIOs. No matter what industry you work in, in 2006 you will be focusing on either innovating or reducing business costs. And to do that, you will need to use your ability to communicate and think strategically. If you think your industry defines you and separates you from your peers in other industries, think again.

Another factor in the nature of the CIO role is the size of the company. Those in small companies tend to be more hands-on than their peers in larger enterprises; the number-one use of small-company CIOs’ time is leading projects, which is way down the list for CIOs in midsize and large companies. Big-company CIOs outsource more than the others, both domestically and offshore, and they plan to increase their outsourcing in 2006 at a greater rate than do CIOs in small and midsize companies. But again, as was the case in all industries, the similarities in the CIO role across companies of all sizes outweigh the differences. The top management priority in all three categories is alignment, and the top technology priority is integration. A majority of CIOs at companies of every size plan to increase the size of their IT staffs.

An important underlying message of “The State of the CIO 2006” is that CIOs can and should learn from each other. Circumstances vary; the job doesn’t.

Up with People

Back in 2002, finding people with the right skill sets and retaining key employees were your biggest challenges. Companies competed for star performers in a long-running talent war. But economic hard times ended the hostilities. The pressure to do more with less knocked staffing way down your priority list and turned your attention toward outsourcing. Staff development and retention ranked 13th out of 14 spending priorities in “The State of the CIO 2003” survey.

Yet in 2006, the emphasis on your internal IT department is back. In this year’s survey, 55 percent of you plan to increase your IT headcount during the coming 12 months. That’s not to say the shine is off outsourcing. Sending work to outside contractors has become a standard part of CIOs’ arsenal. But outsourcing practices have matured. You tend to avoid the complications of offshoring; 57 percent of you outsource only within the United States, and 25 percent do not outsource at all.

The work you outsource tends to be straightforward, repeatable processes: hosting services, application maintenance or support, and some types of application development. Conversely, the skills you’re seeking in-house are for business-oriented tasks such as project management, business process management and complex, business-facing application development. For profiles of the IT skills that companies need the most, turn to “The New IT Department: The Top Three Positions You Need,” Page 68.

The need for IT staff is driven by pent-up business demand. An overwhelming backlog of requests and projects was a new entry on this year’s roster of your most difficult challenges—and it jumped right to the top of the list. You need people to get this work done, you need them to hit the ground running (your greatest demand is for midlevel employees with some experience), and you need them yesterday. For stories of how CIOs are dealing with their application backlogs, see “The Number-One Problem: The Project Backlog,” Page 52.

Where you’ll find the talent to get all this work done remains an open question. There are fewer IT people than in 2002—many got out of the field during the last recession. And enrollments in domestic IT education programs are down. You could be looking at a return of the IT talent wars in 2006 and beyond.

Your Agenda, 2006

Taken together, the findings of “The State of the CIO 2006” report point to an evolving agenda for IT execs. You’ve got to solve the staffing problem and take care of that application backlog. You need to pay attention to integration and alignment, which are this year’s top technology and management priorities, respectively. But you need to do more than that to be a strategic CIO and realize the full potential of IT within the enterprise. You say that IT’s role in the organization is to envision business possibilities and get them growing through technology. So that’s the goal. To get there, first use your increased access to the CEOs, CXOs and business executives to deepen your understanding of the business. Use your strategic capabilities to develop programs that fulfill the needs that you and your business peers identify together. Then put your communication and leadership skills to work in bringing these programs to life.

All this will take discipline and a sustained effort from you and your IT department, but after all, that’s exactly what you’ve become known for.