State of the CIO – The Changing CIO Role

In the very first”State of the CIO” special issue, published in 2002, we asked several knowledgeable observers to speculate on the future of the CIO role. Some predicted that the job would split into two distinct types: a strategic CIO who would focus on creating value through technology, and a tactical CIO whose primary goal would be to run an efficient IT shop. The latter type, the experts opined, would ultimately find his job outsourced or absorbed by business units.

Said Peter Weill, director of the Center for Information Systems Research at the Sloan School of Management at MIT:”The CIO’s expertise is in communicating to business colleagues the importance of IT—and more important, getting the governance right. It’s a strategic mentality…[the service-oriented] CIO—along with the utility mentality—will disappear. That is because IT operations can be run as efficiently by an ASP.”

Ellen Kitzis, then group VP for executive programs at Gartner, predicted”there will be a bifurcation in the CIO role—one part will be focused on strategy and the other on execution. Those [CIOs] focused on execution will move toward the CTO slot. The strategist will focus on issues such as business-IT alignment, uncovering IT-enabled business opportunities in the enterprise and finding ways for IT to streamline the business processes in the value or supply chain.”

These predictions were correct, but only in part. For many CIOs, the strategic aspect of their jobs has become much more prominent.”I’ve pretty much stepped back [from technical operations], and now I focus mostly on working with the business community, making sure I have a clear understanding of business processes and needs,” says Henry Eckstein, CIO and VP at York Insurance Services Group, which provides data and services to financial institutions. Susan Kozik, CIO for retirement services company TIAA-CREF, observes that”We [in IT] are working with partners we could have never predicted years ago. The business is becoming much more aware of how information runs through the veins of technology.”

The strategic focus of CIOs is reflected in”The State of the CIO 2006″ survey. The three activities on which you spend the most time are collaborating with other CXOs and business executives, making strategic systems decisions, and working on strategic business planning. Among the personal skills most crucial to your success on the job, strategic thinking and planning rated number two—behind the ability to communicate, presumably with those other CXOs and business executives.

Yet execution and efficiency is still very much on CIOs’ minds. Far from having left operations behind or offloaded it to others, you said in”The State of the CIO 2006″ survey that your number-one barrier to job effectiveness today is an overwhelming backlog of projects and requests. (See”The Number-One Problem: The Project Backlog,” Page 52.) You predict that IT’s top impact on the enterprise in 2006 will be reducing business costs through efficiency or increased productivity—ahead of higher-value activities such as increasing business innovation and improving competitive advantage.

So, as is often the case with forecasts (which tend toward the extreme; no one pays attention to a wishy-washy seer), our 2002 predictions were neither wholly right nor wholly wrong. Both strategy and execution remain top concerns for IT executives, and both have become more tightly tied to business needs. Strategy has morphed from a vaguely defined buzzword to a distinct challenge for CIOs to provide value to their companies. Execution now means much more than simply keeping the lights on; it’s focused on rolling out applications that provide a clear competitive advantage for business units.

“This is more than just an evolution of the CIO role,” Weill says now.”We’ve seen a sea change since 2002. We now have a much finer understanding of what we mean by being strategic. The stakes have risen quite significantly for the CIO.” CIOs will always be accountable for overseeing IT services, Weill says, but increasingly they are evaluated on IT’s contribution to business performance and agility, application development that adds value and organizational change that sticks.

What You Aspire to Be: The Strategic Difference-Maker

In 2002, and for some time after, the main focus for many CIOs was cost-cutting. With markets slow or declining, CIOs built up credibility within their organizations by focusing on efficiency and helping the business meet its earnings goals. Serendipitously, this fiscal focus may have helped CIOs improve their strategic standing. To drive efficiencies and reduce costs, they were obliged to build teams across the enterprise.”[CIOs] came through,” says Gartner’s Kitzis, now head of executive programs for the Americas.”Now they’re not just reacting to corporate strategy and offering ways to support it; they are influencing it at the early stages and driving growth and productivity. This is a significant leap forward.”

Joe Antonellis, CIO for global investment services firm State Street, was brought in at the very beginning of the company’s

$1.5 billion acquisition of Deutsche Bank’s Global Securities Services business in 2002. Top State Street executives asked Antonellis if, by consolidating networks and assuming some of Deutsche Bank’s better technologies, he could help deliver an increase of 3 cents a share in two years. After analyzing the plan, Antonellis said yes.

And, in fact, the acquisition boosted State Street’s shares by

8 cents by the second year.”We [in IT] were part of the deal. If we couldn’t deliver, the [Deutsche Bank acquisition] wouldn’t be worth it,” Antonellis says.”We had to look everyone in the room in the eye and commit that we could do it.”

Antonellis is one of many CIOs who are part of the inner executive circle that debates strategy and makes the decisions. Just over three-fourths of respondents to”The State of the CIO 2006″ survey said they were part of their companies’ management committee. As such, these CIOs are expected to have a bird’s-eye view of all of a company’s working parts and where IT can be used for maximum leverage.

At brokerage firm A.G. Edwards, IT is the largest capital expenditure after office costs. In the past, spending and depreciation on IT hardware and software ebbed and flowed from year to year according to project demand.”Anything that happened in IT would drive the cost structure,” says CIO and executive VP John Parker. These peaks and valleys made it difficult to accurately predict the company’s earnings per share—a shortcoming not viewed kindly on Wall Street.

In 2002, Parker took an idea to the CEO to flatten out IT expenditures by separating spending on IT project work from spending on infrastructure. That required a”fundamental shift in thinking” about IT, Parker says; he and his team had to go beyond spot solutions and consider the enterprise infrastructure. The IT team created a three-year plan for business applications, making it clearer what infrastructure investments the company needed. Parker had to sell the idea to the technology governance group, the CEO and all divisions in the company. (Ironically, the finance division was the hardest sell, because it had to change accounting processes.) But within a year, the new plan was”hugely successful” in making earnings per share more predictable, Parker says.

Parker now holds a town hall meeting with his IT staff semiannually to update them on the company’s business performance and make clear their role in meeting performance goals. In October, for instance, the staff was quizzed on how much new revenue it takes to create a penny of earnings, and in the absence of new revenue, how much cost-cutting would be required to meet earnings targets. The answers surprised the attendees, Parker says, and led to a discussion about how the IT department could help A.G. Edwards make or miss its earnings projections.

Another aspect of the CIO’s strategic role in 2006 is using IT to power business process change throughout divisions and functions. When Dan Roberts joined The PMI Group as CIO nearly eight years ago, his responsibilities included maintaining back-office systems, claim processing and receivables for the $1.1 billion company, which is a leading provider of private mortgage insurance. Now Roberts, who is also an executive vice president, is part of a team that creates strategic plans for the direction of the business.”My boss, the CEO, asks me all the time, What is our strategic advantage?” he says. Any new project or process involving IT must pass a test: What business value does it provide?

One such project involved the human resources department. After discussions with PMI’s HR director this past fall, Roberts began outlining a Web-based application to list the skills needed for each position and the training required to obtain those skills. The ultimate goal behind the application is to use it to reduce turnover, make the company an employer of choice and provide a succession plan. Roberts envisions a database of the company’s several hundred positions and the competencies required in each position. The database also would include the employees who fill those positions and their individual competencies. Managers could easily view what competencies each employee is lacking and then provide training as needed.

What You Can’t Ignore: Execution

CIOs should free themselves to focus on strategic differentiation by turning over day-to-day operations to a CTO or other direct reports, says MIT’s Weill. But that’s not to say that IT execution is unimportant. Poorly functioning systems and IT disasters can completely undermine CIOs’ attempts to work at a higher level.

Yet the tactical side of the CIO role has also changed since 2002. It’s no longer a matter of simply avoiding unpleasant surprises; operations have become tied to business value. For example, although application development has been a traditional part of the IT toolbox, there’s more to it now than technical skill. Today’s application development has morphed into bigger stakes. It involves creating applications that help expand business opportunities and increase productivity—results that can be measured by a more productive and talented workforce or a fatter bottom line.

This kind of application development requires collaboration with business leaders throughout the organization. CIOs must create applications that are fast to market and that provide a clear differentiator among competitors.”It’s not unlike the military, the Red Cross or UNICEF,” says Gartner’s Kitzis.”Like those organizations, IT must be a mobile force on the ready. And not only mobile, but [CIOs] also must anticipate where the organization is going before it gets there.”

At TIAA-CREF, CIO Kozik worked closely with the business side to develop a better way for call center representatives to talk to customers. Personal calls are the primary means of contact for the organization’s 3.2 million customers. The calls are typically long and require the ability to access a lot of data and customer information. The reps in the call center were unable to answer many of investors’ detailed questions with sufficient speed and authoritativeness. Kozik’s team, through an iterative development process, worked with the call center to deliver an application in about one month that gave the reps more detailed information on every account. With the new application, reps can view the customer’s call history, what was discussed, how problems were solved, the customer’s investment history and many other details drawn from various TIAA-CREF databases. Such individual attention is possible only with detailed, easily accessible information, Kozik says.

The new type of IT execution depends on speed to market. York Insurance’s Eckstein got a request from a marketing division employee for an application that would give clients critical information on preventing losses. But because York insures a diverse set of companies in a wide range of industries, setting up such an application could have been cumbersome and time-consuming. Instead, in-house application developers worked closely with the sales and marketing department to arrive at a stripped-down, simple interface.”There’s no more on [the screen] than you really need,” Eckstein says.”It’s simple and intuitive.” The development process for this function took only seven months from conception to final release.

Now, York’s service reps can ask clients as diverse as a logging company, a golf course developer, a hotel operator or a taxi cab company what kind of information they need to manage claims better and to reduce losses. For example, a drug store operator may say he needs to know factors that contribute to losses. The York client services rep can demo customized menu bars, drop-down fields and other aspects of the application while on a sales visit to the customer’s office, showing him how it would be tailored for his industry.

The demands of the CIO role mean that Eckstein no longer has time to work on application development himself, of course. He hired deputies to oversee IT operations so that he is free to work with senior leaders on the strategic direction of the company. The transition hasn’t come without regrets. He enjoys designing software and building systems—”the big guys’ Tinker Toys,” he called them in”The State of the CIO 2002″ report.”If you asked me to [build systems] today, I probably couldn’t because the technology is so different,” he admits. But his focus is where it needs to be for a CIO heading into 2006.

Putting It All Together: The Very Model of a Modern CIO

To sum up, successful CIOs today need to have their heads into strategy but their feet firmly planted in good execution. This dual role may require two different sets of measurements, suggests Gartner’s Kitzis. CIOs must not only pay attention to traditional measurements for IT performance and budgets, but they will also have to translate what those metrics mean and how they relate to the business as a whole.”You need to put the language into the context of what the business cares about. That means you may have to have two dashboards,” she says.

Kozik dances just such a two-step at TIAA-CREF. She spends a lot of time meeting with business managers in various units in order to find out ways to better serve them and their external customers. These discussions yield information that Kozik presents to the company’s trustees every other month to demonstrate how she’s using IT at a strategic level.

A typical meeting with a business unit head includes a review of the application portfolio. In the trading unit, for example, there may be 100 IT applications supporting the trading of securities and bonds, including price, volume, analyses and regulatory compliance. Kozik will discuss any operational shortcomings with the head of the trading unit. Then they will review the portfolio for redundancies and look for ways to improve applications, drive better and faster decision making and therefore add value to investors.

She discusses the results of these reviews with TIAA-CREF’s trustees, who want to know how IT is creating value for the business. For example, is Kozik taking advantage of the actuarial information the organization has built up over 80 years—”harvesting portfolios,” as she calls it?

“The way we work together has changed,” Kozik says. She sums up the state of today’s CIOs when she says,”I think more than ever, the IT leaders of today have to take on a responsibility of the IT literacy level across the company and help everyone see how technology runs their business. That’s the responsibility I have.”