The Incredible Shrinking CIO

When Jim Brownell was CIO of Williams-Sonoma, he sat on the executive committee, reported directly to the CEO, and oversaw a strategic, multimillion-dollar replacement of the retailer’s merchandising and warehousing system. But when a new CEO took over, he decided he wanted his own CIO. So last October, Brownell, a 25-year IT veteran, began looking for a comparable position elsewhere. He couldn’t find one.

“When I looked at opportunities in CIO-land, they were unappealing. The cycle of CIOs reporting to CFOs is coming back, and it’s not pleasing,” Brownell says. “I heard the same story in every interview: ’We’re looking for a new CIO because IT projects never deliver on time and they cost more than we expect and they don’t deliver what we want. All our systems need to be replaced. Oh, and we’re reducing the amount of money we’re allocating for IT.’”

In May, Brownell accepted a job as senior vice president and general manager of Escalate, a California software vendor, rather than settle for a lesser CIO job. “Quite honestly,” says Brownell, “I don’t know why anyone would want the CIO job today.”

The Dumbing Down of the CIO Role

Brownell has a point. Consider the following:

• The percentage of CIOs reporting to CFOs doubled this year from last year, according to CIO’s “The State of the CIO 2003” survey (see the complete survey results at www.cio.com/printlinks). Reporting to the CFO rather than the CEO or COO is almost always a sign of diminished clout.
• Executive recruiters report that companies are looking for low-cost techies and, surprisingly, junior employees to fill the role of CIO. In 2001, compensation for CIOs at large companies decreased for the first time since 1985 and has slid 16 percent—from $434,000 in 2001 to $363,000 in 2003, according to IT management consultancy Janco Associates.
• IT spending continues to be flat or in decline. Technology budgets were cut 14 percent for the second quarter of 2003, the fourth consecutive flat or declining quarter, according to the Wendover-Global Insight IT Spending Index, with no uptick expected before year’s end. Similarly, only 38 percent of respondents to CIO’s own Tech Poll said they do not expect an uptick before the end of 2003.
• The increased interest in outsourcing and shrink-wrapped technology strategies has emboldened some CEOs and corporate boards to rein in what they see as an overinflated executive position.

The net result in many enterprises is an unofficial demotion of the CIO—a dumbing down of the job.

“CIO is no longer the same level of position,” says Phil Schneidermeyer, CIO practice leader for executive recruiting company Highland Partners. “Companies are stepping back and saying the job isn’t that big anyway. We’re making less investment in IT. We have a smaller headcount. We’re not going global and doing any mergers. We’re done with ERP. We’re sending it all offshore. Therefore we don’t need the caliber of CIO we may have had in the past.”

Whatever the reasons for the disrespect the CIO has become heir to (and there are some good ones, including multimillion-dollar implementations that didn’t deliver and Y2K remediations that failed to impress), there’s no question that in some quarters the critical role of the corporate CIO as commander in chief of technology-driven business opportunity is in jeopardy.

As it now stands, Brownell (who was recently promoted to COO), says, “Companies no longer view IT as a profession. It’s a no-win situation.” And if things don’t change, the list of potential losers is long: CIOs, their users and staffs, their companies, and possibly the future of American IT.

From BackRoom to Boardroom…and Back?

In the early 1970s, IS gave way to IT, and data processing managers were plucked from the technology closet. The corporate CIO was born.

“When information technology was a new innovation, it was an exclusive little game,” says Sheleen Quish, global CIO and vice president of corporate marketing of packaging manufacturer U.S. Can. “CIOs became keepers of the treasure chest.”

But as that IT treasure became something every enterprise felt it had to have, many CIOs, coming up through the technology ranks, lacked the business skills to run departments that, in many cases, rivaled in size and budget of some of the companies’ largest business units.

ROI? What was that? Spreadsheets? Isn’t that something Excel did?

“It’s not that CIOs were irresponsible; it’s just that they weren’t fiscally aware,” says Bill Glassen, CIO of Cashman Equipment, which sells and leases Caterpillar construction equipment. “If the president of the company said one day, ’Hey, I want to do e-commerce,’” Glassen says, “the CIO bought tons of servers, hired Web programmers, basically spent a lot of money,” frequently without building a business case.

Of course, when the dotcom bubble burst and the bottom fell out of the market, CEOs didn’t need to look far for a scapegoat. “As a leadership position, the CIO role had little or no credibility left, and we deserved every bit of it,” says Malcolm Fields, CIO of office furniture and fireplace manufacturer Hon Industries.

And so CIOs, who had achieved a place in the executive ranks and a straight-line reporting relationship to the top of the organizational chart, are now seeing that access threatened.

When hired as CIO by Cashman in 1998, Glassen had no contact with the CEO or the executive committee. When a second CEO, an IT enthusiast, came aboard, Glassen was invited to participate in the executive committee. In late 2000, a more cost-conscious CEO took over, looked at what IT had spent and what it had produced, and decided not to include the IT head on the committee. “I was dropped as a participant, and rightly so,” he says. “I needed to prove that IT had value. And until I could justify that there was an ROI to what we were doing, IT was relegated to a support function again.”

Since then, Glassen, who reports to the CFO, has been trying to earn his way back into the monthly meetings, upping his face time with the CEO and communicating the financial impact of all IT initiatives. It’s working, to an extent. “I’m participating in a somewhat active format,” Glassen reports. “I’m not involved in the decision making anymore, but I try to be involved in the information dispensing aspect of it. The CFO usually tells me the things he knows about so I’m not totally out of the loop.”

When Money Talks, I.T. Has Nothing to Say

As executives and corporate boards remain focused on cost cutting, they’re tightening the reins on IT. According to the 2003 “State of the CIO” survey, 84 percent of CIOs said their IT function is currently being budgeted as a cost center that generates expenses rather than an investment center that generates new business capabilities.

And as corporations continue to cut technology spending, more and more companies are going for an off-the-shelf IT strategy, influenced in part by vendors’ claims that they can clean up the “mess” CIOs have created. “Many organizations have come to believe that they can live with a certain level of technology that’s plug-and-play, not complex, and gets the job done,” says Highland Partners’ Schneidermeyer.

Even CIOs are drinking the Kool-Aid. “It only makes business sense. If you can get it out of the box, why build it? Today, everybody’s there with the ’buy before build’ mantra,” says David Robinson, CIO of insurance broker Lockton Cos., who recently replaced an application built in-house with a Web-based system provided by an ASP.

Add to that the pressure to save money by outsourcing more and more IT, and CEOs wonder why they should pay someone a hefty six-figure salary and bonus just to piece together these seemingly simple IT parts.

“Put yourself in the shoes of a CEO,” suggests Hon CIO Fields. “They’re asking, Do I really need a CIO, and if I do, why not report it lower in the organization and let the CFO handle it as a cost matter?”

What CIOs Can Do

For the most part, say analysts, CIOs haven’t helped matters in the way they’re responding to the current crisis in their corporate status. “Their scope of operating has been cut back, and most of them are holding on for dear life,” says Mark Lutchen, lead partner for PricewaterhouseCoopers’ IT business risk management practice. “They’re told to cut costs, and they take out the machete. They’re in survival mode, doing what they’re told, reporting to whomever they’re told to.”

Glassen admits it. “When everything started becoming very expense-oriented, we withdrew,” he says. “If we had been more involved and proactive sooner, maybe users and executives would be involving us more.”

What does it mean to be proactive?

• Run IT like any other business unit. For U.S. Can’s Quish, that has meant taking a critical look at the IT department she took over in late 2000 after her predecessor, who reported to the CFO, left after just a week on the job. What she found was “ugly, ugly stuff.” Half her employees were unqualified, and projects were initiated via ad hoc requests. The operations unit had purchased three new systems on its own, and vendors had installed them. The IT infrastructure was falling apart. No wonder the packaging manufacturer had lost faith in IT and its leadership. Says Quish, “I almost walked out after a week.”
• Quish knew she could improve things. What was important was to do so in a very public manner. “I ran IT improvement as a public reengineering effort,” she says. “[The business] saw me fire people. They saw me put projects into very disciplined request processes. Focusing a light on ourselves, while scary, was healthier, and it gave us some baseline credibility.”

  A year in, Quish was reporting not to the CFO but to the CEO.

• Put fiscal controls in place. “The IT spend will come back eventually, but it would be naive to think CIOs will be given free reign to spend what they were spending in the past,” says PWC’s Lutchen. “CEOs are going to want more oversight, a business approach to making IT decisions and investment in IT like a financial portfolio—everything they expect of any other executive.”
• Surround yourself with people who have business backgrounds. Lockton’s Robinson, who started as a Fortran programmer and came up through the IT ranks, counts several business unit COOs as his mentors. PWC’s Lutchen suggests setting up a leadership team within IT, not unlike the way a CEO does. “Hire someone who knows HR. Hire someone to handle communication,” Lutchen says.
• Get out of your office. “For finance folks or other executives, leaving their comfort zone is not uncommon,” says Peter Longo, the former CIO of Pratt & Whitney who recently took over as CFO of sister company Sikorsky Aircraft. “But you don’t often hear of IT folks leaving for a stint in procurement or finance.” Yet the CIO’s responsibilities cut across the business in ways many other CXOs’ don’t.
• Teach your staff to be businesspeople. CIOs must train their staffs—their ultimate representatives—to get to know the business. “The roles are changing,” says Robinson. “My employees used to say, ’I’m not an insurance person. I’m an IT person.’ Now I tell them, ’You need to be an insurance person.’”
• Make the numbers tell the story you want. CIOs need to show the business that their departments are more than money pits. “On more days than not, IT is a huge cost. The business sees one big number, and it’s pretty substantial,” says Robinson. To soften the blow, he divides IT costs by the number of people in the company: $1,700 per employee per year sounds a lot better than $2.6 million.

  “You have to neutralize the whole cost thing any way you can,” Robinson says.

• Work those relationships. CIOs need to salvage their relationships with key executives, especially the CEO. “If you still have some connection at the executive level, you need to work to keep it, almost like a married couple would go to counseling to stay together,” Lutchen says. “In some cases, CIOs are doing a great job; they’re just not communicating it effectively. You need to share information that shows real business value.”

  CIOs who are fortunate enough to report to the CEO would be wise not to bank too heavily on that fact. Other C-level executives can make or break you too. Quish notes that she once had a great relationship with her CEO but got fired anyway. “Unfortunately, I didn’t bother with my peers, and they joined forces and got me outplaced,” Quish recalls. “You need access to the entire executive team. And the best way to do that is to be a key component of their projects, provide advanced warnings of problems, recommend solutions and speak in business language—not technology. Then they’ll actually want you involved.”

  If there’s no official relationship with the CEO, CIOs should create one, unofficially. “I report to the CFO,” says Fields. “But when the CEO has a meeting or get-together, I’m there. A lot of times, I’m the only person there who doesn’t report to the chairman.” Fields never makes a point of that fact other than to make a joke about it. But he knows that the day he’s no longer there, he could be on his way out. And that’s no joke.

No CIO? You Don’t Want to Go There.

Once CIOs regain credibility, they can argue against the weakening of the CIO role from a position of strength. And the case to be made is powerful.

Former Williams-Sonoma CIO Brownell says CIOs need to make it clear that the cost of handing the responsibility for IT over to the CFO (a reporting situation that’s almost never set up for any other CXO) can be high. “In the past, I’ve had the CFO say to me, ’Can you stop working on this thing for the next three months?’” Brownell recalls. “Every time we stop, we lose 20 percent to 30 percent of the work we’ve done, and we have to start all over from scratch.”

Sikorsky Aircraft CFO Longo enthusiastically supports a policy that requires his company’s CIO to report straight to the top. “They asked, Should the new CIO report to you now?” says Longo. “But I believe the IT function should not sit in the background. It should be at the table with other key support functions like finance, like HR. Out of all of them, IT has the most potential to change the business.”

CIOs should make it clear that a seat for the CIO on the executive committee is essential to the successful implementation of any IT strategy. Eighty-three percent of CIOs identified as best practitioners said serving on the executive committee was critical to their effectiveness, according to the 2003 “State of the CIO” survey. “When you’re not actively involved, there’s a lot of information you don’t have access to that affects IT,” says Cashman CIO Glassen. “You end up with departments going out on their own and finding their own solutions.”

At Cashman, the sales department decided it needed CRM software, negotiated a deal by itself, and Glassen knew nothing about it until the department came to him and said, “Oh, by the way, we need this many laptops, this customization, this many days of training,” Glassen recalls. As a result, his staff of seven was completely overloaded. Scheduled maintenance work and upgrades had to be put on hold, and six months later, his staff is only now getting back on track.

The irony is that many companies are weakening the CIO position at precisely the time when the skillful and strategic management of IT resources matters most. As many technology experts argue (see “Why IT Really Does Matter,” by Michael Schrage at www.cio.com/printlinks), it is technology management that confers competitive advantage, not technology itself. Hire someone who’s not up to that task, and you jeopardize your marketplace advantage.

“A good IT shop and a CIO can be part of a company’s competitive advantage if they’re closely tied to the business and help it improve processes faster than their competitors. In fact, most competitive advantages have an IT component today,” says Fields of Hon.

“You need a CIO because you have to have someone to translate between IT and the business,” Glassen says. “If they view IT as a commodity, we’ll have everyone buying their own thing like we did 10 years ago, and we’ll end up with systems that don’t talk to each other. A CIO is necessary to bring coordination and focus.”

Finally, the line of reasoning that says, “Hey, we’re outsourcing it all anyway? We don’t need a CIO,” is fallacious on the face of it. “One of the key roles of the CIO has always been vendor management, and that’s going to be even more important going forward,” says Fields. “The more you outsource, whether you have people jumping to India or whatever, the more you have to be on top of everything. If that’s what a company’s going to do, they need a really good CIO, and they need to make the CIO position even more important. In general, the business just doesn’t understand the kind of risk’’ you have to manage when you outsource.

That’s the heart of the problem, and the most powerful argument of all. CIOs, or anyone in that position, manage an incredible amount of business risk. Even when it comes to highly commoditized IT services, such as keeping a network up, one small mistake can cost a company millions.

“There’s no asset more important than a company’s data,” Fields says. “You can’t give that responsibility to someone who doesn’t know how to handle it. That doesn’t argue for dumbing down the CIO role.

“It argues for making it even more important and keeping the seat at the executive table permanently.”