Scenario One The Rise Of The CIO
By 2010, the road to corporate success will run right through IT
Last year, David Bernauer became the chairman and CEO of Walgreens, the $32.5 billion drugstore chain. An accountant and pharmacist by training, he started his Walgreens career two decades ago as an assistant manager in one of the company’s stores. His rŽsumŽ?a few years running a shop, a few more in finance, a stint in marketing, three years as COO?is typical of many ambitious corporate execs. But Bernauer isn’t your average chief executive at all. He’s a former CIO.
During Bernauer’s four-year tenure in the mid-’90s as Walgreens’ CIO, he oversaw the development and deployment of a central system for filling prescriptions and managing patient records that is widely credited with enabling the now 102-year-old company to stay at the top of the drugstore industry food chain. The system, which frees pharmacists from routine administrative tasks, has helped Walgreens keep costs down as it pursues an ever larger share of the prescription market. And with it, the company established a new standard for customer service?enabling customers to refill prescriptions at any outlet and schedule prescription refills in advance?that competing chains now shoot for. In short, Bernauer’s work as CIO has a lot to do with Walgreens’ current success.
Today, Bernauer’s is a rather singular story. Only a handful of CEOs have ever deployed an IT system, read the riot act to a software vendor, or put in a long night trying to get a mission-critical network up after a crash. But by 2010, plenty of chief executives will have put in a stint with IT, probably running it. There will be no doubt as to the power of the CIO as an architect of corporate success.
The Inevitability of the CIO
Because of the impact IT has had in the past decade on the way companies have grown and been managed, CIOs in 2004 have a unique opportunity to establish and fortify their leadership position in corporate America. Successful companies depend on IT to create competitive advantage, whether it’s by operating an efficient supply chain, delivering top-notch customer service, or using the Internet to enter new markets and create new products or services. “Technology has continually changed the underlying economics of the way the world does business,” sums up John B.W. Cross, former CIO of energy company British Petroleum (BP) and current CIO and director of the U.K. Department of Work and Pensions.
Of course, for CIOs, there’s a catch. To reap the rewards of IT’s central role, you’re going to have to do something that gives your company a lasting competitive edge, as Bernauer did at Walgreens. And not only is it going to take a triumph, you’re going to have to get the credit for it. Be “the Jack Welch of CIOs,” advises Neil Fligstein, a sociologist with the University of California at Berkeley.
That’s a tall order, and it comes with a high price. The CIO who doesn’t make money for his company, who doesn’t drive its stock price higher, who has never had to produce a profit and loss statement, risks losing his seat at the executive table for good.
Executives rise to power because their expertise?whatever it may be?is critical to corporate growth. Fligstein documents various periods in U.S. history when executives from manufacturing, marketing and finance took turns running the show.
During the Depression, for example, Alfred P. Sloan, a salesman who became president of General Motors in 1923, pioneered the company’s strategy to produce “a car for every purse and purpose,” while rival Ford stuck to making only Model Ts, available in any color as long as it was black. Sloan’s marketing smarts enabled GM to surpass Ford in market share during most of the 1930s, and the star of marketing executives began to rise. By 1959, nearly a quarter of the top companies in the United States were run by former salesmen and marketing experts.
In the 1970s and ’80s, the trend toward diversified conglomerates propelled financial executives to the top, Fligstein says, because they were seen as the best qualified to manage a portfolio of businesses. As US Steel (renamed USX) struggled against losses and takeover attempts through the 1980s?its leaders, first David Roderick, then Charles Corry, both financiers?diversified and sold off underperforming units. Today, no one doubts the power of the CFO.
But the recent wave of financial scandals?Enron, Tyco, WorldCom and so on?has tarnished the reputation of the numbers guys and has given CIOs an opening to argue that skill in financial management isn’t the be-all and end-all of corporate stewardship. “The kind of revolution that’s occurred in information technology and telecommunications has had profound effects on the way organizations have deployed their capital and their activities,” says Fligstein. “Clearly the person in the organization that can make the most claim to being able to manage that dependency [on IT] is the CIO.”
The ClO Knows Best
By 2010, every sizable company will be part of a network of suppliers and service providers, both onshore and off. All business processes will be, essentially, collaborative efforts among partners. Technology and business futurist Don Tapscott, who coauthored The Naked Corporation, says this trend toward the “unbundling” of vertically integrated corporations means their success will depend on how effectively they use technology to communicate and collaborate. By 2010, he says, a company will either have an effective CIO or it won’t be in business. Most companies in 2004 are already part of some technology-enabled network, whether it’s a U.S.-based manufacturing company that contracts with suppliers in China or an IT department with programmers in Russia. It’s unthinkable that any company could successfully coordinate those networks for very long without a CIO.
The result is that the CIO in 2010 will be responsible for much more than technology. With her companywide view of how business units and contractors are interconnected, she’ll drive improvements in business processes. Or she’ll be put in charge of the supply chain or logistics because IT is critical to operating those functions effectively. Her leadership in integrating systems will make her a leader in extracting more value from corporate data, and she will know the most about who requires information, how they need to access it, and how best to protect it. And her expertise as a manager of offshore contractors will put her in charge of all her company’s most critical relationships. Whatever her specific portfolio, she’ll understand how her company can best take advantage of IT to create new products and services. And she’ll be involved in every strategic decision because no new initiative can be executed successfully without her.
The Job Expands
Many companies already realize that CIOs can and should be responsible for developing company strategy, that they can and should be in charge of the supply chain, that they can and should run a shared services organization. James Cash, a retired Harvard Business School professor, who serves on corporate boards and meets quarterly with a group of 38 CIOs, observes that in companies that identify IT as a strategic resource (meaning, smart companies), CIOs spend “an enormous amount of time” outside the office, meeting with suppliers, buyers, customers and regulators, and performing due diligence on acquisitions, much like equity analysts. “When you look at the skills and knowledge required [to do that],” says Cash, “they look a lot more like a traditional business manager.” Or like a CEO.
This past year, despite flat to reduced IT spending and a big uptick in outsourcing, there was plenty of evidence that CIOs were poised to gain credibility and stature. For example, in 2003:
- Many companies turned to nontechnologists to be their CIOs, or were grooming CIOs for future leadership roles by assigning them to stints as business executives. John Leggate, who became BP’s group vice president of digital business in 2000, managed oil and gas fields, ran human resources and negotiated pipeline routes through Azerbaijan before taking over IT. Before becoming CIO of Farmers Insurance in 2003, Jan Franklin spent 18 months running one of the company’s largest underwriting centers?with the support of Farmers CEO Martin Feinstein, a former CIO himself.
“A lot of companies are trading up their CIOs,” notes Carl Gilchrist, leader of the North American CIO practice with executive recruiter Spencer Stuart. Gilchrist reports that almost every one of his clients looking for a CIO was looking for “a very good businessperson, then a great leader, strategist and visionary.”
- CIOs in 2003 were the key hire when a new CEO began a major corporate turnaround. Dana Deasy, appointed Tyco’s first CIO in 2003, reports directly to chairman and CEO Ed Breen and is part of the management team attempting to rebuild the scandal-ridden company. At Mattel, CIO Joseph Eckroth was CEO Robert Eckert’s first hire in 2000. Eckroth got credit not only for creating global information systems but also for initiating cross-functional teams to root out inefficiencies in such business processes as procurement. He oversaw those teams together with CFO Kevin Farr.
- CIOs were more frequently taking responsibility for extra-IT business portfolios. At privately held ViewSonic, which makes computer monitors and TV displays, CIO Robert Moon in 2003 coordinated development of the company’s global business strategy, as did Tom Murphy, CIO with the Royal Caribbean cruise line. Moon says, “It became obvious that certain areas are more important to us?like the global supply chain and also the use of the Internet.” In this way, the IT department, and Moon along with it, became central to ViewSonic’s business objectives. Meanwhile, retailer Best Buy Executive Vice President and CIO Marc Gordon is also responsible for logistics, and at ConocoPhillips, CIO Gene Batchelder also has the title of senior vice president of services. He oversees facilities management, financial services and procurement, among other internal services.
- In 2003, many companies appointed CIOs to their boards of directors and chose former CIOs as chief execs. Both practicing CIOs and observers of the profession agree that, as Mark Lutchen, a partner with PricewaterhouseCoopers, says, “CIOs are at the vortex of everything that’s happening in the company.”
The Class of 2010
The question is not whether the CIO position has a bright future (it does) but what the job description will be. To a large extent, that’s up to today’s CIOs. Thornton May, a futurist with the Center for Advancing Business Through IT at Arizona State University, offers one possibility: CIOs at smart enterprises will become “chief innovation officers.” They’ll use technology, as Bernauer has at Walgreens, to change how business is done. Or they’ll create new, high-value products and services. “Great CIOs are good at triaging opportunities,” says May. ViewSonic’s Moon agrees, saying, “The CEO and the CIO have to be the two people who are innovators in the corporation, who can tell people to change the business process” to take advantage of new technology. Or they’ll manage the complex networks that bind huge conglomerates, the “unbundled” corporation of the future.
The challenge for CIOs now, says Paul Saffo, director for the Institute for the Future, is to tell their story. CIOs have a “huge opportunity to finally become central in the business,” says Saffo. “This is the CIO’s opportunity to lose.”
Scenario Two Whatever Happened To The Cio
By 2010, the idea that the enterprise needs a top corporate officer to run IT will make as much sense as having a chief executive for the mail room
Brian Bertlin, who was CIO with Washington Group International, a $3.3 billion engineering and construction company, discovered his position was eliminated without warning in August 2003. The company outsourced its data center operations, telecommunications and desktop support. It kept a small IT department, headed by one of Bertlin’s former deputies, to run enterprise systems and manage vendors. The rationale behind the decision was simple: Washington Group saw IT as a cost center; outsourcing reduced that cost.
“This company’s management never really viewed IT as a significant contributor to the business,” says Bertlin, ruefully. “It was more of a support services organization.”
Bertlin plans to spend the next few years living in Singapore, in effect outsourcing himself. He’s “building the international side of my rŽsumŽ,” he says, maybe as a “rent-a-CIO” or a consultant, while his wife, who works for Microsoft, does a stint there. He plans to come back in a few years, primed for another CIO job, this time at a company that appreciates IT.
The problem is, by then there might not be too many of those companies?and those jobs?around.
Warning Signs for CIOs
By 2010, most companies may view IT in the same light as Bertlin’s former bosses, and the few CIOs left will spend their time wrestling with their ERP vendors over maintenance fees instead of looking for ways technology can create revenue.
Today, at plenty of companies, technology is still viewed as a support function. Even in the heyday of dotcom experimentation, it was often a marketing executive or supply chain guru who plotted the company’s online strategy. CFOs, meanwhile, have a big advantage in the influence game because they’re in a unique position to evaluate what makes companies profitable, says Neil Fligstein, a sociologist with the University of California at Berkeley who has charted the rise and fall of corporate executives.
The view of IT as a cost center could render the CIO an endangered species. Paul Saffo, director for the Institute for the Future, says that although “information is strategic and information systems are central to companies,” future decisions about using technology to create value from corporate data won’t necessarily fall to the CIO.
“CIOs as a community have never done a terrific job explaining what they do to the rest of the company,” adds Saffo. As a result, they’re vulnerable to being marginalized on one hand by expense-conscious CFOs and on the other by tech-savvy managers of business functions?such as the marketing vice president who thinks it should be his job to decide how the company will use CRM. Either way, by 2010, if CIOs don’t get better at projecting themselves into the center of the corporate decision-making process, they may find that if they still have a job, it won’t be steering the company toward its next competition-crushing opportunity. It will be taking orders and putting out fires.