by Elana Varon

Reality Check

Apr 01, 20059 mins
IT Leadership

Faced with a mandate to cut costs while creating competitive advantage, CIOs, according to new CIO research, have placed their emphasis on innovation.

In a world that is constantly changing, data keeps us grounded. The right statistics communicate succinctly, tell you where you are. In the four years since we began conducting our exclusive “State of the CIO” survey, we have compiled an annual benchmark of the CIO profession—your reporting relationships, your budget, your priorities, your challenges, the impact IT has on your companies and the best practices for your success.Our 2004 survey showed a new mandate emerging for CIOs—one that requires them to reduce costs while simultaneously using IT to drive competitive advantage. This seems like a paradox, but successful CIOs have learned that IT-enabled innovation is the way out of the bind. Though disruptive innovations—those that change the dynamics of an industry—get most of the publicity, innovation (broadly defined) is any improvement that delivers a business benefit. Even investments to comply with Sarbanes-Oxley can be considered innovations if the result is that executives are able to use financial data more effectively.

“From sheer competitive pressure, every business now realizes there is no time of [being] static, that change is constant, and innovation is required every moment,” says Thomas Gerrity, professor of management and operations and information management at the Wharton School. Even cost reduction, Gerrity says, “requires innovative thinking” because it engenders change in business processes.

Given the pressure to keep moving, the context in which you operate and innovate is what defines your path to success. It makes a difference whether the brightest programmers flock to your door or you’re struggling to attract fresh talent; whether the goal of IT innovation is to beat the competition or simply to keep up; whether you’re rewarded for making money or for saving it. So for “The State of the CIO 2005,” we delved more deeply into how you define the mandate for innovation and how, given that mandate, you’re coping with the demands of your specific environment.

To that end, we went on the road to profile three CIOs, each of whom works under different expectations and within distinct constraints. The daily experiences of these CIOs—chronicled during two days in January when our writers walked the halls of corporate headquarters, attended their meetings with them and interviewed their colleagues as well—provide a window into innovation and a reality check on the state of the CIO.

One thing these profiles make clear is that no matter how big your budget, no matter how much your boss values your strategic vision, being a CIO is a hands-on job. Even CIOs who are rewarded for thinking big have to roll up their sleeves and dig into problems. Michael Earl, professor of information management at Oxford University (and a member of CIO’s editorial advisory board), says that corporate priorities for IT regularly swing between a mandate in which CIOs deliver systems and one in which CIOs engage in business strategy and innovation. “Sensible CIOs pursue a balance between high performance on delivery and on the strategy and innovation side,” says Earl. “When the climate starts to ask you for strategy and innovation, you end up spending 50 percent of your time on that.” But you can’t ignore tactical details.

With an IT budget of approximately $1.5 billion, Verizon CIO Shaygan Kheradpir commands resources most CIOs only dream of. But inevitably, money comes with strings. Verizon has pinned its business strategy on being first with new IT-enabled products and services, and it is Kheradpir’s job to produce them at a steady clip—even if it means e-mailing his staff at 2 a.m. Read about how Kheradpir manages innovation in Sleepless in Manhattan.

Meanwhile, at Old Dominion Freight Lines, a less-than-truckload shipper, Vice President of Technology and Information Services Ken Erdner juggles the demands of a budget-conscious boss, skeptical end users and a competitive environment that rewards efficiency above everything. Old Dominion is dominated by industry giants such as FedEx and Yellow Freight; whatever innovations Erdner undertakes are geared toward keeping up with them technologically. Erdner’s situation is in many ways typical of what CIOs face these days, according to our “State of the CIO” data. Find out more about how he tries to do it all in Everyone Wants Something From Ken.

Robert Taylor, CIO for Fulton County, Ga. (which encompasses downtown Atlanta), has a vision of a county that uses innovative IT to deliver government services, but he constantly bumps into political reality. For the elected officials who approve Taylor’s budget, IT is more an expense than an investment. As a result, Taylor struggles to find enough resources to attract a staff with the right skills to execute his strategy. Follow Taylor as he works the system in Where There’s a Person, There’s a Problem.

CIOs as Innovators: Catalysts and Coordinators

Another finding that emerges from the profiles is that CIOs embrace their function as innovators, even in business environments where change is difficult. We wanted to learn more about your role as drivers of business innovation, so we supplemented our collected “State of the CIO” research with a survey on the purpose of IT innovation and CIOs’ responsibility for it. We learned that you are being looked to for leadership in innovation. Slightly more than half of the 83 CIOs who responded to our survey on IT-enabled innovation said the percentage of innovative business initiatives that originate within the IT department has increased in the past two years.

Furthermore, 65 percent said bringing ideas for IT-enabled business innovation to the table is a significant or dominant aspect of their roles. And enabling business innovation is a more important role for the CIO and the IT function than it was 18 months ago, back when cost-cutting was the paramount concern.The need for cost-cutting hasn’t gone away; it’s simply part of the equation now. For an overwhelming majority of the CIOs who responded to our survey, reducing costs or improving productivity is the primary purpose of innovation, followed by improving customer satisfaction and generally creating or enabling competitive advantage. Thus, Fulton County’s Taylor pushes a new system for sharing jail management information as part of his strategy to centralize IT and eliminate redundant systems; Verizon’s Kheradpir tweaks a new voice portal to minimize the number of customers who request repairs through live operators; and Erdner pitches ideas to improve efficiency to Old Dominion’s vice president of field services.

Of course, ideas for IT-enabled business innovation don’t spring fully grown from the foreheads of CIOs. Survey respondents report that interaction with other CXOs and business unit leaders is the primary catalyst for the IT department’s most successful innovative ideas. That’s as it should be, given that the results of innovation are focused on business goals, and it jibes with last year’s “State of the CIO” finding that a healthy relationship with other CXOs is the most critical factor for your effectiveness. CIOs “are in a position of partnering,” says Wharton’s Gerrity. “They can’t [innovate] on their own. It takes particularly strong interpersonal skills and broad business skills.”On the IT side of the ledger, innovation has far less to do with the latest technology than with fundamental aspects of IT infrastructure—such as revamping the IT architecture, installing data warehouses and other technologies to facilitate data access, and developing Web services. Such investments enable IT to operate more efficiently and create a technology environment in which continually changing business needs are easier to address. Eric Sigurdson, managing director and North American information officers practice leader with Russell Reynolds Associates, says improving the effectiveness of the IT organization is part of the job description for every CIO position he is hired to fill.

Emerging technologies—such as radio frequency identification—have a lower profile, in part, suggests Oxford’s Earl, because CIOs are still suffering from the dotcom hangover. “They don’t want to get their fingers burned,” he says. Even so, “most innovation doesn’t start by asking, Here’s a new technology, what can we do with it? It starts by saying, I’ve got a big problem I have to sort out.”

For more on the CIO’s role in innovation, see Leadership for Innovation, and New Gains from Proven IT.

Dealing with Reality, Striving Toward the Ideal

The three CIO portraits in this issue point to another conclusion about the state of the CIO: Success as a CIO happens in less than ideal conditions. None of the three, for instance, reports to his company’s CEO, although most CIOs say their reporting relationship is a key factor in their effectiveness. That’s reality. Yet, there’s a model for every profession—an ideal to strive for.

Turn to Wanted: The Best CIO, to find this model, in the form of a “job spec” from a hypothetical company that understands the value of IT. To develop the spec, we drew on our “State of the CIO” data and other studies about the role, as well as interviews with executive recruiters and CIOs. The CIO Executive Council, a professional association of CIOs founded by CIO, helped us refine the final product.

The spec defines what we believe are the ideal attributes of the CIO position, including executive relationships, staff, responsibilities and processes. It also describes the background, job experience and skills we think a CIO should have, and it outlines metrics for measuring the CIO’s performance. In short, we think the ideal CIO is a strategic business leader, with outstanding working relationships and accountability and authority over all aspects of IT within his or her company. The ideal CIO has strong soft skills, such as communication and motivational ability. He or she should have a technology background but also business experience. And he or she should be measured according to the contribution that IT makes toward achieving the company’s strategic goals.

You can see how you measure up to our ideal spec by taking the self-assessment test, “How Does Your Role Stack Up?” High scores indicate that you’re a strategic CIO, within striking distance of the ideal. Low scores indicate that you have much work to do in improving your role and the role of IT within the organization. The quiz includes tips for improving your situation, with links to related articles from the CIO archives.

Finally, compare your situation to that of your counterparts around the globe. Editors at our sister CIO magazines in Australia, Canada, Germany, Japan, Southeast Asia and South Korea surveyed their readers using our “State of the CIO” questionnaire. From them, we learn that connecting with the business is a common theme among CIOs globally. However, though you face similar pressures and share many of the same priorities, the context within which you operate differs from country to country. Find the highlights in in “The State of the CIO Around the World”.