IT strategy

IT executives continue to cite IT-business alignment as a key worry; at first glance, however, they shouldn't worry — the boss likes them. On deeper reflection, many CIOs and their shareholders should worry, because CEOs don't expect much proactive behaviour from IT. Half the responsibility for shaping low CEO expectations is down to CIOs — which means educating the boss to expect more. By Laurie Orlov of Forrester Research.

CEO expectations and strategies shape cost structures and investments in functions like manufacturing, finance, sales, and service: these functions are typically directly aligned with those expectations. IT executives, however, continue to wonder how well aligned their organizations are with their firms' strategies. To learn whether CEOs believe IT is on the right course, Forrester conducted its first CEO survey, analyzing the responses of 71 CEOs from firms with more than $100 million in annual revenues to learn how they viewed their IT organizations.

Hiring the CIO and including them at the table means that IT is on the radar and hiring agenda of these CEOs — perhaps a factor in their willingness to respond to this survey. Interestingly, while 79% indicated that the CIO sits on the executive team, only 63% kept the CIOs as direct reports, and still fewer (52%) hired them personally.

Nor were respondents necessarily keeping their CIOs long-term. Our survey supported the commonly held view of short job tenure: 21% of the CIOs were in the job for less than a year, and 41% of CEOs indicated that their CIOs had only been in the role for between one and three years.

The CEOs were planning to spend more on IT in 2007; 26% of those surveyed plan to grow the IT budget in 2007 by more than 10% over 2006 levels, and another 45% plan to grow IT moderately or in line with revenue growth. Only 10% of CEOs reported that they planned to reduce 2007 IT spending from its 2006 level.

The CEOs focused on infrastructure and projects. Overall, 21% of respondents saw their IT departments as contributing differentiation to the firm's products, services, or markets — what Forrester describes as ‘Partner Player IT’. Another 13% indicated that IT's focus was on low-cost, reliable infrastructure — a ‘Solid Utility’; while 61% selected either a blended role or one that balanced back-office infrastructure with new project work — a ‘Trusted Supplier’.

CEOs are generally positive about IT performance. Overall, 59% of respondents were either satisfied or very satisfied with IT's performance. A rather high 27% reported being neutral, with no opinion, and 14% were dissatisfied or very dissatisfied. Not surprisingly, time in the job matters: satisfaction was highest when CIOs had been in their jobs longer, with 85% of CEOs satisfied or very satisfied when a CIO had been in the job for more than four years.

Where they had hired the CIO, 76% declared they were satisfied or very satisfied, compared with the overall average of 59%. CEOs were most satisfied when they felt their CIO was communicating effectively, with 78% expressing satisfaction. The CEOs were also generally pleased about their CIO's communication with business peers.

It's not enough to please the boss. CEOs value their CIO's communication with business peers almost as much as that with themselves: 60% viewed communication with peers about the business impact of IT as satisfactory or very satisfactory. Interestingly, peer communication was reported as more satisfactory (87%) when the CIO was also effectively communicating with the boss.

The CEO satisfaction with performance could lead to the conclusion that all’s well in the world CEO/IT nexus. But when asked about IT’s role in three key business dimensions, these satisfied CEOs tended to cast their IT into marginalized business roles.

CEO respondents don't expect proactive IT leadership for business innovation. When given choices about IT's role here, only 28% of CEOs characterized IT as offering proactive leadership, 34% portrayed IT's role as poor or mediocre, and 24% said that IT innovated only when pushed. The rating improved where the CEO had hired the top IT executives or included them on the executive team. The highest regard for IT as business innovator came when CEOs described their CIO as a good or excellent communicator.

CEOs don't expect IT to lead process improvement. While IT supports and typically is quite familiar with the firm’s business processes, only 30% of the surveyed CEOs depict IT as demonstrating proactive leadership for process improvement. Again, CEOs were more likely to think that IT played such a role when the CIO was a good or excellent communicator.

The CEOs can't say that IT is doing a good job of managing assets. Overall, 54% of respondents were not impressed with IT's ability to track and report on assets — people and equipment — with only 31% observing that IT was effectively managing assets as part of its responsibilities. Again, CEOs were happier about effectiveness when they had hired their CIO themselves or considered their CIO to be an effective communicator.

CEOs in smaller firms seem to be happier with IT, but have lower-than-average expectations. CEOs in the smaller firms surveyed (fewer than 1,000 employees) reported lower-than-average perceptions of IT, both as proactive leader in process improvement and as contributor to business success. But despite these seemingly negative impressions, these CEOs showed higher-than-average satisfaction with IT's performance. This mismatch will frustrate executives as the firm gets larger and its expectations of IT shift. What's the problem?

If IT is not helping to innovate, who is? Innovative uses of technology can change the rules of markets. Remember how the internet nearly eliminated travel agencies and almost eradicated retail book stores? Who is better positioned than the IT department to help craft new uses for such potentially disruptive technology? Firms that lack an innovative CIO early on set the stage for business units to develop their own IT, spawning parallel technology investments throughout the firm and, years later, spending millions to rationalize those investments and rein in costs.

If not now with business process improvement, then when? In smaller firms, the top role in IT may be occupied by a director-level technician who has grown with the firm — first doing the work alone and then hiring staffers to set up networks, PCs, printing, and the web site. But while this IT director focuses on basic infrastructure, poorly designed business processes spread like weeds everywhere else.

Thus, one sizeable dot.com firm only recently replaced a paper-fax order initiation process that had been dragging down the sales force for years. Large firms everywhere have spent fortunes on consolidating multiple (and alienating) customer systems — any of which could have been designed properly when the company was small.

If assets are not managed well now, will they ever be? Firms that sub-optimize the use of IT's physical and people assets early on will tend to accumulate multiple IT-related issues over the years. For example, one PC distributor grew to several hundred millions in revenues, but lost track of its own leased PCs and so had to buy them anyway. And many firms argue endlessly over who has the correct answers to critical business questions — with the confusion resulting in multiplying databases like inventory ‘control’, while the firm stockpiles unused licenses for software that could have solved the problem.

CEOs need to educate themselves about the role that IT — and especially the CIO — can play. To drive their firms forward these smarter CEOs should raise their expectations of IT. If they don't, their firms will fall behind as technology's growing pervasiveness enables other CEOs, who do know how to exploit IT, to leapfrog them.

To optimize success, CEOs must demand that CIOs do more than maintain the status quo. CEOs should use IT and CIOs as sources of competitive advantage by enabling the CIO to take more of a leadership role. They should insist that CIOs benchmark best-in-class uses of technology in peer firms; support the CIO in taking on more process change initiatives inside the firm; back the CIO in the face of business unit resistance to change; and query the CIO on IT asset performance and IT staff development.

Because CEOs are happier with IT executives who communicate effectively, they should solicit better exchanges with CIOs. To push the CIOs beyond their protective shield of ‘uptime stats’ and ‘upgrade status’, CEOs should ask them to lead executive team meetings that focus on getting more out of technology. And CEOs should ask their CIOs for recommendations about possible new services for customers; ways to fix broken internal processes; or a programme for rotating IT and business staffers across department boundaries to cross-pollinate knowledge.

CEOs can transform themselves into technology-smart executives. That means moving beyond the technology fads in airline magazines to see what technology projects are behind the success of firms that they admire. They should learn the basics about technology in the enterprise today and then move on to new technology-based opportunities — such as sharing information with suppliers, tracking goods with sensors, and continuously monitoring changes in customer perceptions.

If you are a passive IT executive — whose CEO is happy but doesn't think that IT offers leadership in areas of business innovation, process improvement, or asset management — then boost your aspirations for IT's contribution. Your positive initiative will drive an increase in your CEO's expectations of IT.

If you're resting on the laurels of the CEO's low expectations, stand up. If there’s a gap between high satisfaction and low expectations, shake off lethargy and brainstorm with your staff about what can and should be done differently. If your CEO isn't happy with IT performance, assess what's wrong and quickly address it. Move IT practices and processes to a higher level of maturity and stability, making sure that IT is well connected to business strategy and that the business stakeholder relationships are well managed.

If you're doing more than the CEO can see, market it. If part of the gap in the perception of IT leadership is simply ignorance of the impact that IT is having, your first task is to improve communication. Help the CEO to understand IT in business terms, mapping recent improvements to underlying IT enablers. For example, if an IT project accelerated the speed of servicing a customer, make sure that the boss knows and can speak knowingly about it.

If the CEO and top executives don't understand IT, educate them. Grab the agenda of an executive offsite meeting to provide an overview of IT's basic vocabulary and current capabilities — answering any and all questions and brainstorming future possibilities. If you don't take on the task of educating the CEO and others about the business impact of technology, no one else is likely to pick up the slack.

CEOs must hire and develop the right CIOs, rethinking candidates' background, skills, and next career steps to make sure that the next CIO is the needed ally. Consider CIOs who have managed change in other industries. CEOs who only look into their own industry are missing an opportunity to learn. Instead, identify the top issues in your firm and look for CIOs with a track record of solving those issues elsewhere, regardless of their industry sector. For many issues — like driving innovative process change or crafting smart vendor agreements — the size of the firm may be a better predictor of ‘similarity’ than industry membership.

Make sure that the CIO can take a risk and will stand up to others. IT executives may have lowered their own aspirations in recent years as a way to stay out of the CEO's line of fire. But CEOs should not accept a passive or poorly communicating CIO any more than they would stand for an invisible C-level executive in other areas. You should worry if the CIO is not challenging the absence of IT plans in the firm's strategy, or is not demanding a closer look at business units' laissez-faire participation in projects.

One of the key ways to develop an IT-smart business executive team and a business-smart CIO is to rotate executive assignments. And who knows? As with Best Buy and TD Ameritrade, your firm's next CEO may come from the CIO ranks — 39% of large firms already have IT execs with no technical background.

This article is based on Forrester Research’s report, Closing The CEO-CIO Gap - CEOs And CIOs Need Loftier Aspirations For IT's Contribution, by Laurie M. Orlov, dated February 7, 2007. Laurie Orlov is Vice President and Principal Analyst at Forrester Research.

The articles published here in the Thinking CEO are internet updates of the latest management knowledge and practice, which have been commissioned by Sovereign Publications for their bi-annual magazine, CEO Today, and will appear later in the first 2007 issue of this publication. To contact Sovereign and CEO Today, go to:

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