Chain of Command: IT and the CEO
- 30 May, 2005 10:08
For many years, IT has been trying to make the case that the CIO should report directly to the CEO. But surveys show that only about 40% of CIOs do so, and the proportion that report to the CFO is on the rise. I contend that this is happening because IT has failed to make the case for the importance of the direct reporting relationship. Here are eight reasons why the CIO should report to the CEO.
1. Today, most companies strategically differentiate themselves from their competitors through the use of IT systems. Since the CEO is the company's chief strategist, he must oversee and direct IT to ensure that it's involved in the most strategic issues on the table.
2. If IT reports to anyone other than the CEO, the technology agenda will be influenced by the objectives of that particular executive. It's imperative that IT develop the most critical business applications, not the ones favored by one senior executive.
3. Since strategic IT projects can have so much of an impact on the future of the company, it's essential that the CEO develop a working knowledge of the process of project creation. Lack of IT expertise is no excuse to delegate this. The CEO must immerse himself in this process to be sure that the company's strategy is being properly addressed.
4. Although the CFO's area of expertise may appear to be the most compatible with technology, I would argue that the CIO and CFO positions are polar opposites.
The CFO, by definition, is a risk-averse executive whose major responsibility is to protect the financial well-being of the company. His role is to question all major expenditures and assure that the proper controls are in place to maximize returns on investments. In publicly held companies in particular, the CFO's viewpoint is decidedly short term.
The CIO must be a risk taker. Every strategic system development project is risky, since it has never been done before in the company and will have a long-term impact. It's extremely difficult to predict costs and time frames, especially since the user department probably doesn't fully understand what it needs. And since most significant system developments span multiple years, the CIO must be more future-oriented than the CFO. He needs a long-term vision of the future benefits of new development.
Under a CFO, IT would operate more conservatively. Is a conservative IT department the weapon your company needs to confront the intense competitive environment?
5. The costs of IT continue to rise as departments across the company request more from it. Ironically, it's IT that must defend its rising budgets. If the CIO doesn't report to the CEO, the CEO won't understand that the IT budget is an investment in each department within the company.
6. If IT is indeed the strategic engine of the business, all parts of the company must be involved in setting its priorities. If IT reports to the CEO, all the other C-level executives will understand that.
7. The annual capital expense for IT is often the largest in the company. It's essential that the CEO understand how this IT capital compares to requests from other departments. The CIO needs to be on equal footing with other C-level executives as they present their requirements to the CEO.
8. The IT environment is a minefield of escalating costs, technological setbacks, inflated expectations, shortages of time and resources, and pressure to gain competitive advantage. These difficulties are exacerbated by the limited IT knowledge of most people in the business and the fact that the average CIO tenure is 18 to 36 months. If a company wants to maintain some sense of continuity within its IT ranks, it's critical that the CIO be a major "cabinet" member and have the ear of the CEO. Otherwise, the CIO will always be a convenient scapegoat when times get tough.
It's essential that the CIO report to the CEO. One of the most common impediments to this happening, however, is the CIO's inability to speak the language of business. When we become more business-oriented and give up geekspeak, the CEO will find our meetings worthwhile and will anticipate rather than dread them.
Paul M. Ingevaldson retired as CIO at Ace Hardware Corp. in 2004 after 40 years in the IT business. Contact him at email@example.com.