The Chief Information Officer’s role is a relatively new one, which the industry as a whole is still working out. Should the CIO report into the COO, the CFO, or to the CEO?
Often the CIO is seen as a tactical asset – minimising infrastructure issues at the lowest cost possible – but excluded, especially in the early stages, from much of the strategic discussion around bank transformation.
This is a dangerous position to take in any industry, but especially so in in banking, where technology is mission critical both today and tomorrow.
Most banks spend more than 5% of their revenues on ITC (Gartner studies estimate the average at 6.5%), with a bias of spending towards maintenance (“keeping the lights on”) of 95%; on average, innovation represents just 5% of ITC expenditure.
After decades of internal development, “maintenance” could mean negotiating a thousand interdependent applications or hunting for programmers to service a legacy banking software system. This ongoing process of management drains time, energy and cash.
Who, ultimately, is responsible for this spending? It should be the CIO. And “responsible” should mean not just in control, but also accountable. It is hard for this to happen if the CIO does not have a “seat at the table”, helping to co-author the business strategy with the other Group executives.
The real cost of “keeping the lights on”
Estimates put annual IT expenditure in the global finance industries – banking and insurance – at $250 billion. That is a huge amount of money, but the 5% of it available for genuine innovation is not really game-changing.
Often, CIOs become CIOs precisely because they are the best at keeping systems running, or finding new components which do the same job, but a little better, a little cheaper or a little faster. But CEOs need to know that their CIO is looking past maintaining infrastructure.
It is easy to get caught up in the detail – there is always a system to be tweaked, or a problem to be fixed. But when a paradigm shift is taking place, and taking place fast, and with technology front and centre, underestimating and underpowering the role of the CIO is a strategic error.
Bringing technology to the Board
By connecting understanding of an institution’s operational strengths and weaknesses with the objectives and strategic goals of its leadership, the CIO can move beyond incremental improvement to address the future technology base required to meet those goals.
Transformational decisions will need to be made. When they do, a CIO with the confidence of the CEO and the Board, built up by regular contact, can make a much more effective case for change.
Are financial institutions using their CIOs effectively? Should CEOs keep out of the server room, metaphorically speaking, and rely on Finance or Operations to flag the big issues?
The debate is ongoing – but our view is clear. As one customer told me just this week, the CIO and the business are like two people in a rally car. Business does the driving, but without a CIO to navigate it could be driving into danger.
Recently I have heard suggestions that the CIO should actually report into the HR director (!) because ultimately, the argurment went, the CIO is basically responsible for provisioning staff with the information and computing power they need. But by the same token, some argue that the CIO should report to the CMO because increasingly communicating with customers is being done electronically. From the CIO’s perspective, the trend behind both of these suggestions is that the technology to perform some functions in areas like marketing are becoming available to executives, without the need for the interventions of a CIO. The mechanics of IT are increasingly hidden / taken for granted, and executives can buy “business outcomes” rather than technology enablers. The question for the board then becomes one of whose responsibility is it co-ordinate this and ensure that all the pieces work together.
It is interesting to note that HSBC as a group has combined the CIO and COO roles into one called CTSO (Chief Technology Services Officer). This is ideally the role to drive transformation!
Hi Raphael & Guy
Great posts – thank you!
There is no doubt that the need is to ever more focus on the business outcome and hence the need for the “2 in a box” model between Business & IT (or the analogy of the rally car driver and his/her co-pilot).
Likewise the HSBC story is very helpful as it reminds us all that the change facing banks is not “incremental” but a true transformation of the operating model.
Kind regards. Simon
Simon, refering to your rally analogy, I would suggest different view of CEO and CIO role. I suggest the CIO must play the role of architect rather than navigator. The reason is the horison the CIO (or CAO – chief architect) must look at – not just the next corner the CEO must pass, but hundreds of miles ahead.