What is the Proper Relationship for the CIO, CEO, and CFO?
The CIO role in business has been changing almost as fast as technology itself for the last decade. In the past it was enough to focus on business processes and automation. It was enough to satisfy the business needs for operational excellence. By doing this successfully the CIO was given carte blanche, often times large budgets and significant latitude in how best to apply technology budgets. Those days are quickly fading and today many IT departments and IT organizations are becoming internal vendors to internal customers with “charge backs” to the internal organizations. They are becoming little more than an internal cost center and “overhead” to the rest of the business. And this re-alignment of the technology organization is creating significant budget pressures leading to staffing gaps.
Together with these pressures, the CIO and IT decision maker is being pressed to deliver more with less. More than ever before there is pressure for all levels of IT decision makers to deliver business results–, those results that are focused on customer acquisition, customer retention, revenue growth, and innovation. What this means is that the CIO or key IT decision maker must focus on being a bridge to the different sides of the business like never before. The CIO who is able to properly partner with, and integrate into the business as a whole will rise above their peers and be successful. Those who can not will find budgeting and staffing more and more difficult.
Today’s CIO has a big job, as this Booz Allen insight article from 2002 [FN1] noted, to succeed they must:
- participate in corporate planning and strategy sessions,
- align and integrate technology initiatives in terms the business understands — speeding products to market, enabling growth, and reading costs and risks, etc.,
- make the case for technology spend and budgets, in business terms, with competing C-level executives,
- develop internal knowledge and collaboration networks.
There are answers, and there are solutions to the CIO quandary about business and IT integration, however, before getting to the heart of the matter let’s take a look at the different roles each position traditionally plays in the enterprise.
CFO (and COO) Alignment is Correctly Focused on Lagging Business Indicators
Intuitively and structurally the CFO role is focused on company finances and company health. This would be a company’s lagging indicators in terms of business metrics where both operations and finance intersect. If the company as a whole is doing well then these lagging indicators will show that after the entire process is complete and customer cash is collected and vendor bills are paid together with employee salaries, fixed expenses, variable expenses, etc., etc., etc. They are lagging indicators, after the entire process is complete, of whether or not the business is healthy and headed in the right direction. But these lagging indicators are not the best focus. If you wait until you have ALREADY ARRIVED at your destination to figure out if you took the right path you may not be in business very long.
To survive in today’s global economy a business must know early on where to make course corrections to stay on track. Business no longer has the luxury of waiting until the financial results are in to figure out if things are headed in the right direction.
CEO Alignment is Focused on Strategy, Business Growth, Sales, and Marketing
Once again intuitively and structurally the CEO role is focused on future strategy, sales, marketing, and business growth. This would represent a company’s leading indicators in terms of business metrics. If the company has:
- New customer prospects in a healthy pipeline
- A steady stream of customers being converted from the pipeline into orders
- A growing backlog while process performance is static or improving
- Existing customers buying more or higher margin products and services
then these leading indicators of future growth and prosperity look good. These kinds of leading indicators demonstrate future company performance and have been largely lacking from the technology equation.
The CEO, often through the interaction between the sales, marketing, engineering / product development areas also bears the responsibility for new products or services.
What is the Proper Role of the CIO in the Organization for Business and IT Integration?
Enter the CIO. In the past, the CIO role has been almost exclusively focused on lagging indicators or process improvements and current business financial health. They have focused on process improvement, automation, and those items related to a company’s fiscal health and performance. Few have addressed the leading indicator side of the equation beyond installing CRM applications (mostly as huge and expensive contact management systems). Fewer technology leaders or technology projects have started to address the leading indicator side of the business equation.
In a nutshell, the CIO role, and the IT staff in a properly aligned organization MUST be business-centric first and they must address business events from both a lagging AND leading indicator perspective. The CIO must become the bridge between the CEO and the CFO. In other words the successful CIO must find ways to integrate the operational and sales side of the business. And not just integrate them, but do so in such a way that technology investment and technology spend becomes focused more aggressively on the “demand” side (customer sales and innovation) rather than on the “supply” side (operations, processes, and automation) of the business equation.
This graphic shows not only the proper CFO/COO, CIO, and CEO level alignment, it also illustrates the burden that the most successful CIO and IT decision maker will carry. Future CIO success with technology in the business will require a more holistic or complete focus on business demand. The CIO role is becoming larger, and yet more difficult at the same time that the IT organization is under more and more financial and budget scrutiny. What this means for the CIO, IT Director, or other IT decision makers is that if they do not have an MBA or other formal business training themselves they may wish to look at enhancing their IT departments and IT organizations with true business analysts who also know technology (or can learn technology).
IT organizations and technology budgets that fail to address both sides of the business equation (lagging AND leading indicators) experience:
- significant budget cuts,
- a move into “maintenance mode,”
- their organization support model converted to an internal vendor to internal customers with“charge-backs” for services provided to the organization,
- being closed out of partnership with the business.
As the business as a whole pushes back on what they see as a very expensive IT department they will find their own internal ways around the budget hits from IT. Internal company departments will avoid budget hits from these “charge-backs” by doing things themselves whether that means manual processes or developing some measure of internal IT autonomy in some of their tech savvy departmental employees.
What Can IT Decision Makers Do to More Aggressively Address Business Needs?
There are a number of approaches that can be taken and a number of requirements that will be needed for a changing job role.
- Engage the CFO / COO and the CEO in discussions about supporting their business needs.
- Find ways to actively and directly integrate part of the IT staff into key business departments. For example, should the Finance, Operations, and Sales departments each have their own dedicated IT staff members? Or how do you take a limited staff and create a responsibility matrix to maximize business attention on these key departments?
- Invest in business analysts, those with business degrees or a business focus, who know or can learn the key technologies to support the business.
- Define and develop a technology strategy execution team consisting of at least one senior level VP or Director from Finance and Operations (appointed by the CFO / COO), Sales, Marketing, and Engineering (appointed by the CEO), and Technology (appointed by the CIO).
- Have the strategy execution team work together with any of their own key resources to define top level KPIs for IT to business integration.
- Revisit current KPIs, departmental goals, and metrics to ensure that technology and IT are aligned to these important business measurements.
- Use the underlying metrics and business goals for the KPIs as the source for both reporting and technology initiatives.
[FN1] Boochever, J., Park, T., Weinberg, J., CEO vs. CIO: Can This Marriage Be Saved? Booz Allen Hamilton, Strategy Business Online, July 17, 2002, retrieved online February 6, 2010 at http://www.strategy-business.com/article/20571
Follow my “nuggets of wisdom” or ranting, whichever you prefer, on twitter @R3Now http://twitter.com/R3Now