Not too long ago, if the CEO called upon the CIO it was to address an outage or other technological breakdown. Now, in the era of digital business, CEOs are increasingly turning to their CIOs to help the company compete, often forging an important relationship in the process. As a result, it’s more important than ever for CIOs have a direct reporting line to the business leader. Not only are CIOs who report to the CEO the happiest, but the organisation benefits significantly too.
The importance of partnerships
IT leaders’ relationship with business executives is critical, as it’s through them that CIOs are able to gain a better understanding of the enterprise. This means learning about the key processes, priorities, and stakeholders. CIOs must also have an understanding of how profit margins are created across departments and be able to help the line of business strategise about how operational and emerging technologies can help them achieve their targets.
In addition, prioritisation and access to proper funding is typically dependent upon the CIO’s relationship with the CEO and poses a significant challenge for allocating investments. 51% of CIOs surveyed by Deloitte last year claimed they had an ‘excellent’ or ‘very good’ relationship with the CEO, and 42% identified themselves as being co-leaders or initiators of business strategy.
One example of an organisation where the CEO and CIO have a strong relationship is US retailer, Target. CEO Brian Cornell meets with CIO Mike McNamara weekly to discuss the technology implications of everything from capital spending allocations to how best to enhance customer loyalty. But just because they have forged a solid partnership doesn’t mean the CIO had to do all the work – Cornell had to change his perception of what he believed IT’s role was. As he said to the Wall Street Journal, “I view technology today very differently than I did five or 10 years ago. It’s no longer a backroom function”.
Adding the CFO to the mix
The reporting line can be a critical issue, because whom CIOs report to has a big influence on where they focus the IT department’s effort and resources. The same Deloitte survey showed that just as many CIOs report directly to the CFO as they do the CEO. Those reporting to the CEO stated that they were encouraged to take the perspective of enterprise-wide business value – how much the IT department delivers to the business – whereas those reporting to the CFO were primarily focused on the cost agenda and automating operations.
This might explain why, in a 2016 study on business technology, McKinsey & Co found a misalignment in priorities between IT and business executives. In the survey, 44% of CIOs said that cutting costs is one of their organisations’ current priorities for the function. However, CEOs ranked cost cutting last, with only 16% citing it as one of their companies’ priorities for IT. Instead, what business leaders said they wanted most from IT is for them to improve the effectiveness of business processes (72%), improve cost efficiency of business processes (47%), and provide managers with information to support planning and decision-making (45%). Interestingly, all of these priorities are related to business, not technology. It would appear that CEOs are already recognising the potential benefits of an IT-business partnership, but this information is getting lost somewhere down the line.
As one CIO said in the study, “The cost-versus-value equation changes with reporting line. With the CEO, it’s all about focusing on strategy and value. With a CFO, the focus tends to be on costs in the back office.” And another, “My experience is that a CEO reporting line results in more ‘adult’ end-to-end business-oriented discussions with a far greater focus on value and on shaping a balanced portfolio of investments, while a CFO reporting line puts a much stronger emphasis on the ROI of individual investments and a real obsession with IT costs, sometimes leaving business value on the table.”
CEOs need to ensure that the CIO and the IT function he or she leads are best positioned to help shape and enable the enterprise’s response to opportunities and challenges presented by digital technologies. In many organisations, however, the priorities of the CEO and CIO are not in sync, and this inevitably leads to misunderstandings about the value that IT is delivering to the organisation. The IT department is accountable for helping to enable the organisation to embrace and exploit the potential of digitisation, but this can only happen in close partnership with the business.
To learn more about IT leadership in the digital era, download our how-to guide for CIOs: ‘Aligning IT and Business: A practical guide for leading change in a service-defined world’