Are CIOs Obsolete?

Back in the prehistoric days of information technology—say, about 15 years ago—many companies opted to deal with the frighteningly complicated matter of “machines and men” by creating a new position: chief information officer. This newfangled executive, companies hoped, would protect and prepare them for the coming technology revolution. That revolution has arrived, and information technology has won. It infiltrates every aspect of business today, from the plotting of grand strategy to the logistics of frontline operations. Now the question is, Are CIOs obsolete? After all, in the new economy, shouldn’t every employee be an information officer? To provide some answers, HBR has asked a range of experts for their informed advice. “Are CIOs Obsolete?” is addressed by six commentators: Dawn Lepore, CIO and vice chairman at Charles Schwab, is widely recognized as one of the most forward-thinking people to hold—and shape—the position. Jack Rockart, director of the Center for Information Systems Research and lecturer at MIT, has been studying the CIO’s role and its implications for business. Michael J. Earl, professor of information management at London Business School, has recently completed a far-reaching survey of sitting CIOs. Tom Thomas, chairman and CEO at Vantive, holds a unique perspective: he was Dell’s first CIO, the CIO for Kraft’s commercial products division, and the CIO at 3Com. Peter McAteer and Jeffrey Elton, consultants at Giga Information Group and Integral, respectively, have interviewed and advised hundreds of CIOs, CEOs, and top-management head-hunters in the course of their work. Are CIOs Obsolete? Dawn Lepore is the CIO and vice chairman of Charles Schwab in San Francisco. When I was named CIO at Schwab, someone said to me, “You’re not going to let them give you that title, are you?” The implication was that the CIO slot was a career death knell. The underlying assumption was that the position itself would be hell. That person couldn’t have been more wrong. The CIO position in general has long been maligned. But I think that’s because most people don’t understand its true potential. Anything that isn’t well understood is often rejected. Let’s face it, the misunderstanding is, to a great extent, justified. The title still means so many different things at so many different companies. Some CIOs, for example, are simply department managers who ensure that all the PCs can be turned on and that the processors work. Others are charged with managing a company’s Web-site development and maintenance—in relative isolation or in tandem only with the marketing department. I am Schwab’s third CIO. Here, the title has always reflected an evolving senior management role active in strategy development and respected for input on all fronts. I’ve always been a peer to the various business heads. Technology is critical to what this company does, and I’ve always had a great deal of influence on the company’s strategic direction, organizational structure, and culture. I think the way my job is defined and is expected to evolve is the way that the CIO position is headed overall. More and more businesses rely on technology in order to be competitive. The CIO is the natural person to drive that process. And so the position will become, across the board, one with broad impact. The old definitions of the CIO role—those that are limited in scope—will become obsolete. Now, the words “broad impact” call up an image of the CEO. I don’t believe that the two positions are equal, but they do share a number of characteristics. Most unit heads need to have a very focused perspective. CIOs must also be focused; additionally, they must be able to consider the business as a whole, as the CEO does. CEOs, for their part, increasingly have to be technologists. In fact, I suspect that in the future, more CEOs will have done some sort of rotation through a high-level tech job like CIO before becoming top managers. The point is, the roles should be complementary—they needn’t overlap, but they should buttress each other. The CEO should take the strategic lead, and the CIO should participate in strategy issues but also handle the implementation issues on a more detailed level. A lot of companies today are asking themselves, Do we need a CIO? But what they’re really wondering is, What kind of CIO do we need? and How can the CEO position best be supported in a world in which technology is so vital to business success? It’s hard to generalize, but if I were to give companies some advice on answering those questions, I would say this: Make sure that the CIO position is broadly defined, that it is well understood throughout the company that the CIO is expected to be a strong contributor to strategy discussions as well as to marketing and financial decisions. Also make sure that the position reports to the CEO. If the CIO reports to the CFO, as I’ve seen happen, then it’s clear the company is not serious about getting strategic impact out of their technology. I would also advise companies to look for someone who has a background in technology but who can also take a general management perspective. Being able to assess risk, build relationships inside and outside the company, take an objective stance, and process diverse information are skills to watch for. Essentially, I would tell CEOs that if they expect their CIO to be experts exclusively on technology infrastructure—for example, to know only how to hook up their ISDN modems for them—they’re looking for the wrong person. Don’t get me wrong—that kind of skill is very important. But a company whose CIO is focused on only that aspect of technology won’t make the most of the position. If I were advising CIOs—both hopeful and sitting executives alike—I would say, Do everything possible to ensure that your company embraces technology. Be certain that all senior managers use current, standard corporate technology on a daily basis. (That sounds ridiculous, I know, but a surprising number of senior executives don’t even use their own e-mail accounts; some of them have never surfed the Net.) Finally, instead of wondering whether they’ll be invited to sit at the table where strategy is made, CIOs should ask themselves if they are adding the kind of value that would influence strategy discussions: Do I have a broad understanding of the business? Do I know how the different components work together? Have I built relationships with other unit heads? If a CIO has to ask whether he’ll be invited to the table, chances are he never will be. Of course, if the CIO is already adding value, he’s either there or almost there. Jack Rockart is the George and Sandra Shussel Distinguished Senior Lecturer of Information Technology and the director of the Center for Information Systems Research at MIT’s Sloan School of Management in Cambridge, Massachusetts. Yet another revolution has begun in the field of information systems. When it is over, IS departments as they are currently constituted will be dismantled. Independent software specialists will dominate the development of systems, programming, and other software. Users will completely control individual information systems. Thus wrote John Dearden, an esteemed professor of accounting, planning, and control, in a 1987 article in the Sloan Management Review entitled “The Withering Away of the IT Organization.” Dearden went on, with a few equivocations, to explain the case for the decentralization of the IT organization, as well as the transfer of overall responsibility for IT to line management. Three years later, writing in the Harvard Business Review, fabled CIO Max Hopper predicted the ultimate demise of his role: Eventually—and we are far from this time—information systems will be thought of more like electricity or the telephone network than as a decisive source of organizational advantage. In this world, a company trumpeting the appointment of a new chief information officer will seem as anachronistic as a company today naming a new vice president for water and gas. Well, it is a decade later—and here we go again. The CIO position is once again undergoing intense scrutiny, and predictions of its demise are rampant. To some extent, Dearden’s and Hopper’s predictions have merit. It is clear that the CIO’s role has changed in many ways. Dearden was right that much—if not most—application development has shifted to external producers. Companies are more frequently outsourcing all or part of their IT functions. Line managers are becoming more knowledgeable about IT as it becomes an increasingly valuable resource for managers at all levels. And technology is becoming better—and easier to use—in select areas. But all those who have predicted the demise of the CIO and his organization have consistently ignored two important factors that are transforming companies and, therefore, IT and its management: sweeping changes in the way that businesses operate and even more dramatic changes in the technology that is available. The fundamental mistake that one makes in predicting a CIO-less future is believing that the future will have many of the same components as the present. It never does. From 1987 to 1990, for example, few would have seen the degree of globalization that is occurring, the merger mania, or the rush to deregulation in many industries. And just ten years ago, the World Wide Web had not been developed, and so the Internet and all its uses were not even available. If one wanted to implement electronic commerce, one bought a dedicated set of lines and called it EDI. Cisco, EMC, and a few other networking companies were not even close to being dominant in their areas of technology. And SAP was a relatively small German company operating primarily in Europe. Not surprisingly, the functions of the CIO have evolved as these driving forces have dictated major changes in IT roles, structure, and processes. Of the global companies I’m familiar with, most have built a bigger, more capable IT organization, outsourcing only certain components. Many, including BP, J.C. Penney, and Johnson & Johnson, have moved the CIO into the ranks of top management. And in companies that have not, like Gillette, the CIO still plays a major role in forming strategy for global business and technology. That is possible because the CIOs at these companies have an in-depth understanding of new developments in information technology and the businesses in which they are employed. In short, all good CIOs today are business executives first and technologists second. IT organizations have evolved and will continue to evolve. From their early centralized beginnings, they passed through decentralization and are now, in most major companies, federal in nature. (One needs the economies of scale of centralization for things like the network and shared applications. But local management is also critical for applications that apply to only a single part of an organization.) While many companies outsource some aspects of IT and use many packaged programs, the role of IT is, if anything, larger than ever. Until recently, its major deliverable was applications. Today there is a second key deliverable: an effective infrastructure. Today’s systems must run 24/7 on a well-managed network with critical corporate data and systems. Implementation issues are greater than ever. Software is now embedded in many products, and many IT organizations contribute there as well. Today’s CIO is and should be a technology executive who provides direction and counsel to other senior managers. Will the role wither away? Not if major changes in business and technology continue at the same—or increasing—rate as I believe they will. Michael J. Earl is a professor of information management at London Business School. Every few years, it seems, the role of the CIO becomes an agenda issue. Should it be reinvented? Should it survive? Sometimes the attention is sparked by the subpar performance of corporate IT functions. More often, the closer scrutiny is linked directly to the information technology itself and the new threats and opportunities it presents to business. A significant change is under way: the scope and depth of the CIO role are expanding, and a new breed of CIO is emerging, one with the competencies necessary to match the new role. What exactly is changing? For one thing, the status of the CIO is rising. According to a recent survey I conducted with 90 CIOs responding globally, more than 75 % are either on the board or on the executive committee at their respective organizations.1 Fifty-nine percent report to the CEO or COO rather than to the CFO, which has been the tradition. Furthermore, most CIOs said their formal powers have increased in recent years. They receive much stronger support from top management regarding corporate IT standards, enterprisewide systems, and centralized IT policy making. Another change is that the context in which the CIO operates is becoming more complex. Information technologies continue to multiply and are now as much like consumer electronics as industrial technologies. The IT services marketplace continues to expand and reconfigure itself daily. And open infrastructures are increasingly required to coexist with proprietary ones. Through it all, corporations still expect the COO to be a technology policy maker. The CIO’s mandate is to be a technology scanner, evaluator, and gatekeeper. Yet unlike most other corporate executives, the CIO still has very visible operational responsibilities. Whether outsourced or not, data-center operations, network uptime, help-desk service, and systems development are still the CIO’s job. If the operational performance of IT is below standard, the CIO is dead. Then, of course, in many corporations, the CIO also manages a very large group of people. According to my survey, some IT functions have as many as 10,000 employees, though the median size was 1,800. As if those responsibilities aren’t enough, CIOs in the 1990s have been asked to wear two other hats: those of “change master” and of “strategy maker.” CIOs have increasingly been given formal responsibilities for business change. Often those responsibilities begin with the task of leading a reengineering project or with the board recognizing that almost every change program is dependent on IT. It has not been unusual, in recent years, for CIOs to be called directors of IT and process change. They have also acquired other change-related responsibilities such as overseeing the human resource function. As the age of e-commerce dawned, CIOs not only initiated the first projects but were also invited to join business-strategy task forces. They were charged with buying up Internet start-ups or looking for promising joint ventures with relevant technology and content companies. Now, business strategy making has been added to the task of IT strategy making. Indeed, a few CIOs have “strategy” in their title. Two obvious questions arise: What competencies are required of a new CIO? And can one person do it all? The traditional responsibilities of the job require technological competence plus the management knowhow required to lead specialists and integrate the function with the rest of the business. Most CIOs in my survey acquired these capabilities by having considerable experience in the IT function. The new responsibilities also involve business acumen and leadership skills. Those CIOs who had experience being a CEO of a business or head of a business unit considered that to be excellent training ground for developing these capabilities. In particular, they said it helped them judge where IT should lead or lag in business thinking. Thirty-two percent of the participants I studied believe the new, single CIO role of policy maker, operational deliverer, functional head, change master, and strategist is viable. However, 35 % of CIOs believe their new role may eventually split in two—so demanding is the scope. It’s possible to imagine a CIO who is responsible for strategy, change, and information resources working alongside a chief technology officer who is responsible for technology policy, infrastructure planning, and operations. That is happening right now in a few corporations, often because it’s near impossible to find one person equipped to do everything. In other corporations, still another alternative exists: a member of the senior executive team has overall responsibility for IT and other operational, information-intensive or change-related activities. This person may have several relevant functional senior vice presidents reporting to him or her, including a senior vice president of technology. Indeed, he or she may even be the COO. (Such portfolio positions are common in Japanese companies.) Perhaps this scenario suggests an acid test for selecting the new CIO. Does he or she have the potential to become COO or CEO? If we could develop and appoint such executives, not only will we have CIOs fit for today’s challenges, we may be lining up our future CEOs. Tom Thomas is the chairman and CEO of Vantive, an enterprise software company based in Santa Clara, California, that develops customer relationship management systems. He is the former SVP and CIO of 3Com and of the commercial products division of Kraft. He was also the first CIO of Dell Computer. The CIO’s role has never been well defined—that much everyone agrees on. What isn’t clear is whether there will ever be a general, boilerplate description of the position. I don’t think so. But here’s the key: The CIO position should be inextricably linked to technology and the way in which different businesses use it. For forward-thinking companies in all industries, technology is playing an increasingly important and influential role. And for those same forward-thinking companies, the role of the CIO will inevitably evolve as the use of technology evolves. It’s a hot seat, to be sure. But it’s also a great place to be. I guarantee that if you were a fly on the wall at almost any board meeting, you’d hear the same kinds of questions: “I wonder how we can do more business over the Internet? What kind of intranet will best serve our needs? How can we better communicate with and manage our suppliers? How can we get closer to our customers?” Each question might be posed with a different function in mind, but each answer should ultimately involve the CIO. Thus, CIOs are—or can be—increasingly critical contributors to strategy formation and to the performance of the company as it executes its strategy. Does that mean the CIO position will ultimately overlap and merge with the CEO position? Not at all. It’s true that those two positions are the only places in the company where there absolutely must be an integrated view of the business. But think of the CIO as an increasingly strong buttress to the general leadership. Ideally, the two jobs will be thought of as a partnership. And the two people in those positions should be tight; they should play off each other’s strengths as they shape the business. If you take your hand and you imagine that each finger represents a different function—sales, marketing, manufacturing, engineering, product development—the CIO belongs right in the palm, alongside the CEO, ensuring the effective integration of the information that drives the business. Being an effective CIO means being knowledgeable about all the major functions of the business. It wasn’t always this way, and in many companies, that kind of thinking still doesn’t apply. In these companies, the CIO is still very much a technologist and still has the mind-set of someone with narrowly focused expertise. I’m talking about much more of a general manager role and mind-set. And I think that particular take on the job is critical for any company—in any industry—that expects to be competitive. When it comes to creating and sustaining a competitive edge, technology is the best game in town. That’s not to say that the CIO’s job is mission impossible. The CIO doesn’t have to have great expertise in each and every function. But the CIO, like the CEO, should be able to assess accurately how all the components of the business fit together. The CIO needs to be able to hold in his or her mind a coherent picture of the entire spectrum of activities that make the company run. Any top manager who doesn’t understand the information drivers in his or her company—where information goes, to whom, why, when, and how—isn’t working to full potential. It’s certainly true of CEOs, and it should also be true of CIOs. We made many acquisitions during my tenure at Kraft and as CIO at 3Com, and I could always tell how well a company was doing by how organized and well run its information systems were. It’s a good indicator of how well considered the company’s strategy is and how aligned all the divisions and departments are with that strategy. The CIO role, as I see it emerging, has implications for the makeup of our future CEOs because the CIO will become a natural candidate for the top manager’s slot. Compaq’s former CIO now leads the company. The former CIO of Federal Express went on to become the CEO of Netscape. I’m certainly not the first nor the only person to move from the CIO position into the top leadership role. I’m simply part of an aggressive and tremendously exciting trend. Peter McAteer is the vice president and managing director of Giga Information Group’s strategy, organization, and workforce-planning e-practices in Norwell, Massachusetts. Jeffrey Elton is a managing principal of Integral, a management consultancy in Cambridge, Massachusetts. He specializes in growth strategies and disruptive technologies. With the Internet currently a critical part of most business models, most organizations have identified significant strategic technical needs. Unfortunately, those needs are being addressed in a good number of cases not by the companies’ CIOs but by consultants. Indeed, at too many companies, the CIO position has devolved into a sort of heavyweight project manager, coordinating large Y2K and ERP deployments. The CIO’s role in corporate strategy, in these cases, is minimal. What’s more, CIO compensation is generally not linked to business results, and CIOs do not share in the equity options offered to most other executives at their level. All of that needs to change. The CIO should be at the center of operations for strategy pertaining to technology and its implementation. He or she should be the chief Internet officer—the person who stands ready to help partners understand the array of potential Internet technologies and their place within alternative business models. And CIO compensation should reflect that increased responsibility. In fact, the evolution of the CIO position as head technical specialist—from DP to MIS to IS to IT—stopped making sense in the early 1990s. The organizations that still think of the CIO as the head of a functional specialty are missing the point. Indeed, that misunderstanding is probably the root cause of the high turnover rate among CIOs. (The average CIO tenure in many organizations is less than three years.) It might also be one of the reasons for a company’s suboptimal performance. We’ve interviewed scores of CIOs during the past year. We’ve also had many discussions with managers at recruiting firms and with senior executives looking to fill CIO positions. The need for the kind of CIO we’ve described is a common theme. But our interviews have also given us some insight into how the current crop of CIOs may or may not succeed in the new territory. Some CIOs will founder in their newly expanded roles. These people are likely to be technologists. They will fail because they cannot figure out how to work with top managers who have more robust expectations for the job than did their previous bosses. The technologist CIO will frequently misinterpret the necessities of his or her new role, will fail to delegate effectively, or simply won’t know how to build a strong team that can address broader strategic issues as well as more focused technical challenges. Failure, in these cases, will have little or nothing to do with technology, per se. It will have more to do with the CIO’s promotion into a role for which he or she is ill prepared; his or her focus on technology will probably come at the expense of building general management skills. Interestingly, when we examined the literature on executive development and derailment, we found that the closest parallel to that kind of behavior was in the position of physician administrator. In both positions, the person tended to define himself as a “technical specialist” first and a “manager or leader” second. Another breed of CIO will succeed: mainly, the general manager with technology experience. In many instances, this person will be a former consultant or a general manager with a high degree of exposure to technology. The success of this type of CIO will send a clear signal that organizations need a senior “partner” to help build a business that is dependent on technology. Sadly, it’s likely that many of our current CIOs will not fit into this new role. The next generation of CIOs will more likely come from nontraditional sources. For example, companies may soon begin to recruit their CIOs from senior marketing positions at highly technical organizations. If reconfiguring the CIO position requires a change in the expectations and capabilities of the individual in the position, it also—and equally importantly—requires a change in the mind-set of the company’s top executives. If top-level managers view the CIO role as isolated, they will miss the true significance of technology-based change. No senior-level role should be thought of as static during a period of great—and lasting—market disruption. Members of the executive group are going to have to change their strategic dialogue to allow the “new” CIO to have an effect on strategy and actions. In addition, all senior executives must expand the scope and responsibility of their positions to include technology.

Are CIOs Obsolete?

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