May 22, 2011

Powerful Position, Clear Mandate: A Path to Success for CIOs

The chief information officer (CIO) is in a high-profile position, with the potential to make a real strategic impact on his or her business. But it is a difficult job, especially now, as many CIOs are losing executive power in the face of budget cuts and the commoditization of significant areas of the technology they oversee. Yet CIOs have the ability to influence their position within their company, through their success at both the technical and business levels. An ongoing Booz & Company study, the IT Org DNA Profiler®, demonstrates that two primary factors—the CIO’s business mandate and position in the company—can have a significant influence on how the CIO is perceived inside the company, and in turn on the success of the IT organization.

To be a CIO at a large organization is to be given the opportunity to oversee the entire IT function while working closely with the business to unleash new opportunities and efficiencies through IT. Yet it is no easy assignment: The appeal of this high-profile position is offset by considerable challenges. The successful CIO must gain a deep understanding of both the strategic direction of the business and how it operates, maintain a watchful eye on the ever-changing external technology landscape, and manage the IT department itself—a collection of diverse specialists who must work together to deliver a wide range of complex projects and programs that will have a profound impact on the business.

These challenges have been compounded in recent years by a shift in power, as many CIOs have lost their hard-won place at the executive table. This reduction of authority and influence is attributable in part to the loss of corporate power that typically accompanies substantial budget cuts. Furthermore, as companies increasingly rely on proven, packaged, essentially commoditized IT systems and hardware, CIOs at some companies have come to be seen as the overseers of a utility service rather than as partners who contribute significantly to the organization’s competitive position. Yet CIOs have the ability to influence their role and ultimately their success.

Since 2007, Booz & Company has been conducting a periodic study, called the IT Org DNA Profiler®, to better understand the factors that drive successful IT organizations; so far, it has received more than 2,000 responses. The study demonstrates that two factors in particular—a CIO’s business mandate and position in the company—can have a significant influence over the less controllable issues. Thus, these factors are key to the role that CIOs play at their organization and, ultimately, key to their success.

The Role of the CIO

In the course of the IT Org DNA study, Booz & Company has determined that CIOs typically play one of three roles in large organizations: “utility manager,” “business process improver,” or “IT entrepreneur/innovator.” “About half of all CIOs function as utility managers, whose mandate is typically limited to “keeping the lights on.” Half of all CIOs report directly to the CEO, 40 percent report to another C-suite executive, and the final 10 percent report to an executive outside the C-suite,” said Ramez Shehadi, the Booz & Company Partner leading the IT Practice in the Middle East. But a CIO whose role is confined to utility manager is significantly more likely to report to a top executive other than the CEO—this is the most common combination. A CIO who reports directly to the CEO is more likely to be characterized as having a successful IT organization than one reporting to a less senior executive.

Areas to Be Improved

Given these results, it is clear that CIOs who hope to improve the performance of their IT organization can significantly help themselves by increasing their own influence within their organization’s hierarchy and ensuring that they take on the role of change agent. To do so, they must improve in two areas, business mandate and position. “Mandate” refers to what the business has formally asked and empowered the CIO to do. The challenge for the CIO is to fulfill all the fundamental requirements of the utility manager while simultaneously securing a mandate to deliver real change through the role of business process improver or IT entrepreneur/innovator. “Position” refers to how connected the CIO is to the wider organization and how the CIO interacts with senior business executives. The CIO’s challenge is to earn that support and trust by demonstrating an informed strategic perspective, powerful communication skills, and real leadership both within and outside the IT department.

Seven Actions for Increased Visibility and Impact

CIOs can take seven specific actions to increase their visibility and impact, working toward a more senior position with a greater mandate for both influence and change.

1. Showcasing IT’s strategic value. CIOs should continually seek ways to demonstrate that IT is more than a commodity and that its formal mandate can safely be extended.

2. Managing requirements and priorities. CIOs need to ensure that both the IT function and the business function understand the business’s technology requirements and that the business participates actively in identifying and prioritizing IT initiatives.

3. Leading the business. CIOs can progressively increase their visibility by developing strong relationships with an expanded number of business leaders, built on a reputation for doing the basics well, coupled with strategic understanding and good judgment.

4. Emphasizing the right measures. For IT to demonstrate that it is meeting business requirements, the department and the business leaders must work together to put in place service-level agreements (SLAs) that are aligned with the priorities of the business.

5. Tailoring innovation. Any attempts to foster innovation that adds business value should be grounded in an understanding of current and future customer needs.

6. Setting technical direction. The CIO’s architecture group needs to establish policies and standards regarding enterprise architecture—including the application portfolio, infrastructure, data, security, and network—and communicate them to the business side.

7. Spearheading communication. CIOs should take focused actions to ensure that IT is well managed. The IT organization needs to be structured to best serve the business, and crucial roles must be identified and staffed with high-quality professionals.

In Conclusion

The principle of building credibility by getting the basics right before seeking greater visibility and interaction with the business will help CIOs improve both their position and their mandate. Strengthening either factor alone will help increase the CIO’s power and impact, yet will probably fall short of the ideal vision of the role.

Thus, CIOs must work to strengthen both areas at once. If they can, the result will be better performance, greater trust and empowerment, and a higher level of seniority. Moreover, success in one domain is likely to increase opportunities to excel in the other. “CIOs who can demonstrate strategic understanding of the business and come up with fresh, clearly stated ideas for adding value are more likely to be trusted to proceed. CIOs who can add value by engaging with the business in an entrepreneurial way are more likely to gain a senior audience and a closer relationship with senior management,” concluded Shehadi.

CIOs who lack the credibility and visibility needed to produce real change will find it difficult to change their mandate and improve their position. But the effort is well worth it, if doing so helps transform the role of the CIO and raise the profile of IT as a whole. CIOs who succeed at this effort will find it easier to overcome some of the challenges of a difficult job, reclaim or safeguard executive power, and realize the vision of their role—managing IT effectively to transform the business.