IT Focus Area: strategy
May 23, 2016
How Can the Modern CIO Become a Strategic Asset in the C-Suite?
Long gone are the days when the role of the chief information officer (CIO) was to “keep the lights on.” That just isn’t enough in the digital age of business. The rest of the C-Suite and board members now expect technology to be at the heart of their organization’s business transformation. The CIO must rise to the occasion.
While the old IT operating model focused on creating sustainable competitive advantages, nothing is truly “sustainable” anymore. C-Suite executives have to find ways to create fresh competitive advantages.
The new IT operating model, derives transient advantages from agility: the ability to jump into a window of opportunity, seize the market and deftly move onto the next opportunity using technology’s speed, ubiquity and cost mode.
This trend may be behind the recent sharp increase in the average amount of time CIOs spent with other C-Suite executives. According to the 2015 IT Trends Study by the Society for Information Management (SIM), responding CIOs said they spent 40 percent more time with their chief financial officers (CFOs) in 2014 than in 2013 and 29 percent more time with their chief executive officers (CEOs).
But, how much of it was quality time?
McKinsey & Co. reported that just over half of respondents in a recent survey of business executives said that while the CIO is on their senior team, most don’t see him or her as a strategic business partner.
A troubling observation, as the average portion of the revenue pie that companies now spend on IT is 5.1 percent and growing, according to SIM.
Why is there such a rift between the CIO and the rest of the C-Suite?
According to McKinsey & Co., it may be that the CIO has not aligned IT strategy with business strategy. For example, reducing IT costs was one of the top three priorities for the IT executives McKinsey & Co. surveyed, but one of the bottom three priorities for business executives.
Indeed, the traditional CIO may soon be facing a Darwinian moment. According to McKinsey & Co.’s study, 18 percent of executives believe a change at the top of their IT organizations could fix their companies’ technology shortcomings.
In 2011, when CBS Interactive sought to fill the role of CTO/CIO, it didn’t promote an IT leader from within. It didn’t recruit one from a competitor. Instead, it hired the chief executive of a technology company, serial entrepreneur Peter Yared (who has since moved on to found application infrastructure company Saphos).
An Innovative Perspective Matters
The CIO has a unique view of business operations, one that other business leaders can benefit from. By finding the right way to communicate with the C-Suite, the CIO can offer valuable insight.
Here are five ways the CIO can truly expand their value to the business.
1. Simplify the IT Portfolio
The new IT operating model described above won’t be successful if an organization is too encumbered by IT assets that don’t create value for the enterprise.
In the 2014 Application Landscape Report from consulting firm Capgemini, 48 percent of respondents reported having more applications than they needed, a solid increase from 34 percent the previous iteration of the survey found in 2011.
In order to strategically reduce useless applications, CIOs should apply a “buy/hold/sell” analysis to their application portfolio. This model is very familiar to CFOs and CEOs since it is often performed when evaluating a potential acquisition target’s technology, asking questions like:
What applications does the target run that will be immediately redundant upon Day One after the transaction? (Sell.)
Which ones should you maintain for a transitional period before making a decision? (Hold.)
Which ones does the target run that are better than your own? (Buy.)
CFOs can partner with CIOs to apply this process internally, when the existing application portfolio gets too crowded. Shut down applications you don’t need, keep running ones you need during a transitional period before buying or building new technology, and buy or build applications that need to improve or replace defunct ones.
CFOs have a fundamental need to understand the company’s data and digital strengths and weaknesses. The CIO can help achieve this understanding.
2. Understand ROI Expectations
If you asked your CEO, “What is the single most important metric you use to evaluate your effectiveness,” he or she might say total shareholder return. CFOs may consider return on invested capital as the most important metric.
But how should a CIO evaluate effectiveness?
Here’s a tool: IT’s return on investment can be defined simply as the business capabilities delivered by the applications it runs divided by its costs (such as software licenses, application maintenance and hardware leases). It’s similar to how miles per gallon measures a car’s efficiency.
In the case of IT, the equation can be performed by weighting each capability according to its value. Remember: weighting capabilities is not the same thing as weighting applications; a company may have thousands of apps but just dozens of capabilities.
One way to weight IT capabilities is by placing each into one of four progressively higher-value categories:
Incremental revenue drivers
Understanding IT’s business capabilities helps CFOs foster dialogue across the organization and provide better visibility on IT investments, what capabilities those investments provide, and what business results they’re expected to achieve.
3. Manage Shadow IT
Generally defined as the use of systems and solutions that haven’t gotten explicit organizational approval, “shadow IT” can pull an IT organization or the entire enterprise off-course.
The cost may not be entirely measurable in dollars. For example, shadow IT can lead to violations of regulations. For example, 52 percent of IT executives said they don’t have adequate processes in place to manage outside resources such as Dropbox. So when Dropbox experiences system downtime, what happens to that important causal analysis your financial reporting manager stored there so she could work on it from home?
If you don’t think that’s likely to happen, consider that 70 percent of employees that use Dropbox use it solely for work, according to a 2013 report from Forrester Research. If you don’t think at least some percentage of that usage could expose sensitive information beyond any realistic grasp of your internal controls, you’re not paying attention.
IT leaders should be ever-vigilant in finding and dealing with instances of shadow IT and the CIO can partner with the C-Suite to do so.
4. Align on Security
What kind of security risks does shadow IT create for your organization? What happens when that financial reporting manager protects her Google Drive account with “password” as his password? What if he has a better password on his Google account, but it’s the same one he uses for his enterprise account, and that password happens to fall into the hands of a hacker?
As former FBI director Robert Mueller once said, “There are only two types of companies: Those that have been hacked and those that will be.”
And he said that in 2012. In 2013, the Identity Theft Resource Center reported more than 600 data breaches. In 2014 it reported a record 783 data breaches that resulted in the release of more than 85 million individual records.
It’s critical for the CIO to communicate the organization’s security strategy and policies to the C-Suite so that policies and procedures can be communicated and executed successfully. IT security is stronger when business leaders are on the same page.
5. Build Strategic Internal Relationships
According to McKinsey & Co., companies that have CIOs who are more involved in business strategy report better IT performance.
Strategic relationships can start in the C-Suite and trickle down. If the CIO can communicate and collaborate well with all parts of the business, he or she will have a better holistic perspective of business operations. With more information, the CIO can make better decisions and recommendations.
Become a Modern CIO
By not only inviting CIOs into boardroom discussions but also fostering greater collaboration amongst all leaders, organizations can more accurately align their business goals with their technology goals.
With agility leading the way in the new IT operation model, collaboration and communication are key in the C-Suite. Today’s CIO should take advantage of this opening to become a strategic player.
An earlier version of this article appeared on CFO.com.