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com Thursday, April 8, 2004

CIOs: Marginalization is Not Inevitable

RFG believes the movement of application development budgets back to the lines of business (LOBs) and the
ongoing operational budget cuts have begun to erode and marginalize the role of the CIO. However, this need not
occur and is not inevitable. To continue to be successful, the CIO must exhibit business acumen and managerial traits,
and have exceptional communication, marketing, negotiation, and relationship skills, in addition to technical skills.
Moreover, the CIO must possess leadership qualities, and be able to craft and articulate a vision for technology that is
aligned with the business, its goals, and its users.

Business Imperatives:

In an effort to better align IT with LOBs and contain costs, many organizations have put application
development budgets back in the hands of the LOBs. Although this trend has impacted the control CIOs
and IT departments have over project portfolio management, CIOs should view this as a positive step,
and leverage this move to demonstrate how IT can perform as a trusted business partner. CIOs should
embrace this change, collaborate with LOB counterparts to ensure that the appropriate governance is in
place, and solidify a seat on the project governance committee. (See the RFG Research Note "IT
Governance Frameworks.")
Influential and respected CIOs are highly visible and in regular contact with key corporate and LOB
executives. Thus, CIOs should be part of discussions concerning corporate and LOB strategies and LOB
projects involving the use of IT resources, set expectations for requirements and services, provide
advance warnings of problems, and plan for the future. Additionally, CIOs should build trust with
executive peers by communicating in business terms, meeting expectations, having an understanding of
the company's specific areas of business, and showing how IT can enable business goals, objectives,
and strategies.
A truly effective CIO not only manages, but also leads by stimulating ideas and articulating a strategic
vision of technology for the enterprise. However, if the CIO and IT department are not closely tied to
and aligned with all aspects of the business, this vision cannot be realized. The CIO should therefore
express to senior management that a seat on the executive committee leads to a quicker, more targeted
and aligned technology implementation, as well as faster go-to-market strategies, and the improvement
of processes sooner than competitors.

Unfortunately, over the past decade, many CIOs had been spending monies without building a
business case or demonstrating the value add of IT. As such, when the economy took a turn for the
worse, CEOs quickly blamed IT for its lack of control and delivery. Additionally, many organizations
cut budgets, downsized staff, outsourced projects, and moved application development budgets back
under the realm and responsibility of the LOBs. This marginalized the role of the CIO in many
enterprises.

However, this diminished clout need not be the outcome of such an organizational shift. CIOs must
take the offensive, and change the way they conduct business. This entails focusing on the what, or
strategy, versus the how, or tactics and operations, of IT. What is close to the requirements, and thus
to the user, whereas how is constrained by the implementation. A CIO who influences what IT will do
will find more protection from marginalization than a CIO who determines how things are done. (See
the RFG Research Note "U.S. Programmers and Analysts: Endangered or Just Wounded?.") CIO is
both a strategic and operational role. As such, a successful CIO should attempt to demonstrate the
following 10 qualities, to continue to be perceived as an important part of management.
Top 10 Traits of a Successful CIO
Businessperson Negotiator
Communicator Politician
Leader Strategist
Manager Team Player
Marketer Visionary

Source: Robert Frances Group

Businessperson

The most visible shortcoming of many CIOs is their lack of understanding of the company's specific
areas of business, as well as business in general. It is therefore imperative that CIOs without this
understanding make a concerted effort to gain this knowledge as soon as possible by conversing with
business counterparts, reading materials on the competitive landscape, and taking courses, to name a
few. CIOs without business savvy will be ultimately marginalized, as they are incapable of proving to
the business that they can add value to the organization's progress and well-being. Technology has a
profound impact on the revenue and perception of any organization, and as such, CIOs require a
foundation in the principles of accounting, finance, marketing, sales and distribution, and supply
chain management to succeed.

Thus, the CIO must be fluent in both the business and technology, and make investments based on a
solid understanding of the technologies involved and how they will support the business strategy.
Additionally, an effective CIO should view technology in the context of the competitive landscape, and
how it will forge the company ahead. This requires the CIO to have both financial acumen and a
business perspective to engage with peer executives in decisions that drive the enterprise's bottom
line. (See the RFG Research Note "The Transformed Role of The CIO and IT.")

The CIO should therefore run the IT department like any other business unit. CIOs should put fiscal
controls in place, and operate as if they have profit and loss (P & L) responsibilities. This ensures that
all IT decisions are made to improve business performance, and with a demonstrable ROI in mind.
Moreover, CIOs should use metrics to monitor these investments, and institute service level
agreements (SLAs), to transform the perception of IT from a cost center to a value center. (See the
RFG Educational Asset "Service Level Agreement (SLA) Resources" and the RFG Research Note
"Transforming IT: From Cost Center to Value Center.")

CIOs must evaluate employee qualifications, and review projects for effectiveness. If the IT
department is in dire straits, then the CIO must run an IT improvement project as a public
reengineering effort. This allows the CIO to demonstrate to the business his/her ability to restructure
and "right size" the organization and put processes around projects and technologies, thereby
bringing credibility to the role. Additionally, an effective CIO must be capable of business process
reengineering and continuous process improvement.

Manager

To gain the respect of peer executives, a CIO must be able to direct and supervise business partners,
employees, projects, and vendors. Additionally, an effective CIO must be able to manage and allocate
IT resources, including budgets, skills, and time. CIOs that have a combination of these qualities will
be able to set priorities to projects, assign resources to those priorities, and hopefully, deliver projects
on time and on budget.
Although oftentimes overlooked, an effective CIO should also possess the ability to develop, hire, and
retain high quality IT professionals. CIOs should therefore encourage teamwork, mentor, and
motivate employees. These employees must have in-depth technical knowledge, as well as the open-
mindedness and desire to learn about the business. For example, no longer can an IT employee of a
brokerage firm say that he/she is just a programmer and need not understand the roles and tasks of a
broker; he/she has to be able to think like a broker. As such, the CIO is also responsible for instilling
this philosophy in his/her staff.

Leader, Strategist, and Visionary

A truly effective CIO not only manages his/her employees and projects, but also leads. Leadership is a
subjective but discernable quality. Leaders are charismatic, confident, creative, inspirational,
passionate, positive, reassuring, risk taking, and supportive. Thus, leaders serve as role models, and
should be able to stimulate ideas from both IT and non-IT staff.

CIOs that are leaders also have a vision of technology and the business, and how the two align to meet
the enterprise's strategy. However, the crafting and articulation of this vision and the process to get
there requires buy-in from LOBs and the CEO. To obtain this buy-in, the CIO must have the ability
to influence thinking. Influence comes from basic activities, including asking questions, listening, and
working through problems and resolutions with LOB counterparts. In other words, a successful CIO
must focus on the needs of his/her internal users, and become a reliable business partner to benefit
the enterprise as a whole.

Communicator, Negotiator, Politician, and Team Player

Conversations concerning IT's strategy should no longer be a monologue, but a complex dialogue
among the CEO, CIO, and senior management. It is therefore incumbent upon the CIO to prevent the
CEO and other senior executives from downgrading the CIO role and the role of IT. This entails
having the ability to articulate intelligibly a vision and strategy for technology and how it supports
corporate and LOB objectives. This encompasses communicating in a group, one-on-one with senior
management, publicly in front of an audience, and in written forms.

Additionally, a CIO must have great listening and analytical skills, and be able to negotiate, persuade,
and resolve conflicts with customers, LOB counterparts, partners, suppliers, and vendors. This
requires being highly visible and keeping in contact regularly with the entire executive team, not just
the CEO. It is important to note that all C-level executives can affect the perceived value of the CIO.
Therefore, the CIO should not only establish a relationship with the CEO, but also ensure that the
CEO requires collaboration and cooperation between IT and the business. Discussions involving the
two functions should focus on the needs of the enterprise, planning for the future of the company,
setting requirements and SLA expectations, and demonstrating project ROI. CIOs must therefore
have interpersonal skills to establish and maintain a strong understanding, rapport, and trust between
individuals.

CIOs should also explain to business leaders that IT is responsible for day-to-day activities, such as
designing and building infrastructures. The value of these tasks must then be communicated to the
LOBs by using metrics or scenarios that illustrate the business processes they protect and enhance.
Moreover, CIOs must ensure that business counterparts understand that these implementations take
time, and that they do not provide immediate performance enhancements, but an investment in the
long term. Meanwhile, LOBs are responsible for all business-related activities, such as training
programs. Thus, CIOs should push for shared accountability from LOBs, making LOB managers
responsible and accountable for the realization of expected business benefits from IT. (See the RFG
Research Note "Alignment is a Two-Way Street: Business Executives Take Note.")

Marketer

Once CIOs can demonstrate their value to the enterprise, they can reverse the marginalization of
their role, thereby regaining credibility. CIOs should make it clear that IT has the most potential to
change the business through the ability to effectively leverage resources and drive revenues.
Therefore, reporting into an individual who solely looks at budgets and projects from a financial view
is not advantageous to the enterprise. According to CIO Magazine's "State of the CIO" survey, 83
percent of best practice CIOs said that being actively involved with the executive committee was
critical to their effectiveness.

If CIOs lack this involvement, they are incapable of learning about their internal customers'
requirements, leveraging them, and therefore, making wise IT investments. The CEO and other senior
executives must realize that the CIO is needed to bridge the gap between IT and the business. A lack
of communication between IT and the business could lead to individual LOBs investing in solutions on
their own and shadowing IT organizations. These solutions may not integrate well with the incumbent
IT architecture, and in the long term, may inhibit the ability of the organization to be agile and
competitive in the market. Thus, the CIO is necessary to bring coordination and focus to technology
initiatives, to ensure the enterprise remains flexible and elastic. (See the RFG Educational Asset
"Enterprise Elasticity.")

Unlike the CIO's business counterparts, the CIO should also be experienced with vendor
management. (See the RFG Research Notes "Best Practices for Vendor Management (Part One of
Two): The Hiring Process" and "Best Practices for Vendor Management (Part Two of Two): The
Evaluation Process.") Although many senior executives believe outsourcing reduces the need for the
CIO, the opposite is actually true. An increase in outsourcing and/or offshoring projects means the
enterprise will need to manage more contracts, more contingent workers, and more vendors. Thus, if
the enterprise plans to increase outsourcing projects, the CIO must have a position of authority, as
the business does not understand all of the risks involved, including intellectual property (IP), quality
control, and privacy and security issues. Additionally, it is imperative that contingent staff is
developing an IT architecture that is consistent with internal IT's strategic vision. (See the RFG
Research Notes "Managing Risks Associated with Outsourcing" and "Outsourcing and the Elastic
Enterprise.") As such, the enterprise must have a designated internal employee in charge of this task.
Logically, this person would be the CIO, or in some cases, the CTO.

It should be noted that the CIO does not need to demonstrate all of the above qualities to be effective.
As long as the CIO has business acumen and political savvy, runs IT like the remainder of the
business, and communicates regularly with business leaders, the CIO can reverse the marginalization
of his/her role. However, sometimes, regardless of the CIO's efforts, enterprise politics and culture
prevent the CIO from having a seat on the executive committee. In this case, it would behoove the
CIO to work with those LOB executives who understand IT's value, to begin gaining traction and
demonstrating to other LOBs that there are significant benefits when IT and LOBs align.

RFG believes although application development budgets have begun to move back to the LOBs, the
result does not have to be the erosion and marginalization of the CIO role. An effective CIO ensures
that technology is a major enabler and competitive advantage to the organization, and is therefore one
of the most critical components of the executive committee. To maintain this status however, the CIO
must exhibit business acumen and managerial traits, and have exceptional communication, marketing,
negotiation, and relationship skills. Moreover, the CIO must possess leadership qualities, and be able
to craft and articulate a vision for technology. A CIO that can demonstrate these characteristics will
not only have credibility, but also will be viewed as a business partner critical for the advancement of
the enterprise.

RFG analyst Sara Braunstein wrote this Research Note. Interested readers should contact RFG Client
Services to arrange further discussion or an interview with Ms. Braunstein.

RFG Research Notes provide concise, high-level analysis and recommendations on specific topics of interest
to enterprise IT executives. The Notes also provide a framework for further detailed Inquiries by RFG clients,
and for follow-up presentations and workshops by RFG research staff available to all interested IT decision-
makers. For more information, contact Client Services by telephone at (US) +203/291-6900 or by e-mail at
clientservices@rfgonline.com.

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