In an effort to share insights and advice coming out of the great conversations CIOs are having as a community, the Center has launched a new and exciting six-part video series, CIO Perspectives. This series brings together leading CIOs as they discuss topics, exchange ideas and compare experiences on important topics for CIOs to enhance their impact as business leaders.

Listen to Harvey Koeppel, Executive Director of the Center for CIO Leadership as he leads a discussion focusing CIO and CEO alignment with Center CIO Members, Jeanette Horan, CIO, IBM, Peter Whatnell, CIO, Sunoco, Inc., and Ron Bergmann, Vice President and CIO, Lehman College/CUNY.

Episode 2: CIO Perspectives | CIO and CEO Alignment

In the video, Harvey Koeppel mentions the blog post he wrote, Essential Reading:  "The Essential CIO", about the 2011 CIO Study by IBM, the Essential CIO.

On October 19th the Center for CIO Leadership had a very interesting panel discussion entitled “Next Generation IT Governance.” I was interested in the discussion since I teach this topic each semester in an IT Management MBA class at a local university. I believe that the speakers did an excellent job discussing this subject which is an essential element of any successful IT organization. However, I did not think that it raised many ideas that I haven’t already heard, discussed, and debated.

Professor Peppard shared many of my own thoughts about how a governance system in IT should work. He feels it must involve top management, it must be integrated across the entire organization to maximize strategic impact and it must take its place within the organization right next to the financial, structural, performance and regulatory governance protocols that exist, both formally or informally, in all companies. Having structured IT governance is the only way to achieve alignment to corporate strategy – which is still an illusive goal in many IT shops.

Len Peters of Yale also presented a typical governance model involving all aspects of a complex university IT environment. However, I disagreed with his opinion about the role of senior management in the process. I feel that it is imperative to involve the corporation’s top officers in the IT governance process to guarantee that the limited IT resource be used in a manner that is most in-sync with the corporation’s objectives. I sometimes feel that some IT leaders do not believe that the top echelon should be involved with major IT decisions. I feel that is one of their most important responsibilities since the IT agenda is a most critical component to the success of the organization.

I would recommend that all CIO members listen to the audio replay of the session and make your own decision. The creation of an effective IT governance environment is one of the most important responsibilities of the CIO. Every IT organization has a governance approach. The only question is whether of not it is managed by the CIO.

Do you believe all top officers should be involved in IT governance or should only IT leaders be involved in decision-making?

I know this topic will be controversial and there will be a lot of CIO's who disagree.  However, just hear me out.  I realize that there are some companies that demand chargeout from their central CIO function.  One good example would be the diversified conglomerate who conducts many different businesses and each one has a complete and separate  P&L and they live or die based on bottom line results.  I would also include functions within a company that are completely discrete from other company functions such that they share very little centralized company functions.

I would argue that in most other cases, charging out IT costs make very little sense.  It would be no different than charging out the services of the central finance department.  I guess I would concede that if finance is charged out than it would be ok to charge out IT.

Here are my reasons for not charging out IT:

1.  It creates the image that IT is not part of the company strategy but rather a utility that can be contracted for by any department.  I believe that the IT resource needs to be tied directly to the strategic aims of the corporation.  It should not be tied to the whim of a department head.

2.  Most companies decide to chargeout because central management does not want to be in a position to decide what should be automated.  I would argue that that is the job of top management.  With IT costing from 2% to 10% of revenue, it must be managed.  This is the role of the IT steering committee. If a steering committee composed of the officers of a company manage the automation agenda, then there is no need to chargeout.

3.  Another reason to chargeout is to fully burden a particular department so that their expense line represents their actual cost.  This approach is very dangerous in a innovative environment where a new idea could have great potential but cannot get traction due to the great startup expense.  If each department must stand on its own, innovation could be stifled.  Again, management could control this situation.  However budget scrutiny oftentimes causes such ventures to be minimized.

4.  In a non-chargeout environment with a strong steering committee,  each project being proposed is measured against the strategic plan of the company and is discussed with a company view not a departmental view.  In this environment, I would argue that scarce IT resources are better utilized.

5.  In a chargeout environment,  all expenses must be carefully recorded so that precise charges per user can be determined.  In addition, some measure of usage must be developed to assess proper overhead expense.  As a result of this rather subjective process, each department gets assessed  a charge each month that can change based on many arcane factors within the IT department such as vendor cost increases, unanticipated maintenance costs, outages, etc.  As a result, there are oftentimes discussions with users each month when the charge is finalized especially if the charge will affect the departmental incentives.  These are difficult discussions with our users that we are trying to serve and prove the value of IT.  All in all, a very contentious environment.

6.  Since each department stands on its own, they can decide to keep the internal department honest and get an outside quote and compare the internal quote to the outside one.  This process can easily lead to rogue applications since outside vendors can easily reduce overhead expenses in order to get a new client.  This does not happen in a non-chargeout environment since costs are retained in IT.  And guess who users come to when rogue applications go bad: Internal IT!

7.  There are certainly downsides to a non-chargeout environment.  The biggest one is for IT.  Since all costs remain in IT, the CIO must defend IT's expenses each year especially when costs are going up.  IT can make the argument that its costs are going up because the steering committee has approved an increase in staff due to a major project commitment.  However, there is oftentimes a collective amnesia to these factors especially in tough times.

8.  On the other side, a non-chargeout environment enables management to easily see the total corporate expense for IT.  This expense line must be managed by top management since it is so significant.  IT can operate at any level and it must be controlled by the company to be sure that expenses are in line with corporate needs and capacity.

9.  Another downside can be that users in a non-chargeout environment can think IT is free and try to develop frivolous applications.  I would say that a strong IT steering committee composed of the company officers would eliminate that risk since the user officer must defend the project against all other requests.

I would love to know what you think.  It would be good to get a dialog going to flesh out this very important governance issue.  I'm sure that there are a lot of CIO's struggling with this decision that could use your wise counsel.

A recently released study demonstrates how the CIO role has continued to evolve and reinforces the strategic role CIOs play within their enterprise. The 2011 CIO Study: the Essential CIO, from our founding sponsor IBM, draws upon interviews of over 3,000 CIO’s from 71 countries and 18 industries worldwide. I have highlighted three areas that I believe are meaningful for our community.

CIOs and CEOs  are thinking more alike than ever before...

The most compelling finding of the study for me is the significantly increased harmonization of the CIO and CEO agendas.   The study provides tangible evidence that IT is not simply an enabler of the business, but a critical component that drives sustainable and scalable business growth.   Asked where they would focus IT to help their organizations’ strategy in the foreseeable future, CIOs and CEOs shared three top priorities: insight and intelligence, client intimacy and people skills. These areas are a significant part of the raison d'être for the Center for CIO Leadership and you can find our most up to date thinking on skills and competencies throughout our website.  Here are some highlights from the study.

CIOs emerging as leaders...

Business analytics and intelligence were identified as the most important technologies for CIOs looking to increase the competitiveness of their organization in the next 3-5 years.   As CEOs are increasingly relying on CIOs to turn data into usable information, information into intelligence and intelligence into actionable insights, the role of the CIO has become much more visible throughout the C-Suite.           

The CIO Mandates...

The study discusses four distinct approaches to IT leadership based on defined characteristics that line up with an organization’s strategies and goals (mandates). Each of the mandates is articulated along with recommendations to help CIOs excel within each area.

I invite you to download ”The Essential CIO”, reflect upon how your path as CIO has evolved, and upon what areas you are focused on for the future. I look forward to hearing your thoughts about the study and to continuing our conversation…

I read an article today in the Wall Street Journal by Michael Totty titled The View From the CIO's Office: Three chief information officers on the challenges—and opportunities—they face. I found the article, and the CIOs’ insights – to be useful and thought provoking to share with the Center community.

The article captures a roundtable discussion with three leading CIOs: Norm Fjeldheim, Senior Vice President and Chief Information Officer for Qualcomm Inc., a wireless-technology company in San Diego; Filippo Passerini, President of Global Business Services and CIO at Procter & Gamble, Co., a global consumer-products company based in Cincinnati; and Frank Wander, Senior Vice President and CIO at Guardian Life Insurance Co. of America, New York.

The article provides excellent insights into the ever-changing role of the CIO from 3 of the most notable IT executives in our industry today. They share some interesting observations for all CIOs and for C-suite executives in general:

• Keeping the lights on and reducing costs is now only table-stakes (necessary but not sufficient) for a high performing IT organization;
  

• Working with internal and external business partners to provide the right information at the right time based upon a clear understanding of their business needs and objectives is a critical success factor within the new normal - essentially business enabled by IT rather than the other way around;
  

• Many of the innovative IT programs (we used to call them "discretionary") which are often the first to be cut when the budget gets tight (which is all of the time), can be funded out of the savings generated by driving operating efficiencies;
  

• Managing the IT change agenda is not about changing IT, but rather it is about enabling business transformation.
  

It is also clear from these brief snapshots that the organizations in which these CIOs operate really get the strategic importance of what IT -- when properly leveraged -- can deliver in terms of competitive differentiation, market share, revenue, earnings and sustainable business growth.

There is definitely a chicken and egg dynamic at work here where the organization needs to be ready, willing and able to embrace the benefits of a well-run technology agenda while the CIO and their IT organization needs to develop the credibility and earn the trust that fosters and continues to nurture that readiness. The CIOs interviewed and their organizations have cracked that code. Now if we could just figure out how to enable more organizations and their CIOs to make better omelets...

What challenges and opportunities do you face in your organization? And how do you recommend that we enable more organizations to make better omelets?

I am frankly tired of the frequent hand wringing in the IT press about the questionable future of the IT organization and the CIOs who run them. Despite the fact that IT has revolutionized virtually all business activities (name a job in your company that hasn’t been changed by computerization in the last 20 years,) we continue to opine that the CIO is going to be eliminated or the CIO must become more business oriented, or the CIO must become more strategic. Name one C-Level executive that has had more impact on every job within the modern corporation than the modern CIO.

We hear stories about how companies have outsourced their entire IT departments. We talk about outsourcing, off-shoring and decentralizing the IT resource. However, we also see articles about the horror stories of some of those IT-outsourced companies and the struggles that they have when the costs go up, the changes become even more bureaucratic and the loss of very knowledgeable people has been devastating.

We hear the press and even some CIOs thinking that the future of IT is bleak. Some even discourage young people from pursuing the IT profession. That’s the wrong attitude. There are very few fields that haven’t suffered in the current times. Doctors are leaving their practices due to socialized medicine trends and outrageous insurance claims. Wall Street financiers have been vilified by Washington politicians. Politicians are accused of doing nothing. The insurance business has been ransacked after AIG and Enron. The oil business has been attacked by the public after the Gulf disaster. The press is considered to be biased. Lawyers do not have a great reputation. Businesspeople in general are shown as money grubbing amoral people in many Hollywood movies.  Facebook took a hit in the “Social Network.” Not even teachers are immune due to recent reports of generous retirement packages.

I teach a couple of sessions in a local MBA class that focus on IT Management to primarily non-IT students. Each semester I ask the students what they think of their IT department. Invariably I get the following comments:

            IT doesn’t get its projects done on time or on budget

            IT doesn’t understand the business

            IT is more loyal to IT than to our business

            IT has their own language - I don’t understand them

            Why does it take them so long to do anything?

            IT lacks a sense of urgency

I’ve been in IT for over 40 years and these issues continue to haunt us. Did I mention that over those 40 years, IT has changed almost every job in the modern corporation?  In my view, it is time for the IT community to begin to stand up for the profession. It’s time to point out that we have a major role to play in a corporation’s success. We are not narrowly focused practitioners who don’t know what’s going on in the company or are indifferent to corporate results. If we were really guilty of all of these stereotypes, would we have been able to change every job within the corporation?

It’s time for CIOs to take their rightful place in companies and become a powerful force and a reliable counsel in the use of the many emerging technologies that will continue to change the corporate landscape. If even half of the predictions of Ray Kurzweil, the author of  “The Singularity Is Near,” come true, the corporation of today will look as ancient in 20 years as the corporation of 20 years ago looks to us. No smart phones, no data warehouses, no internet, no desktops, nada, nada, nada. How did we even function?  Stay tuned. The pace of change is going to be even faster.

So instead of self-flagellating, we should be shouting from the rooftops about the great days that are ahead of us. Who is going to rein in these new technologies if it is not the central IT organization in every modern corporation? We need to work on training our users on how to best use and exploit the IT resource. We need to help our users to understand the new technologies and how they can help their sales and profits. This is a much better role than the paranoia that seems to be gripping many in the IT community.

What do you think? Is the central IT department in danger? Is the future of IT bleak?            

CIO 2.0

Pim van der Horst, Managing Partner (COO/CIO) Addition Knowledge House (a KAS BANK company)

Introduction

Times are changing… As a matter of fact, continuously change has become a reality. How is today’s CIO dealing with change? Is the CIO changing or is his role changing?

In my view, CIOs need to change dramatically. Here is my view on the journey and what is next for the CIO role: the CIO 2.0.

CIO 1.0

The “first generation” CIOs had been IT Managers. Then when it became “en vogue” to become a Chief (Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, Chief Procurement Officer , Chief Marketing Officer, Chief Operations Officer, Chief Technology Officer, etc.) there had to be a Chief Information Officer, CIO! So, the IT Manager/Director changed his business card. His job and responsibilities stayed the same; he or she just had a new title.  These early CIOs were what I would call the CIO 1.0.  The CIO 1.0 concentrated on keeping IT running, focusing on internal operations. In this environment, it was challenging for IT leaders to reach beyond the scope of day-to-day IT operations to get involved in other aspects of leading the business. When the CIO 1.0 tried to get connected with the other “chiefs”, he often found it difficult to communicate with anyone besides the CFO and the COO.  And in the case of the CFO and the COO, in many cases one of them was his direct boss. For those CIOs who aspired to connect as peers with the CFO, the COO, and the rest of the “chiefs” to get involved in running the business, many of them struggled. Only a few CIO’s made it into the boardroom…

Getting to the boardroom

How could the CIO 1.0 get into the boardroom in this environment? Not by doing the same old job: keep IT running and saying “no” to commercial projects…

One of the challenges for the CIO 1.0 is that when he was successful (i.e. keeping IT running at a high percentage of availability) it was difficult to showcase the potential to help the business, since a well-running IT function is largely invisible. Then as technology continued to rapidly evolve and data management began to explode, the domain of the CIO 1.0 expanded. The CIO 1.0 had more visibility as these changes profoundly impacted the way the business was run. He (or she) was educated in a “hardware” and “infrastructure” world with more influence on the enterprise: his (or her) systems were running on his servers, in his datacenter. Working in this environment gave the CIO more confidence and in this environment he was able to show his (added) value.

Change is there, again!

Then things started to change again for the CIO. Decentralized IT. Knowledgeable end-users. Many external IT-services suppliers. And worst of all: the Internet.  These organizational and technology advancements disrupted the carefully managed world of the IT organization. The CIO 1.0 tried to regain control by demanding strict rules regarding the use of IT across the enterprise. This worked… for a short while.  At the same time, he had to build a “bridge” between his IT department and the end user (internal customer): business-IT alignment became a top priority.  CIOs started to try to speak the language of business and connect to the end users, but were at the same time confounded by the challenge that IT’s  “internal customers” were now buying IT services through the Internet and exploiting the opportunities now available on the Internet without informing the CIO.

It is not completely fair to say that the CIO 1.0 didn’t (try to) innovate or didn’t lead  challenging IT transformation projects. Some examples that resonated with the C-suite were:

• Virtualization (of servers and desktops) or “doing the same with less, by centralizing and consolidating IT processing”;
• Outsourcing;
• Back-sourcing or cancelling the previous outsourcing.

The CIO 1.0 kept IT running, but still his (internal) customers were not satisfied. Instead of promoting and supporting technology innovation, the CIO 1.0 has become one of the major hurdles in IT transformation.

CIO 2.0: rise!

As these changes to technology and the marketplace continue and accelerate, I believe a new CIO is needed- one focused on business priorities and enterprise value and transformation. But what are the core competencies to enable this CIO 2.0?

Some trends are emerging to answer this question. A renowned head hunter has put the following text on its website:

Given the Chief Information Officer’s (CIO) responsibility for the “central nervous system” of the corporation, filling a CIO vacancy is one of the most critical leadership decisions an enterprise can face. While an acceptable CIO might be able to reliably “keep the lights on”, a world-class CIO will be able to leverage information technology to drive process improvements, cost reductions, actionable competitive intelligence and revenue expansion opportunities. Because of the increased demands for talent, skilled CIOs are continually presented with opportunities, and so even companies currently thoroughly satisfied with their current IT leadership need to have a well thought out approach to CIO succession whether through promotion from within the IT function, rotation of a non-IT executive from the business to bring a user’s perspective to the role or through external recruitment.

It is clear that CIOs need to play a key role in the strategic direction of a company, and in order to do this effectively they need to understand the business and the elements that drive the business. Communication skills are of the utmost importance. For different organizations in different industries, different communication skills apply.  In particular, the CIO 2.0 needs to be able to communicate effectively across the enterprise, and with all of the other “Chiefs” in the C-suite, in business language and from a business perspective. In fact, some companies have now appointed business people (without much technical back ground) as the CIO… These have discovered that technology skills are less important than the skills to understand how the business works and communicate with the rest of the enterprise.

Another indicator of the new business-oriented CIO 2.0 is the set of priorities he or she has. One CIO of a Fortune 50 company that I admired, at one point published his 5 top priorities as:

• aligning business and IT
• integrating the enterprise
• driving long-term revenue growth
• fueling innovation
• developing employee skills

One thing that is most notable is that there is not much technology in this CIO’s priorities… They focus on connecting with the business, increasing competitive advantage, looking for opportunities. In short, the listed priorities show a common factor: transformation!  As I see it, the CIO 2.0 is a transformer- a transformer of the enterprise to a new level of competitive advantage and business success. And on a final note, I would also say that when this new CIO has finished the transformation he should move on to the next role: the CIO 2.0 is not the right person to keep IT running. The CIO 2.0 drives transformation, which drives the business.

CIO 2.0: forget IT, think business!

My closing question to Center members: what are your observations on CIO 2.0? Is your role evolving to business transformation leader?

On behalf of the MITSloan CIO Symposium’s organizers, sponsors and partners, you are cordinally invited to visit The MIT Sloan CIO Symposium - Video On Demand. It's Free..

If you missed the live event this past May, it's a great opportunity to enjoy and benefit from the all of the Symposium’s seminal and innovative discussions and talks served to you by Symposium panels and speakers, on video,on demand, right now. By registering, free of charge, you will have access to thirteen engaging sessions, covering the most compelling topics influencing CIO’s and senior technology executives today.

You are invited compliments of the MIT Sloan CIO Symposium’s organizers, sponsors and partners. Access the complete 2010 Symposium on video ondemand...  Click here

Our mission is to explore how innovative technologies and leading-edge academic research can help address the practical challenges faced in today’s changing volatile business environment and economy. We trust that this new addition will be an important contribution to the IT and Business community globally. Senior IT decision makers engage with each other and with thought leaders from academia to find better ways to sustain their leadership in the effective use of technology to improve business performance.  This is where the future is made.

Please feel free to contact me should you have any question.