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EXECUTIVE COUNSEL : The Realm of Possibilities -- The Ideal CIO Reporting Relationship

EXECUTIVE COUNSEL : The Realm of Possibilities -- The Ideal CIO Reporting Relationship

Who's your boss? The CFO? COO? CEO? Chances are whoever it is, you've expended some mental energy wondering if it should be someone else.

More than 10 years after the creation of the chief information officer position, the ideal CIO reporting structure is still a subject of debate.

Prevailing wisdom is that the ideal reporting arrangement for a CIO depends on how critical information technology is to the corporate mission. In industries in which IT is central to daily operations, such as financial services, it makes sense for the CIO to report to the highest executive, usually the CEO.

"In an ideal world, the [CIO] should report to the CEO or COO because IT is at the heart of the way we do business," says Michael Earl, professor of information management and deputy principal at the LondonBusiness School. CIOs need a superior who will both support their initiatives and share the vision of what they're trying to do with technology.

That type of reporting structure will become increasingly common in the next few years as all industries come to depend more on IT as a strategic resource, according to Gene Raphaelian, a San Jose, California-based vice president of executive programs for GartnerGroup Inc. In fact, of 109 CIOs who responded to a survey at this year's CIO Enterprise Value Retreat, 62 percent said they report to their company's highest-ranking executive. Statistics from CIO reader surveys also show that a shift is underway.

But peel back the covers a bit from the CIO reporting structure debate and it becomes clear that the issue is not really about the title of the CIO's superior but rather about whether the arrangement gives the CIO power in the organisation.

Financial Gains

A decade ago, the majority of CIOs reported to the chief financial officer.

Those early years were tough for CIOs, and their experiences left their peers with a distinct aversion toward reporting to the top finance executive. The rap on reporting to the CFO is that you'll be plagued by cost cutting and not taken seriously as a strategist or a decision maker. "If the CIO reports to the CFO, it's more likely that IT is viewed as a cost or support function," says Lloyd O'Brien, principal at the CIO Consulting Group Inc., a Chicago-based management and information technology consulting firm. This suggests the green-eyeshade gang will chip away endlessly at every IT investment no matter how strategic or will tie up IT by demanding the best systems for the finance function, to the detriment of the other groups.

That traditional line of reasoning does not reflect the dramatic evolution of the CFO role, however. "The CFO has become much more enlightened," says Jim Webber, president of Omicron, an IT executive consortium in Mountain Lakes, New Jersey. "The contemporary CFO does not wear a green eyeshade." Webber's group includes CIOs from more than 100 of the largest companies in the United States.

In contrast to CIO's reader survey numbers, which reflect the reporting structure at a wider range of company sizes, approximately 60 percent of Omicron's members report to the CFO, while only about 40 percent report to the CEO or COO. The majority group includes companies in the manufacturing and service sectors, while the smaller group represents more financial services and other information-intensive industries.

At most Fortune 500 companies, the CFO has emerged as a strong proponent for information technology, says Webber. Despite the CFO's lingering bad reputation, he or she now has a broader focus than finance. "The CFO is a key player in everything that's going on," says Webber. "He's in a deal-making role, at the heart of mergers and acquisitions."That's why Webber believes CIOs shouldn't shy away from taking a position just because they would have to report to the CFO. Instead, they should meet all the executives to try to get a sense of a company's management style and attitude toward IT. Companies that have a new-style CFO are likely to be resilient to faster cycle times and growing competition, for example, and therefore better positioned to take advantage of IT.

Despite the changing role of the CFO, many CIOs remain unconvinced that reporting to one might be a workable option. In a career spanning nearly 30 years at major companies including Sabre Inc. and Chemical Bank, John M.

Hickey, now executive vice president and chief technology officer for The Nasdaq Stock Market Inc., has reported to an array of senior executives, including the CFO and the COO. Hickey says he generally finds the stereotype of the CFO-CIO relationship to be accurate. "When you report in to the finance department, you're a service organisation," he says. "You don't have a peer relationship with the other top executives."Hickey admits the spectre of reporting to the CFO at this stage of his career would be grim. At age 61, if he happened to be in the job market-which he's not-he would accept only a position in which he reported to the CEO. Says Hickey, "I'd be very concerned about reporting to anyone other than the president of the organisation. I would be looking to make a real contribution, so I would be looking to report to the president. It's an easy shorthand."Hickey reports to Nasdaq President and CEO Alfred R. Berkeley. And he wouldn't have it any other way. "The core business of Nasdaq is information technology," says Hickey. "[The top IT executive] is in a different position in the company when technology drives the business."Under the TopBut just as some scorn the idea of reporting to the CFO, others reject the notion that the CIO must report to the CEO. Christopher Dallas-Feeney, a partner at New York City-based Booz, Allen & Hamilton Inc., says this is the great CIO ego trip -- one with potentially disastrous results. "CIOs like the feeling of reporting to CEOs. But they tend to get marginalized and get only token representation," he says, because CEOs in general have neither enough time to devote to the CIO nor enough interest in IT.

Most CIOs bristle at the notion that wanting to report to the CEO implies that they are on an ego trip. "[Dallas-Feeney's] comment makes me laugh because it's overly simplistic. There might be some cases where it's that, but it's on a case-by-case basis," says Doug Barker, vice president and director of IS for The Nature Conservancy, a nonprofit nature conservation organisation in Arlington, Virginia. Barker reports to the Conservancy's COO, Doug Hall.

Nevertheless, Dallas-Feeney insists that maintaining a successful CEO-CIO reporting relationship is difficult. Doing so requires a visionary CEO who is not overburdened by the everyday duties of being the company's representative to the outside world. "Often the CEO is semiclueless about what role technology should play. And I don't hold the CEOs accountable for that," he says. "Their job is perhaps mostly external, managing the public's impression."GartnerGroup's Raphaelian agrees that reporting to the CEO is not always the best setup. The CIO can be lonely in that situation, he says, because the rare CIO who is catapulted into the elite group of the company's top leaders can feel as if he's landed on another planet. The CEO may not have time to forge relationships for the CIO and will pretty much leave him on his own. "You have to have face-time with your boss. You have to gain entree into the thinking of others," Raphaelian says. "A few years ago, everyone in the consulting community was saying IT had to report to the CEO. That grand experiment failed in many cases."Dallas-Feeney recalls one CIO of a large company who reported to the CEO. The CIO had control-at least on paper-over all the IT decisions for the organisation. But in reality, it was the COO who had the ultimate authority and the power to nix IT investments. "If this [CIO] ever had any conversations with the CEO, they were trivial," Dallas-Feeney says. "It's really the COO who has the audience with the CEO and the board."That's why it makes the most sense for the CIO to report to the COO, says Dallas-Feeney. He argues that CIOs complement the business mission of COOs with their technical knowledge, while COOs, unlike the top executive, have the time and energy to help CIOs establish meaningful connections with their business unit peers. "The CIO has historically [lacked] enough political clout and credible authority on the business mission," says Dallas-Feeney. "It makes more sense to put the CIO under the COO because there he or she can lean more toward being a technologist." The alignment of the IT investments and the business strategy is much better in that case, he says, because the COO is likely to have the resources and desire to communicate the strategy. Though that theory is in contrast to recent thinking that today's CIOs must be more business-oriented than ever, it promotes a balanced relationship in which the COO represents business and the CIO represents technology.

Meg Aranow, vice president and CIO at the Boston Medical Centre (BMC), says she likes reporting to the COO. She says her technical abilities complement the expertise of her supervisor, Medical Centre COO Richard Moed. "I look for a boss to have a knowledge base that I don't have," she says. "In my current situation, he has a lot of knowledge about hospital operations."Although she says she can see why some CIOs would jump at the chance to report to the CEO, that situation is not for her. "I come from the camp that believes it is basically unimportant where the CIO reports," she says. "To me, it's more important that I be present at the discussions that frame the organisation's strategic priorities and broad tactical approaches rather than simply hear the conclusions of these discussions after the fact." Aranow says being part of those discussions allows her to learn the intent of the top managers firsthand rather than just interpret their intent from the outcome.

Aranow has been at BMC since last August. How difficult was it for her to tell from the outside whether the organisation took the CIO role seriously? That "vice president" was part of her title was a good sign, along with the answers to her pointed questions about whether she would be included in the weekly senior management meeting (she is). If the position had reported to the CFO, Aranow says she might have been wary of rampant cost-cutting but not wary enough to walk away without further investigation. "I only looked for inclusion," she says. "What I do with the inclusion, how I create influence, is up to me." After nearly a year on the job, she says she feels her input has a lot of weight.

Please or Perish

Most CIOs understand that when contemplating their reporting structure, it's a trap to overemphasize the importance of their boss's title. "CIOs care about this issue to the extent they feel they will have some influence," says Raphaelian. No one wants to get caught in a dead-end, invisible role. CIOsoften fear they will be left out of the group and have to get their high-level information through scuttlebutt. And, like everyone else, CIOs want people to listen when they talk.

Universally, the CIOs interviewed for this article cared only that they would be able to control IT policy and be present when the top executives from the business side were planning the overall corporate strategy. But to gain the influence they crave, CIOs -- unlike all of their business executive peers -- must first be accountable to every group in the company, no matter who does the annual performance review. And CIOs must please all of their constituents-or perish. "You're ultimately accountable to every individual in the organisation," says The Nature Conservancy's Barker. "Everyone is either an owner, provider or user of a system."In his tenure as vice president and CIO at Boston's Partners HealthCare System Inc., John P. Glaser has reported to the CEO, the CFO and, currently, the COO.

It was all the same to him. His conclusion: You have to keep all the executives happy, no matter which one is technically your boss. "At the end of the day, you need to make sure they all think you're doing an excellent job," he says.

"If you piss off one of those people, it doesn't matter who you report to." A Matter of CultureGovernment CIOs have a mandated reporting structure. They'd prefer a little more flexibility.

Like most CIOs, Alan Balutis, the acting CIO of the U.S. Department of Commerce in Washington, D.C., finds it difficult to generalise about the ideal CIO reporting relationship. Unfortunately, that's exactly what the government is asking its agencies to do.

The IT Management Reform Act of 1996, also known as the Clinger-Cohen Act, designates that the top IT executive in a governmental agency must report to the secretary or deputy secretary of the agency (analogous to the CEO or the COO, respectively). It's understandable that the government would want to shield itself from recent infamous and costly IT failures, but insisting that one size fits all in the reporting structure is not the way to do it, says Balutis.

"[The provision] was designed so there would be a high degree of planning and control in IT matters," he says. Government agencies are so diverse that it does not make any more sense to thrust one structure upon them all than it would in the private sector. "Every agency has a different history, mission and culture," Balutis says. "You ought to structure [the reporting relationship] in a way that makes sense for those unique variables." What is critical is that the CIO has substantial responsibility for IT policy and planning and is a player in major decisions, whether they be IT-related or not.

For the Greater Good

No matter which "O" you report to, your relationship will benefit if you follow these golden rules-- Learn to put your agenda second to that of the business (if they are separate)-- Spend time talking in specific terms about what the O needs and expects from the IT department, including the amount of information and involvement he or she wants to have with you-- Deliver the basics, including IT infrastructure and projects-- Figure out which coaches and power brokers influence the highest executives-- Be candid if there are aspects of your interaction that need improvement-- Don't expect other Os to make decisions for you-- Educate the other Os about issues of technology and its integration into the business (but try to be humble about it)-- Talk in business terms about business, not technology terms about technology-- Work with your boss the way you would want your subordinates to work with you (Lauren Gibbons Paul is a freelance writer in Belmont, Massachusetts. She can be reached at laurenpaul@sprintmail.com.)

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