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The Future of the CIO

The Future of the CIO

[SCENARIO ONE]

The Rise of the CIO

By 2010, the road to corporate success will run right through IT.

Last year, David Bernauer became the chairman and CEO of Walgreens, the $US32.5 billion drugstore chain. An accountant and pharmacist by training, he started his Walgreens career two decades ago as an assistant manager in one of the company's stores. His resume - a few years running a shop, a few more in finance, a stint in marketing, three years as COO - is typical of many ambitious corporate execs. But Bernauer isn't your average chief executive at all. He's a former CIO.

During Bernauer's four-year tenure in the mid-90s as Walgreens's CIO, he oversaw the development and deployment of a central system for filling prescriptions and managing patient records that is widely credited with enabling the now 102-year-old company to stay at the top of the drugstore industry food chain. The system, which frees pharmacists from routine administrative tasks, has helped Walgreens keep costs down as it pursues an ever larger share of the prescription market. And with it, the company established a new standard for customer service - enabling customers to refill prescriptions at any outlet and schedule prescription refills in advance - that competing chains now shoot for. In short, Bernauer's work as CIO has a lot to do with Walgreens' current success.

Today, Bernauer's is a rather singular story. Only a handful of CEOs have ever deployed an IT system, read the riot act to a software vendor, or put in a long night trying to get a mission-critical network up after a crash. But by 2010, plenty of chief executives will have put in a stint with IT, probably running it. There will be no doubt as to the power of the CIO as an architect of corporate success.

The Inevitability of the CIO

Because of the impact IT has had in the past decade on the way companies have grown and been managed, CIOs in 2004 have a unique opportunity to establish and fortify their leadership position in corporate America. Successful companies depend on IT to create competitive advantage, whether it's by operating an efficient supply chain, delivering top-notch customer service, or using the Internet to enter new markets and create new products or services. "Technology has continually changed the underlying economics of the way the world does business," sums up John Cross, former CIO of energy company British Petroleum (BP) and current CIO and director of the UK Department of Work and Pensions.

Of course, for CIOs, there's a catch. To reap the rewards of IT's central role, you're going to have to do something that gives your company a lasting competitive edge, as Bernauer did at Walgreens. And not only is it going to take a triumph, you're going to have to get the credit for it. Be "the Jack Welch of CIOs", advises Neil Fligstein, a sociologist with the University of California at Berkeley.

That's a tall order, and it comes with a high price. The CIO who doesn't make money for his company, who doesn't drive its stock price higher, who has never had to produce a profit and loss statement, risks losing his seat at the executive table for good.

Executives rise to power because their expertise - whatever it may be - is critical to corporate growth. Fligstein documents various periods in history when executives from manufacturing, marketing and finance took turns running the show.

During the Depression, for example, Alfred Sloan, a salesman who became president of General Motors in 1923, pioneered the company's strategy to produce "a car for every purse and purpose", while rival Ford stuck to making only Model Ts, available in any colour as long as it was black. Sloan's marketing smarts enabled GM to surpass Ford in market share during most of the 1930s, and the star of marketing executives began to rise. By 1959, nearly a quarter of the top companies in the United States were run by former salesmen and marketing experts.

In the 1970s and 80s, the trend toward diversified conglomerates propelled financial executives to the top, Fligstein says, because they were seen as the best qualified to manage a portfolio of businesses. As US Steel (renamed USX) struggled against losses and take-over attempts through the 1980s - its leaders, first David Roderick, then Charles Corry, both financiers - diversified and sold off underperforming units. Today, no one doubts the power of the CFO.

But the recent wave of financial scandals - Enron, Tyco, WorldCom and so on - has tarnished the reputation of the numbers guys and has given CIOs an opening to argue that skill in financial management isn't the be-all and end-all of corporate stewardship. "The kind of revolution that's occurred in information technology and telecommunications has had profound effects on the way organisations have deployed their capital and their activities," says Fligstein. "Clearly the person in the organisation that can make the most claim to being able to manage that dependency [on IT] is the CIO."

»TIPPING POINT: In 2007, the CIO at insurance giant AIG outsources IT infrastructure operations. This lets the CIO turn her attention to ways AIG can use technology to improve its competitive position. Within a year, AIG captures additional market share, and Wall Street credits IT-enabled business process improvements for the company's growth.

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