CIO

Your Agenda 2006: It's a Shoe-in

Their cost-cutting diet of the last few years has taught CIOs how to make the most of the resources they've got. They've largely shed that tired old "geek" label by developing strategic sensibilities, business acumen and communication skills. They've responded to catcalls about whether IT really matters by delivering value for the business and claiming a seat at the executive table

Our annual report, based on an exclusive survey of more than 275 heads of IT, shows that you're starting the new year off from a position of strength.

The more things change - well, the more they change, and finally it appears that times are changing for the better. Not perfect, mind you, but definitely improved. CIO magazine has been doing The State of the CIO survey since 2003 and back then change was for the worse as CXOs stomped hard on what they deigned profligate spending on big-bang projects that sucked money from their coffers and demonstrated very little value.

It was a time to read the dollars spent and weep: billions on the Y2K disaster that was a non-event, Internet projects that gobbled money a la Pacman and came to naught, and last, but not least, that exceedingly naughty tag team known as ERP and CRM, which together not only regularly disrupted - and at times halted - business operations, but garnered almost as much bad press for organizations as creative accounting and greedy CEOs.

IT and CIOs took it on the chin - even though much of the blame lay with the business and its naive attitude that automation was instant and anything could be bolted on. So IT folded its tent, quietly crept to the back room, sharpened its pencil and cut, then cut again, and again.

But while they were quiet, CIOs weren't inactive. They turned their attentions to fine-tuning and maximizing infrastructure, consolidating investments, focusing on architecture and gaining more business nous. CIOs are nothing if not prepared for the year ahead.

Their cost-cutting diet of the last few years has taught CIOs how to make the most of the resources they've got. They've largely shed that tired old "geek" label by developing strategic sensibilities, business acumen and communication skills. They've responded to catcalls about whether IT really matters by delivering value for the business and claiming a seat at the executive table.

Welcome back, ladies and gentlemen - you've been away too long.

Shaping Up, Not Shipping Out

Three years after our first exclusive report, The State of the CIO 2006 survey finds CIOs in better shape than ever before. IT budgets are strong, and pay and job tenure are up. You are usually part of the management team, and you report more often to the CEO than you do to anyone else. You spend a large chunk of your time interacting with other CXOs and business executives and taking part in strategic business decisions.

You overwhelmingly define your role as envisioning business possibilities and initiating with technology, not simply supporting and enabling predefined business initiatives. Seventy percent of CIOs, 72 percent of IT directors and nearly as many CTOs say so. (By contrast, those of you with "manager" in your title largely see your role as simply backing the business as it implements its strategies.)

Nor, as some might suggest, are you watching helplessly as outsourcing decimates your staff. You've learned to arbitrage labour costs, sending lower-value work out of house and devoting your in-house personnel to high-value, visible work such as project management. Your IT department has lowered your enterprise's business costs, improved its productivity and created competitive advantage.

Sure, there are problems - notably, a backlog of projects and requests and a possible staffing crisis looming - but as you enter 2006, you are starting from a position of strength.

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Now You're the Chief Strategy Officer

Our annual State of the CIO reports are based on annual surveys of more than 250 heads of IT. Each year we query these executives about their positions within the organization and the path they followed to the CIO job. We ask them about their IT staffs and their outsourcing practices, their priorities, their difficulties and the ways they perform their jobs. They tell us about IT's overall impact within their companies. We use this data, along with many one-on-one interviews, to identify and define best practices, analyze trends and develop an agenda for all CIOs.

The improvement in CIOs' standing within the enterprise this year is the result of a slow progression along several fronts rather than the consequence of any single factor. Indeed, some aspects of the job have changed little. Your take on IT's most significant organizational impact - reducing the cost of doing business through increased efficiency and productivity - has been remarkably consistent, the number-one response since 2004. What you believe to be your most important skill for success, your ability to communicate, is unchanged since our first survey in 2003. And each year you indicate that more than 50 percent of your time has been spent interacting with your company's CXOs and business executives. But many small shifts in survey responses illustrate that a transformation has occurred in how you approach your job.

Perhaps most significantly, the CIOs' strategic role has grown. In The State of the CIO 2006 survey, making strategic systems decisions tops the list of how you spend your time, with strategic business planning among the top five. And you named strategic thinking and planning as the number-two personal skill required for success.

There has been a corresponding change in your place on the org chart, with nearly two-thirds of you now sitting on the company's management committee. Your most prevalent reporting relationship is to the CEO. This year the percentage of CIOs reporting to the top boss remained steady at 35 percent, with a quarter of all our respondents reporting to their CFOs. The numbers are even better when we drill down to the CIO title exclusively; in this instance 53 percent of CIOs report to the CEO, 13 percent report to the CFO, with the remainder reporting to a mix that includes the COO, a corporate/regional CIO and even the board.

The significance of this shift is both personal and professional and can be seen in the diverging circumstances of these two groups of CIOs. Of those CIOs who report to their CEOs, 75 percent sit on the company management committee, whereas only 42 percent of CIOs who report to their CFOs do so. The CFO reports say they struggle more with alignment and spend more time putting out fires than do the CEO reports. The CEO reports have much more money to spend (their average annual IT budget is $27.3 million versus $14.6 million for the CFO reports), and they take home more money as well ($245,300 in average annual compensation versus $174,300).

It's good to report to the CEO, and it's good to report that this year more of you do.

Commonalities Beneath the Contrasts

Who you report to is an important factor in the content of your job, but not the only one. The industry you work in also makes a difference. On the whole, CIOs in financial services and insurance earn more, have bigger IT budgets, dedicate more time to strategic planning, and will grow their staffs in 2006 to a greater degree than CIOs in most any other sector.

Alone among IT executives in the seven industries we examined, finance CIOs seem to have solved the business-IT alignment puzzle. Health care and government CIOs are at the other end of the spectrum. They report to their CEOs far less often than other IT execs, and more of them struggle with what they term inadequate budgets.

Many of the distinctions between CIOs in different industries have to do with the particular business challenges their companies face. For instance, inventory management is a top concern for CIOs in manufacturing and retail; accounting and finance are most important to health-care, insurance and government CIOs. Customer support tops the list for financial services and educational CIOs. In coming months, we'll run a series of snapshots of the CIO role and situation in these and other industries.

Underlying the differences between industries, however, are many commonalities among CIOs. No matter what industry you work in, in 2006 you will be focusing on either innovating or reducing business costs. And to do that, you will need to use your ability to communicate and think strategically. If you think your industry defines you and separates you from your peers in other industries, think again.

Another factor in the nature of the CIO role is the size of the company. Those in small companies tend to be more hands-on than their peers in larger enterprises; the number-one use of small-company CIOs' time is leading projects, which is way down the list for CIOs in midsize and large companies. Big-company CIOs outsource more than the others, both domestically and offshore (although, not as much as many might suspect or trumpet), and they plan to increase their outsourcing in 2006 at a greater rate than do CIOs in small and midsize companies. But again, as was the case in all industries, the similarities in the CIO role across companies of all sizes outweigh the differences. The top management priority in all three categories is alignment, and the top technology priority is integration. CIOs at companies of every size plan to increase the size of their IT staffs.

An important underlying message of The State of the CIO 2006 is that CIOs can and should learn from each other. Circumstances vary; the job doesn't.

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Up with People

Back in 2003, finding people with the right skill sets and retaining key employees were among your biggest challenges. Companies competed for star performers in a long-running talent war. But the cost-cutting attitudes of CEOs and boards ended the hostilities. The pressure to do more with less knocked staffing way down your priority list and turned your attention toward outsourcing. Staff development and retention ranked 10th out of 14 spending priorities in our last two The State of the CIO surveys.

Yet in 2006, the emphasis on your internal IT department is back. In this year's survey, 37 percent of you plan to increase your IT headcount during the coming 12 months. That's not to say the shine is off outsourcing. Sending work to outside contractors has become a standard part of CIOs' arsenal, but a noteworthy 50 percent of CIOs said that they outsource less than 10 percent of their labour.

Certainly outsourcing practices have matured, with selective sourcing gaining favour over the large-scale deals of years past. Moreover, unlike your US peers, you are avoiding the complications of offshoring like the plague; 83 percent of you indicated that you will outsource only within Australia.

The work you outsource tends to be straightforward, repeatable processes: hosting services, application maintenance or support, and some types of application development. Conversely, the skills you're seeking in-house are for business-oriented tasks such as project management, business process management and complex, business-facing application development.

The need for IT staff is driven by pent-up business demand. An overwhelming backlog of requests and projects was a new entry on this year's roster of your most difficult challenges - and it jumped right to the top of the list. You need people to get this work done, you need them to hit the ground running (your greatest demand is for mid-level employees with some experience, see chart above), and you need them yesterday. (For stories of how CIOs are dealing with their application backlogs, see "The Number-One Problem: The Project Backlog", page 58.)

Where you'll find the talent to get all this work done remains an open question. There are fewer IT people around than when we did our first survey back in late 2002 - many got out of the field when organizations stopped hiring. And enrolments in domestic IT education programs are down. You could be looking at a return of the IT talent wars in 2006 and beyond.

Your Agenda, 2006

Taken together, the findings of The State of the CIO 2006 report point to an evolving agenda for IT execs. You've got to solve the staffing problem and take care of that application backlog. You need to pay attention to integration and alignment, which are this year's top technology and management priorities, respectively. But you need to do more than that to be a strategic CIO and realize the full potential of IT within the enterprise. You say that IT's role in the organization is to envision business possibilities and get them growing through technology. So that's the goal. To get there, first use your increased access to the CEOs, CXOs and business executives to deepen your understanding of the business. Use your strategic capabilities to develop programs that fulfil the needs that you and your business peers identify together. Then put your communication and leadership skills to work in bringing these programs to life.

All this will take discipline and a sustained effort from you and your IT department, but it's a shoe that fits and you're happy - if not always comfortable - to wear it.

Edward Prewitt, Linda Kennedy, and Sue Bushell contributed to this report