The CIOs of major organisations are facing difficult
challenges, having to manage IT organisations that are very
different from those that have traditionally existed, in a
challenging economic environment, write Hugo Trépant and Martin
Roets of Booz &
Company.
Senior executives are increasingly divided when debating the
most appropriate response. Facing constrained budgets, more
competitive pressure and greater external scrutiny, decision makers
are split into two camps. On one side are those searching for
powerful cost-reduction drivers and overall efficiency enhancers.
On the other are adherents of rapid, continuous innovation and
top-line growth.
IT is seen by both groups as a crucial element to achieving
these goals, posing tough new challenges for the CIO. Global
businesses are struggling with a host of critical questions about
managing IT, including:
• How can we benefit from the process efficiencies provided by a
centralised IT department, while meeting unique business unit
requirements?
• What is the best way is to align IT and business
strategies?
• How can we get the most out of our IT organisation?
What are the secrets of successful IT
organisations?
Speculation about how to best address these issues is ongoing,
but facts are elusive. To provide empirical answers, Booz &
Company is carrying out a global survey, using an
IT specific
adaptation of our organisational performance tool – the OrgDNA
Profiler. Over 2,000 executives responded to date to questions
about their IT organisational structure, decision rights,
information and motivators. The key findings point to steps that
CIOs can take to address the challenges of managing today's IT
organisation:
• Restructuring is not a silver bullet. Over the past 15 years,
IT organisations have adopted various structures while evolving
from centralised IT organisations that rarely communicate with the
business, to more distributed shared services organisations with
customer focus. Our results show that the resulting hybrid
structures often struggle, being pulled in conflicting directions,
and sacrificing both the efficiency of a centralised structure as
well as the flexibility of shared services. Will restructuring
again help IT organisations meet the varied demands they now face?
Evidence of effective centralised and distributed organisations
suggests that it won't. Contrary to what most decision-makers
believe, the secret to an effective IT organisation isn't just
structure.
• 'Entrepreneur/innovator' CIOs are more successful than
'utility manager' CIOs. We found a striking relationship between
the CIO role and the effectiveness of IT. Most organisations with
utility manager CIOs (ie. those that provide a commoditised
service) are seen as not translating important decisions into
action quickly, with little clarity around decision making and
frequent second-guessing of decisions. By contrast, most
entrepreneur/innovator CIOs (ie. those that enable IT to be a
driver of revenue growth) were linked with rapid execution of
decisions, awareness of which decisions people are responsible for,
and less second guessing. IT organisations run by utility managers
are seen as weak, whereas those led by entrepreneur/innovators are
seen as robust.
• Proximity breeds power. Organisations in which the CIO reports
directly to the CEO are more likely to be classed as having strong
execution capabilities than those where the CIO doesn't report to
the C-suite. They are able to translate decisions into action more
quickly, react to change more adeptly, align IT and business
priorities more tightly and are better at fulfilling business
requirements. Also, information is more likely to get to top
management quickly. The conclusion? The closer the CIO is to the
CEO, the stronger the IT organisation will be.
The UK CIO under pressure
Our survey results reveal that globally, many IT organisations
are not performing well when we consider the survey output by
geography, however, it becomes clear that CIOs in the UK are really
struggling: only 25% of UK respondents portrayed their IT
organisations as healthy.
The problems facing UK CIOs can be grouped in a few distinct
areas:
1. UK CIOs have less access to their CEOs than their colleagues
elsewhere.
2. UK respondents highlighted a severe deficiency of information
flow through their organisations, and line managers suffer from
inadequate access to suitable metrics.
3. Decision making in these organisations is particularly weak,
with persistent second guessing of decisions and a chronic
inability to convert decisions into action.
4. Although UK organisations offer IT staff a range of
motivators, these do not appear well calibrated, with a low
correlation between performance and reward.
Problem areas for UK IT organisations
It is therefore hardly surprising that UK IT organisations are
less likely to fulfil business requirements than their peers in
other geographies. Poor information flows mean that they do not
fully understand what the business wants, and struggle to
communicate what IT can offer. Without effective decision making IT
organisations have difficulty prioritising effectively, and do not
maximise the impact of IT investment. Without effective motivation,
IT organisations are unlikely to realise their staff's full
potential and risk losing of key individuals.
What should CIOs do?
Many IT organisations default to treating structure first. But
most restructuring efforts fail to consider the three other
determinants of an organisation's DNA: information, decision rights
and motivators. Booz & Company has identified ways of
addressing these levers, linked to the role of the CIO.
Fundamentally, CIOs need to be proactive to ensure that they are
well informed and engaged with the business.
Find ways to get the CIO closer to the CEO
Ideally the CIO should report to the CEO or other senior
executive in order to ensure an effective flow of information
between the business and IT. To link IT priorities with the
business strategy of the company, the CIO should be a member of the
executive committee and a participant in the strategic planning
process. Reporting to a senior executive is particularly important
in industries steeped in information technology. Reciprocally, the
IT governing body should include business executives. It's
important not only that the CIO understands the business strategy,
but also that the CEO and business unit heads appreciate IT's
capabilities and constraints.
If formal access to senior business leadership is not readily
available, CIOs need to be proactive in order to be heard and
informed. This could be achieved by being more assertive and
striving for a regular audience with senior decision makers or it
could be accomplished through diplomatic means, using executives
with aligned business interests to convey the essential information
between business and IT.
With links between business and IT established at a senior
level, alignment can be put in place through the rest of the
organisation. Using experienced IT staff to liaise with business
units should ensure that practical, realistic standards and
services are established and communicated. Interaction at every
level should keep line IT staff informed of strategic priorities
and goals, and convey the status of key initiatives and performance
against specific, IT-reliant and business-focused metrics.
Put decision processes in place to facilitate
innovation
CIOs should avoid being subservient to the business, and
consequently being pushed into "Utility Manager" roles by simply
acquiescing to business unit demands. The IT organisation's ability
to innovate effectively can be greatly enhanced through a well
defined investment decision process.
CIOs should put a demand management body in place that has
senior business and IT staff representation to select and
prioritise IT investments. Each investment pool should have a
governance body to allocate funds among competing options on an
objective basis based on strategic fit, return on investment and
risk. Funding procedures should explicitly link each IT investment
to a stated business benefit, and performance in delivering that
benefit should be tracked over time. Organisations should fund
projects in phases that require repeated approval to move forward.
Ensuring that investment is controlled and focused on business
objectives while empowering IT staff to innovate should result in
the CIO taking on an entrepreneurial role.
Optimise the motivation of IT employees
In addition to improving information flows between IT and the
business, and creating mechanisms to prioritise innovation, CIOs
should focus on their role as leaders of the IT organisation. In
particular, there is a need to maximise the effectiveness of their
staff. Career paths and training programmes should be designed that
encourage the development of core skills as well as the retention
and development of key employees. For example, paths and pay
structures should be created that do not require technical experts
such as architects to become managers to progress in the
organisation access should be provided to targeted training courses
in key skills and provide real rewards for completing them and
employee rewards should be linked to the strategic goals of the
overall enterprise, in addition to IT-centric performance
metrics.
The successful CIO
Booz & Company's research on organisational effectiveness
suggests that entrepreneurial and innovative CIOs who report to
senior executives are making dramatic strides in improving
execution. The advice to senior IT managers is therefore not simply
to default to structural solutions: they are more likely to succeed
by proactively positioning themselves close to senior business
executives to improve information flow by empowering their IT
organisations to innovate through well-structured investment
decision processes and by increasing employee effectiveness by
instituting appropriate motivators that reward performance.