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.
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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.