The CIO Dilemma

Over the years, the "I" in CIO took on a number of secondary meanings, innovation and intelligence among them. Now the moniker is on the verge of acquiring a less flattering association--irrelevance. After years of enjoying rising influence as they drove productivity advances, provided an infrastructure for customer and partner engagement, and exploited the competitive advantages of information, CIOs have become mired in cost cutting and systems maintenance. It's a career-threatening turn, one that progressive business technology execs are doing their best to steer through. Many CIOs are now finding that, while their job descriptions haven't changed and the demands on their time and resources have increased, the parameters in which they operate are more confining. IT cost cutting brought on by the dot-com bust and recession of a few years ago has become the norm. Energy and resources that once went to innovative business initiatives now go to disaster preparedness, regulatory compliance, and IT security. Tech budgets tend to be flat or barely climbing, while some of the work once done by IT departments is being outsourced. Four years ago, Nicholas Carr, in his Harvard Business Review article "IT Doesn't Matter," tried to convince the world that business technology had devolved from strategic advantage to tactical necessity. Carr's thesis was rejected by many people in the industry, but something like it, albeit different, is emerging as the new talking point. That is, the gradual loss of clout--or threat of it--for those business technology executives preoccupied with cost management at the expense of innovation.

At Global Crossing, Wagner cut costs, helped sell, then took on an expanded role Photo by Sacha Lecca

"It's a tough job in a tough business environment," says Mike McClaskey, CIO and VP of infrastructure solutions for Perot Systems. "It's easy to be marginalized." Not exactly the gung-ho attitude of a few years ago, and that sober assessment is shared by other business technology execs. In an InformationWeek Research survey of 150 CIOs and VPs of IT released in January, three-quarters characterized their companies' approach to technology investment and strategy as conservative or moderate. Only a third said their budget allows them to take risks and even make some mistakes. The numbers reveal a divide between what CIOs aspire to accomplish and think they should be doing on one side, and what they're actually achieving on the other. A survey last fall by Optimize (InformationWeek's sister publication) found that a clear majority of CIOs (64%), other C-level executives (64%), and line-of-business managers (54%) think CIOs are increasing their influence over businesses decisions at most companies. Asked the same question about their own companies, however, the respondents weren't so sure: Fewer CIOs (60%), CXOs (53%), and line-of-business managers (44%) said the influence of the CIO was growing in their own organization. This gap between ambition and reality played out in the InformationWeek survey as well. Virtually all CIOs said their companies are somewhat or very effective at using technology for business innovation. At the same time, almost half (49%) said their companies are either becoming more conservative in how they invest in and deploy new technology or not changing their IT investment strategies significantly (see "IT Culture: Too Safe For Comfort," Jan. 29). In that space between innovation and maintaining the status quo, frustration breeds. Chris Anderson, author of The Long Tail and editor of Wired magazine, put it succinctly this month after attending a CIO conference: "CIOs, it turns out, are mostly business people who have been given the thankless job of keeping the lights on, IT-wise," Anderson blogged. "And the best way to ensure that they stay on is to change as little as possible."

ALIGN ALREADY! The best CIOs, of course, know better. Virtually every CIO interviewed for this article stressed the importance of being more than a techie, of speaking the language of senior management, of combining technical chops with business acumen and a deep understanding of their companies' industry. For the umpteenth straight year, aligning IT and business strategies is the top concern of the executive members of the Society for Information Management. Many CIOs have spent the last decade working their way up to the management ranks, and they refuse to be narrowly defined by the technologies their groups deploy and maintain. They're not about to go back to being the back-office IT guy. Still, the gap is real in many companies, and some people argue it's growing. Former Xerox PARC head John Seely Brown sees two classes of CIOs: those who are barely treading water, trying to keep legacy systems running while cutting costs, and those who are managing to drive profound change through the use of emerging technologies such as virtualization, cluster computing, and service-level automation to lower costs while adding new capabilities and generating new revenue. Using a combination of adroit internal PR, relentless focus on a few key projects, aggressive execution, and even outsourcing to streamline business processes and free up money, some CIOs are still managing to improve their companies' bottom lines--and to increase their standing and influence within their organizations. Money alone doesn't tell the story of the diminished stature of the CIO, but it's a starting point. A Gartner report released in December found that IT spending at organizations with $1 billion-plus in revenue will rise by only 2.8% in 2007. Gartner's earlier predictions had pegged budget growth for the year at 6%. It shows just how quickly resources can get pulled back. The root of the problem, however, has less to do with how much IT budgets increase year to year and more with the disproportionate amount of IT dollars that go toward systems maintenance. Our InformationWeek 500 survey of the leading business technology organizations shows that 60 cents of every IT dollar goes to maintaining existing systems, with only 40 cents left over for new projects and technological innovation. Veterans realize that's moving the needle in the right direction--the rule of thumb used to be that 80% of tech budgets went to ongoing operations. Even so, that 60% figure hangs like an albatross around the necks of forward-thinking CIOs. Where's the money going? To support increasingly complex infrastructure and application requirements, rising energy costs, mounting regulatory requirements, and other nondiscretionary spending, according to Gartner. "This increased 'run the business' spending has consumed budget resources that were originally earmarked for more strategic and transformational investment," Gartner analyst Jed Rubin wrote in a report. It's hard to overhaul the navigational system when you're dodging icebergs. And as any CIO knows, budget allocation is a zero-sum game: Every dollar spent on running the servers is one not spent on a new sales force mobility initiative. Thus, while growth and transformation are the top objectives for enterprises this year, according to Gartner, that money has to come from somewhere, and the somewhere is operational budgets. At the same time, published research, along with more than a dozen CIO interviews for this article, paints a picture that goes beyond budget forecasts to something more human. To be blunt, there's a failure of will and imagination occurring within many organizations. A Forrester Research report last month found that CEOs, like exasperated parents of a recalcitrant teenager, have given up expecting brilliance and inventiveness from their IT departments and are settling for mere competence. It's the perception vs. reality gap issue: While six in 10 CEOs say they're satisfied or very satisfied with the performance of their IT departments, it's mostly because they don't expect their CIOs to be proactive about business innovation, improving processes, or even effectively managing IT assets. CEOs have "dialed back their expectations" over the last few years, says Forrester analyst Laurie Orlov.

NO SEAT FOR YOU! That's no excuse for complacency. Gordon Rudd, CIO for Internet Defense, a systems integrator and testing firm for IT security systems, thinks that CIOs missed an opportunity in the last few years to finally gain a full voice and measure of influence in the boardroom. "The CIO almost had a seat at the table two years ago, and then something really happened," he says. Pressed to describe what exactly happened, Rudd puts the blame not on globalization or Sarbanes-Oxley or shortsighted CEOs, but on CIOs themselves. "We haven't given the board and the CEO anything to get excited about," he says. All the obvious productivity gains--from desktop applications, ERP, and CRM, for example--have already been reaped, the thinking goes, and tech execs are no longer able to show the same magnitude of benefit for new IT investment. That's very much a glass-half-empty view, and not everyone sees it that way. While some CIOs remain handcuffed by budgetary constraints, relentless compliance and security demands, and misperceptions, others have risen above the drudgery.

It's easy for CIOs to get marginalized in this business environment, warns Perot Systems' McClaskey (right)

Andy James, CIO of Qmedtrix, a provider of billing and payment services to health care and insurance companies, has seen his role during his 3-1/2 years at the company evolve from a pure technology focus to one more involved in improving processes and business unit efficiency. James says his background in data analysis made the transition easier; he has friends in the business who are finding the shift much more wrenching. "It's just the nature of IT today. You don't build as much, and you utilize a lot more," he says. "If you're used to building things, and you can't get your head around the business processes, you're going to have a lot harder time in this age of integration." James still adheres to the philosophy--the one being tested in some places--that immersion in technology, cross-company initiatives, and business execution are what the CIO job is all about. "In some ways, I have as good a picture of the total organization and how it integrates as anyone in the room, if not the best picture," he says. Bruce Jacobs, executive VP of IT at ABN Amro, has risen in stature and influence by helping the financial services company outsource--first, infrastructure management to IBM in 2005 and, more recently, software development to Infosys Technologies and Patni Computer Systems. Outsourcing is never popular with the rank and file, but it's a hard reality that can make or break a CIO's reputation. "My role has taken on more commercial aspects than the classic CIO role," Jacobs explains. "Does that diminish my strategic role? If anything, it's increased." To be sure, Jacobs says, keeping the IT lights on, particularly for a multinational financial institution like ABN Amro, remains job No. 1, regardless of where the servers or the back-office staff reside. "In a change of this magnitude, it's normal to see a period of making sure things are stable," he says. "Once you get that nailed down, you can go back to focusing on, Where do we go strategically? How can we use technology and the new capabilities we have?"

OUT OF THE WOODS, INTO THE BREACH The cost slashing that many CIOs have had to endure--and manage--over the last few years can be an avenue to renewed innovation, says Dan Wagner, CIO for Global Crossing. Wagner speaks from experience: The telecom company filed for Chapter 11 bankruptcy protection in January 2002 with debt of $12.4 billion, and IT costs were slashed by 75% during the three or four years after the restructuring. The company's IT staff went from 1,300 to around 350 today. "But once we were out of those woods, I began to evolve into more of a strategic role, trying to figure out what products and services we could be offering and how we could differentiate ourselves in terms of how we operate the company," Wagner says. Among his main initiatives today: deploying a set of "CRM-like" applications, along with collaboration tools that, Wagner says, "radically improve how our sales community communicates with each other." Not content just to hand out the tools and wish the users good luck, Wagner and his top managers have gone out on 500 customer sales calls, acting as evangelists for the technology and helping sell at the same time. The result: Wagner has taken on a new position, running Global Crossing's $1 billion enterprise sales channel, in addition to his CIO role. Something's working right for the provider of wholesale network services: Global Crossing reported on March 15 that revenue would climb to between $2.17 billion and $2.25 billion for the year, up from $1.87 billion in 2006, sending its stock up by 11% on the Nasdaq. Going on sales calls may not be appropriate for every CIO, but from our interviews for this story a clear sequence emerged for IT leaders trying to navigate beyond diminished resources and expectations and toward innovation and business impact. It's a four-stage journey that involves streamlining operations, off-loading routine work, reinvesting money saved in new initiatives, and using technology to innovate (see story, p. 41). "We all have to deliver a lot more bang for the buck," says Wagner. "That had to happen first. We couldn't have discussions about more strategic goals before that was delivered." Mike Huffar, IT director at Edward Kraemer & Sons, would like nothing more than to get back to that strategic discussion. During a couple of years of business contraction, Huffar's role shifted from expanding the company's technological capabilities to helping keep the business afloat. "Right now we're just focused on the day-in and day-out mundane job of keeping the servers and the ERP systems running," he says. An ERP project undertaken a few years ago stands two-thirds completed. But Huffar still gets excited when he talks about applying new business intelligence tools and getting valuable information out to employees in more usable and timely formats. "There's a lot of need for that, and I can see us doing more of it in the next year or so," he says. "We're coming out of a down cycle. We've had to sit on our hands a little bit, but we'll get back to it." Edward Kraemer & Sons is in the bridge-building business, an appropriate metaphor for the job ahead. It requires connecting the tactical needs of the present with the strategic possibilities of the future, and there are thousands of CIOs just like Huffar. They're 250 feet above ground with blowtorches in hand. Just don't look down. Illustration by Alex Nabaum Continue to the sidebars: Four Steps To CIO Effectiveness and Outsourcing's A Coin Toss For CIOs