Global CIO: Stop Treating IT Like A Cost Center
So three CEOs walk into a bar one evening. Two of them, Jeff and Dave, are struggling to understand what role their CIOs should be playing. These two are running companies that have slipped from being leaders to laggards, and they both know that their spotty efforts in leveraging business technology to create business and customer value is a big part of the problem. The third CEO is running a business that's growing rapidly, hammering its way into new markets, and becoming recognized as an innovative leader. This CEO has a great relationship with her CIO, and the other two have asked her to share her secret for how she accomplished that. A fly on the wall recorded the conversation.
"You guys aren't serious, are you? How can you run a vibrant business in 2008 without a great CIO?"
"Karen, I think you're missing the point -- I don't think you realize how lucky you are to have a CIO who actually understands your busi -- "
"Luck, Jeff, has nothing to do with it. Nothing at all. Do you think my CIO just appeared out of thin air one day and suddenly knew all about our customers, our products, our operations, our strategy and our financials? Your suggestion is silly."
"Karen, I think what Jeff meant to say is that, sure, you've done a great job grooming your CIO, but perhaps he came into the job with, oh, how can I put this -- maybe a little bit of a predisposition toward business and financial issues?"
"Well, thanks so much for clarifying that, Dave, but let me be even more clear: I busted my ass to find this guy and recruit him when he was a senior director of IT at a competitor -- he was the #3 IT person and not even on my headhunter's radar. And then I busted my ass some more in lining him up with mentors inside the company who could teach him the ropes, and I made it very clear to those mentors that I would bring down the sky on them if they didn't fully and eagerly support him in getting up to speed.
"And then he busted his ass by getting to know every facet of our business and building trust with the execs whose support he'd need down the line. He went on deliveries with the trucking crews, he spent hours with the financial teams as they closed the months and the quarter, he visited with the CIOs of eight of our top 10 customers, and the R&D team likes him so much they've invited him to join their Friday beer rinses. So you guys can keep deflecting your problems by calling my situation 'luck' or 'predisposition' or karma or whatever, but the simple fact is that it took a lot of very focused and very hard work from a lot of people to get us to where we are now."
Dave's body language suggests he ate some spoiled fish at lunch, but he tries to keep his cool since he's paying for the drinks and mostly because he desperately needs the advice. He smiles wanly and asks, "Karen, can you share with us how you pay your CIO?"
"His base is $300K, which is the same as last year, but this year he has a chance to earn another $250K in performance bonuses, which is up $100K from last year. On top of that --"
"Hold on -- are you telling me you're paying a tech guy half a million dollars? Are you nuts?"
"Nuts? Dave, have another drink -- because yes, one of us is nuts, but it's not me.
"As I was saying, he's also got an additional revenue-based opportunity that I'll explain. He and I sat down together and broke that bonus pool into three top-priority objectives.
"First, work with the LOB heads to create a series of metrics that show precisely what each of them spends on IT and what in return they get for that investment. That's for $50K.
"Second -- and this was his idea, and it's why I'd pay him twice what he's getting if he knew how to ask for it -- he's got up to $150K riding on his ability to free up money for new projects by automating all that back-office junk that used to keep us rooted in the Middle Ages."
"My guy wouldn't even understand what you're proposing, let alone be able to manage it."
"Oh, really? So you've discussed this with him? In detail?"
"Well, not exactly -- I mean, why would I if I know he won't get it or want to support it? Dave, help me out here, would you?"
"Jeff, ol' buddy, you might be beyond help -- but have another drink. Karen, tell me more about how you're driving your CIO to unlock some money from back-office stuff."
"He came to me with a plan, which the heads of our four business units had endorsed and signed. He had a detailed schedule for how he was going to reverse, over three years, the IT spending pattern that's been holding this company down for the past decade. That pattern showed us spending a huge proportion of our IT budget -- more than 75% -- on maintenance and back-office stuff. His analysis showed how this pattern limited our flexibility to create new products, cost us some of our best people because they weren't interested in doing grunt work, and kept us at arms' length from our customers.
"He also showed that every month we did nothing, the problem was getting worse: these maintenance costs were going up a point or two each year, putting us further and further behind. So if he can push this year's maintenance figure down from 78% to 60%, it'll save us millions while also allowing us to invest more in customer-facing technologies. So I think that's worth a $150K bonus, don't you, Jeff?"
"I'm not sure my CFO would go for those kinda numbers, and my hands are tied a bit because that's who my CIO reports to," Jeff grunts, shifting uneasily. Is the squirming due to conversation that's unfolding not exactly the way he'd intended, or is it perhaps that darned lunchtime fish (Chilean sea bass stuffed gloriously with a light duck confit suffused with a heavenly chutney reduction)? He fires down the last of his Scotch, signals for another, clasps his hands in a thoughtful (prayerful?) pose, and asks, "So you think -- I mean, if you were in my place -- that the CIO should, you know, report to me? I mean, not that I'm going to do that or anything, but just, you know, theoretically, is it something maybe I should consider?"
"Dave, why don't you take a stab at that -- you're about to make that move yourself, right?"
"As a matter of fact, I am -- just had a great talk with my CIO this afternoon, and the new reporting structure will take effect Jan. 1. The point I want this move to make across the company, Jeff, is that I don't want any of us thinking of IT any longer as a cost center. And when it was under the CFO, that's all it could be. My CFO is a terrific CFO, but he knows even less about technology than you do, Jeff. Plus, my CIO knows our end-to-end business processes better than the CFO does, but we haven't given her the chance to leverage that expertise because she's always been overwhelmed with the CFO's agenda, which too often has been tactical.
"In fact, toward the end of my meeting today with my CIO, she said she'd begun to reach out to headhunters herself because she was sick of running into dead ends when she tried to do something innovative, and sick of being told she and her department were cost centers whose performance and prospects could be improved only by one method: massive outsourcing."
"Sounds like she deserves a raise, Dave."
"Well, yes and no -- she does, but I want to see a plan first. And if you'd be willing to share it, Karen, I'd like to model that comp plan and bonus pool along the lines of what you've built, with a heavy focus on understanding costs, demonstrating value, increasing customer intimacy, and driving new revenue."
Jeff, belching carefully into his cupped hand, gets to his feet and signals for the check. "This has been great," he says, "and I hope we can do it again. There's a lot more I need to learn about here, but I'm not feeling so hot -- musta been that fish at lunch."
"I'll be happy to join you guys again in a couple of months," says Karen, "to see how things are developing. Until then, remember this: if you treat it like a cost center, it'll act like a cost center."