Chief Information Officers have gone from tech order takers to CEO partners. What’s next?
By Russ Banham
In the quarter-century that he has served as a senior IT executive, Ketan Pandit has observed a marked change in the role and responsibilities of the Chief Information Officer.
“Ten to fifteen years ago, the CIO in many organizations was more of a back-office function leader, focused on providing hardware and software across the enterprise to improve operational efficiency and work productivity,” said Pandit, CIO at the large international insurer, QBE North America. “Today’s CIO in many large and midsized businesses often is seen as a strategic leader, considered an important business partner in creating and implementing business plans.”
This leap from the back office to the front office was catapulted by digital transformation. There isn’t a company today that doesn’t rely in some form on technology and data to perform business processes, create more lasting customer experiences and make work more efficient and engaging. Business and technology used to be separate functions. Today, business is technology. As Pandit sees his role as a strategic CIO, “My remit is to help the company achieve top-line revenue growth and bottom-line profits, ensuring the IT team is aligned with the business in putting the customer at the center of everything we do.”
Other responsibilities include partnering with QBE’s information security team to safeguard company networks, systems and data, ensure compliance with stringent data security and privacy regulations, and continually assess the value of new and emerging technologies like machine learning and robotic process automation. But his most important task, he said, is “as an ally to the CEO and the CFO in identifying and capitalizing on our strategic opportunities and risks.”
Welcome to the modern CIO, an uber-executive with high-level responsibilities that would astonish their forerunners. “Yesteryear’s CIO was focused on operational excellence and was very involved in conversations around technology availability, stability, cost and security,” said Lou DiLorenzo, a principal in Deloitte’s Strategy and Analytics practice focused on Technology and Business Transformation. “Today’s CIOs are still that, but it’s only 30 percent of where they spend their time.”
Other strategy consultants with decades of experience studying and serving the so-called digerati share this perspective. “If you look at the disruption in business models over the last ten years, it has been almost entirely tech-led,” said Naufal Khan, Global Leader of McKinsey’s Technology, Strategy and Management work. “The integrator between strategy and technology was the CIO.”
Drawing from McKinsey’s client list, Khan said the companies that looked to the CIO for strategic guidance and no longer treated IT as a support function achieved successful digital transformations. Alternatively, the ones that continued to separate business and technology are playing catch up. “That’s how strategically important the role has become,” he said.
Bye-Bye Back Office
As the IT function reverts from an order taker to a strategic enabler, CIOs are following the path taken by another member of the C-suite—the Chief Financial Officer. A dozen years ago, many CFOs were mired in back-office accounting tasks—tallying up the revenue, profits and losses, and closing the books. As automated processes and software solutions assumed much of this work, CEOs rethought the role of the CFO. They soon realized that no other executive knew the business inside-out as well as the CFO down the hallway. The door to the front-office swayed open.
“CFOs went from being looked at as `bean counters’ to becoming strategic leaders,” Khan said. “This is literally the same progression that today’s CIOs currently are making.”
This progression is in place at QBE North America. Pandit’s strategic responsibilities include leading the insurer’s digital and data transformation, which involves the continual development of technology solutions that enhance efficiency and drive results across all functions. He also is entrusted with the planning and implementation of QBE’s enterprise-wide IT systems, ensuring the company’s business processes produce a competitive advantage in the marketplace.
Since insurance is a data-intensive industry, the sector was among the first to elevate the strategic importance of both digital transformation and the role of the CIO. At the large international insurer Chubb, Julie Dillman, Global Head of Operations, said the company’s global CIO is “increasingly important to the business strategy, versus just the business operations.”
A decade ago, a CIO’s primary task, she said, was “running the technology operations to keep the lights on and making sure systems were well-patched and networks were resilient. Today, the CIO is seated at the table with other executives to ensure our technology supports the strategy and the business plan.”
This expanded role requires additional skill sets beyond an understanding of how emerging technologies and automated processes can enhance efficiencies in operations and functions like sales and marketing, she said.
“Certainly, to become the leader of an IT organization, a CIO needs strong engineering skills. But as they transform into strategic leaders, the CIO must have strong communications skills to translate complex topics like robotics, data centers and cloud strategies into actionable information helping other executives manage risks and make better decisions,” Dillman said.
They also must have the business chops and discipline to manage the IT function as a business. “Given the operating complexity and capital spend [inherent in a digital transformation], the CIO needs to manage the IT function as a major business-within-a-business,” said Dillman. “In our case, we are very deep into digital and data in all our operating markets.”
Companies in sectors like manufacturing, healthcare, energy and retail also are deep into their digital transformations. In such cases, it has become imperative for their CIOs to assume strategic responsibilities, Khan said. He emailed a McKinsey survey of clients showing a
distinct competitive advantage when the CIO has an active involvement in shaping enterprise-wide strategy. More than half the companies with higher business performance said their CIOs were members of the organization’s “most senior teams.” In such cases, one-third said the CIO was “very involved” or “extremely involved” in shaping the overall business strategy.
Strategy was not a skills requirement in the past. “The CIOs of a couple decades ago were hired to make purely tech-focused decisions like `should we choose Oracle or SAP to run the ERP environment from top to bottom?’” said Stephen Phillips, a partner in Bain & Company’s London office who heads up the management consultancy’s Enterprise Technology practice.
Nowadays, SAP and Oracle are a much thinner proportion of a midsized and larger company’s IT stack, given the proliferation of third-party plug-in applications in the cloud, he noted. Just like automated accounting software solutions have liberated the finance function and CFO to focus on strategic imperatives, the plug-in apps have freed the IT function and CIO to do much of the same.
In each case, the skill sets are broader. “Today’s strategic CIO must know how to modernize the tech infrastructure, run a secure and reliable suite of tech services, be thought leaders to inspire teams of people, and make bold, complex decisions on how to deliver distinctive and differentiating customer experiences,” Phillips said.
Certainly not a job for the faint-hearted. “I’ve spent nearly 20 years in our enterprise technology practice working with CEOs and private equity owners, and many of them are wrestling now with whether or not their CIO is capable of driving their digital transformation,” he said. “The demand for multi-skilled CIOs is sky-high and growing by the day.”
DiLorenzo seems to share this perspective. “Not a dollar of revenue that goes through any company today doesn’t rely on technology, and the CIO is the one person that makes all of that happen—leading and executing a digital transformation on time and on budget,” he said. “The challenge is the dearth of CIOs with the capabilities needed to deliver these outcomes.”
Leading the Transformation
Like other midsized manufacturers, Marvin, a privately held maker of doors, windows and skylights, is pursuing a digital transformation. The company is presently merging IT (information technology) and OT (operations technology) to become a fully connected enterprise leveraging the Industrial Internet of Things (IIoT). Leading the transformation is Rob Orvis, Marvin’s Vice President of IT.
“My task as the de facto CIO is to rally the entire organization around this journey, ensuring we in the IT organization partner with other functions across the enterprise to turn manufacturing into a factory of connected machines, using analytics to generate information from these machines’ raw data,” said Orvis, former CIO at MVP logistics & Services.
Other manufacturers are engaged in a similar journey, which is predicated on improving operating efficiency, reducing errors and performing predictive maintenance. “No longer is there a line of separation between manufacturing and technology; they’ve become one thing,” Orvis said. Everything we and most every other business does today touches technology.”
Consequently, there is an expectation in the industry for a CIO to bring a strategic perspective to high-level discussions surrounding the digital transformation. Orvis, for example, is a member of Marvin’s senior leadership team and reports directly to its CEO, Paul Marvin. This strategic position and mandate are crucial to the project’s success. “IT alone can’t just charge off and capture the hill,” said Orvis. “We have to make sure our partners in the manufacturing operation are aligned in implementing the new solutions and processes.”
To ensure this alignment, three members from the IT staff have been integrated into the company’s operations team, and three members of the operations team have been integrated into the IT staff, where they can “learn about each other’s processes, vocabularies, needs and challenges,” Orvis said.
This strategic leadership role is becoming common in the majority of organizations that Phillips works with at Bain. Most CIOs report directly to the CEO rather than to the CFO (as in the past), and nearly all the CIOs make regular presentations to the board on the progress of the organization’s digital transformation. “North of 50 percent of digital transformations are failing to deliver on the expectations of the executives that sponsored them; hence it is critical to have a CIO that understands the strategic business goals driving the transformation,” Phillips said.
To increase the chances of success, many boards have created subcommittees on digital and data technology led by the CIO, he added. “A great CIO is able to paint a picture of where technology is headed and the doors that the technology will open for the business in the future,” said Phillips. “Such CIOs also ensure the capital spent on the technologies will deliver the promised capabilities.”
This high-level accountability is a far cry from the days when the IT function was perceived as a cost center and the CIO often went hat in hand to the CFO to solicit a capital allocation from the budget. With business and technology joined at the hip, modern CIOs now lead profit centers. DiLorenzo explained, “Digital and data technologies catalyze the development of new business models, products and services, making them a source of profit.”
Khan shares this view. “Companies where the CIO collaborates to shape strategy through technology generally perform more, better,” he said. “To do this you need a CIO that understands how the business works. CIOs who think of themselves as business leaders and not as the head of the IT function are more capable in shaping the strategy to achieve the transformation goals.”
His point is well-taken. A digital transformation without a strategic CIO at the helm is more of a point-solution technological journey, rather than a sweeping reinvention of business models and processes. “Business and technology—two separate conversations in the past—are now one conversation, requiring a leader embodying this unified perspective,” Khan said.
Down the line, the management consultants predict an overlapping in the roles of CIOs and COOs. In some cases, companies will recruit a strategic CIO instead of a COO to oversee day-to-day operational functions, since they know both the business and the technology to run it. A more traditional COO lacking this combined know-how will be seen as, well, half-baked.
Pandit envisions even brighter vistas ahead for strategic CIOs. “As businesses transform entirely around data and digital in the future, the CIO role also will transform, from an enabler to a partner to a trusted advisor to possibly something much larger,” he said. “Just like strategic CFOs have become CEOs, strategic CIOs are likely to be in the running, too.”
Russ Banham is a Pulitzer-nominated business journalist and best-selling author.