The Forrester Community for CIOs has been debating during the past two months whether the CIO should report to the CEO . Its small group of contributing CIOs agreed 100%..  Earlier this year, The Center for CIO Leadership published a blog post by a senior, career CIO that discussed why reporting to the CEO should be mandatory.  A whole host of academic papers in the past twenty years came to this conclusion giving evidence and reasons such as: IT is more likely to be successful in this case, the CIO will have a better understanding of the organisation’s strategy and will have little difficulty engaging in business planning. This has been a topic for debate almost since the CIO role emerged in the early 1980s as IT began to become critical to business activities.

 In this column, I am going to report on a comprehensive piece of research published in June 2011 that came to a rather different conclusion that no CIO reporting structure is optimal for all firms.

Here the term CIO means the highest level IT executive in an organisation, although a 2008 survey by CIO magazine found that only 60% actually held the job-title CIO with 41% of the highest level IT executives reporting to the CEO and 23% to the CFO.

Two viewpoints of the debate

In a nutshell, there are two viewpoints to this debate

  • A CIO should report to the CEO in order to recognise and promote the relevance of IT to the business. Why? Because the CEO focuses on the business’ overall strategy and management.
  • A CIO should report to the CFO to ensure spending on IT is controlled. Why? Because the CFO focuses on financial risk planning and reporting.

 An extension of this viewpoint is that:

  • If a business has a strategic IT orientation, then the CIO should be a member of the top management team (TMT) and should be involved in the business’ strategic planning.
  • If a business has an operational IT orientation, the CIO role should be to lead the IT department, offering IT support and managing projects that have a generally low level of risk.

Looking from Porter’s strategic positioning viewpoint these are two generic strategies known as differentiation and cost leadership.

  •  Differentiators offer innovative services (or products) that customers find valuable.
  •  Cost leaders strive to deliver costs that are the lowest in their industry by achieving economies of scale, cost control, efficiency and low prices.

 What did the researchers do?

The researchers tested three hypotheses using data from 1990-93 and 2006 that included two surveys of CIO reporting structure, together with business financial information from market intelligence sources that covered around 250 businesses of which about a quarter were in the Fortune 1000.

The hypotheses tested were:

  1. Differentiators are more likely to have their CIO report to the CEO.
  2. Cost leaders are more likely to have their CIO report to the CFO.
  3. Alignment between strategic positioning and CIO reporting structure is associated with higher business performance.

Researchers’ Findings

Firstly, differentiators tend to have their CIO report to the CEO whereas cost leaders tend to have their CIO report to the CFO.

Secondly, alignment between a business’ strategic positioning and its CIO reporting structure has a positive contribution to business performance.

Thirdly, the long-held view that a specific CIO reporting structure – i.e. CIO reporting to CEO – is always ideal for all businesses is not true.

Conclusion

CEOs should supervise CIOs whose major role is to lead IT initiatives for innovative services (or products).

CFOs should supervise CIOs who mainly conduct activities designed to lower IT costs.

© 2011 Geoff Harmer

 

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Anonymous (02/12/2011)

I think C-level exec's knew this already.

Anonymous (06/12/2011)

I agree in part with Geoff. While CIOs who lead initiatives should report to the CEO, e.g. Amazon's CIO, others should report to not only CFOs but other Cs depending on the type of business and what is expected from IT. If IT is used to support the enterprise's manufacturing activities, then the CIO could report to the COO. In a nutshell, the CIO should team up (not report to) with the best fit executive.