The specific C-suite role a CIO reports to has a significant impact on the degree to which technology can support or drive business strategy.
Organizational alignment provides a key clue to the position and value of IT within an organization. A CIO who understands their place in the organization can better align business objectives and support technology investments more effectively. Understanding what their supervisor wants to accomplish provides insights to help the CIO determine how to use technology to achieve these goals.
In many cases, we see the CIO reporting to the CFO. What this often means is that the CFO perceives the IT department as a cost center and therefore focuses on cost reduction.
CFOs have an eye for improving the bottom line, so if the CIO is reporting to finance, the CIO should typically focus on reducing IT costs.
CFOs discourage enterprise technology investments and otherwise teach CIOs to keep IT costs low. In response, CIOs must postpone maintenance on IT systems and keep older systems running instead of switching to newer, more modern technology. CFOs routinely renew contracts and delegate maintenance. Life cycles lasting three to four years are turning into longer life cycles.
In a CIO-reporting-to-CFO structure, the CIO rarely gets budget approval. If the CIO has limited budget authority, it tends to be on the low end, around $10,000 to $40,000. IT leadership tends to be autonomous only for tactical opex. The CFO requires approval for most IT expenditures, although the CEO must approve the largest expenditures.
A CIO-reporting-to-CFO structure only works well when commodity, non-strategic IT is sufficient to support business goals. Some of the industries where this may make sense include small manufacturing companies, small community banks, and companies that outsource most IT functions. This CIO reporting structure only makes sense if the business fundamentally depends on cost savings and cost avoidance over innovation.
Advice on technology costs
When the CIO reports to finance, the best way to get approval for technology investments is to create a business case that outlines the direct financial justification for the investment. For example, CIOs should make the case that a $100,000 expense will save $400,000, rather than focusing on things like improved customer service or reducing errors.
The CIO reports to the COO: IT as an efficiency booster
The organization’s focus is on process improvement, consistency and scale, and CIOs report to COOs — read: efficiency. This alignment is typical of large manufacturing companies and very large service companies, where developing repeatable processes that multiple people can follow is critical to business success.
Like the CFO, the COO is often concerned with cost savings. But when the CIO reports to the chief operating officer, process efficiency is just as important as cost savings. The COO understands the need to scale standards, training and documentation. With this CIO reporting structure, the IT leader will have more ability to invest. However, the investment challenge is how spending can replace workers or better measure jobs. The CIO usually has significant signature authority for the budget. However, spending is usually limited to items for which financing has been pre-approved.
This CIO reporting structure makes sense in process-driven organizations that rely on standards development and improvement.
A CIO who understands their role in the organization can better align with business goals.
Advice on technology costs
CIOs reporting to COOs should advocate for investments based on how a technology supports practical use, repeatability, and scalability.
When the CIO reports to the CEO: IT as a strategic differentiator
The group of people who report directly to the CEO believe that the CEO will lead the critical activities that determine the success of the business. Therefore, if a CEO chooses to report directly to the CIO, the company’s senior leadership views IT as a function with a direct, strategic impact on the business.
CIOs who report to the CEO have greater control over technology budgets, as IT is strategic to the business and may have higher budgets to spend on IT. While CEOs or the board still need to approve large capital expenditures, the CIO’s role in approving and influencing this investment is paramount. Some examples of such costs include major data center migration, such as moving internal systems to cloud IaaS services such as AWS or Azure, or creating an online marketplace for a previously existing physical service or product. The CEO may view a new product or new market as strategic, reducing opex as an additional efficiency play.
Advice on technology costs
To make the case for a particular technology investment, the CIO should focus on business value reporting to the CEO. CIOs should focus less on how to save money and how to create new opportunities for business growth. IT businesses may often have this structure, while IT service companies tend to have the CIO in the primary role.
How CIOs can align with business strategy
Regardless of CIOs position in the organization, it is always wise to consider the business impact of any IT decision. Ultimately, all positions will go to the CEO. The more a CIO can demonstrate how it aligns with the business, the more likely they are to get their initiatives funded.
One way CIOs can increase their effectiveness is to build a validation matrix that combines values, benefits, and risks as column headings with executive roles in the rows. CIOs need to think about the value of the investment they want to make for the other person, so they can position the value of the investment in a way that resonates with their target audience.
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