Looking back: The growth of the CIO role, IT value

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Fiscal discipline has become an imperative for CIOs. But that doesn't mean simply slashing costs at budget time. It means demonstrating how IT affects revenues, profits, costs, customer service, sales, manufacturing and everything else under the business's umbrella. "You're talking about IT entirely in business terms, which was not the way it was discussed 20 years ago," Orlov says.

According to a recently completed five-year study of Global 2000 companies by the nonprofit think tank BTM Institute, companies that have what the institute calls "converged business technology management" have markedly increased financial performance and exhibit superior revenue growth and net margins than others in their respective industries.

"This is not about a project or ROI, but it's about the overall performance of the company," says Faisal Hoque, founder and chair of the BTM Institute. For example, those companies with converged business technology management had 12 percent average annual revenue growth, compared with 4 percent for their industry groups. They also achieved 36 percent average annual earnings per share growth versus 7 percent for the industry groups. In addition, the converged business technology companies grew at a faster pace and had greater returns than did their peers. "If you cannot link the things you are doing back to the overall corporate performance," Hoque says, "then what's the point of having not only the CIO role, but even the function itself?"

Doucette, who's been able to demonstrate what IT costs as a percentage of UTC's overall revenues and how IT propels revenue growth, concurs. "If you can't show what you're driving for the business," he says, "then what good are you doing?"

In 2005, CIO profiled Cooper's courageous and ambitious turnaround of Toyota Motor Sales' IT department that, among other strategies, employed four key IT metrics: for new investments, operational performance, financial performance and workforce management. She called her mission a "value quest" for IT. But, she realized after starting, "you can't do that until you rise to the notion of the economics of IT."

Eventually, she tied each of those metrics to the processes of the business units IT worked with and continually interpreted them to her colleagues in business terms, not IT terms. Cooper was also able to show her business peers a metric they could relate to easily: how much IT cost per vehicle. "It always struck me that we, as managers, were never really good at getting [the financial value of IT]. We always worked off one dimension-the annual budget plan," Cooper says. "But that's just a tool. You had to get beyond that to drive transparency."

She says it was a combination of her years of experience and elements of Toyota's culture (cost-consciousness and persistence) that allowed her to change the value of IT. "No detail is too small, and no aspect is overlooked in how you look at cost per vehicle," she says.

Cooper pulled it off-without layoffs. Toyota's market dominance speaks, in part, to the success of her turnaround.

Becoming leaders

While it's now widely accepted that IT does matter (a lot), IT and the CIO role have lots of room to grow. "This is a very young profession," says Forrester's Orlov. "It's not as evolved as finance, marketing or sales."

Even with their comeback from the era of disappointment established (a CIO's average tenure has grown from four and a half years in 2004 to five years in 2007, according to CIO's "State of the CIO" survey), CIOs are now preparing for their next challenge: an ever-changing, partner- and consumer-driven Web 2.0 world of Web-based applications, converged mediums, telecommuters and security vulnerabilities, all at their digital doorstep. Which means CIOs must adapt-again.

A recent IBM survey of 170 global CIOs found that "their business leadership is calling upon them not simply to be efficient, but to help their companies change the entire game." Research from IBM's Institute for Business Value found that 80 percent of CEOs believe very strongly that the integration between business and IT will be a critical enabler of running businesses. "But only 45 percent thought that integration was taking place at an acceptable level in that business today," says George Pohle, VP and global leader of the institute. If, in some companies, the CIO role isn't as defined as it should be, Pohle says that CIOs need to assert themselves. "This isn't about waiting for the business to ask you what role to play," he says. "You should be telling the business the role that you should be playing."

CIOs interviewed for this article all stress the importance of developing the next generation of CIOs, who will need to possess the skills not just to keep pace with the business and its technology desires but also to drive the business forward. "The game is going to be very different over the next 10 to 20 years," Cooper says, and the next generation of CIOs have to think beyond a partnership role with the business to a leadership role.

Turner sees it as an ability to anticipate challenges and "embrace disruption."

"CIOs need to think of their role as change agents in the rest of the company-for process improvement, to find excess labor and inefficiencies, for identifying technologies that make employees more productive, or technologies that can change the rules of the game," Orlov says.

No one should expect CIOs to shy away from these challenges. They never have.

Senior Writer Thomas Wailgum can be reached at twailgum@cio.com.

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