The speed with which technology disruptors are entering the market is creating pressures and opportunities to innovate for CIOs. Discover why having the right reporting structure might help.
PwC's 6th Annual Digital IQ survey of close to 1,500 business and IT executives revealed that 67% of respondents are now concerned that the speed of technological change is a threat to their growth prospects (PDF). In particular, they're concerned about the potential impact of technology disrupters, which can change the face of business overnight.
One need not look further than the retail industry, where large, established box stores witnessed an e-commerce explosion led by Amazon that changed long-established strategies and operations and even back office functions, which include inventory stocking and warehouse distribution.
This is one reason why the PwC survey notes that leading companies have CIOs who are "adept at business skills and an instrumental part of the innovation team." The PwC survey information also reveals:
- 74% of CEOs feel that innovation is as important to the success of their company as operational effectiveness;
- 79% of the most innovative companies have well-defined innovation strategies (compared with only 47% of the least innovative companies);
- 59% of top performers address the speed of technological change in their corporate strategies (compared to 43% of other companies); and
- 60% of top-performing companies engage IT to gather ideas for innovation, and 49% of the same companies collect ideas through business unit workshops facilitated by IT.
This picture creates more pressures — and opportunities — for CIOs to deliver value to the end business than ever before.
But if CIOs are to lead new phases of technology innovation, they need direct access to the CEO, which also means that IT must be recognized as a business function that is sufficiently important to warrant a direct reporting relationship to the CEO.
The reality is Gartner and Financial Executives Research Foundation 2011 research shows that CFOs are responsible for authorizing 26% of all IT budgetary expenditures, while CIOs only have authorization control over 5% of the IT budget; only 47% of financial executive respondents in the research believe that IT is strategic. In a December 2013 survey of CIOs in Australia, two-thirds of CIOs interviewed believed they should report directly to their CEO, but only one in ten actually did.
The reasons that so many CIOs report to CFOs are deep-seated. One, IT has traditionally been regarded as a back office and highly operational function, and, unfortunately, many of the individuals hired as CIOs were back office technical specialists with a natural aversion to board meetings and business strategy discussions. Second, many CEOs, coming from the business with few technology skills of their own, are naturally averse to technology and technological innovation.
"Technology continues to move forward at an alarming pace but a large number of CEOs are failing to mobilize their companies to take advantage of these technological leaps and bounds," writes Jon Dakin, a business transformation consultant, in an article for Management Today. "It seems that the link between organizational growth and innovative technology is being disregarded by CEOs. They prefer to ignore the importance of this function rather, perhaps, than admit their own ignorance. You could argue that many CEOs simply don't have the time to learn how IT fits into the organization in the same way as marketing, HR and finance do. The latter functions often appear to involve more common sense, perhaps. IT is new and uncharted territory, and this could potentially explain why the IT function remains so isolated from the rest of the organization."
Organizations can alter their thinking by repositioning technology and the innovation it brings in the C-suite. They can begin the process by assuring that they have CIOs in place who are capable of evaluating and recommending transformational technologies, and who have a thorough understanding of the business, along with a recognition that technology for technology's sake is unacceptable unless it delivers demonstrable value to the business.
"It's important for corporations to take a dedicated approach to innovation to outsmart and outpace digital disruptors," says Chris Curran, PwC Advisory principal and Chief Technologist. "Enterprise-wide innovation enables organizations to generate breakthrough innovation that puts the competition in the rear-view mirror....For the first time in recent history, innovation is rivaling operations in the C-Suite in terms of its importance."