Analysis: Do CIOs Take Costs Seriously Enough?
We weren't surprised that 40 percent of the CIOs who responded to this month's survey on the CIO role believe their bosses see managing costs as one of the CIO's primary roles. Given the economy, an even higher percentage would seem perfectly reasonable. We were startled to find, however, that just 17 percent of CIOs see managing costs as a primary role for themselves. That discrepancy of nearly 25 percentage points raises a critical question: If CIOs claim to be so concerned about aligning IT with corporate goals, why the gap?
The reason has little to do with who the CIO's boss is. The gap is similar whether the CIO reports to the CEO, CFO, COO or other executives.
The very pressure that CEOs are placing on CIOs to control costs is also, at best, only a partial explanation for the gap. True, as some CIOs we spoke to note, the demands can be so intense that a CIO might feel as if little else matters to his boss. And CIOs know CEOs have good reasons to want CIOs to focus on costs, what with the large budgets IT still commands, the poor record the IT profession has at managing costs and projects, andaccording to David Mark, principal and leader of McKinsey & Co.'s North American IT management practicethe chronic difficulty many CEOs have understanding the factors that drive IT costs. CIOs are aware that "CEOs are very dependent on the CIO to manage and explain costs, and make them transparent," says the Palo Alto-based consultant. None of this explains, however, why so few CIOs see themselves in the same light.
The reason they don't is that while cost management is a critical task, it's not the essence of their job. "CIOs believe they are the specialists in applying technology to business. That's their real primary role" as they see it, says Bobby Cameron, principal analyst with Forrester Research's technology leadership team.
"CIOs perceive that their boss views managing costs to be their job, but they say 'Look, I have a job to do, and my job is to deliver business value. Cutting costs isn't the be-all and end-all,' " notes Doron Cohen, CIO of the Canada Life Assurance Co. in Toronto. In this, CIOs are reinforced by the literature about their role, which stresses strategic alignment and developing strategic applications, not cost cutting, notes Prof. Rick Watson, director of the Center for Information Systems Leadership at the University of Georgia in Athens. Such deeply held convictions explain why 73 percent of CIOs can say they have shifted their focus to cutting costs, while only 6 percent say reducing costs is their number-one priority.
CIOs don't necessarily expect CEOs to share their point of view on strategic IT. They recognize that CEOs have their own perspective on business and their own roles to play, notes Terry Chrisman Jr., the CIO of Mack Trucks Inc.'s Powertrain division in Hagerstown, Md., and high among them is a responsibility for financial performance that trumps the specific, and often expensive, projects that CIOs want to pursue.
Is it dangerous to treat cost cutting as a high-priority task but not a primary role? Not necessarily, says McKinsey's Mark: CEOs worry about costs, but most still consider other IT priorities to be important. CEOs at "good, disciplined companies spend on IT on a consistent basis, in good times or bad," concurs Bill Zollars, chairman and CEO of Yellow Corp., a Kansas City, Mo., transportation services company. But Forrester's Cameron thinks any CIO who doesn't regard managing costs as a primary role "is only saying 'It's not what I want to spend my time doing.'" These days, notes the Chapel Hill, N.C.-based analyst, you can't do any other primary job "without first going through the cost gauntlet. That's the key."
If you fear your CEO doesn't think you take costs seriously enough, helping him understand IT cost drivers can make him more comfortable with how you manage costs. The solutions we heard are familiar ones: educate your boss, communicate clearly in layman's terms, let users explain why an investment is needed and use structured management techniques.
"One way of demonstrating what costs you do and don't control is to show your boss how you are doing relative to a benchmark" made up of comparable companies, says David Croson, assistant professor of operations and information management at the Wharton School of Business in Philadelphia. "Show how much somethingsuch as maintaining 25 serverscosts in 1999 through 2002, your plan for 2003, and how your costs compare to an index. CIOs can't control the index, but they can control how they compare to the index."
Mark Oster, a New York-based partner with Grant Thornton LLP, a management consultancy and accounting firm, suggests post-implementation reviews. "Organizations infrequently go back to see if the benefits discussed when a project is proposed are achieved. That would bring rigor to the process and build confidence. When CEOs shift the focus of the discussion from being overhead to being strategic, the perception of IT shifts from being a cost to being a benefit."—Allan Alter