The Talent Challenge

By CIOinsight  |  Posted 03-12-2007

The Looming CIO Shortage

 

A shortage of qualified chief information officers looms in the next few years. Growing demand for CIOs is not being offset by an increasing supply of talented, well-prepared executives, according to a just-released report, "Grooming the 2010 CIO," written for the Society for Information Management Advance Practices Council. The report looks at ways that companies can start addressing the coming CIO shortage today by grooming future leaders from within.

Authors Ritu Agarwal, professor of information systems at the University of Maryland, and Cynthia Beath, professor emeritus of information management at the University of Texas at Austin, interviewed IT and human resources executives from companies known for leadership development, along with partners at search firms involved in recruiting senior technology leaders. They found that the CIO role is changing, with an increasing focus on business knowledge and skills, the ability to manage relationships, and overall leadership capability.

Slideshow: The Seven Roles of Highly Effective CIOs

Agarwal and Beath also identified a wide range of strategies for developing the next generation of technology leaders. Common themes across successful companies include making a concerted effort to develop talent from within, and making sure the current CIO is involved in the process. The report carries some sense of urgency; after all, senior executives take time to grow into their jobs, and 2010 is just around the corner. Following are excerpts from the SIM report.

The Talent Challenge

The Talent Challenge

It is increasingly evident that the organizational role that the chief information officer is called upon to assume is evolving and changing. In part, this is due to advances in technology such as Web services, new business strategies such as e-business models and outsourcing, and environmental demands such as Sarbanes-Oxley. Likewise, the attributes that IT executives need in order to effectively provide strategic leadership, govern, and manage the IT function are also evolving and changing. Some of these attributes are important for IT leaders in all types of organizational settings, while others vary by context, such as the nature of the industry or the size of the IT organization. This study is predicated on the assumption that firms should be seeking to proactively develop the attributes they need in their CIO candidates. Research argues that firms would almost always be better off grooming their CIOs internally. Because of shortfalls in internal CIO development, many firms are forced to hire CIOs from other firms or other industries, potentially undermining or delaying fulfillment of their IT vision. Unfortunately, there is some concern that the pool of IT leadership in the profession as a whole may not be increasing at a rate that is consistent with the demand.

Many forces are driving up the demand for CIOs. Pure economic growth pushes up the number of executives that are needed. In addition, several Fortune 500 firms that have traditionally had CIOs at the enterprise level now want CIOs at the strategic business unit, as well. Or, firms that were satisfied to have CIOs only at the division level want an enterprise CIO too, to coordinate standards and governance. Even firms that outsource large portions of their IT retain an executive function. At some firms, particularly among firms under $1 billion in sales, first CIOs are being appointed. Finally, there is increased demand for individuals with CIO-like capabilities among IT service vendors, where business is growing very rapidly, as well as within non-IT functions like supply chain, shared services, or various IT-enabled operations.

See Also: How to Get--and Keep--Top IT Talent

There are almost no concomitant forces driving up the supply of CIOs. One executive search respondent told us that some new CIO candidates are emerging from the middle ranks of the IT consulting firms. However, others pointed out that the slowing of investment in IT following the dot-com bust and impending baby boomer retirements were threatening even the existing supply. Because CIOs need more than functional IT skills, few of them just pop off the top of the IS career ladder, and certainly they do not pop off in sufficient numbers. As one of our respondents argued, some aspects of being a good enterprise CIO are almost antithetical to being a good manager at the top of an IT functional career ladder. Among our respondents as a whole, there was strong agreement that there is a shortfall in the supply of good CIOs--one said there were less than half as many CIOs as needed.

One reason that firms look outside their walls for their next CIO is that their internal candidates are not sufficiently developed and therefore not ready to step into the shoes of the former CIO. If the former CIO's vision is going to transcend the CIO's tenure in the organization, he or she must be able to hand the ball off to a well-prepared successor, one who can move the IT strategy down the field. But chances are that individual will need some grooming first.

Assuring the Supply of

Future CIOs"> Assuring the Supply of Future CIOs

What are best practices for developing CIO candidates? How should firms prepare CIOs-in-grooming so that the CIO transition will be orderly, with a minimum of disruption in important initiatives?

We see two versions of this challenge, depending on the firm's human capital management strategy: Some CIOs are in firms that are proactively engaged in talent management. That is, they believe they are engaged in what McKinsey and Company call a "war for talent." These are companies whose competitive advantage lies in the heads and hearts of its people.

On the other hand, there are firms where competitive advantage lies in market power, unique processes or regulatory power, not so much in people.

In this report, we characterize companies whose human resource policies suggest they are engaged in a war for talent as having enriched HR environments. In these firms, the job of developing CIO candidates is shared across the top management team and is part and parcel of the effort to develop all senior executives (e.g., their CxOs). While we believe that most of the final grooming of a CIO candidate is the responsibility of the CIO, in enriched firms the foundation for this grooming is more systematically established.

We characterize firms whose HR policies suggest that are not engaged in a war for talent as having self-serve HR environments. In self-serve environments, CIOs have more responsibility for human capital development, and they may need to drive more of the process.

We do not mean to suggest that either environment is better than the other, only that they are different. In both environments, the last mile of CIO grooming is not the responsibility of HR or the top management team or anyone else; it's the responsibility of the sitting CIO.

The Vision of the

2010 CIO"> The Vision of the 2010 CIO

We asked our interviewees to gaze into a crystal ball and offer us their vision of the CIO in five years. Conventional wisdom has always acknowledged the CIO's role in steering, managing, and orchestrating technology-related decisions. Our conversations with the senior executives revealed a different picture--one that we had suspected and one that received strong confirmation during the interviews. The change is precipitated, in part, by the increasing complexity and pervasiveness of technology and in part by the fact that business executives are becoming more savvy about technology.

Underscoring the point that the 2010 CIO would be engaging with the top management team not only on technology-related decisions, but also on strategy, marketing, production, and financial decisions, several interviewees saw a clear path from the CIO position to the CEO position. The executive search firms see the future CIO as being more accountable for the profitability of the company, for creating new products and services, and for being involved in product development, not just product support. This is particularly evident in high velocity industries such as financial services and retail where there is a significant level of real-time transaction processing.

One of the more striking findings from our interviews is the scope creep that defines the vision of the 2010 CIO. One executive went as far as to say that the CIO would be responsible for playing the role of a mini CEO without any of the direct control the CEO has. That is, the 2010 CIO would be increasingly challenged with monitoring and driving performance in business units through peers rather than solid line relationships.

Whereas the old conversation between IT and the business used to be about strategic alignment, by 2010 the conversation between IT and the business will be converged, meaning that in his industry firms cannot make any business decision without the involvement and participation of IT and without business executives having good knowledge about IT. By 2010, business and IT will be fundamentally entwined and interdependent.

Among the 2010 CIO responsibilities, several new activities will take an increasing level of attention and resource. Not surprisingly, several mentioned increased responsibility for compliance and risk management. The executive from a financial services company, whose company is expanding its overseas presence, emphasized the need to build and manage a global team. Finally, designing and implementing the right organizational models for governance surfaced as a key task for the CIO--a governance structure that is able to not only elicit and prioritize the right level of funding from the business for the various IT initiatives, but also actively engage the business as co-creators and managers of technology solutions. The point that going forward the CIO would have process responsibility, not just technology responsibility, was noted by several interviewees.

Overall, the 2010 CIO is envisioned to be more of a business expert than a technical expert, someone who can leverage technology to provide a competitive advantage, closely supported by a chief technology officer. The CIO will be more of a leader rather than a manager, and will have a notable presence in the business and in the top management team.

2010 CIO Capabilities

2010 CIO Capabilities

What capabilities will the 2010 CIO need to perform these roles competently? In the past decade, researchers have identified several capabilities that a CIO needs to effectively fulfill his/her organization roles. A capability is defined as personal skills, knowledge, and abilities that enable leadership and effective role fulfillment.

All of our respondents had a set of skills, capabilities, and personal characteristics that they regarded as essential for a CIO. They used terms and phrases such as "edge," "energy," "execution," "passion," "ability to take criticism," "negotiating," "influencing," "selling," and "visioning skills."

The importance of business knowledge for the CIO was repeatedly emphasized. One of our financial services executives noted that if the CIO does not understand the ins and outs of how the stock exchanges work, and what drives margins in the initial public offering business, then that CIO will not be very credible with the top management team. But mere understanding is not enough--the capability that is important is to envision how a business process can be redesigned and improved using technology.

The CIO also needs a strong set of relationship management capabilities to manage the increasingly larger network of relationships that define today's IT environment--internal staff, contractors, outsourcing partners, internal business partners, an external network of peers, and in some instances, an external network of clients. For example, in healthcare, with a growing number of regional health information organizations, CIOs have responsibility for providing data and interoperability not only to members of their own organization, but also other hospitals and healthcare entities. Here, careful management of relationships with entities where there is no formal reporting structure becomes critical.

Finally, and most significantly, the phrase we heard most often was that the 2010 CIO is a leader in the true sense of the word--not simply a very competent manager of technology. This leader is able to inspire, motivate, have a compelling presence, be humble but at the same time confident in his/her capabilities and vision, and possess the vibrancy and energy that is an essential component of being able to drive change.

Our respondents view the CIO's demand-side capabilities as becoming more significant and distinctive in driving CIO success. However, as many respondents pointed out, the CIO must have sufficient technical depth and knowledge to be a credible leader for the supply side of the business. He/she must be able to identify and appoint appropriate deputies, such as a chief technology officer or project management office director, to oversee the tactical activities of the IT organization. As with CIO roles, we found no systematic differences in the capability needs across self-serve and enriched environments. Regardless of how human capital is managed in the firm, the CIO roles and capabilities do not vary.

The CIO of 2010 is expected to possess multifaceted capabilities. Of these, business acumen, relationship ability, and leadership are viewed as particularly significant drivers of the CIO's effectiveness. Many firms we studied have developed their own executive competency models--these three capabilities reflect the common themes across all firms.

Grooming the 2010 CIO

Grooming the 2010 CIO

The development of important capabilities in executives usually occurs in a four-step, iterative cycle. In the context of CIO development, it is useful to think of this cycle as starting with a talent identification process. During talent identification, past performance is examined and future potential is predicted. Talented individuals with the right dispositions and traits, who need further development in certain areas, are identified. To fill capability gaps, it is typical to start by laying a foundation of factual knowledge or fundamental skills through formal training. Then, this foundation is further developed, internalized and enriched over the course of normal and special work assignments.

Action learning [on the job] is crucial in the cycle because true behavioral change occurs not when individuals are exposed to ideas in the classroom, but rather when they apply these ideas to their practical situations.

Finally, coaching and mentoring are commonly used to provide feedback on specific strengths and weaknesses and to help candidates find and practice tactics for refining their behaviors and perspectives so that they suit the local context. While formal training addresses a "knowledge" gap, coaching and mentoring address "performance" gaps. The four approaches--talent identification, formal training, on the job training and coaching/mentoring should be complementary and reinforcing.

While both self-service and enriched firms in our study used all four of these approaches to develop their CIO candidates, we did observe some differences in the details of how they work the development cycle. In general, at enriched firms, HR initiates and drives the development cycle, while at self-serve firms, on the other hand, development decisions tend to be done closer to the individual.

In enriched firms talent identification is an elaborate process that involves both human resource professionals and several layers of management, sometimes beginning before the first supervisory appointment. In self-serve firms, talent identification may only begin in earnest when an individual has been identified as a potential successor for an executive position. Self-serve firms place more emphasis on external formal training, while enriched firms invest more in internal, peer group training. Self-serve firms are more likely to assume that candidates will develop via normal work assignments, while enriched firms emphasize rotational assignments. Both use coaching and mentoring to fill performance gaps.

The earlier development begins and the more cycles of identifying and eliminating capability gaps, the fewer gaps there should be to fill in the last year or two, and the less the CIO has to do to groom a candidate, or the better the foundation the CIO candidate will have. Nevertheless, early development cycles do not eliminate the need for a final grooming period that is usually managed by the existing CIO, in both self-serve and enriched firms.

The companies in our study used a wide variety and range of development practices as part of their talent management process in general and for CIOs in particular. Our findings indicate that such variety is essential because any one approach is insufficient to address the multi-dimensional nature of desired CIO capabilities.

Research done by others suggests that companies that are good at growing leaders tend to have a similar range of development practices as those who are not so good at it. However, what is striking about best practice companies are three things that very clearly distinguish them from the average performer: (1) the sheer quantity and intensity of their development practices, (2) their commitment to measurement, and (3) the commitment of the chief executive to making development happen. We found evidence of these best practices in our study as well. In addition, we identified the importance of customization of development plans as a fourth best practice. Customized plans use extensive rotational experiences and coaching to fill specific capability gaps.

Roles of the 2010 CIO

Strategist Innovation catalyst, effective business partner, shaper of mission and vision

Relationship architect Relationship builder across and beyond the enterprise, relationship manager

Leader Designer, leader, inspirer, developer of people

Information steward Guardian of high-quality data and operationally reliable systems, security, privacy

Integrator Leader in enterprise-wide integration of processes, information and decision support

Educator Missionary who provides insights about key information technologies

Utility provider Supplier of solid, dependable and responsive IT infrastructure services