Should CIOs Report to CEOs or CFOs?

By Brian P. Watson  |  Posted 01-21-2008

Should CIOs Report to CEOs or CFOs?

Should CIOs report to CEOs or CFOs?

Conventional wisdom says it depends on a company's strategy. Rajiv Banker, professor of accounting and IT at Temple University's Fox School of Business, says that conventional reporting models don't always produce the expected results.

He spoke recently with online editor Brian P. Watson about his research into the misperceptions surrounding those reporting structures.

CIO Insight: What situations indicate that the CIO should report to the CEO?

Banker: The kinds of companies with that kind of reporting tend to strive for competitive advantage by differentiating their products and services. To do so, you need to have your organization focused on innovation-- innovation in technology, introducing new products, increasing the value proposition. The CIO has to constantly think about potential new IT that can widen that advantage.

But we've seen research that shows the CIO isn't involved in strategic planning. Shouldn't he or she be, in this scenario?

More and more companies recognize that IT plays a strategically vital role. But just because IT can play a strategic role does not necessarily mean the CIO is the one who leads the strategic change.

Very often, [the CIO's] strategic role is supportive. For example, for companies with market-based strategies, aiming to deliver to customers, the strategy will perhaps be driven more by the marketing organization. IT will then follow up to make sure that strategy is delivered.

When a CIO reports to the CEO, is there a tendency to let costs get out of control, because of investing more in emerging technologies or riskier projects with a potentially higher return?

That's exactly right, if that's the way your organization has chosen to compete. On the other hand, if it's not, taking that sort of risk may be out of line, and the CIO can get in trouble.

That can be averted by having the CFO supervise the decisions the CIO is making. That's the value of having that reporting relationship: It makes you more conservative.

What are the pros and cons of reporting to a CFO?

We tend to hear it's best for CIOs to report to CFOs because it forces them to have a narrower fi nancial mindset or focus on quantifying the success of their technologies. This might not be the case.

The challenge for management is not so much to fi nd innovative ways to deliver value to customers, but rather, [to discover] how they can do so at lower cost. The kinds of technologies used in such cases are not necessarily at the cutting edge or experimental, but are proven ways to use information systems to eliminate waste and increase efficiency. Having that fi nancial focus actually helps the strategic goals of the company.

That's the key part here: The role of the CIO should be to support whatever might be the strategic positioning of the company.

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The Path to Success

When should a CIO report to the COO?

Reporting to the COO is typically seen when a company is interested in having IT play a supporting role, ensuring that operations are conducted efficiently. But we've only seen a few examples, far fewer than reporting to the CEO or CFO.

Do these different reporting structures create different kinds of CIOs?

There are two very different types of CIOs: the ones very connected to technology and R&D, and the kind you want in a firm pursuing a differentiation strategy, where the CIO has more of a financial background.

What it underscores is the need to recognize that, when you talk about the CIO, it doesn't always mean the same thing. It depends on the type of business. That means you have to weigh the needs of the company.

We see this to be a lot more confusing and complex, or even challenging, but we try to extend both these types of characteristics in the same persons in the same organizations. That's not quite the case: There are two different tracks.

Do you find that one kind of CIO tends to last longer or fare better than the other?

That was a bit of a surprise. People tend to be of the general belief that CIOs are better off in a company with [an overall] differentiation strategy, because they get to be more creative, apply their specialized technology experience, and have a greater role in strategic planning.

We find that it's not the case. It's true for companies with a product differentiation strategy, but not true for companies getting a competitive advantage through their cost structure.