The CIO Dilemma

CIOs, burdened with cost cutting, risk losing their clout.

ALIGN ALREADY!

The best CIOs, of course, know better. Virtually every CIO interviewed for this article stressed the importance of being more than a techie, of speaking the language of senior management, of combining technical chops with business acumen and a deep understanding of their companies' industry. For the umpteenth straight year, aligning IT and business strategies is the top concern of the executive members of the Society for Information Management. Many CIOs have spent the last decade working their way up to the management ranks, and they refuse to be narrowly defined by the technologies their groups deploy and maintain. They're not about to go back to being the back-office IT guy.

Still, the gap is real in many companies, and some people argue it's growing. Former Xerox PARC head John Seely Brown sees two classes of CIOs: those who are barely treading water, trying to keep legacy systems running while cutting costs, and those who are managing to drive profound change through the use of emerging technologies such as virtualization, cluster computing, and service-level automation to lower costs while adding new capabilities and generating new revenue. Using a combination of adroit internal PR, relentless focus on a few key projects, aggressive execution, and even outsourcing to streamline business processes and free up money, some CIOs are still managing to improve their companies' bottom lines--and to increase their standing and influence within their organizations.

Money alone doesn't tell the story of the diminished stature of the CIO, but it's a starting point. A Gartner report released in December found that IT spending at organizations with $1 billion-plus in revenue will rise by only 2.8% in 2007. Gartner's earlier predictions had pegged budget growth for the year at 6%. It shows just how quickly resources can get pulled back.

The root of the problem, however, has less to do with how much IT budgets increase year to year and more with the disproportionate amount of IT dollars that go toward systems maintenance. Our InformationWeek 500 survey of the leading business technology organizations shows that 60 cents of every IT dollar goes to maintaining existing systems, with only 40 cents left over for new projects and technological innovation. Veterans realize that's moving the needle in the right direction--the rule of thumb used to be that 80% of tech budgets went to ongoing operations. Even so, that 60% figure hangs like an albatross around the necks of forward-thinking CIOs.

Where's the money going? To support increasingly complex infrastructure and application requirements, rising energy costs, mounting regulatory requirements, and other nondiscretionary spending, according to Gartner. "This increased 'run the business' spending has consumed budget resources that were originally earmarked for more strategic and transformational investment," Gartner analyst Jed Rubin wrote in a report.

It's hard to overhaul the navigational system when you're dodging icebergs. And as any CIO knows, budget allocation is a zero-sum game: Every dollar spent on running the servers is one not spent on a new sales force mobility initiative. Thus, while growth and transformation are the top objectives for enterprises this year, according to Gartner, that money has to come from somewhere, and the somewhere is operational budgets.

At the same time, published research, along with more than a dozen CIO interviews for this article, paints a picture that goes beyond budget forecasts to something more human. To be blunt, there's a failure of will and imagination occurring within many organizations. A Forrester Research report last month found that CEOs, like exasperated parents of a recalcitrant teenager, have given up expecting brilliance and inventiveness from their IT departments and are settling for mere competence.

It's the perception vs. reality gap issue: While six in 10 CEOs say they're satisfied or very satisfied with the performance of their IT departments, it's mostly because they don't expect their CIOs to be proactive about business innovation, improving processes, or even effectively managing IT assets. CEOs have "dialed back their expectations" over the last few years, says Forrester analyst Laurie Orlov.