Does the CIO still call the shots when it comes to IT spending?

While information technology has come to play a crucial role inside firms, we look at whether IT leaders' stock has risen in turn.
Written by Nick Heath, Contributor

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In today's internet-centric world, IT is fundamental to the success of business.

But while information technology has come to play a central role inside firms, that doesn't mean the CIO is equally indispensable.

Rather than necessarily elevating the importance of the CIO, the rising relevance of IT has resulted in some technology spending decisions being taken by a broader range of people within organisations.

Today the CIO is expected to play more of a collaborative role on many IT spending decisions, helping guide projects where technology is key to improving customer service, getting products to market quicker and launching new services.

"Under that much broader and inclusive IT perspective, it is difficult to talk about an exclusive IT budget, and it makes more sense to talk about IT-related expenditures in each and every business initiatives and respective budgets," says the Gartner report How CIOs influence decisions when every budget is an IT budget.

Despite these changes, across most firms there is still a broad pattern for how most technology projects are funded, said Spencer Izard, chief analyst for Enterprise ICT at Ovum.

Contentious siblings

"What I typically see from an IT organization, from a budgeting perspective, hasn't actually changed since I started my career 20 years ago," he said.

"The most common model is where new technology investment is funded out of line of business and, at a point where it's about to go live and be switched over to operational cost and long-term running, it switches over to an IT budget."

Izard described the relationship between business and the IT department when it came to priorities and spending as being less like 'us' versus 'them' and more like 'contentious siblings'.

"Both love each other, both know they need each other to be around, but that doesn't mean they always agree."

Fundamentally, the role of the CIO when deciding on IT spending is both to advise business leaders on viable technologies for realising a project's goals, but to also explain how any new investments would fit with a firm's existing infrastructure.

"In a modern organization, most IT functions should be there to be that trusted adviser," said Izard.

"To say 'Actually, you know what, you might have found a piece of good technology we don't have within an organization, that does 100 percent of what you need, but we've already invested in XYZ technologies in our organization for other groups and departments and that will do 80 percent of what you need."

Expert oversight

Marc Cecere, principal analyst at Forrester serving CIOs, said that while an IT leader may only be one of many execs deciding which new technologies to invest in, their expert oversight remains crucial.

"For things such as apps or devices...the CIO is often one of several leaders making the decision," he said.

"Recently, because of the push to have greater consistency of systems, processes and technologies across the organization, the CIO is required to facilitate these decisions.

"In this case, they may or may not be decision makers, but they pull together the information and decision-making vehicle -- a steering committee, for example -- to have others make the decision."

The introduction of Chief Digital Officers (CDO) may have initially marginalized the CIO, said Izard, with the CIO "bypassed a little bit", but companies today generally understand the need for someone with a greater understanding of technology to work alongside the CDO.

"The CIO's function is that delta between where we are right now as an organization and where we could potentially be. Whereas a lot of the chief digital officer's role is ask the question 'Where do we need to be with digital?'," he added.

"Digital has been, I would say, for all of its hype and its buzzwords, the best marriage therapy for IT and business for many years," said Izard, citing how the emphasis on digital transformation had forged a closer working relationship between the business and IT.

Four roles for the CIO

In a today's world, where every company is a software company, IT budgets will generally be set in one of four different ways, depending on the type of organisation, according to Gartner. The analyst house sets out these approaches in the report, How CIOs influence decisions when every budget is an IT budget.

The first approach is controlled independence, typically found in mature companies -- diversified conglomerates, according to Gartner -- with multiple units that effectively function as separate businesses with individual IT budgets and systems. In this scenario, individual business units will have control over IT budgets and the role of the CIO is to act like a broker, highlighting to business leaders in each unit which internal and corporately-sanctioned external services fit the bill for the current project. Just as important will be flagging up which of the technologies under consideration would be a poor fit the company, perhaps because they're incompatible with existing systems.

Given their cross-department perspective, CIOs can also attempt to steer units towards choosing technologies that complement those used in neighbouring units.

The structured consensus approach again applies to large, mature companies, but this time where business units depend on each other to deliver a product or service and where the company may be responsible for every stage between turning a raw a material into a finished product -- manufacturing and assembly companies, for example.

IT budgets are typically allocated centrally, perhaps by a committee made up of managers from across the business, to suit current corporate objectives.

These are the types of organizations in which CIOs will play the greatest role in determining IT spending, says Gartner, and will help support initiatives that further the organization's goals. The extent of their decision-making powers could extend to deciding which services should be present in the IT services portfolio. In this way, the CIO will exert a strong influence over the enterprise's use of IT.

The dynamic collaboration approach is suited to companies operating in fast-changing industries where there's a need for business units to collaborate and rapidly iterate on ideas and get products to market -- consumer electronics companies, for example. In these companies, budgets are often assigned to individual initiatives and projects, often in an ad-hoc manner.

These firms operate in a business environment where the fast pace of change needs rapid response. As such, firms will often form what Gartner refers to as a "SWAT team", composed of managers from across the business to spearhead initiatives to achieve corporate goals.

Here the IT leader's role will be more collaborative, consisting of advising the team on what technologies are available and how any new tech will fit with existing enterprise applications, and what additional spending might be necessary to integrate with backend systems.

The opportunistic action approach is again suited to companies operating in a fast-changing environment, but this time where departments operate more independently, with each unit focusing on a different business scenarios and allocating funds from their own budgets. For example, fashion and high-tech retail.

IT spending in this area often falls under specific initiatives, this time led by an individual business unit and headed by an individual senior manager, according to Gartner. The budget for these initiatives will usually be funded by that individual unit. While the CIO will have a role in advising on the best available technologies for a rapid project turnaround and how they fit with the organization's core tech, the driving force behind spending decisions will be initiative's leader, whose primary focus will be realizing specific business outcomes.

Selling the role of CIO

CIOs also need to remind their organizations of why they and the IT department matters, said Izard, to avoid the risk of CIO being charged with nothing more than keeping the services running -- something he described as a "misuse of the role".

"I think a lot of CIOs have fallen into being comfortable with the role as it's currently understood, but they need to do a better job of demonstrating their value in a business outcome context, rather than talking about the value of technology," he said.

It is a sentiment echoed in the Forrester report, Design The Tech Organization for the BT Agenda.

"In the age of the customer, firms must accelerate the BT [Business Transformation] agenda -- the technologies, systems, and processes to win, serve, and retain customers," says the report.

"Many CIOs have been balancing customer-facing requirements with operating the company. But too few CIOs have met the BT agenda's need for fast-cycle times, continuous change, and a focus on the customer experience. Those CIOs that optimize for the BT agenda will find themselves as business partners, leading their firms' success," the report adds.

If CIOs want to ensure they have a meaningful input into technology-led, business transformation discussions, there are several steps they can follow, says Forrester's Cecere.

"There are a lot of obvious things, such as speak the language of business, stay physically close to decision makers, aligning your recommendations and spending with the business direction," he said.

"All that is pretty well known. Less obvious are things like establishing relationship managers who act as proxies for the CIO to the business and act as proxies for the business to IT."

Cecere says these proxies can help anticipate business needs, guide business leaders and keep IT investments in sync with the firm's goals. Another useful approach can be to set up groups within IT as internal consultants to the business.

Another key skill for CIOs, according to Ovum's Izard, is to master the art of promotion.

"It's all about that marketing and positioning, and I've known a few CIOs in the past year or so who have actually got independent advice from a marketing/PR expert on how to better position their message inside their own organization to maintain business relevancy," he said.

"They've now got into a position where their line-of-business peers realize that IT functions are there to support the business journey."

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