In the UK and Continental Europe, some CEOs still view information technology with suspicion: at best, it's a necessary evil; at worst, it's an annoying cost centre that's easily blamed when things go wrong.
According to a 2005 study of Fortune Global 500 companies by public relations firm Burson-Marsteller, just seven per cent of European organisations have a chief information officer (CIO), or someone with a technology background, on the board.
Does this matter? Yes, it probably does because the research also found that those companies with a CIO on the board delivered annual returns nine per cent above industry averages.
To understand the apparent link between the CIO and company performance you have to first understand what the role is—or should be. In the best companies, it's not about representing the IT function: it's about adding value and contributing to the wider strategy of the organisation. A board-level CIO or IT director is a very different animal from the stereotypical head of IT. He (and most are still male) does much more than look after the servers and speak in tongues to IT-illiterate colleagues.
CIOs have been a common part of the US management structure for many years, but they remain relatively rare across the water. At UK companies where an IT board presence is seen as necessary, CIOs are seen either as a replacement for, or a supplement to, the traditional IT director role—often in conjunction with a chief technology officer (CTO). UK firms with a CIO on the board include Tesco, BP and the Royal Mail.
The Norwich and Peterborough Building Society provides a good example of how the role and perception of IT is evolving. David Matthewman runs two of the building society's subsidiaries, an intermediary mortgage lending business and a software specialist selling products developed by Norwich and Peterborough to software houses and competitors. He is also responsible for IT. One of his priorities has been to use technology to improve margins on mortgage products.
"Business leaders are looking to IT to assist in two ways: to access new markets, perhaps by taking part in aggregator sites and other e-commerce-type opportunities; and in cost reduction, to assist with price competitiveness," he says.
One project Matthewman's department worked on reduced the cost of producing a mortgage by about a third. "That means we can actually compete against products where we wouldn't otherwise have been competitive. That's where IT can really bring value," he says.
Little wonder that Matthewman's title is general manager for IT and change management.
The signs are that organisations will increasingly look to technology not just for automation and easy cost savings but also as a way to gain competitive advantage. A survey by the Economist Intelligence Unit shows that 83 per cent of CEOs expect that, within the next three years, IT must move from cutting costs to actually generating revenue.
Liverpool Direct, a joint venture between Liverpool City Council and BT that provides services to the council and other local authorities, may be ahead of the game. Revenue generation is one of the key objectives for its IT director, Alan Swain.
"I'm expected to deliver a certain amount of revenue and I'm accountable for a certain amount of cost reduction as well. I have an operating budget of about £5.5m, and we're delivering about £15m of new revenue," he says.
A more commercially aware CIO or IT director brings valuable business understanding and leadership to an organisation, according to Vicky Maxwell Davies, partner at executive headhunting firm Boyden. "A traditional IT director is [seen as] someone who heads up the IT function. It's a reactive role, keeping the ship steady, keeping the lights on. A CIO is on the board not just because they run the IT function but also because they can add to the business more broadly. They look at how the business processes across the whole organisation link together," she says.
Simon Kosminsky, IT director at £180m-turnover City law firm SJ Berwin, agrees. He says regular meetings with customers and clients and visits to the firm's European offices mean he probably knows more about what goes on across the different practice areas and business departments than the individual partners.
"There's a range of things I inevitably do in my role, which means I've got something to say on a large number of subjects. I almost never talk about technology on the board—other than when I come to justify my budget," he says.
But just how typical is Kosminsky? There's evidence that the evolution of the "IT person" as business strategist and change maker is being held back by two key factors: corporate culture and a skills shortage.
According to a survey by analyst Gartner of 462 non-IT executives, the IT executive is seen as one of the least important for strategic direction; only the human resources executive ranks lower.
The reporting structure in most organisations still marginalises the CIO/IT head. A study by US consulting firm the Hackett Group found nearly 60 per cent of CIOs report to the chief financial officer or chief operating officer, not the CEO.
The perception of IT needs to change. While most CEOs would probably acknowledge that IT is critical, they remain unashamedly ignorant about it. "It's amazing that we have boards and chief execs who are prepared to say, 'I don't understand IT or what it's about'," says Colin Thompson, deputy CEO at UK IT industry body the British Computer Society (BCS).
"We shouldn't underestimate the nature of the change we're talking about and just how fundamental it is and what it's going to take to make the switch. If you look at the job ads for CIOs you can see those who have 'got it' and those who are still describing the role of an old-style IT manager."
The second obstacle—skills shortages—is compounded in smaller companies by money. Even for those companies that have "got it" and that understand the need for an IT director who will work as part of the strategic team, the road can be rough; recruiting a top CIO is far from straightforward. "IT directors with the competencies required on the board just aren't around," says Maxwell Davies.
The BCS has launched an initiative to develop the crucial business and commercial skills in IT workers right from entry level, but Thompson admits the task is huge. "We are a very technically focused profession and some of the strategic planning skills just aren't there. They're not there when people come into the profession and we don't grow them as they progress. People who want eventually to end up on the board tend not to see the IT function as a good way in," he says.
Given the emphasis on business and commercial skills, is the solution to appoint a CIO from another discipline? Opinion is divided. Kosminsky thinks an executive from a non-IT background could leave a dangerous skills gap on a board where others are "nervous and scared" of technology.
"You have to have some understanding of technology because if you're making purchasing decisions about very expensive computers it probably helps to avoid being completely hoodwinked by the people who are selling to you," he says.
But Maxwell Davies claims the "failure rates" among CIOs with a technology background and those without are similar. Thompson says it boils down to the leadership quality of the individual and the culture of the organisation. "It is much more to do with the capability of the individual than the label that is attached."
The job spec
What should a CEO look for in a CIO?
According to Vicky Maxwell Davies, partner at executive headhunter Boyden, the best CIOs are bold, clear decision-makers who are prepared to take calculated risks. They have a track record of delivering and they've probably spent some time in a consultancy and been on both sides of the outsourcing fence.
The exceptional ones have something else-vision. "What really differentiates them from the old-style IT director, and what we rarely see, is truly innovative thinking—the ability to come up with new ways of doing things and being able to deliver those," says Maxwell Davies. Colin Thompson, deputy CEO at the British Computer Society, adds: "You need somebody who can be a transformation partner rather than a technical solution provider, involved in every stage of that change, from the definition of the opportunity and its problems, through to the delivery."
The old-style IT director is typically more conservative; uncomfortable with ambiguity and apt to focus on detail and closure, according to Dave Aron, a vice-president and research director in Gartner Executive Programs, a worldwide membership organisation for CIOs.
"To be a business leader, they need to be future-oriented, idea-generating, optimistic, less conservative and see the bigger picture," he says. "The most successful CIOs have to be able to speak and understand the language of business, which is about growth, rather than constantly worrying about delivery," he says.
The super CIO Vicky Maxwell Davies's guide to the ideal CIO job spec
• To define and deliver an IT strategy that will enable and support the organisation's growth and ensure consistent and improving levels of service
• To deliver major IT and systems projects and programmes successfully, on time and to budget
• To maximise the return on IT investments
• To provide leadership in technology, ensuring that the organisation is using and exploiting appropriate new technologies
• To contribute to the organisation's business strategy through relevant discussions and decisions
• To interpret the implications of the business strategy for IT strategy and resource management
• Significant IT leadership experience within complex, technology-dependent organisations
• Strong project and programme management skills plus at least two years' service-delivery success
• Record of defining and delivering IT strategies
• Board-level exposure and participation
• Proven ability to negotiate major contracts
• Time spent with a "big five" or IT consultancy
• Strategy focused and able to make things happen
• Acute commercial awareness
• Ability to inspire, manage and motivate
• Ability to communicate and influence at all levels
• Entrepreneurialism-a creative and innovative flair; the ability to unlock the potential of technology for the benefit of the business
• Ability to talk business rather than "techno-babble"
The UK's top CIOs Andy McCue compiles an IT who's who list
Paul Coby CIO, British Airways
Coby started as CIO just after 9/11-not the most auspicious time to join BA. In five years, he has not only cut £50m a year from the airline's IT costs but also driven the overhaul of ba.com and put in place initiatives to compete with the no-frills carriers. These include the option for BA passengers to print their own boarding passes before reaching the airport and to check in at self-service kiosks.
Colin Cobain group IT director, Tesco
Cobain joined Tesco in 2001 as UK IT director and now has group-wide responsibility. After graduating in computational and statistical science, he joined Mars before becoming IT director for Rumbelows at Thorn EMI. In 1992, he moved to retail group Kingfisher and served on the management boards of Superdrug, where he set up a wholesaling export business, and Woolworths, where he launched a national interactive digital TV store. He set up his own dotcom before joining Tesco.
Good supply-chain systems and an e-commerce platform are factors in the phenomenal success of Tesco, where annual profits top £2bn.
Neil Cameron CIO, Unilever
Cameron is Unilever's first dedicated CIO. Brought in three years ago, his priority has been to streamline IT infrastructure as part of the "One Unilever" programme, which aims to save €700m a year. Before Cameron, the company had put general managers in charge of IT. A self-professed art college dropout, Cameron landed an IT job at RHM and didn't look back. He reached Unilever via big names such as Diageo, Dixons and M&S.
Al-Noor Ramji group CIO, BT
BT is evolving from a provider of telephone landlines to a global IT and network services group and CIO Al-Noor Ramji is in the thick of it.
The scale of the task is huge and Ramji is responsible for 14,000 IT staff and consolidating 4,000 sprawling systems across the BT Group to just 40, as well as introducing best practice IT processes and cutting down the number of technology suppliers BT uses. Ramji also has a wider business role as the CEO of BT's technology group, BT Exact. A chartered financial analyst with a degree in electronics, Ramji's previous roles include CIO at investment bank Dresdner Kleinwort, CIO at Qwest Communications and founder and CEO of Indian software house Webtek.
Ken Harvey CIO, HSBC
Harvey joined HSBC in 1989 and became group general manager and CIO in 2004. He is responsible for a annual global IT budget approaching $5bn and the development, deployment and operation of the banking group's technology systems.
Almost half of HSBC's software development now takes place in low-cost, offshore locations such as India. Meanwhile, reduced transaction processing costs have allowed the bank to handle a 25 per cent growth in its credit card business at no incremental cost.
David Lister CIO, Reuters
A trained architect, Lister joined Reuters two years ago after IT roles at Guinness, GlaxoSmithKline and Boots. An adviser to the management board, he plays a pivotal role in the group's "Fast Forward" transformation programme, where he is responsible for creating a single technology platform that will standardise business processes for Reuters worldwide and thereby cut costs.
His early career included a stint at management consultancy Coopers & Lybrand