Applied Strategy-Academic Article- CIO Reporting Structure, Strategic Positioning and Firm Performance
Authors: Ranjiv D. Banker, Nan Hu, Paul A. Pavlou, Jerry Luftman
Since the early 1980’s more and more organizations are incorporating CIO’s (Chief Information Officers) into their executive level structure. The CIO is the highest level of management in the IT department. The role of the CIO is to manage the IT department’s strategy building, applying the company vision in their decisions for the department and staying inline with the financial goals for the organization. There are other titles that this particular person can carry, but CIO is used for the purpose of this article. (www.cio.com/article/147950/)The use of IT in organizations has increased tremendously with things like medical records, pay systems, time clocks, etc. going electronic. How these systems are used have to be overseen to ensure that they are being used efficiently and the information that is stored is protected.
This article discusses how the CIO’s (Chief Information Officer) role and whether he reports to the organization’s CEO or CFO affects the company’s performance. The article also discusses how the reporting structure of the IT component in a firm can make a difference in the success of the company. There has not been reported evidence at this point that either structure is better than the other. The verdict is still out on which is better or more efficient.
The hypothesis in the article is:
1. How does a firm’s strategic positioning (differentiation or cost leadership) influence its CIO reporting structure (CIO reporting to the CEO versus to the CFO)?
2. Is there an alignment or “fit” between the CIO reporting structure and the firm’s strategic positioning that is associated with higher firm performance? (Banker, Hu, Pavlou, and Luftman, June 2011)
There are two strategies researched and they are the differentiation strategy (http://www.businessdictionary.com/definition/differentiation-strategy.html) which is usually followed by the CEO and the cost leadership strategy (http://www.businessdictionary.com/definition/cost-leadership.html)which is usually followed by the CFO. The periods that the data in this research is obtained from comes from the years 1990-1993 and 2006. In other studies there is evidence that CIO's that report directly to the CEO have a better understanding of the organizations vision and strategy and are better able to facilitate better outcomes. No matter which person the CIO is reporting to there is still a specific structure they will need to follow and that’s either strategic (used when reporting to the CEO) or operational structures (when reporting to managers below the C-level in the organization). Under the strategic structure the CIO only deals with aligning goals with the strategic plan of the company and with operational they would only deal with the IT functions, support and specific projects in the company. Whether the differentiation or the cost leadership approach is used it should lead the way to the vision of what the company wishes to accomplish. When using the differentiation approach the company focuses on innovation, design, engineering, a good rapport with the customers. The cost leadership approach wants the company to be cost effective, basically wants to get the job done most effectively and efficiently, but at the lowest possible cost. When competing with rival companies differentiators target marketing to their customers their quality product, whereas the cost leadership competes with have the lowest price for a product, lower than their competitor.
The findings according to these hypotheses were that: the strategic positioning within a company does affect who the CIO reports to and that union does affect the company’s performance overall. Under differentiation, higher operating income over sales the CIO-CEO group came out higher and under cost leadership lower sales over assets, CIO-CEO came out higher as well.
The implications are that there is still not significant enough evidence to prove which strategy overall would be most beneficial to result in optimal performance for any company. That either CIO-CEO or CIO-CFO matches can produce a well run strategy. It should not be looked at as a weakness when the CIO is matched with the CFO in a company. Practicing managers or executive should look at the strategy they wish to executive and see which fit would better align their company with their goals.
Overall, the point here is for both the CIO to work togethere with either the CFO or CEO. From the study, it can be seen the company performs better in both situations than if the CIO was working alone. The matching of the CIO to the other two would depend on the companys goals as the article states.
ReplyDeleteI agree with Rebeca's statement. It was taught in school early on that working as a group is always more beneficial than working as individuals. Whether the CIO works with the CFO or the CEO should depend on the organization's structure and goals. Each company should make the decision that best works for them, record results and make any adjustments that are needed.
ReplyDeleteEvery company is different and has different corporate goals. Just like the previous comments, I agree that working in groups is way more beneficial that working alone. Teamwork has been a part of our lives forever and by this point in our lives everyone should understand two heads are better than one.
ReplyDeleteThe incorporation of Chief Information Officers can have a positive impact on an organization. My assumption would be that the the larger the organization, the greater the impact the CIO will have on the organization. With a CIO in play of a large company, it allows CEOs and CFOs to focus more directly with other aspects of the company which in turn has the potential for a more efficient business.
ReplyDeleteWorking in groups can be beneficial but can also hurt if everyone in the group is not on the same page. I think this article was more about what approach works best for each industry and just like can be predicted, they say that there isn't enough info to determine because there are a lot of factors individual to each industry. The CEO, CIO, CFO and everyone with a C in front of their name should be communicating and working towards a common goal.
ReplyDeleteThis is an amazing article i really like it........
ReplyDeleteCIO strategy