01 September 2004 Features

 

Rising to the top

The role of CIOs and CTOs is changing, making them some of the most influential managers in a company. Fabien Buliard looks at the organisational challenges this presents

Once seen as the geeks in the basement, the IT department has gradually gained recognition as a key element of a bank’s success. This has raised the profile of chief information officers (CIO) and chief technology officers (CTO) to the point where they are some of the most influential managers in the organisation.

However, in most financial institutions, CIOs have yet to get a seat on the management board, even though their skills increasingly go well beyond just technology expertise.

Nick Davies, CTO for Institutional Trust Services (ITS) EMEA at JP Morgan, believes the skills and the knowledge within the technology organisation are now “very much being counted upon” by the business. “We are certainly no longer seen as just ‘techies’ providing a development service,” he says. “It is definitely evolving more into a business-driven partnership in which we sit equally at the table with the business leaders and look at creating the right technical architecture to fit the business architecture to create a strategy for growth.”

Davies heads up a technology department of 150 people, which supports two predominant lines of business, Global Debt and Global Equities, and he is a member of the EMEA management committee. “I sit alongside other senior business leaders from those different lines of business within ITS, as well as my operations counterparts, to govern the strategy for the region and lead the technical teams needed to support the double digit growth we have been seeing in the business,” he says.

Davies feels “as much responsible for helping the business to achieve its revenue projections as one of the business leaders would be.” “If we have a particular revenue goal in mind, it means we have to be innovative and creative and look at the way technology can assist and enable that without creating additional pressure points in the business,” he adds. “I feel very much part of that process.”

The financial services industry is particularly prone to influential CIOs and CTOs, for the simple reason that technology plays a much more important role than in other industries, as it is directly involved in the creation and delivery of products.

“Banking lends itself very well to digitalisation,” says Octavio Marenzi, chief executive of financial technology research firm Celent. “What the bank is actually delivering to the client frequently is just information. In many cases now, technology itself is an integral part of banking products. There is sometimes almost no differentiation between the technology and the product itself. When clients now consider banks on the corporate side, the technology provided is a major factor in the decision-making process.”

The amount banks spend on technology has also played a large part in making it a strategic issue. With many institutions spending as much as 15% and sometimes up to 25% of their total expenses on technology-related issues, IT has definitely become what Marenzi calls “a CEO-level concern.”

He adds that the influence of the CIO varies tremendously from one organisation to another. “Within a large institution, it is a very difficult role to play effectively,” he says, “because you have so many different business units that are run independently of each other. Frequently, what the CIO does at a group level of a large bank is not very much, as business units make their own decisions. In those firms where there is a more centralized decision-making process, the group CIO plays a very vital and central role.”

A recent report by the Butler Group even points to a potential power struggle between the CIO and the Chief Financial Officer (CFO). The report finds that compliance issues offer CIOs the opportunity to “demonstrate the real value of the effective management of information” and to “drive organisational change and improvement.” It also states that compliance “should be the issue that gets the CIO/CTO a seat on the board.”

“We believe the compliance agenda can create a level playing field between the CTO and the CFO,” says Mike Davis, senior research analyst for the Butler Group. “The CFOs have realised that if they don’t start taking control of this agenda, it is going to become a level-playing field.”

In most organisations, however, the CIO is still quite far from being on a par with the CFO. “I would say the CFO certainly has more influence overall in all the organisations that I know,” says Marenzi. “To a certain extent, the board will not really concern itself with technology issues. When the board meets, they look at the financials very closely, which is why there is a much closer relationship between the CFO and the board, than there ever will be with the CTO.”

It is actually very unusual for CIOs to be part of the board in the financial services industry. Guillermo Kopp, vice president of financial services strategies & IT investments at research firm TowerGroup estimates that proportion to amount to only 10% in the US.

“Most of them report to a chief operating officer-type function, or through lines of business,” he says. “Many organisations are still fragmented when it comes to IT, in which case the CIO reports to the business or product head. There are also some CIOs who report to CFOs. It was very common a few years ago, less so today.”

Still, the trend is indeed for CIOs to move up within the organisation. At BNP Paribas, while IT is mainly organised by line of business, it is overseen by a group IT director who is part of the bank’s executive committee and reports directly to chief executive Baudouin Prot. A spokeswoman says that the IT merger that followed the acquisition of Paribas, as well as the introduction of the euro helped raise the profile of the IT department. French rival Société Générale has a similar organisation and its group chief information officer is also part of the executive committee.

But, according to Kopp, the catch is to “speak the language.” “This is not about the CIO pushing technology terms to a table where financials are being discussed,” he explains. “This is about a CIO bringing a financial strategy and a financial analysis perspective to a table where the CFO is trying to prompt some decisions in the organisation. That is where the negotiation skills come to play.”

A former IT manager himself, Butler’s Davis believes CIOs still have a lot of work to do to gain influence within companies. “CIOs think they’re held in great respect by the CEOs, but they’re only one level above human resources in terms of position within the organisation,” he says. “Our belief is that the CIOs haven’t allowed themselves to be on the board. They need to have a better level of business competence and understand what the business is about.”

He adds that although the pressures on CIOs have never been greater, they generally do not react to them proactively and instead hide behind budget restrictions. “They should be going out there and putting forward business strategies in business language, which will drive the IT investments that they want,” he says.

But this shift towards managerial skills can be a difficult leap for many CIOs. “We have a history of promotion based on technical competence,” Davis says. “A lot of CIOs/CTOs are incredibly competent technicians, but actually not the world’s best managers or leaders, and they need developing. It is very telling that, as far as I know, we don’t have a chief executive in the FTSE 100 with a CIO background.”

This evolution in the role of technology leaders is also causing a change in their recruitment, and an increasing number of CIOs no longer come from a purely technological background. Many analysts point to the lack of alignment between technology developments and business strategies, as being one of the most common problems in financial institutions. But Kopp insists this situation is changing.

“The average tenure of a CIO is three years,” he says. “These are very short cycles and, in the renewal process, people are coming from operations management areas or financial management areas. IT spending is in the province of 15% of the operational expense, so there’s a lot of financial management to do in an IT shop.”

A good example of that trend is Debby Hopkins, a former CFO of Lucent Technologies, Boeing and General Motors Europe, who was hired in January 2003 as Citigroup’s chief operations and technology officer.

While one may assume that the influence of a CIO is proportional to the size of their budget, Kopp insists it is rather proportional to their individual traits, as their leadership skills determine their ability to influence the company’s operations.

“These people can act as a catalyst for change, instead of simply being the provider of IT service,” he adds. “The CIOs see many initiatives across the company. They are uniquely positioned to spot opportunities for a common enterprise approach that unites the interests of diverse lines of business. In financial services, there’s a fragmentation by lines of business and then within each of these, there is fragmentation by product lines. It is very unlikely that the business groups will naturally pool resources together, particularly when it comes to technology. From their vantage point, CIOs see the entire picture.”

JP Morgan’s Davies confirms that some technology investment decisions can be triggered by the IT department. “If we saw a lot of synergy between the different lines of business, given that technology is centric between business lines and also between business and operations, there might be a particular system we would consider strategic and express the need to invest in.” He also insists that an innovative approach to systems maintenance can drive related costs by “as much as 5% or 10%”, allowing the technology team to “then wisely invest elsewhere within technology such as new discretionary projects, perhaps addressing further operational expense saves through automation, or new revenue growth opportunities.”

He also recognises the shift towards a business approach of IT, driving a change in the job of technology teams. “The technology people are increasingly becoming more like business managers who are very tech savvy, people able to understand how to leverage technology and communicate in a language that representatives in the business can understand,” he says. “We’re also able to understand the impact of technology and the different scenarios that we may have to address. The CTOs certainly have to understand the key issues from both the business and an operations perspective. As technologists, we kind of sit in the middle, with the business on one side, which is very revenue-driven, and the operations team on the other, which may become volume-sensitive to certain issues, and may need automation and STP. We’re looking to ensure that the investment in those systems is appropriate going forward.”

Of course, new-generation CIOs with management expertise but little formal technical training also need to understand the consequences of IT choices, even though they may not know the technology in detail. “At the very least, they are good listeners, so they can talk to the technology people under their control and understand the implications,” says TowerGroup’s Guillermo Kopp. Otherwise, whatever respect they might gain from the CEO, they could lose from the technology ranks.