What CIOs need from their CEOs and boards to make IT digital ready

To innovate at scale and outperform competitors in the digital age, companies need to be tech forward. That means embedding tech into their business strategy and operating model. For most organizations, that requires a digital-ready IT function—one that is fast, adaptable, focused on the end user, and able to deliver business value.

As any CIO or tech leader can tell you, however, transforming IT and modernizing a business’s technology estate is a significant challenge. Making matters worse, many CEOs and board members still cast a jaundiced eye on large tech projects, which have traditionally run over budget and delivered below expectations. Unfortunately, this mindset undermines the support CIOs need to successfully drive their tech transformations.

To understand how CEOs and board members can better support their tech leaders, we spoke with about 120 senior tech leaders and 30 senior business executives over the past 18 months.¹We spoke with 147 senior executives across 11 sectors in German-speaking countries. Eighty-one percent were senior tech leaders (CIOs, CTOs, senior tech leaders), 15 percent were CEOs or other senior business leaders, and 4 percent were chief digital officers. These detailed interviews provided a range of insights, but these five, in particular, highlight the best measures CEOs and boards can take to provide CIOs with the support they need:

• Ensure a long-term mandate and support (by understanding the true value of tech)
• Align on priorities (to keep IT from “serving many masters”)
• Make the business a magnet for tech talent (to attract top engineers, not just C-suite-level executives)
• Understand tech implications (so that complexities don’t block business priorities)
• Build up technical literacy (to maintain commitment to the transformation)

These should not surprise any business leader. The issue, however, is that for all the agreement on these priorities, boards and CEOs too often don’t deliver on them. Based on these conversations and our own experience, we estimate that in more than three-quarters of organizations, CEOs and boards struggle to provide the required long-term mandate and support, to align on a vision and priorities, and to be clear about the complexities of technology and the tech implications of business decisions. Furthermore, more than 50 percent grapple with both poor tech literacy and making the business a magnet for top talent. CIOs themselves also have an important role to play in addressing these issues.

Ensure a long-term mandate and support (by understanding the true value of tech)

Few executives would debate the importance of modernizing IT as part of a successful digital transformation. The problem, however, is that CEOs and boards often view IT as a cost center and waver in their support for both the size of investment and the duration of work needed to modernize it.

To change this mindset, IT leaders need to help CEOs and board members understand how tech inhibits or drives value. Some CIOs have found it useful to price the cost of technical debt and compare it with how much fundamental business value an investment in cloud might drive. More than 75 percent of the $1 trillion of value at stake in the cloud, for example, is in accelerated product development and growth from new and enhanced use cases.

Some CIOs have succeeded in building support for a tech transformation by beginning it with a “cleanup” phase that removes IT pain points in the business. Johnson & Johnson took this approach by focusing on improving the experience of the 140,000 employees engaging with the company’s technology. Employee-satisfaction scores increased (in some cases, by more than 50 points on key products), costs to business for project delivery dropped through a 20 percent reduction in the need for “coordination” resources, and speed of product delivery increased 20 percent.

To ensure support for the long term, CIOs need to articulate not only how IT generates value but also what the timelines are for doing so. Efficiency gains can happen within months, but the big payoffs often take two or more years. A recent McKinsey study with nearly 700 technology leaders showed that leading organizations are deliberate in grounding each initiative in an explicit P&L result and building in specific metrics to track progress against business outcomes. Unless CIOs can consistently show progress against such meaningful key performance indicators (KPIs) as the number of requests successfully handled automatically, percentage growth of basket size, or reduction in processing times, they should expect board support to lag.

A common mistake is splitting required long-term IT transformations into small projects as an antidote to the traditional process of multiyear projects. The problem is that smaller projects often devolve into a set of uncoordinated and unrelated initiatives that lack the critical mass to deliver real impact. Boards and CEOs can help address this issue by challenging CIOs to clarify how initiatives fit into the broader transformation road map, to report on actual business outcomes rather than technology progress (and ensuring that CIOs reprioritize and reallocate resources accordingly), and to make business leaders co-responsible for their domains or platforms.

Questions for the CEO and board

• When reviewing IT transformation proposals, are business outcomes explicitly tied to each initiative?
• Do IT costs include the price of tech debt, and are those factored into funding decisions?
• Do you fund large (long-term) efforts in annual cycles based on achieved outcomes?

Align on priorities (to keep IT from ‘serving many masters’)

Without clear alignment on strategic priorities, IT is often put into the position of “serving many masters” as different parts of the organization make different demands for IT support. Exacerbating the issue is that functions tend to create business cases that are overly optimistic in terms of cost and payoff, and internal battles erupt to secure IT funding.

As a result, the CIO has to dissipate resources across many often-unconnected initiatives, which makes it virtually impossible to invest in the larger, cross-functional efforts that enable state-of-the-art platforms and architectures, reduce tech debt, and benefit the organization overall. Furthermore, this misalignment means there is often no mechanism to reprioritize initiatives and make difficult but important trade-off decisions.

Boards and CEOs can help mitigate this issue in a number of ways. First, they need to explicitly align on the strategic goals for the business. For example, do they want to grow new digital businesses, develop new revenue streams, and extend their customer base, or is the overall goal to increase selling, general, and administrative (SG&A) efficiency? With this alignment in place, the CIO can prioritize the right initiatives and help the board make important trade-off decisions between creating value and lowering costs.

Second, they can demand that reprioritization decisions are based on outcomes that the business has agreed on before an initiative begins. This helps make it clear which initiatives are working and which ones aren’t and simplifies the process of reallocating resources.

Questions for the CEO and board

• Do you know how much of your IT portfolio is targeting efficiency improvements and how much is targeting growth?
• Have you empowered business and IT to jointly set priorities for individual business and functional domains?
• Do you hold business and IT accountable for business outcomes, and are business and IT jointly working together toward them?

Make the business a magnet for tech talent (to attract top engineers, not just C-suite-level executives)

McKinsey research shows that people and talent strategies are among the highest-value moves a business can make, yet talent strategy ranks toward the bottom of initiatives companies pursue. Boards and CEOs need to reverse that by moving beyond hiring initiatives toward a comprehensive view of how to attract and keep talent.

That starts with elevating the role of tech in the business. Having the CIO report directly to the CEO or even bringing the CIO onto the board sends a strong signal about tech’s importance (see sidebar, “Profile of successful tech leaders”). Some 57 percent of top-performing IT organizations say their senior leaders are very involved in strategic planning, versus just 17 percent in the bottom quartile. Allianz, for example, appointed the former CEO of Allianz Technology SE, Barbara Karuth-Zelle, as a board member responsible for operations and IT.²Andreas Schüler, “Barbara Karuth-Zelle: A new kind of manager,” Allianz SE, September 25, 2020, allianz.com. Boards, in fact, should consider adding tech leaders to their membership as a way to preserve talent. One company with an IT budget of more than $1 billion lost its highly skilled CIO because it wouldn’t bring him onto the board.

The other area where boards and CEOs can have outsized impact is around hiring the type and scale of talent needed for a successful tech transformation. While boards have tended to focus on hiring C-suite and senior-management roles, digital businesses rely on top engineers to execute the change that’s needed. In fact, top engineers are ten times more productive than novices, and often even more. It can’t be a matter of just hiring a handful of people, which isn’t enough to build up a critical mass of talent. As a result, top talent is often frustrated by organizational inertia and either leaves again quickly or adapts its behavior to the legacy organization.

To find this talent, CEOs and boards can help by removing typical constraints in the HR function that slow down the recruiting process, push for new paths to advertise and find talent, and hold HR accountable for meeting KPIs on hiring and churn.

Boards can also play a large role in retaining tech talent by supporting an engineering culture where top people have the freedom—and accountability—to innovate. Boards and CEOs can push for initiatives that reduce managerial oversight and hurdles, prioritize and fund initiatives that use cutting-edge technology, support innovative programs by approving funding and resources, and actively communicate these priorities to both the organization and the marketplace.

Compensation is important as well, of course, and boards can help create more innovative pay packages. But top talent is motivated by more than compensation. It looks for opportunities to build skills, diverse pathways to grow in an organization, and a compelling purpose. So boards need to challenge the HR function to develop more flexible career pathways and upskilling opportunities.

Questions for the CEO and board

• Do you know what tech talent you will need in two years?
• What percentage of the initiatives you’ve funded are staffed with top engineers and use innovative technologies?
• Are your top-talent churn rates high? If so, have you identified the reasons why?
• Have you successfully hired young professional talent at scale from leading technology firms in the past three years?
• Do you have a structured and funded program to continuously reskill and upskill your technology talent?

Understand tech implications (so that complexities don’t block business priorities)

Boards and CEOs generally have a good sense of complex issues related to supply chain and operations, but that level of insight often does not extend to IT. That oversight can have drastic strategic consequences, such as failing to scale digital offerings or struggling to integrate incompatible systems after an acquisition.

The board at one retail chain was pushing to expand its footprint to more than 1,000 stores. Its IT systems, however, couldn’t support that expansion, as many of its stores were deeply tied into legacy systems and interfaces. As is too often the case when replacing large systems, this limitation required significant, costly, and time-consuming revisions, ultimately delaying the company’s expansion ambitions.

To get better guidance from their boards and CEOs, CIOs can help by providing a clear view of how efficient their IT actually is through an independently vetted evaluation. Once that baseline is established, boards can then thoughtfully challenge their CIOs to drive tech improvements that matter to the business. One exercise that’s proven useful is for the board to ask the CIO to identify IT’s top ten limitations and opportunities and to prioritize what needs to be fixed in order to deliver on the business’s goals with the talent and resources available. Such clarity allows the board to make much more thoughtful business decisions because it understands their implications for the tech side.

Questions for the CEO and board

• When approving IT efforts, do you consider what needs to be successfully changed in order to capitalize on the outcomes?
• Can you explain deviations from IT cost benchmarks?
• Have you been able to launch new products and services within six months?
• Do you understand the dependencies between your main IT efforts?

Build up technical literacy (to maintain commitment to the transformation)

Technical literacy at the CEO and board level is a strong driver of transformational success. Board members are highly accomplished and have a broad range of sophisticated business experience and the skills to match, but rarely in IT or technology. As a result, they often still view IT as overhead where costs need to be controlled. When something goes wrong—and for something as complex as a tech transformation, there are bound to be setbacks—the board is quick to try to scale back commitments and reduce funding.

With sufficient tech literacy, however, boards and CEOs can become effective challenge partners who recognize the need to invest in IT by hiring talent, providing budget, and focusing resources to build up the digital capabilities companies need to compete. By “tech literacy” in this context, we mean a baseline understanding of the ways technology can drive value and which hurdles to navigate first. Some companies’ efforts to enhance top management’s tech literacy include putting board members through a multiday tech training program. The CEO of an insurance company made board members attend such a program, which provided explanations of the most important technologies and their capabilities as well as reviews of inspirational examples with outside speakers. This seminar helped lead to substantively better discussions at the board level on tech topics.

Questions for the CEO and board

• Does your board membership include technology experts?
• Do you have regular tech training for board members?
• Did you discuss a technology topic in the last board meeting?

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A tech transformation is an endeavor that requires the entire organization. Without clear and forceful leadership from the CEO and board, however, such a transformation is simply not possible.