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What most differentiates those firms able and not able to build strong IT management skills? A very likely answer lies with the quality of IT leadership, as evidenced in the capabilities and character of the IT function’s most senior executive, popularly referred to as the chief information officer (CIO). The CIO position has gained increased prominence over the past decade. Not only has the CIO role become increasingly common in all types of firms, CIOs are also beginning to contend for CEO openings, especially with technology- and information-based businesses searching for a chief executive possessing a strong combination of technology and business skills (Chatterjee, Richardson, and Zmud, 2001).

In the U.S., Chatterjee et al. (2001) conducted an investigation to study if newly created CIO positions have any impact. The study’s findings provide strong support for the proposition that announcements of newly created CIO positions do indeed provoke positive reactions from the marketplace, but primarily for firms competing in industries with high levels of IT-driven transformation. Within such industries, IT is being applied in innovative ways for competitive purposes. For firms to engage in such strategic behaviors, they must first develop and then effectively exploit an appropriate set of IT capabilities. Strong executive leadership, as reflected in the CIO role, is likely to play a crucial enabling role in the effective deployment of these IT capabilities, and hence be highly valued by a firm’s shareholders. Just how valuable is a newly created CIO role? One way to consider the magnitude of the stock market reaction is to compute the impact on each firm’s market valuation of common equity.

Even with the trend in escalated executive salaries, the expected return from such an investment in IT capability appears quite reasonable (Chatterjee et al., 2001, p. 59):

This study’s findings provide strong support for the proposition that announcements of newly created CIO positions do indeed provoke posi- tive reactions from the marketplace, but primarily for firms competing in industries with high levels of IT-driven transformation. Within such industries, IT is being applied in innovative ways for competitive pur- poses. For firms to engage in such strategic behaviors, they must first develop and then effectively exploit an appropriate set of IT capabilities. Strong executive leadership, as reflected in the CIO role, is likely to play a crucial enabling role in the effective deployment of these IT capabili- ties, and hence be highly valued by a firm’s shareholders.

Just how valuable is a newly created CIO role? One way to consider the magnitude of the stock market reaction is to compute the impact on each firm’s market valuation of common equity. A conservative approach would calculate this effect through the median statistic (multiplying the median stock market reaction by the median market valuation of com- mon equity); a less conservative approach would use the mean statistic (multiplying the mean stock market reaction by the mean market valu- ation of common equity). For our entire sample of firms, the net impact per firm of a newly created CIO position is in a range from $7.5 million (median approach) to $76 million (mean approach). If only the IT-driven transformation subgroup is considered, the net impact is in a range from $8 million (median approach) to $297 million (mean approach). Even with the trend in escalated executive salaries, the expected return from such an investment in IT capability appears quite reasonable!

CIO.Wisdom

In the book CIO Wisdom: Best Practices from Silicon Valley’s Leading IT Experts, Lane (2004) discusses the extended enterprise CIO, background of the CIO, and reporting relationships.

The extended enterprise CIO. One of the many transformations in our business in- stitutions during the past decade has been the growing importance of the extended enterprise. As our businesses changed, so have the information systems that support them. The changing roles of those systems and of the executives that are respon- sible for them become a map for the broader transformations — in our commerce, in our culture, and in our socioeconomic relationships. By better understanding the changing role of the CIOs in these institutions, we can better understand the institutions themselves.

The Chief Information Officer 4

The extended enterprise CIO is a partner in a networked community designed to deliver systems and services with and between customers, vendors, and partners, a matrixed role in a network of associations for which some executives are suited and others are not. More and more, CIOs are the executives who are forging alliances and ensuring alignment with critical owners of business relationships, both within and outside the corporate boundary.

Background of the CIO. The role of the CIO has become as varied as the business models in place today. Expectations of the CIO role often includes the following: •. The.technology.leader:.This role incorporates the various engineering and

information technology functions within a common functional area.

•. The.business.leader: This role takes ownership of some IT-based tools and systems to satisfy their business requirements, which require that they become more knowledgeable about these tools and systems.

•. The.strategist.and.mentor: This role operates in a high-tech environment. • The corporate influencer: This role is directly shaped by the type of business

environment he or she must support, and his or her influence is driven by the characteristics of the business, including their relative maturity levels. •. Reporting.relationships: The CIO who reports to a CFO is typically part

of the administrative side of the business and is always expected to focus on cost reduction as a key strategy for the IT organization. The CIO who reports to the CEO possesses a higher degree of freedom and responsibility than a comparable CIO who reports to the CFO.

•. CIO.challenges: The CIO role is inherently challenged because it is con- stantly beset by conflicts and problems. A CIO has to wear many hats: service provider, business enabler, business partner, strategic visionary, and company executive.