In the aftermath of the government’s pre-budget report, private equity firms were acknowledged for having prompted the chancellor Alistair Darling into his contentious decision to impose a flat rate capital gains tax levy of 18 per cent, regardless of the nature of gain or the time an asset has been held by a beneficiary.
During the summer that preceded Darling’s surprising announcement, however, two private equity firms had already sparked talk of a very different shake up of corporate affairs. With their decisions to drop the title of chief information officer (CIO) or IT director from their boards, the new owners of Boots and House of Fraser prompted suggestions that the end is nigh for boardroom technology leaders and that, just maybe, there is no longer any room at the top for today’s crop of IT leaders.
Closer inspection suggests differing drivers behind each decision, albeit that the restructuring of the boardrooms of both Boots and House of Fraser followed on from private equity takeovers and subsequent decisions to de-list from the stock exchange, with each returning from whence they came to become private entities once more.
Sources have suggested the work of Boots’ former IT director, Rob Fraser, came to a natural end. After a six-year overhaul of the company’s IT systems, a decision was made to drop the role of IT director.
House of Fraser is an altogether different story, at least in part because the board has no qualms about publicly accounting for its decision to allocate responsibility for technological affairs at shareholder board level to Stefan Cassar, the chief finance officer (CFO).
One of the leaders of a consortium that bought House of Fraser in November 2006, Cassar says the boardroom restructuring should not be viewed as a diminution in the importance of IT at the company.
“When we came in we spent time undertaking a review of the whole IT set-up and what we found was that the IT here at House of Fraser does a very good job of what it’s supposed to do: we’ve got a very good infrastructure, a very good team and some very good people. Where we haven’t been working as well as we should is in integrating IT into the business,” he says.
“It’s probably fair to say House of Fraser was run on very traditional lines, very hierarchical, run in silos; and in our model where we are having to work extremely quickly, and at pace, we felt, not just in IT but across the whole business, that we wanted to de-layer the organisation.”
The de-layering has offered an opportunity for two technology managers, now promoted to director of IT solutions and director of IT services, reflecting the development and support aspects of the IT department and reporting directly to Cassar.
Do not let the monikers fool you though, for the two new directors on the block have no place in the overarching shareholder board at the top of the organisation and will only participate on the lower operational board meetings when the agenda necessitates their presence. But the newly entrusted responsibilities are real enough, says Cassar.
“This is about passing responsibility down to the individuals and challenging them to step up, treating the business as their own,” he says. “It was about taking out a layer between the board and the people getting on and doing the job because we felt that all the previous situation was doing was slowing progress down and putting in mountains of bureaucracy. So really, we’ve gone through the business and we’ve made it leaner and fitter. In the retail environment we need to be able adapt quickly.”
The House of Fraser approach forms part of a wider trend of fewer technology leaders reporting directly to a business’s chief executive officer (CEO). A Harvey Nash/PA Consulting survey of 650 IT leaders earlier this year suggested that just 35 per cent of technology leaders in 2007 now report directly to the CEO, compared with 58 per cent in 2002 seemingly the nadir of the CIO’s influence in boardroom affairs. The research, Strategic Insights Survey - An IT Leadership Perspective also revealed a marked slowdown in the rate at which technology leaders perceive their influence in the business to be advancing, with just 61 per cent considering the role of the CIO as more strategic than a year ago, compared with 76 per cent in 2006.
The survey also revealed a high turnover among IT leaders, with 23 per cent having been in post for less than a year compared with just four per cent in 2005 and 34 per cent preparing to up sticks by the end of 2008, findings that offer Nick Kirkland, chief executive of user group CIO Connect and one time head of IT at Sony UK, some room for optimism.
“There is a great deal of churn in the market, suggesting that CIOs are moving around. Looking at that you’d probably say companies want to recruit CIOs that have got the right skills sets, the right strategic communications perspective. If the CIO wasn’t such an important role they would not be recruited so heavily,” he says.
“We don’t see a particular trend around this, we just see that businesses are very different and they are doing different things with the head of IT. I think it’s not so much that the role is disappearing, there are always ebbs and flows of this kind and patterns going back some years where there is an increase in CIOs on the board, before it then backs off a bit as technology leaders report into CFOs or other directors. You have to look at specific cases of which structures in which organisations have been built for which purpose.”
Ian Campbell, CIO at British Energy, sees little in the way of a crisis for his counterparts to consider, and can fully understand why Boots, for one, chose to restructure its board in the aftermath of a significant IT change programme. “Where there is a high level of technology in a company and the business is technology led, the future of the CIO is quite good, taking on a classically broader business role. But I think in certain organisations, as technology becomes more standardised and integrated, that role will not exist,” he says.
“With an IT investment or a change programme you can get to a stage where you have achieved all that you wanted you don’t want a programme that goes on forever. Giving someone a finite time to do something and a role with which to do it by, that’s great. They then get an opportunity to do something different or move on to another company to do something similar. I think there’s certain merit in that; otherwise people create something they want to hang onto. It takes a very confident individual who will take on that role and then be prepared to step side and leave it alone.”
Dispensing with the CIO at board level is a question that currently elicits little in the way of hysteria. Tim Jennings, research director at analyst Butler Group, is “slightly saddened” at the Boots and House of Fraser decisions but Myron Hrycyk, UK CIO of distribution company NYK Logistics, seems to sum up the general attitude.
“I strongly believe in having that presence on the board, because I believe IT is a critical component of the modern organisation. I believe that it is a critical position to fill,” he says.
“But you can see cases where a firm might say that ‘at this point in our market, we don’t need to have that IT representation, it is sufficient to funnel it through a chief operating officer’ and I wouldn’t read the demise of the role into that.”
Ultimately, according to Campbell, it is all about the type of business in question and the extent to which IT either fundamentally drives every aspect of its commercial activity or simply aides other, more pivotal, aspects of its work. “It’s about what part IT plays in any business. In financial services, for instance, IT plays such a key strategic role that IT leaders can make decisions about technology that will drive the business. In other sectors this is not so much the case,” he says.
“Take British Energy as an example: in the generation side of the business we have power stations, huge sites of fantastic engineering where IT is only ever going to be an enabler they are not suddenly going to be able to produce power based on the technology that’s available, it will be based on the science, on nuclear energy fusion prospects and how you engineer those. We also have a trading arm, however, buying and selling power, which is 99 per cent dependent on technology. For all their information feeds and in order to monitor the markets, they need IT. They could not envisage IT not always being at their board, being discussed and being central to what they do going forward.”
For technology leaders that do find themselves answering to someone other than the chief executive, the issue of who they are asked to report to could offer a pointer as to how they are perceived. And despite Cassar’s welcome openness about the reasons behind House of Fraser’s change of tact, for some there is a feeling that accountability to a chief finance officer is not such good news.
“The focus is different,” says Kirkland at CIO Connect. “All of this varies by sector and the investment cycle of a business, but if you’ve got a CFO involved, it’s from an operational excellence perspective. Yes they may still be investing in technology but they will also be managing the costs and driving service levels from that perspective. On the other hand if you are looking at strategic change within the business then the chief operating officer (COO) gets more involved, asking how can we change the business model for the enablement that technology allows us to achieve.”
Hrycyk concurs: “If I talk to my CIO colleagues there is a perception that if you roll IT up under a CFO title it tends to suggest there is a far greater view of costs and financial control being placed on the function I think that’s the general feeling. Being put under the COO, I interpret as relatively positive, as it is being integrated into the running of the business. Having the person responsible for that overseeing IT shows more business ownership of IT.”
For Campbell at British Energy, the key to whether the role of CIO will become increasingly synonymous with business ownership lies in the willingness of those holding such posts to evolve into beasts with a bigger brain and enough energy to power one of his nuclear reactors. If you thought Alistair Darling’s boss Gordon Brown was rather zealous in extolling the challenge of change when he assumed the office of prime minister back in July, then think again: the CIO of tomorrow must come to represent transformation in a way the former chancellor can barely imagine.
“My role and that of other key members of my team is about facilitating change,” says Campbell. “One outcome for the CIO or IT director is to become the chief change officer, because we see across every aspect of the business and we are usually involved with what’s going on at a business level. Finance and HR tend to sit in reactive view modes, whereas IT people are there throughout, whether working on process, definition or driving up productivity.”
Hrycyk at NYK Logistics adds: “The true role of IT, as I’d like to see it, is one of business transformation. Because of where we sit and what we can see, we have the opportunity as CIOs to get across the whole breadth of the business; we are very well positioned to actually be able to drive whole business-wide transformations. That is one evolution I have seen already, with the IT director role becoming more of a business transformation role, particularly in a business that wants to use IT and understands how IT can be used at that sort of strategic level.
“I’m very clear on this and have often been asked to speak on the subject. My view is that if the CIO wants to fill that business transformation-type role, and manages to get into an organisation that allows that to happen, what they have to contribute is clear leadership to the IT unit on the one hand and the ability to be a business team player on the other. You have got to fulfil those two roles. You need to have a clear vision, in my opinion, to lead your IT unit and you have got to have a good understanding of business practices and how IT can contribute to that.”
Few can doubt that the private equity teams behind the Boots and House of Fraser deals have a powerful grasp of business practices and track records of driving successful change.
CIOs wanting to preserve their status in the new corporate order will do well to match such leaders stride for stride, as there can be no better way of preserving the influence of technology at the top table than quite simply knowing your stuff the whole way across the business.
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