Prior posts have discussed the need for a Chief Digital Officer as well as the different types of Digital Officers. This post concentrates on the range of possible reporting relationships for the Chief Digital Officer. This is a complex and important question that requires thinking through the implications rather than building on a blanket assumption. That assumption is
The Chief Digital Officer should report to the CEO
This assumption is clear and universally applicable, but those traits do not make it the right choice for you, your company or your situation.
First Step: Select the right type of Digital Officer for the enterprise.
Two steps are required to apply this chart to your situation. The first is that you have to determine which type of Digital Officer your organization needs. You only need one chief digital officer with a role scoped by their revenue/policy responsibilities and their line/staff resources. The figure below sets out the different types which are detailed in a post entitled Chief Digital Officer: What type does your organization need?
Second Step: Matching the type of Digital Officer with enterprise information intensity.
Now that you know which type of digital officer you need, it is time to suggest their reporting relationship within the enterprise. Every reporting relationship is contextual. In general the more information intensive your enterprise, the higher up the Digital Officer should report. For example, information intensive industries like Financial Services, Media, Transportation or Healthcare tend to be more information intensive than others. Some industries blend digital and physical like Logistics, Wholesale, Distributors and different reporting relationships. Finally, physically intensive industries, where the majority of the value is created and managed through products and services have their own set of reporting requirements.
The figure below looks combining the different types of Digital Officers and the information intensity of the business to provide a way of thinking about these reporting relationships. The reporting relationships suggested in the table force a reporting relationship for type of digital officer and requiring them to report to one of the existing C level positions.
The CEO and CDO – a more complex relationship than you might think
Industry pundits, researchers and consultants will advocate a CEO- CDO relationship given the importance, opportunity and transformational intensity involved in creating digital capability and digital revenue. At least at the beginning a CEO-CDO relationship makes sense. However it is not the only way CDO’s can create results within the enterprise and in fact may actually destroy value in different situations.
Here are a few generic rules of thumb regarding a CEO-CDO reporting relationship. CDOs with direct revenue responsibility (Chief Digital Business Officer) should be treated like other executives reporting to the CEO with a P&L. The same goes at a smaller scale for Digital Officers assigned to a specific Business Unit. CEOs should also consider a direct reporting relationship in situations where the executive team requires strong direction to create the type of collaboration and sharing required for realizing digital value.
The CDO and CFO – an arms length relationship at worst.
Enterprise should avoid recreating the cost/capability – innovation/investment associated with information technology when the CIO reported to the CFO. That reporting relationship now represents a minority situation 19% of the time according to the 2013 Gartner CIO Survey,
Digitalization requires investment, innovation, success, constant learning and the occasional failure. Digital transformation is something that should be managed based on achieving desired outcomes rather than controlling technology via the budget, or driving the car based on the gas gauge. This is why a formal reporting relationship between the CFO and CDO is not part of the table above except in the case of physical intensive industries choosing a Chief Digital Policy officer to control the cost of digitalization.
The CFO has a role in enterprise digitalization that does not require a direct reporting relationship between the CFO and CDO. The CFO’s traditional role in capital investment, governance and strategy remain consistent in relationship to the Chief Digital Officer.
The CDO and CIO – a source of potential conflict that should be a resource of deep collaboration.
According to the Gartner 2013 CIO survey 18% of CIOs are also their organization’s CDO. The CIO is has been the de facto Chief Digital Officer in many organizations where they have played ever type of role from Chief Business to Chief Digital Champion. They can continue that role, and in the process extend their reporting relationship with the CEO.
The CIOs’ responsibilities for IT create a natural affinity with emerging digital technologies. However, the demands on digital technology will lead many organizations to have a separate digital officer. That presents a choice for CIOs who can compete for that position – particularly Chief Digital Strategy, Digital Policy or Digital Champion.
It makes sense to have the Chief Digital Strategy Officer report to the CIO in information intensive enterprises where the CIO is the de facto COO. This often occurs in financial services, telecommunications and similar industries. Enterprises with a physically intensive business model are more likely to have a Chief Digital Champion, which can effectively report to the CIO.
Regardless of the type of digital officer or their reporting relationship, the CIO – CDO relations is critical to success. After all digital technology is ‘worth less’ without the ability to integrate, leverage and deliver value across all enterprise systems. CIOs presented with the opportunity to work with a peer digital officer should embrace the opportunity to recast the brand, image and value of technology in the enterprise.
Reporting relationships are not as important as working relationships
Discussions about reporting relationships generate energy and interest but they are fraught with politics and potential loss. Executive reporting relationships require special attention and there are no hard and fast answers. The figures in this post seek to provide some background for making the best decision for your organization.
Getting the right type of digital officer and the right reporting relationship set the stage for success with digital technology. These two decisions do not guarantee success. Digital technology is unique, in the sense that it requires greater collaboration across people, process, technology, customer, channels, and strategies than any other technology. Creating the executive and enterprise relationships that lead to such a level of collaboration are central to success and start once everyone has a place and everyone knows their place.