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During our initial interviews with CIOs, we confirmed that most enterprises use lagging rather than leading indicators of business performance. Yet our interviewees said that business executives are most interested in leading indicators. This provides an opportunity for CIOs to fill an important void in performance management.
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According to a study published in the Harvard Business Review, companies that build and verify a set of business metrics that are leading indicators of desired performance earn more than a 5% higher return on equity. However, according to Kaplan and Norton, 80% of public and private sector enterprises fail to develop such metrics. What is common among enterprises that fail to develop leading indicators of desired performance is that the senior leadership teams view such efforts as a shared responsibility with no clear owner, resulting in a siloed approach.

Our interviews with thought leaders in performance management from Harvard, Stanford and Cranfield business schools reveal that the development of leading indicators requires skilled facilitation and a business process orientation to be effective. Also, there are guiding principles that help to engage stakeholders and speed implementation.

Preliminary findings show that knowledge of core business processes and expertise in managing information put the CIO in an ideal position to facilitate the development and use of leading indicators. The ongoing automation of business processes is providing new internal sources of leading indicators. New regulatory requirements for financial reporting are providing new external sources of leading indicators. Together, these new sources are lowering the cost and improving the accuracy of leading indicators, making them practical for management decision making.

Early findings also show that guiding principles help to secure the support of senior executives for this effort. These principles are based on common definitions that form a foundation for constructive dialog among the management team. The October Executive Programs report will cover these guiding principles and explain how CIOs can use them to speed implementation of leading indicators and achieve desired results.

CIO CALL TO ACTION
CIOs can address business executives’ need for leading indicators of business performance through a concerted effort to influence key stakeholders by taking the following actions:
• Assess the current business performance management capabilities to determine where best to extend the value of the lagging indicators with leading indicators.
• Create and present a proposal to gain the support and commitment from the CEO and CFO.
• Engage your stakeholders to establish a 21st-century performance management approach.
• Selecting a small, balanced set of internal and external leading indicators specific to your industry and market.
• Use the Gartner Program Management Template to establish the road map, report progress and resolve issues.
Each of the above action items can be guided by tools being developed as part of the October report.

BOTTOM LINE:
Initial results indicate that companies that build and validate a set of business metrics that are leading indicators of financial performance outperform their competitors. CIOs can help the enterprise overcome the obstacles to developing leading indicators through facilitation, and in this process become a strategic partner with the business.

Business Impact:
Leading indicators can extend the value of lagging indicators in business performance management by being predictive of financial or desired outcomes. Evidence to support the competitive advantage of using leading indicators is found in the work of Professor David Larcker at Stanford Business School, who was interviewed for the October report.

We invite your comments and suggestions, and encourage your participation in the research process for this topic.

Michael Smith: Michael.Smith@gartner.com
Patrick Meehan: Patrick.Meehan@gartner.com

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Business leaders and CIOs should carefully consider the most crucial skills and experiences required for success. Specifically, they should weigh the importance of technical experience and skills versus demonstrated leadership success and well-developed nontechnical skills.
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At a recent Customer Advisory Council meeting hosted by a global service provider, participants from companies in the high-tech and communications sector expressed concerns that there are fewer individuals pursuing technical studies in the U.S. The consensus was that this will have a long-term negative impact on the talent pool for future IT leaders (including CIOs). The group also felt strongly that IT leaders must possess a great amount of technical skills and knowledge in order to be successful.

The observations and discussions that surfaced in this particular meeting with CIOs were somewhat alarming and contrary to what others have been observing as the trend. Gartner research reveals a different perspective on the issue (“Redefining the Rules of IT Leadership”): “Leadership involves direction; its specific concerns are vision, strategy, inspiration, motivation, values and culture.”

In surveying CIOs, Executive Programs researchers find that an increasing number of them are entering the role from the business. Additionally, our analysts concur that it is more difficult to teach the leadership aspects, or soft skills, than the technical ones.

We find that in most situations where there is CIO turnover, the individual lacked one or more of the leadership qualities versus technical skills. Most of these transitioning CIOs had a strong technical background that ultimately could not overcome poor leadership skills.

CIO CALL TO ACTION
To help nurture talent, CIOs should do the following:
- Identify individuals with an aptitude for teamwork and demonstrated potential leadership.
- Implement an ongoing leadership development training program that is mandatory for future leaders.
- Identify mentors who possess superior leadership abilities to help develop future IT leaders.
- Look beyond the IT organization and evaluate talent from across the enterprise.
- Work with senior business executives to help them appreciate the value and importance of leadership skills.
- Challenge the status quo when developing position descriptions and seeking IT leaders.
- Develop job rotations and other programs to enhance the technology understanding of those individuals who possess solid leadership potential.

BOTTOM LINE:
CIOs (and other executives) should accelerate efforts to identify, attract and develop IT leaders who demonstrate an aptitude for leadership.

Business Impact:
Developing IT executives with excellent business, communication and leadership skills will improve business-IT alignment and improve project outcomes, organizational agility and enterprise effectiveness (and potentially growth and profitability).

Additional Insights:

Please e-mail the authors with your comments and suggestions. We also invite you to participate in a case study.

Steve Boyer: Steve.Boyer@gartner.com
Steve Weber: Steve.Weber@gartner.com
Angelina Atkins: Angelina.Atkins@gartner.com

Lachlan Stokes/Executive Partner and Vicki van Alphen/Executive Advisor
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During a roundtable with IT executives in Singapore last year, the topic of alignment once again surfaced. Although most IT literature (and Gartner Executive Programs reports) advise CIOs to act as business leaders, it was agreed there must be a balance between personal ambition and business expectations. CIOs should thus better understand and deliver against expectations.
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Although there are volumes of material about how the CIO should strive for business leadership, this level of ambition is not always practical or appropriate and varies across geography, industry and organization type. The recurring themes of “expectation” and subsequently “appropriateness” continue to surface in communication styles, performance metrics, IT strategy and even the role CIOs seek to fulfill. This leaves CIOs, especially those new to the role, in a vulnerable position until expectations can be more clearly defined.

Expectations can be made explicit: On discussing the Executive Programs CEO-CIO relationship model with his CEO, one member was told, “I do not want you to serve as a trusted partner.” Or they can be made implicit: Another member reported into a board of company owners with engineering backgrounds who frowned on anything with the word “strategy” in it.

One newly recruited CIO in Southeast Asia was brought aboard to do a turnaround. He built an IT strategy that is largely IT-driven and focused on “fixing fundamentals,” while he gleans insight from business peers to help ensure that the new IT environment addresses current business requirements.  Having addressed the fundamentals, he will seek to educate the business on the IT-enabled possibilities and then begin to craft a more business-oriented IT strategy. Attempting to develop the ideal business-assimilated IT strategy on day 1 would be received with skepticism.

CIO CALL TO ACTION
CIOs should do the following:

• Be as much of a diplomat as an IT leader, emphasizing empathy, humility and adaptability as foundational to acceptance and success.
• Review the IT strategy for cultural fit and prior successes in execution. If the organization has a low appreciation of IT and the IT organization, take a combined bottom-up and top-down approach to IT strategy development.
• Align performance metrics with organizational views of IT and its role. Do not report business contribution metrics (e.g., new product speed-to-market) in an environment where IT is viewed with skepticism.
• Interview the IT and business leadership teams for alignment of IT’s mission with business expectations.
• Build a stakeholder map that shows allegiances and degree of IT appreciation.
• As perceptions change, begin challenging assumptions by including performance metrics that sit outside the immediate boundaries of IT (e.g., increases in customer share of wallet).

BOTTOM LINE:
CIOs must understand their enterprise’s view of IT (and recognize its IT dependencies) and the ITO before embarking on an IT strategy and organizational alignment. While “acting like a business” (or “being the business”) is often the most desirable state, it is sometimes desirable to move slowly on this initiative while the enterprise matures and is better positioned to embrace IT’s contribution.  

Business Impact:
Enterprises derive value from IT in different ways. CIOs must first demonstrate success in supporting current business requirements (basic cost management) before driving more aggressive IT-enabled evolution that can positively impact revenue, agility, and customer and supply chain ecosystems. 

Please e-mail the authors with your comments and suggestions. We also invite you to participate in a case study.

Lachlan Stokes: Lachlan.stokes@gartner.com
Vicki van Alphen: Vicki.vanAlphen@gartner.com