Who Reports to Whom?

A growing number of companies want their IT heads answering to the chief executive, not the finance chief.
Russ BanhamJuly 30, 2003

Should CIOs report to CFOs?

Increasingly, the answer coming from CIOs and human-resource directors alike is no. In sharp contrast to the past, chief operating officers (COOs) or chief executives, not CFOs, are overseeing their IT chiefs.

That’s good news, says Tim Stanley, CIO of Harrah’s Entertainment, the $4 billion gaming company in Las Vegas. Several years ago, he was the CIO of now-defunct National Airlines. There, he says, “IT was treated as a cost center, and I reported to finance.”

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But Stanley maintains that “when you’re under a financial organization, there’s less linkage with the operations side of the business, where strategy is developed.” Consequently, he notes, “IT becomes more of a cost-driven exercise than a strategic ROI-driven exercise.”

Stanley says National failed to leverage technology to solve thorny passenger and labor issues. “Airlines are some of the worst marketers in the world, despite the availability of [customer relationship management] and other technologies that can make a big difference.” He says that whenever IT had such discussions with operations and finance, “it boiled down to dollars and the cost angle, as opposed to appreciating the business value.”

To be fair, it should be pointed out that over its three-year history, the low-cost National never found the sort of solid footing that might have made for looser fingers on management’s purse strings. But Stanley believes that greater investment in IT would have helped the struggling airline, not hurt it.

At Harrah’s, Stanley, senior management does not view IT as a cost center, or begrudge the money spent on IT that might have been spent elsewhere. “By reporting to the COO, I’m more directly aligned with business and operations,” he says.

He achieves that alignment by splitting his IT department in two: one group focuses on existing systems, while another looks at new technologies and approaches. Staffers devoted to existing IT are financially savvy and scrutinize technology assets to see how the company can become more efficient. Those on the “new IT” team focus on initiatives that can drive top-line growth or slash costs; they partner with business units to build the business case and conduct ROI analyses and implement the technology.

“At National, whoever was the squeakiest wheel or knew the CFO personally got his or her IT project funded,” claims Stanley. “Here we apply rigor to ROI, not just up front but also over time, for every project. We have a 10 percent to 15 percent ROI threshold, and if a project doesn’t meet that, it doesn’t get out of committee.” For example, Stanley says Hurrah’s recently cancelled a web-based HR project because “it no longer penciled out.”

That’s not to say that IT will overrule a business unit. “Every project we undertake is initiated by a business sponsor,” Stanley points out. “My definition of world-class IT entails technology enabling, supporting and driving the business.” When it comes to IT, it appears there will be no rolling of the dice at Harrah’s.

Who Gets What?

Many companies invest in technology in order to “know their customers.” But then what?

When Dallas Teachers Credit Union (DTCU) wanted to grow its assets two years ago, it invested in customer-segmentation software to analyze its customers — all 150,00 of them. By creating 150,000 distinct consumer profiles, DTCU was able to determine each customer’s individual banking needs.

The company’s customers were profiled based on more than 100 different data points, such as age, level of schooling, annual income, and type of home and location. Customers were also “householded” to discern who else in the nest might need on of the bank’s 100 services, which include checking accounts, IRAs, credit cards, and mortgages. Then individual customers were hit with targeted marketing material.

The upshot: DTCU has increased its assets by more than $500 million in the past 18 months, making it the fastest-growing credit union in the nation.

So full speed ahead with customer segmentation? Maybe not. Despite many successes, analysts warn that customer-segmentation strategies can actually backfire. “It’s a sticky thing,” says Jill Griffin, president of The Griffin Group, an Austin, Tex.-based consulting firm that specializes in customer-loyalty issues.

Griffin explains that a customer who is categorized as low-end and is provided service that is inferior to that provided to a high-end customer — Web-based self-service versus access to an eager phone rep, for example — will be less likely to stay a customer as his or her material wealth increases.

Karen Smith, an analyst at Aberdeen Group, says the issue boils down to whether “the segmentation strategy is predicated on serving the customer or simply serving corporate interests and the bottom line.”

She cites cases in which financial institutions have provided better service to a husband than a wife, even thought eh wife is the bread-winner, or mailed the same marketing pitch to all five members of a household because the household was deemed a ripe target for such material. Firemen’s Find Insurance avoided such problems by limiting its customer-segmentation efforts to product marketing, not customer service.

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