IT Orientation, CIO reporting structure and Firm Performance: To Whom Should the CIO Report?

Twenty years after the introduction of the CIO position, the IS literature has yet to prescribe the ideal CIO reporting structure. To address this void, this study proposes a contingency model in which the CIO reporting structure depends on the firm’s competitive firm IT orientation. We introduce Sales over Assets as a success measure for firms employing IT for strategic differentiation. Also, Operating Income over Sales is introduced as a performance measure for firms leveraging IT for operational excellence. Following the strategy-structure paradigm, this study hypothesizes that firms with higher Sales over Assets will have their CIO reporting to the highest executive (CEO), while firms with higher Operating Income over Sales will have their CIO report to a lower-rank executive (CFO). In addition, following the alignment paradigm, we hypothesize that only firms with either (i) a superior Sales over Assets and a CIO-CEO reporting structure, or (ii) a superior Operating Income over Sales and a CIO-CFO reporting structure will have superior performance over time than the other configurations. Secondary data from 700 firms support the proposed hypotheses, validating the strategy-structure and the alignment theories. The paper concludes by discussing the ideal CIO reporting structure and its performance implications. 1. RESEARCH MOTIVATION The CIO position has emerged in the early 80s (Synnott and Gruber 1981) in response to rapidlychanging technology, frequent changes in consumer preferences that require market orientation and data mining tools, increased business competition that requires new delivery channels and services, enhanced user sophistication who demand greater functionality, and the emergence of the ‘information economy’ (Benjamin et al. 1985; Fleming, 2002). Since its inception, the CIO position has gradually become more strategic in nature as IT has been increasingly playing a greater role in the firm’s success (Lancit 2001; O’Donnell 2001; Lasker and Norton 1996). IS researchers have focused on prescribing several means (e.g., business background, communication skills, service orientation) by which CIOs could become more important (e.g., Rockart 1982). Today’s CIOs have many roles, such as from new product development, knowledge management, business process reengineering, regulatory compliance, and IT maintenance. The CIO’s role varies dramatically among firms (Gottschalk 1999). A key distinction of primary concern to the CIOs is one between a strategic (IT as a competitive weapon) versus an operational (IT for cost-effectiveness) role of IT (Watson 1990). This distinction is herein proposed to influence the decision of the firm’s IT structure in regards to CIO reporting (CEO Vs CFO). Despite the important role of the CIO reporting structure on firm strategy and performance, the literature has yet to address the links between IT structure, strategy, and performance. This is what this study aims to do by shedding light on two research questions: • How does a firm’s IT orientation determine its CIO reporting structure (CEO Vs CFO)? • Does an alignment between IT orientation and CIO reporting structure influence firm performance? 2. LITERATURE REVIEW 2.1 CIO Roles & Reporting Structure There are two broad categories that describe the CIO’s role (Stephens et al. 1992; Vizard 2000): First, a strategic role where the CIO is involved in strategic planning, participates in strategic policy committees, stimulates new business opportunities, and influences the firm’s decision making (Gottschalk 2002). This CIO role is associated with a leadership role, increased staff orientation, and corporate responsibility for information resource policy and strategy (Rockart et al. 1982). Such strategic CIOs help align IT with firm strategy and lead IT-enabled strategic projects.