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

• Main Authors: BANKER, Rajiv, HU, Nan, Luftman, Jerry, Pavlou, Paul
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2004
• Subjects: Chief Information Officer (CIO); CIO Reporting Structure; Strategic Positioning; Porter’s Generic Strategies; Product/Service Differentiation; Cost Leadership; Firm Performance; Abnormal Stock Returns; Cash Flows from Operations; Chief Executive Officer (CEO); Chief Financial Officer (CFO); Computer Sciences; Management Information Systems
• Online Access: https://ink.library.smu.edu.sg/sis_research/1115
• Institution: Singapore Management University

Almost 30 years after the introduction of the CIO position, the ideal CIO reporting structure (whether the CIO should report to the CEO or the CFO) is yet to be prescribed. There is an intuitive assumption among some proponents of IT that the CIO should always report to the CEO to promote the importance of IT and the CIO’s clout in the firm, while some adversaries of IT call for a CIO-CFO reporting structure to keep a tab on IT spending. However, we challenge these two ad hoc prescriptions by arguing that neither CIO reporting structure is necessarily superior, and that the CIO reporting structure should not be used to gauge the strategic role of IT in the firm. We thus prescribe that the CIO reporting structure must align with the firm’s strategic positioning. First, extending the strategy-structure paradigm, we propose that a firm’s strategic positioning (differentiation or cost leadership) should be a primary determinant of its CIO reporting structure. We hypothesize that differentiators are more likely to have their CIO report to the CEO to lead IT initiatives that help the firm’s differentiation strategy. We also hypothesize that cost leaders are more likely to have their CIO report to the CFO to lead IT initiatives to facilitate the firm’s cost leadership strategy. Second, extending the alignment-fit view, we propose that firms that align their CIO reporting structure with their strategic positioning (specifically differentiation with a CIO-CEO reporting structure and cost leadership with a CIO-CFO reporting structure) will have superior future performance. Longitudinal data from two periods (1990-1993 and 2006) support the proposed hypotheses, validating the relationship between a firm’s strategic positioning and its CIO reporting structure, and also the positive impact of their alignment on firm performance. These results challenge the ad hoc prescriptions about the CIO reporting structure, demonstrating that a CIO-CEO reporting structure is only superior for differentiators and a CIO-CFO reporting structure is only superior for cost leaders, whether or not IT has a strategic role in the firm. The CIO reporting structure must therefore be designed to align with the firm’s strategic positioning, independent of whether IT plays a key strategic role in the firm.