The state of the Australian CIO 2010

The annual State of the CIO study provides Australian chief information officers with local research on leadership strategies, salary ranges, tenure and business priorities in mid to large organisations.

Some 200 CIOs in organisations with an average of 145 IT staff, supporting 7000 users participated in this year’s study and provided a benchmark for best-practice in IT business management. The study is part of a global research project which allows CIOs to compare their priorities and objectives with those of equivalent organisations in the United States.

CIO also spoke with two IT leaders about the results and how a quantitative study like the State of the CIO can best be interpreted to meet rapidly changing business demands.

Download the 28 page State of the CIO research report

Reporting lines and tenure

To determine where the CIO sits within the enterprise, the study asked to whom they directly report. The results show more CIOs are reporting through finance, with almost as many CFOs as CEOs as the direct report. The trend was most prevalent in large enterprise where 44 per cent of CIOs report to finance.

For some, it’s a disturbing trend. Former Housing NSW CIO, Vladas Leonas, is adamant the CIO should report to the CEO and says not doing so takes away a significant component of the CIO role “and a lot of influence”.

“If the CIO is not at the executive table, the ability to influence early in the piece becomes very difficult, if it is achievable at all,” says Leonas.

At construction giant Brookfield Multiplex, CIO Chris Clark reports to the CFO but spends as much time talking strategy with the CEO.

“Don’t let the reporting line be a delineator for your effectiveness,” Clark says. “I find myself meeting with the CEO as often as the CFO so it’s really the mindset of the CIO. I can have a great discussion with the CEO around strategy while reporting to the CFO.”

The average CIO spends less than five years at one organisation and Leonas, who was at Housing NSW for four years, says the trend should not be viewed in isolation.

“It is common of all senior executives, not just CIOs, to move around,” he says. “There are positives and negatives in people moving around — on the positives you get a fresh perspective, but on the negative, people can stop thinking long-term.”

Clark is coming up to his third year at Brookfield Multiplex and says some companies see value in CIOs with a lot of experience at one organisation, but there is more than just the tenure; it’s also about the type of CIO, and that rates differently.

Top priorities

Management priorities for CIOs in 2010 centre around alignment, but there is a marked focus on governance, portfolio management and data protection. Cost control has also increased in prominence in the aftermath of the global financial crisis.

With alignment remaining high on the priority list, Leonas says it may be indicative of CIOs not reporting to CEOs.

“It’s difficult to achieve alignment when you are not part of the discussion,” he says.

“Governance is a big issue because people are more and more looking at exercising strong governance and portfolio management which reflects the growing complexity of projects.”

Clark says fresh leadership can go a long way to achieving alignment.

“There is also leadership because of the organisation’s business model,” he says. “Often you go into IT departments and they have been looking alignment for 10 years so the statement needs to change from alignment to leadership.”

Clark says governance and portfolio management are “absolutely” increasing in priority as organisations look to ensure the engagement required takes in business projects, not just IT projects.

The increased focus on customer data and privacy, Leonas says, is largely driven by strengthening legislation.

“Data production is on CIOs’ minds more than ever due to the increased probability of moving services to the cloud,” he says. “As more data leaves the data centre, how do you protect it?” More than 18 months on from the GFC, Leonas says projects are moving ahead again, particularly in the private sector.

“Cost control was always quite strong. It goes up and down, but it’s always there. Outside government, people are starting to spend money on IT again,” he says.

Housing NSW sits inside the NSW government’s Department of Human Services.

Clark agrees and says more money will be spent on IT, but people have become far wiser about that spending in a post-GFC world.

“Organisations are ensuring better value for money and effective spending. I see a lot of ineffective spending,” he says. “A good example is more companies doing multi-sourcing and cloud computing. Why would you own massive amounts of equipment when you can use private clouds?”

Next: IT’s share of the pie and staff to user ratios

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IT’s share of the pie

The average IT budget was 3.9 per cent of revenue, however there are wide variations with smaller organisations generally committing a larger percentage to IT. Government organisations are hovering at just over 5 per cent.

Leonas says IT budget percentage figures need to be viewed “with a huge grain of salt”.

“How confident are we in capturing IT costs in full? For example, many organisations don’t include telephony in IT budgets and data centres may not be fully included,” Leonas says.

“There are organisations that are technology driven and we compare them with other non-technology industries. Organisations can interpret the figures very differently and even Gartner has said to me it is very difficult.”

That said, Leonas’ experience tells him an acceptable range for an IT budget is anywhere from 3 to 6 per cent of revenue.

“The 3.9 per cent number doesn’t look outrageous, but it also must take into account hardware replacement cycles. I’m not sure we’ve found a way to fully interpret it yet.”

Leonas expects no significant change in government IT spending this year, but predicts more in 2011 and 2012.

Regarding the IT spend average, Clark says, “I’ve seen that 3.9 per cent number before and ours is definitely below that”. “A lot of companies are still being cautious and investing where needed,” he says.

IT staff to user ratio

The average IT staff to user ratio is 1 to 49 — varying from 1:55 for large organisations to 1:19 for small. Leonas again cautions that this is another aspect that is very difficult to measure.

“Do we even count those working in outsourced helpdesks? I have about 3000 staff and manage a team of about 150 people [1:20 ratio] and 165 during peak times.

“About one to 50 is average for large enterprise,” Leonas says. “But if you are working on a large project it can massively distort these figures.”

Brookfield’s Clark says a ratio of IT staff to users of 1:49 is pretty good for a “lights-on operation”.

“I don’t see how it would include innovation as well and looks like a lights-on number only,” he says.

IT departments often become too focused on the backend and forget user productivity, according to Clark.

“I’ve set people aside to find out how technology can best be used by the end users,” he says. “IT departments get a glass wall around them. Knowing what users are doing also drives operational efficiency.”

Clark says rapid organisational growth builds internal pressure so there should never be a loss on operational focus and “there is no point in talking about innovation if you can’t get your backyard in order”.

Next: The rise of selective outsourcing

Download the 28 page State of the CIO research report

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The rise of selective outsourcing

Are CIOs planning to outsource any significant IT function currently being managed in-house in 2010? A quarter of CIOs answered yes — up from 18 per cent two years ago.

For organisations that exceed $1 billion in revenue, there is a downward trend in outsourcing, with most of the outsourced labour force between 1 and 30 per cent of total IT staff.

Brookfield Multiplex selectively sources services from Telstra and SQL data management to another third-party, which works well for Clark.

“I’m in the 30 per cent of outsourced labour bracket and if someone is looking at cost efficiency — and being able to meet targets — it is an area that you can’t ignore from an operation point of view,” he says.

Clark expects the outsourced labour market to increase.

“My organisation may grow to 40 per cent selectively outsourced and that would be my maximum,” he says. “I have been in a totally outsourced model and I don’t agree with that. The key services should be in the core, including ownership of data and the ability to innovate. If someone is getting paid to check whether your anti-virus is up to date, that is not strategic.”

He says the outsourced labour ratio will also depend heavily on the type of company.

“I have sites all around Australia so it is not efficient for me to hire people around the country for desk-side support.”

The trend to more selective outsourcing is apparent as more service and cloud offerings flood the market, according to Leonas.

More women CIOs needed

It comes as no surprise to those in the industry that the overwhelming majority (some 89 per cent) of CIOs are male. Leonas says there is no reason why women can’t reach the CIO level although many are unsure they want the role.

“If women want to get to the CIO level they will,” he says. “In my organisation females are promoted quite strongly.”

Leonas advises women who aspire to be a CIO to move through their existing roles until they reach the top.

With the demographic of the CIO changing, Leonas says it is good to see a generational change.

“It’s difficult for young people to get to the CIO level and it can be a case of being in the right place at right time,” he says.

The buck stops here

Compensation levels correlated notably with age. The average CIO income of those surveyed comes in at $231,000 per annum.

The figure, says Leonas, is average for the government space, but “a little low” across the private sector.

“If you look at larger organisations it’s closer to $300,000 to $350,000. The sweet spot of pay for people between 40 and 55 is probably correct,” says the 54-year-old.

Clark says the annual compensation will not only depend on the organisation’s size and focus, but on the type of CIO — operational or transitional — and which state the company is based in.

He says this is low for a CIO of a large company with international role requirements.

Download the 28 page State of the CIO research report