CIO Leadership and the Utilization of Information Technology for Competitive Gains

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1 CIO Leadership and the Utilization of Information Technology for Competitive Gains Young H. Lee Jong S. Park Bong Lee MIS Departmen Internet & Information Department Dongbu Info Inc. Hankuk University Seoil College Abstract A balanced leadership model for CIO is proposed and empirically tested. We presume an effective CIO should strike a balance between strategic and operational leadership roles, as well as between forceful and enabling leadership roles. We further assume the leadership role of CIO is critical to the utilization of information technology for competitive gains. A survey was conducted among the users and developers of information systems at Korean companies. The survey exhibited a strong positive correlation between the CIO effectiveness and the effectiveness of information system for competitive gains. We can thus argue that CIO leadership matters when it comes to utilizing information technology for competitive gains. The leadership balance concept did not materialize well. Instead of a negative correlation between the two polarizing leadership styles as the model dictates, a positive correlation was observed. It is too early to conclude the Korean CIOs possess strategic as well as operational leadership qualities at the same time. Rather, the survey instrument needs to be refined. Enabling leadership turned out to be the most deficient quality among the Korean CIOs. Many respondents recognized the possibility that information technology can be used as a vehicle to gain a competitive advantage, by improving customer services. Other avenues such as price differential and new product development were less obvious. Keywords: CIO, leadership, balanced leadership, competitive gains 1. Introduction Chief Information Officers are the executives or senior managers in charge of the information systems in their organizations. They plan, build, and operate information systems that support their organizations: from transaction processing to decision support; from legacy systems to e-commerce applications. At issue is how to utilize information technology(it) for competitive gains. CIOs must understand the business strategy top management envisions, so that they can align the information system with it. In some cases, IT can drive business strategy: a new business strategy can emerge based on information technology. By exploring the IT-based opportunities for new business, CIOs can help establish business strategy. To use IT as a strategic weapon, CIOs have to become an IT evangelist. IT could become an enabling technology for business process reengineering(bpr). A dramatic improvement in operational efficiency is possible as a result(hammer, 2001). To do so, CIOs must work with business leaders and end-users. With IT staff, CIOs must function as their cheerleader to motivate them. Once motivated, IT staff will provide the kind of dedication any successful information system requires. Modern information systems are so complex that a dedicated staff is needed to plan, build and operate them or manage outsourcing. We also view information systems as man-machine systems that require heuristics on top of programming sophistication. Not all things can be automated, hence end- 2326

2 user involvement in designing the information systems and cooperation in using them is essential to their success. Enabling leadership is needed to promote end-user involvement. Change management is another dimension that requires an effective leadership role by CIOs. Lack of customer strategy is cited as the reason for the relatively low success rate of CRM implementation. If CIOs treat the introduction of CRM as a technical issue, they risk a failure (Reichheld et al. 2002). Similarly, failure to change corporate culture prior to ERP implementation is cited as the reason for the low success rate: less than 50 percent. If an ERP is implemented, decision making process has to be centralized. Of course, the role of CEO is critical to corporate culture change (Kotter 1995). But it is the responsibility of CIOs to advise the CEOs on the necessity of culture changes accompanying the introduction of a major IT such as CRM or ERP. Since the IT irrelevance argument was presented (Carr 2003), trade journals have been replete with counter arguments proclaiming that IT still matters as a competitive weapon. The possibility of vanishing competitive gains due to the adoption of similar information technology by rivals is nothing new. We see a phenomenal growth of smaller airlines in the U.S. such as Southwest Airlines and JetBlue, whose low fare based competition would be impossible without an intelligent usage of IT in many areas of operation, including cockpit automation, maintenance and airline ticket sales (Levinson, 2001; Overby 2002). The emergence of Wal-Mart as the largest corporation in the world in terms of sales volume and the number of employees can be attributed to the continuous replenishment supply chain management (SCM), which is impossible without computers and communication satellites (Koch 2002). It remains to be seen how long the IT-based competitive gains at the above companies would last. In this research, we postulate IT would matter as a competitive weapon. Though the same ERP package can be installed at many companies of an industry, and even the best practice can be copied, it is unlikely the entire value chain can be copied by a competition (Porter 2001). Though the IT irrelevance argument (Carr 2003) may hold in the long run, there would be individual firms that generate sustained profit growth by using IT intelligently (Farrell 2003). It is important for CIOs not to over-invest in IT, since some of the technological advancements are for the benefit of vendors such as Microsoft. On the other hand, IT is different from railroads or electricity. It is a process technology that requires enduser involvement. 2. Research Model In this paper, we presume sustained competitiveness emanates from the three sources: price differential, product differential, and customer service differential (Porter 2001). Information systems(is) could affect these three areas. An effective IS streamlines internal business processes, expedites new product development through collaborative computing, and increases customer satisfaction. Meanwhile, an effective IS requires an effective CIO. Finally, to become an effective CIO, she should strike a balance not only between strategic leadership roles and operational leadership roles, but also between forceful and enabling leadership roles. Figure 2.1 represents this idea. Strategic leadership role by a CIO implies that the CIO should have a strategic vision on IT, a big picture, and lead her organization toward using IT for sustained competitive gains. Competitive advantages emanate from price differential, new products development, or improved customer service, as was stated above. Effective CIOs should know how to use IT 2327

3 to improve these areas: business process reengineering, collaborative computing with business partners, and e-commerce for customers, to name only a few. They should also Figure 2.1: CIO Leadership, Effective IS, and Sustained Competitiveness contribute to the development of IT-based business strategies. This is a strategic leadership. Understanding business is essential to the strategic leadership role played by a CIO. At the same time, CIOs should become an operational leader. They should know how to align their information systems with the business strategies of their organizations. They should know how to plan, build, and operate information systems efficiently. Technical expertise on IT is essential to this operational leadership. CIOs should understand the trends in software development, database, and Internet. They do not have to understand the nitty-gritty details in these areas. To manage information systems, however, they need to have a framework of analysis and know certain basics in these areas. CIOs promoted from the ranks of IT staff need to increase their business acumen. Otherwise, they fail to become effective CIOs, hence can not contribute to the effective usage of IT for sustained competitive gains. Striking a balance between the two leadership roles is important, called as a versatile leadership 1 (Kaplan et al. 2003). According to them, many business leaders are lopsided. A strategic leader is good at drawing big pictures, but not so good at implementing the details (Kaplan et al. 2003). An operational leader fails to see a big picture, though is good at running an organization efficiently. In an empirical context, they proved the existence of a strong correlation between the lopsidedness (failure to achieve a balance) and failure to become an effective leader. We found this duality quite useful in explaining the effectiveness of CIOs, since many CIOs from IT side would lack in strategic leadership and CIOs recruited from business side would lack in operational leadership. Another duality is between forceful and enabling leadership styles (Kaplan et al. 2001). A forceful leader is good at setting goals, demanding answers when the goals are not met, and making tough decisions. An enabling leader is, by contrast, good at delegating power, listening to the subordinates, and empowering them. Here again, the authors (Kaplan et al. 2001, 2003) found a lopsidedness to the detriment of an effective leadership: too many leaders are forceful, yet lack in enabling leadership(kaplan et al. 2001, 2003, 3003). Enabling leaders are afraid to make tough calls, hence fail to become effective leaders. To function as an effective leader, one should know how to act forcefully, and at the same time, to enable others, depending upon a situation. 1 Versatile means to turn around or change positions depending upon a situation(kaplan et al. 2003). For all practical purposes, versatile leadership is synonymous with balanced or flexible leadership. 2328

4 We found this forceful/enabling duality useful to explain the effectiveness of CIOs. They need to make tough decisions when it comes to managing IT projects and vendors. On the other hand, CIOs should know how to motivate IT staff, since their dedication is essential to developing and operating modern information systems that have to be complex. Figure 2.2 represents this idea. Figure 2.2: CIO Leadership Model 3. Survey Instrument Too much of a good thing is as bad as the lack of it. The idea of virtue as achieving a balance between two opposing personal qualities is due to Confucius. Harmony between yin and yang is the foundation of Asian philosophy. Nowhere is the balance more needed than the case of leadership. A strategic CIO has a tendency to regard operational leadership qualities as unimportant. Similarly, an operational CIO has a tendency to regard strategic vision as cloud catching. A forceful CIO has a tendency to regard enabling leadership qualities as something that could undermine her work, while the opposite could be true. To measure the degree of achieving a balance between the two opposing leadership qualities, we created ten questions per each leadership quality, rendering a total of 40 questions. Per each question, we put zero in the middle as Appropriate, with +4 on the right hand side as Very likely so, and 4 on the left hand side as Very unlikely so. This is a marked departure from the typical Likert scale, where Very good is on the right hand side with a score of 5 or 7, while Very bad is on the left hand side with a score of 1. The typical Likert scale is inadequate to measure the degree of balance. In the context of numerous empirical studies on leadership styles, they applied this new scale and proved its effectiveness(kaplan et al. 2001, 2003). We therefore adopted their approach. Actually, the 10 questions to measure the appropriateness of each leadership quality were created in a pair-wise manner. For instance, the question Is your CIO close to your CEO? to measure the strategic leadership quality is matched by the following question to measure the operational leadership quality: Is your CIO close to his IT staff? The second set of questions were: Does your CIO attend executive committee meetings frequently? versus Does your CIO meet IT staff frequently? The third set: Does your CIO understand the major trends of information technology? versus Does your CIO understand the details of information technology? Using the Pythagorian theorem, then, a balanced leadership index can be calculated from the answers. Suppose the strategic leadership is represented on the horizontal axis, while the 2329

5 operational leadership is put on the vertical axis. If a CIO has received zeros on all the 20 questions, the balanced leadership index is 100, a perfect score, since the index is defined as follows: Balanced leadership index = (1- a/m)*100 where a is the actual distance from the center calculated as the square root of the sum of the two squared scores and m is the maximum distance from the center, the square root of 32. On the other hand, if the CIO has received +4s on all the 20 questions, the balanced leadership index is zero. Similarly, to measure the forceful/enabling leadership qualities, 20 questions were asked, typical ones as follows: Does your CIO declares herself clearly? versus Does your CIO listen to others carefully? A forceful CIO would criticize her staff when a mistake was made, while an enabling CIO would console the staff. Meanwhile, not all the questions were asked with zero as the best answer. The traditional Likert scale was used to measure the leadership effectiveness: How effective is your CIO as a leader? with 7 representing Very effective, 1 for Totally ineffective and 4 for Average. Similarly, the question How much contribution does the information system make to improve your company s competitiveness? was asked with 7 as Very much, 1 for No contribution and 4 for Average. A correlation coefficient was computed between the balanced leadership index and the leadership effectiveness score. Table 1 summarizes the contents of 40 questions. Strategic Leadership Operational Leadership How close to CEO? How close to IT staff? Participates in executive committee? Meets IT staff frequently? Has a vision on IT? Understands IT? Understands business strategy? Knows IS well? Acts as IT evangelist? Manage IS projects well? Forceful Leadership Enabling Leadership Declares what the CIO wants? Listens to others? Gives direction and goals? Delegates power? Criticizes staff when erred? Protect staff when erred? Influences IT project selection? Let business leaders select IT projects? Claims a credit when projects succeed? Gives a credit to others when succeed? Table 1: Summary description of the questions 4.Survey Results A total of 350 survey instruments were distributed among the users, developers, and CIO peers and 310 copies were returned. Internal consistency was checked and turned out to be high: Cronbach alpha was (strategic leadership), (operational leadership), (forceful leadership), (enabling leadership). First, we present the scatter diagram of raw data (original scores) along the four dimensions of leadership styles in Figure

6 Figure 4.1: Scatter diagrams of raw data (original scores) Contrary to our expectations, strategic leadership style exhibited a positive correlation with operational leadership. Does it imply that Korean CIOs are strategic leaders, as well as operational leaders? The same is true with forceful/enabling combination. Does it imply Korean CIOs are forceful leaders, as well as enabling leaders? This goes against the results from Kaplan and Kaiser[9], and we need a better explanation. Another useful diagram would be the relationship between the overall CIO effectiveness scores and overall effectiveness of information systems as a weapon to make a contribution to competitiveness. This is shown in Figure 4.2. Figure 4.2: Relationship between CIO effectiveness and IS effectiveness The more effective leader is a CIO at an organization, the more contribution the information system can make to improve the competitiveness of the organization. Table 4.1 presents the correlation coefficients computed among the major variables in the survey. Here, the positive correlation coefficient of.6791 between the effectiveness of CIO and the contribution of IS is the most noteworthy. Overall Balance Overall Balance Strategic/Operational Balance.99 Strategic/ Forceful/ Effective Effective Operational Enabling CIO IS Forceful/Enabling Balance Effectiveness of CIO Contribution of IS Table 1: Correlation coefficients among the major variables 2331

7 The high positive correlations between the overall balance index and the subset balance indexes (strategic/operational or forceful/enabling) are purely mathematical phenomenon since the former is the average of the latter two. 5.Conclusion CIOs should know how to use information technology for strategic purposes, while manage information systems efficiently. Striking a balance between the two polarizing leadership roles is difficult, yet important. Similarly, they should achieve a balance between forceful and enabling leadership roles. Depending upon a situation, they should know how to act forcefully, as well as how to enable others. To become an effective leader, a CIO should achieve a balance in these two leadership dimensions. To many CIOs, the need to strike a balance between strategic/operational leadership styles, and between forceful/enabling leadership styles could be a news. Even if the present study has failed to establish a lack of balance in the opposing leadership qualities among the Korean CIOs, we feel the area deserves further research. Lack of a proper explanation on the peculiar nature of the new survey instrument, before conducting the survey, could be the reason for our failure to establish a negative correlation between the opposing leadership qualities. In the previous research(kaplan et al. 2003), the data were collected in a consulting environment, hence the authors had an opportunity to explain the nature of the survey instrument in person. We did not have such an opportunity. A traditional 7 point scale could be more appropriate when the survey is conducted through mail. Yet, the present study has succeeded to establish a positive correlation between the effectiveness of CIO and that of information systems. The more effective leader is a CIO, the more contributions the information system would make to improve the competitiveness of the organization. We will continue our research on CIO leadership styles and the effectiveness of information technology for sustained competitive gains. We would come up with an effective CIO action items list. Essentially, this is a should do list to become effective CIOs: they should join executive team; let the business leaders select IT projects; let business managers own the IT projects; encourage end-user participation; appoint IT liaisons with business units, and so on. At issue is how effective these prescriptions are in real world. The survey instrument we created to measure the balance between the polarizing leadership roles needs to be refined. We will administer the improved survey instrument among the expanded number of CIOs, their subordinates, and end-users at more Korean firms. Based on the new survey results, we will present a leadership model of CIOs to utilize IT for sustained competitive gains. The research will have a profound implication. Not only will it present an empirically verified behavioral model for CIOs, it will be an attempt to settle the IT relevance issue in an empirical context: whether IT can still be utilized for sustained competitive gains. References Carr, N. G. IT Doesn t Matter, Harvard Business Review, May Farrell, D. The Real New Economy, Harvard Business Review, October Hammer, M. The Superefficient Company, Harvard Business Review, September Kaplan, R. E. and Kaiser, R. B. The Forceful and Enabling Polarity: A Fresh Look at an Old Distinction, Proceedings of the 16 th annual conference of the Society for Industrial- Organization Psychology, San Diego, CA, April 28, Kaplan, R. E. and Kaiser, R. B. Developing Versatile Leadership, MIT Sloan Management 2332

8 Review, Summer Kaplan, R. E. and Kaiser, R. B. Rethinking a Classic Distinction in Leadership Implications for the Assessment and Development of Executives, Consulting Psychology Journal: Practice and Research, Winter Koch, C. It All Began with Drayer, CIO Magazine, August 1, Kotter, J. Leading Change: Why Transform Efforts Fail, Harvard Business Review, March- April Levinson, M. Sky-High Performance Southwest Airlines, CIO Magazine, December 1, Overby, S. JetBlue Skies Ahead, CIO Magazine, July 1, Porter, M. Strategy and the Internet, Harvard Business Review, March Reichheld, R. and Schefter, Avoid the Four Perils of CRM, Harvard Business Review, February