In-Depth

Management's IT Experience Increases Company Performance, Study Shows

A new study makes a strong case for placing executives with IT experience at senior levels: a solid increase in a firm's economic performance.

• By Stephen Swoyer
• 11/15/2005

Few companies would be competitive, much less viable, without their IT organizations. But even though IT has been a part of the business establishment for going on 50 years now, business decision-makers remain suspicious of—and often give short shrift to—the concerns of IT leaders.

Consider the results of a recent survey from PR consultancy Burston-Marsteller, which found that less than 10 percent of Fortune 500 companies have IT stakeholders (or executives with IT experience) on their boards of directors or executive management teams. Overall, the Burston-Marsteller survey says, nearly one-third of Fortune Global 500 companies don’t even include CIOs in their top management teams.

“We looked at those [companies] that provide biographical information on their board members and executive management teams, and we looked particularly for people who have either worked as a CIO in the past or who are currently CIOs and who are helping the company develop technology expertise,” explains Idil Cakim, director of knowledge development with Burston-Marsteller. “The amazing finding from a review of the Global Fortune 500 was that these largest companies of the world did not have that many former or current CIOs on their boards. In fact, only 8 percent of them had such an expert on board in 2004, and that’s a slight increase from 2003, back when it was only 5 percent.”

But there’s a very strong case to be made for placing execs with IT experience at such a senior level, Cakim argues. After all, companies with current or former CIOs in their executive management groups generally perform better—much better, in fact—than companies that don’t. “They delivered annual returns of 9.2 percent above the indices, so we looked at how their stock performed versus the average industry performance, so we think that’s a significant rise above the average,” Cakim says. She concedes “gains [of this kind] can be attributed to many factors,” but argues that “there is a relationship” that is significant.

Almost three quarters (21 out of 29) of the companies that did have tech savvy executives sitting on their boards were headquartered in the North American and Asia-Pacific regions, Burston-Marsteller found.

To some extent, Cakim suggests, it comes down to an issue of education. After all, only three percent (that is, 10 out of 375) of Fortune Global 500 CEOs have IT experience. While that’s a disappointing, if not alarming, number, it nevertheless represents an increase from the previous survey, conducted in 2003, which found that just one percent of Fortune Global 500 CEOs had IT experience. Of the 10 corporate CEOs with prior experience as CIOs, four of them are with U.S. companies—Intel, MCI, Progressive, and Walgreens.

The results of the Burston-Marsteller survey might sound dispiriting, but Cakim offers an optimistic spin. After all, she says, the 2004 results do constitute an improvement over last year’s tallies.

Just five percent of Fortune Global 500 companies had CIOs sitting on their boards last year and, she notes, the promotion of former CIOs to CEO-level status could also be a reflection of the relative immaturity of the CIO position, which is obviously newer than most of the other C-level slots. To a very real degree, she says, companies are starting to get the message.

“There is a need, if you want to be competitive, no matter what industry you’re in, in order for the company to have continued success, sustained growth … it needs to give technology a seat on the board,” she says. “The void might have severe consequences in terms of competitive advantage.”

She frames it as an issue of continuing education. In the business world, after all, profit-making and the perception of competitive advantage are often the best teachers. “[I]f it is happening, it’s happening slowly. We do see a difference with companies that do recruit technology-related members to the board. We did that separate analysis where we looked at the returns for the companies that do have CIO board members, and these companies were consistently performing above average levels, so there is a financial benefit to this.”

What’s needed is better communication. In this respect, she stresses, the responsibility doesn’t entirely fall to business executives. In short, the guys who wear jeans and polo shirts have got to reach out to the guys in suits.

“Communicating IT expertise and the relevance of IT as a business strategy to the higher levels of the executive management team and at the board level is key,” she counsels. “Communication is part of it. Relationship-building in the organization is part of it, introducing the right partners together. If you’re an executive without knowledge of IT per se, but you do understand the pertinence of it, you might be looking for someone from IT to reach out to you. It boils down to clear communications and speaking the business language.”