In our modern society and work environment technology has become an increasingly important part of organizational success. By the time a company reaches 5 to 10 employees, there is surely someone assigned to “take care” of IT. Sometimes, this early decision is carried over across the growing period of the company without considering the impact this decision has on the general outcomes provided by the IT department.
Sustainable growth requires a significant strategic alignment between all departments in a company. In most cases, by being aware of the reporting lines, CEOs and managing directors (MDs) can quickly identify the perceived value of the IT department.
TL;DR table at the bottom of the article for busy people.
Let’s have a look at the different reporting structures, how they will affect the focus of IT and what are the risks and how we can utilize this to better align our IT to the company strategy.
Reporting to Finance
Perceived roles and values:
Cost control and efficient use of resources are core values of the finance function. As such the tendency will be for any IT department reporting to Finance to ensure that IT investments are aligned with the organization’s financial goals and that IT costs are managed effectively.
IT will likely be considered as just a cost centre.
Risks:
Here there may be a too narrow focus on cost control, leading to underinvestment in IT innovation and strategic initiatives. Short-term goals focused on the yearly budgets may significantly impact decisions around choosing the right technologies. Additionally, Finance may not have the technical expertise to effectively evaluate and manage complex IT projects and will likely rely on third parties.
Strategy:
This approach is worth considering when is desirable to keep IT costs at a minimum, it is important to find key long-term partners that will understand the business strategy and provide sound advice and an adequate solutions road map.
Reporting to Operations
Perceived role and values:
Operations support the core business processes. When IT departments report under this line, the focus is on making systems and processes reliable and efficient. IT investments are aligned with the organization’s operational goals and IT services are delivered effectively. For companies with strong technological components, IT investments and strategies likely consider standardised procedures and automations. In this case, tools will be well supported and long-term investments will be considered on the value they deliver.
In general terms, IT is perceived as a business partner to deliver operational value.
Risks:
Under this reporting line, there may be a tendency to prioritize operational efficiency over strategic innovation, which can lead to missed opportunities for IT to create value. For companies where their operational structure is not technologically aligned, there might be gaps in knowledge, leading to suppliers leading the technological choices and a tendency to solutions “sprawl”.
Strategy:
Harmonizing and rationalising will be key parts of the strategy here if the company is seeking to simplify the processes and make everything “repeatable”. Leverage partnerships that bring long-term value and support. Due to the “repeatable” nature of this strategic approach, it is worth considering economies of scale, do for ten what you could do for hundreds. Here is where DevOps will likely shine.
Reporting to Marketing
Perceived roles and values:
Marketing’s main focus is to create a competitive advantage through customer engagement and brand awareness. While reporting under Marketing, IT investments tend to be aligned with the organization’s marketing goals and services are tailored to meet the needs of customers.
IT is considered a business partner to deliver customer value.
Risks:
This alignment to deliver customer value may reduce focus on the rest of the organization, which can lead to duplication of effort and conflicting priorities. Additionally, Marketing may not have the technical expertise to effectively manage complex IT projects and may have a shorter-term focus based on the current campaigns and market trends. This may lead to wrong technological choices and duplicated solutions with below-optimal utilisation.
Strategy:
Business value and customer focus. This approach will create strong and visible IT teams, well capable of maintaining customer relations and understanding business values.
Reporting to HR
Perceived roles and values:
While reporting to HR, the focus is on supporting the organization’s human capital management and talent acquisition processes. With a focus on attracting, retaining, and developing top talent, IT investments and services will be coordinated with the organization’s talent strategy.
Risks:
While reporting to HR there may not be sufficient alignment between IT and the other strategic company objectives, which can lead to less-than-ideal IT investments. Additionally, HR may not have the necessary technical expertise to effectively manage IT risks and security issues.
Strategy:
Similar to Marketing, this will alignment will provide business value, but with an employee focus. Valuable and supportive IT teams that understand their role in the company.
Reporting to the CEO
Perceived roles and values:
The strategic value of IT to the company is highlighted in IT’s reports to the CEO. IT is integrated into the entire strategic planning process because it is seen as being essential to the organization’s success. Because IT is regarded as a crucial factor in company growth, this reporting structure will encourage long-term innovation and competitive advantage.
In short, when IT reports to CEO, it usually means IT is part of the value proposition of the company.
Risks:
The risk of reporting to the CEO is a lack of focus on operational efficiencies and financial discipline, which can fail to deliver results in the short term and costly innovation and ideation. Project overload and half-completed ideas systems and frameworks can heavily burden the long-term goals and cause security risks
Strategy:
This is a difficult approach for many companies to take unless their business is just technology. Well-valued professionals may tend to individualism so strong leadership, vision and objectives may be required. Innovation, rapid prototyping and “quick fail” of ideas are key components. Leverage economies of speed to use this approach. Fail quick, fail often and keep experimenting.
Conclusion
The value, risks and strategies of different IT reporting lines can vary depending on the organization’s strategic goals and the capabilities of the various departments. Consider carefully these factors when making decisions around IT organization and reporting lines. Leverage the alignment of the reporting lines with their overall strategy and ensure IT is delivering the maximum value to the business.
Additionally, it’s crucial to remember that while the perceived benefits and risks of IT reporting lines are significant, there isn’t a single, generally applicable solution. Each company must assess its particular conditions and make judgments based on its requirements and objectives. To maximize the advantages of IT for the business, the goal is to find the proper balance.
TL;DR Table
| Reporting Line | CFO (Financial) | COO (Operational) | COM (Digital) | CPO (People) | CEO (Executive) |
|---|---|---|---|---|---|
| Perceived Value | Cost Centre | Operational efficiencies and business process knowledge | Business partners with customer focus | Business partner with employee focus | Speed & Innovation |
| Risks | Short term goals Lack of knowledge for decision making Heavy reliance on suppliers | Operational efficiencies over strategic innovation Missed opportunities to create value Solutions with narrow focus and solutions sprawl | Duplication of efforts Conflicting interests Lack of technical expertise for decision making | Lack of alignment to the overal strategy Lack of technical expertise for decision making on risk and security management | Reduced focus on operational efficiencies Lack of financial discipline Excesive rate of change and partially delivered projects |
| Strategic focus | Reduce IT costs Outsource IT to trusted long-term partners | Use economies of scale to repear, reuse and reduce Use cloud and DevOps | IT visibility Leverage well-established partners | IT visibility Employee focus and talent retention | Use economies of speed Quickly iterate ideas |
