CIO Reporting Structure, Strategic Positioning, and Firm Performance

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 emphasize the importance of IT in the firm and the clout of the CIO, while some adversaries of IT call for a CIO-CFO reporting structure to keep a tab on IT spending. However, we challenge these ad hoc prescriptions by arguing that neither CIO reporting structure is necessarily superior for all firms, and proposing that the ideal CIO reporting structure should be contingent on the firm’s strategy. First, extending the strategy-structure paradigm, we propose a firm’s intended strategic positioning (differentiation or cost leadership) to determine its CIO reporting structure. We hypothesize that differentiators are more likely to have their CIO report to the CEO to use IT in innovative ways to differentiate their products and deliver new ones. We also hypothesize that cost leaders are more likely to have their CIO report to the CFO to apply IT toward operational excellence. Second, extending the alignment-fit view to the CIO reporting structure, we propose that firms that align their CIO reporting structure with their strategic positioning (differentiation with a CIO-CEO reporting structure and cost leadership with a CIO-CFO reporting structure) will display superior performance over time, reflected in abnormal stock returns and cash flows from operations. 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 their aligned joint role in firm performance. The results challenge the ad hoc prescriptions about the CIO reporting structure, demonstrating that a CIO-CEO reporting structure is superior for differentiators, while a CIO-CFO reporting structure is superior for cost leaders pursuing operational excellence. Hence, the CIO reporting structure must be designed to align with the firm’s strategic positioning.