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Innovative CEOs and CFOs are turning to the fractional CIO to drive strategy, enterprise architecture and IT vendor management without the expense the typical high-powered CIO would incur. The ‘executive on demand’ trend that started with CFOs and Chief Information Security Officers (CISOs) is now being applied to other C-suite executives. A CFO or CEO assessing whether they can benefit from the practice must understand:

• What has caused the change
• How does it work
• What companies are good candidates
• What to look for in a fractional CIO partner

Underlying Change

The CIO job has radically changed over the last ten years. The primary functions of the CIO are now:

1. Cloud software selection, subscription negotiation and implementation oversight
2. Services vendor selection and oversight
3. Customer-facing integrations / website oversight
4. Strategy: aligning core architecture and SaaS services with competitive advantage
5. Building in-house capability only where distinct competitive advantage exists

Large portions of the CIO job from ten years ago have either been eliminated or are on the way out in many companies. Helpdesk / IT user support is handled by a 3^rdparty for companies up to the mid-market tier; for very large companies, it may be performed by an overseas subsidiary. ERP programmers are not needed for cloud applications which can only be configured, not modified. System administrators for network, email, security appliance management, database administration or server management work for the third parties handling helpdesk support or are internal to cloud application providers. CISO responsibilities have been split off to a specialist; that specialist is often being hired as C-suite as a service. Management of social media platforms is performed by an agency and reports directly into Marketing, Sales or Category Management.

I recently helped with an assessment for a top CIO I had worked with five years previously.    Ownership, the CEO and the CFO were just as engaged as we mapped out this project as they had been on our last major initiative. The IT executive was still managing significant spend.

But his title had changed to Chief Strategy Officer, and instead of overseeing internal staff, he was managing cloud vendors and engaging with customers. This company had chosen to make use of the spare executive capacity by increasing responsibilities in the areas of strategy, sales and product innovation. In companies like this the CIO’s title may change to Chief Strategy Officer, Chief Digital Officer or Chief Technology Officer.

Fractional CIO Model

Another response is the fractional CIO, typically an individual splitting time between 2 to 4 companies that are not direct competitors. The fractional CIO manages all five of the primary CIO tasks outlined above. They are a member of the executive team and participate in executive staff meetings and reviews of operating results.

However, instead of expanding the CIO’s role into adjacent areas as time is freed up from staff management, the CIO works on a long-term part-time basis. Time may flex up when major software choices are being made or projects go live, or down during periods where business priorities do not require major software changes.

Selecting the right software systems, implementing those systems in a timely, cost-effective manner and adapting systems to changing business conditions are as important as ever. Finding and keeping a capable practitioner to achieve those objectives, however, particularly as the role decreases in meaningful ways, has never been harder.  The fractional CIO solves that dilemma by giving companies access to the small pool of candidates who:

• Can think strategically across IT and Sales / Operations / Category Management (typically management consultants with a strong IT background or CIOs who played a strong operational role)
• Have directed or participated in the RFP and selection process with leading cloud companies in salesforce management, ERP, point of sale, reporting and analytics
• Have overseen 3^rd party helpdesk, network, security and other service providers
• Have faced and overcome the challenges immediately in front of the particular company, such as moving data centers to the cloud, addressing compromises in a cloud administration / configuration environment, identifying limited areas of competitive differentiation and building a strong capability there – often with analyst staff as direct reports to another area, such as Finance or Category Management
• Can make all these decisions in the context of the company’s strategic position within their industry
• Can provide this package over the long-term at a fraction of the expected full-time salary

I was recently talking with a seasoned cybersecurity professional, who had gone out on his own as a consultant after serving as CISO for a major national retailer. He planned on shorter term engagements helping companies in addressing shortcomings and hiring the right long term staff. He found his clients, including a major regional bank, preferred that he remain in this fractional role for the long term. The factors that drove companies to this model in CISO and CFO are beginning to apply to the CIO role as well.

What Companies Should Use the Fractional CIO Model

The fractional CIO model fits best with companies whose core systems have a cloud architecture, whose data center is in the cloud and whose IT support functions are outsourced to third-party providers. This profile typically fits:

• Newer, high growth companies who have chosen cloud applications and kept IT hiring to a minimum
• Older companies who have recently completed a major technology refresh where internal IT systems are not a competitive differentiator
• Companies using fractional CFOs or CISOs, whose executive team is comfortable operating in this model

The model does not work with older companies locked into legacy non-cloud applications. I recently worked with an excellent manufacturer whose competitive advantage lay in their engineering talent, scale leverage and deep customer relationships. However, since their ERP systems had been implemented independently at every factory, it took a full time executive resource to ride herd on their portfolio of instances and the programmers needed to keep their applications running. Even after their system house is in order, the changing nature of the manufacturer, big box retailer, consumer relationships may make a pivot to a Chief Digital Officer the best long term model.

The fractional model also does not fit companies at either size extreme. If you are still running payroll on Quickbooks, you do not need even a fractional CIO. If you are running SAP S/4HANA, you need a CIO even though you have moved to the cloud. Finally, services companies that are doubling down on running this kind of infrastructure for others need full time employees in this area.

What to Look for in a Partner

The fractional CIO will join your company in an executive capacity. Individuals with the right characteristics may be:

• Former strategic CIOs – someone who reported into the CEO and who may have had management responsibility for non-IT functions
• Former management consultants with strong IT and Operations credentials
• Consultants transitioning from full time program management activity

In a mature relationship, the time commitment may vary: higher during major projects, lower at other times. It is typically billed as a fixed recurring fee. Particularly for companies still transitioning to cloud systems or 3^rd party service providers, there may also be an initial variable component at the start of the relationship as the IT portfolio is refreshed. The intense project work also provides the opportunity to deeply understand the business and establish relationships with business leaders outside the executive team.

The rise of cloud applications and the arrival of excellent third-party IT support has allowed companies to lower headcount in their IT departments. Companies are now re-organizing the executive suite in light of these changes. For many companies, the fractional CIO model allows them to retain the benefits of a high-powered CIO at a fraction of the cost.