Week 6 Reading Summary (HK)

Banker, R.D., Hu, N., Pavlou, P.A., & Luftman, J. (2011). CIO Reporting Structure, Strategic Positioning and Firm Performance. MIS Quarterly, 35(2), 487-504.

Since the emergence of the CIO position, academics and practitioners have struggled to identify the ideal CIO reporting structure. Banker, Hu, Pavlou, and Luftman (2011) provide insight by considering the alignment of a firm’s CIO reporting structure and its strategic position. Industry information has shown that the majority of CIOs report to the CEO or CFO and thus Banker et al. (2011) used a dichotomous operationalization of CIO reporting structure. Following Porter’s (1980, 1996) theory, Banker et al. (2011) considered two generic strategies: differentiation and cost leadership. Differentiation is pursued when firms focus on providing products/services that are superior in terms of designs, innovation, development, engineering, customer intimacy, and/or brand image. Conversely, a cost leadership strategy is perused by achieving economies of scale, cost efficiencies, and operational excellence. It is important to note that these generic strategies are not mutually exclusive; firms attempt to effectively balance both while pursing one main strategy. To operationalize, Banker et al. (2011) used an external assessment, specifically profit margin for differentiation and asset turnover for cost leadership, contrary to typical self-assessment methods. Finally, various control variables including IT intensity, IT orientation, industry technology level, industry concentration, and CIO tenure were employed.

Banker et al. (2011) used 200 firms from 1990-1993, as well as 58 firms from 2006 as a robustness check, to investigate their hypotheses considering the alignment of CIO reporting structure and strategic positioning. Results indicated that strategic positioning influences reporting structure; differentiators favour CIO-CEO, while cost leaders favour CIO-CFO. Alignment of CIO reporting structure and strategic positioning positively affects firm performance (operationalized as abnormal stock returns and future cash flows from operations). Finally, the results highlight the fact that there is not a universal CIO reporting structure, but rather, the ideal structure is dependent on the strategic positioning of the firm.