Paul A. Pavlou, Fox School of Business / Temple University (Philadelphie, Pennsylvania)
CIO Background, Strategic Positioning, and Investor Reactions. Chatterjee, Richardson and Zmud (2001) documented that during the 1987-1998 period, the market positively reacted to announcements of appointments to newly-created CIO (Chief Information Officer) positions because those were perceived as a signal of stronger IT management skills, enhanced IT capabilities, and ultimately superior firm performance. While the concept of the CIO was novel in the late 1980s and 1990s, CIO positions have dramatically gained prominence in today’s business world. Accordingly, announcements of CIO appointments are quite common nowadays, making them no longer news to investors to provoke a strong market reaction. In contrast, we argue that the alignment of CIO appointments with the firm’s strategic positioning (differentiation or cost leadership) is necessary to elicit strong market reactions. Because the contribution of the CIO in many strategic IT initiatives is non-routine and difficult to evaluate accurately over a short time frame as monitoring behavior or outcomes is difficult (Ouchi 1980), management control theory suggests a clan control for CIOs. Hence, the control systems are best designed around hiring a CIO with the right educational background, thereby making it more likely that the CIO is well aligned with the firm’s strategic positioning. Inspired by a recent debate between Bill Gates and Steve Jobs regarding the implications of different educational background (technical versus business), we focus on the dynamics between the CIO’s educational background and the firm’s strategic positioning. We posit that differentiators are more likely to hire a CIO with technical background, while cost leaders are more likely to hire a CIO with a business background. Most important, we hypothesize that firms that align their CIO’s educational background with their strategic positioning (differentiators appointing technical CIOs and cost leaders appointing business CIOs) will have superior stock performance. Results from data drawn from Nasdaq100 index and S&P500 indices support our propositions, emphasizing the CIO’s educational background as a major factor to consider when appointing CIOs.