Tuesday, October 23, 2012

CIO & CFO as Business Peers: Talk Beyond “Lean & Mean”


If modern CIO & CEO have many leadership characteristics in common, and CIO & CMO are like-minded ‘soul mates”, then CIO & CFO can be business peers with complementary viewpoints and skill sets.

A joint survey by Gartner and the Financial Executives Research Foundation found that 42% of IT organizations report directly to the CFO. The same survey pointed out that finance chiefs alone authorize 26% of all IT investments, while chief information officers approve only 5%. This makes sense: in tough economic times, finance inevitably asserts itself and casts a gimlet eye on spending.

The CFO and CIO are well-positioned to work together at generating business value from enterprise IT investments. However, this performance is often not achieved because of poor perceptions of IT, a parochial CFO or CIO perspective, or simply a failure to invest in the CFO-CIO relationship," said John Van Decker, research vice president at Gartner.

According to the other study "A New Role for New Times," which includes survey responses from hundreds of CFOs around the world, financial executives really do see value in technology. And they're firm believers that the future will rely heavily upon technology. At the same time, they're frustrated with "outdated" IT solutions that don't live up to their expectations. The paradox is: they're the same folks who are probably telling you to curtail spending.


1.    See Beyond “Bean Counter” or “Tool Guy”, to Learn Each Other’s World

 How many CFOs view IT as a necessary evil and how many view it as a strategic enabler? Most of business executives including CFO view CIO as tool guy/gal, from an earlier consulting and media firm’s survey, Only 33% of CIOs believe they’re seen as a “trusted partner or business peer,” and even fewer (31%) see themselves viewed as a “valued service provider.” Only 11% think IT is providing competitive differentiation 

IT is being treated as a cost-to-be-controlled for years - and not just the CFO-view, but the business' perception as well (after all, the CFOs view of IT is very likely an extension or reflection of the business' view of IT). It may be reasonable because many IT organizations simply cannot give a fair accounting of where the money is going in terms of business capability or, more importantly, directly identifying the business value -- which leads to an inability for IT to its value to the lines-of-business. Therefore, CIOs have been treated as CITO-Chief In Title Only, without authority in decision making.

To make it fair, there’s also “bias” to view CFO role, they are viewed as “bean counter”, opposite to innovation agent, CFOs may view IT as an unpredictable cost and there is very little visibility into, or accountability for, IT costs. In other words, there is essentially no accounting, charging or budgeting for most IT expenditures. As CFOs want control over costs, and they want IT to be in one bucket so they can measure it easily. But IT is embedded in every organization and every department and every budget, not just one. CFOs need to learn to measure IT differently than other business budget lines. Industry analysts even declare: Every budget is an IT budget, Technology is embedded in every product.

When CFO and CIO can exchange or expand their lens to see the business world holistically, they may understand each other more: IT is oriented toward change and finance is all about consistency. Once something is locked down, finance is loath to change it. That may make for sound cost management, but it can be a barrier to innovation.


2.    CFO not always “Mean”, CIO not just “Lean” -- Wear Strategic Hat On

Information is more pervasive than ever these days, businesses cross-sectors declare themselves at information businesses, thus, there’s a plethora of opportunities on the IT horizon. In order not to miss opportunities, CFO and CIO need transparency, and they need to talk.

IT actually does well in improving efficiency; the recent industry study showed that its record of doing more with less (a response found frequently in IT study) makes IT a business segment leader in productivity. While measuring IT largely on the Lean “do more with less” criterion may warm the CFO’s heart, it can run counter to the concept of implementing new technology to drive innovation.

As CFO, you may need shift your finance’s “mean” mindset, or take off your IT customer hat, and act as visionary business leaders to perceive IT as silver lining for business growth and leverage IT to drive value across the business.

The most mature organizations see IT as a business partner, from a financial management perspective. IT need be seen as a key contributor to corporate strategy. Therefore, CFO and CIO are well-positioned to communicate in-depth and work together at generating business value from enterprise IT investments. As a lack of transparency on a financial basis which only fans the flames between the groups as IT has always been seen as a cost center and a rather expenses one at that. Ultimately, More transparency in the IT's value proposition to the business plus more engagement an partnership is need with the Business.

CFO may help CIO strengthen the relationship between IT investments and IT finance returns by holding business sponsors accountable for realizing the benefits outlined in strong business case, to ensure that project justifications outline the strategic value and operational metrics that serve as leading indicators to projected financial benefits (improvements in cycle time, quality, value, accuracy, customer service, etc.) and that project plans incorporate baseline measurement and post-implementation monitoring.

CFO & CIO can also work closely with board to determine which key performance indicators and IT metrics may help senior leadership oversee IT effectively. Examples of key IT performance indicators are: reliability of all key operational systems (number and duration of unplanned outages), number of active significant IT projects, return on investment for significant IT projects, IT spend versus budget--by major category,


3.    CIO’s 5 “I”s Meets CFO’s 5 “F”s

Modern CIO & CFO both need wear multiple hats to face rapidly changing business dynamic, and look at business from strategic long term and operational quick win, besides “I”-infrastructure CIO’s 5”I” missions may include: Innovation, Influence, Integration, Information and Improvement, and surely, “F” doesn’t mean failure, CFO’s 5 “F” faces are Flexibility, Fluid, Fertilization, Frugality, and Finance.

Effective cost management is one phase of the process of effective financial management. It allows for a baseline to communicate that consumption equates to real costs that must be met somewhere in the organization. Running IT more like business: Charge back or show back systems can also be used to measure IT value, in addition to their normal role in demand management. When executed across business hierarchies, in enough detail, they are a great way of aligning costs with revenue and performing other types of performance measurement

The best governed organizations in which CFO & CIO works more collaboratively & carefully measure in great detail and manage the costs of IT, comparing those costs to the economic value they receive from them. They actively measure what the value of IT services is, by comparing the total cost of ownership to the return on investment.

Potentially a larger cost management opportunity is the transparency in sourcing decisions to allow for cost-effective sourcing strategy. CIO & CFO may also need work closely on studying the trends, such as Cloud, which provides opportunity to transform IT capital investment into operational expense, for many budge-tight businesses, it improves finance fluid & flexibility, also help IT focus on innovation & improvement.  However, business may also bypass IT to order SAAS based services on their own, As CFO, you need to understand the risks that arise when business leaders take IT into their own hands and help your CIO rein in the rogues. This is a spending issue (those credit-card swipes can mount up) as well as security, risk and performance issues, and all that falls within the CFO's natural purview.

The good IT investment may just like the rubber meets the ground, all about where and when. Actually CFO and CIO can also be like-minded about IT investment: When it comes to areas that CFOs would like to invest in, the study showed that business intelligence, analytics and performance management are at the top of the list. CFOs clearly recognize the need for improved technology support for these key business processes and identified the top business process area that needs technology investment as the ability to facilitate analysis and decision making (57 percent) closely followed by collaboration and knowledge management (52 percent). Those projects are usually also strategic CIO’s top choices. 

Therefore, CFOs crunch number, not for number’s sake, and CIO hunts for data, also not for data’s sake; they need use finance data and enterprise information to weave a brighter business picture of future, they need work together via communication and collaboration and deliver the consistent message: Doing more with Innovation and deliver business value via long-term planning.

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