VideoWith the invention of the first electronic spreadsheet, finance folks were dragged — sometimes kicking and screaming — into the forefront of corporate technology management. And despite the ongoing debate over whether and when the CIO should report to the CFO, the signs suggest that for the next few years anyway, technophobic finance executives are out of luck.
Indeed, according to a survey by Menlo Park, California-based Robert Half International Inc., 82 percent of finance chiefs say their accounting departments have become more involved in technology initiatives in the past five years. A full 52 percent say IT is their top priority in training their staff. This applies at larger companies as well as at smaller firms, where the CFO has traditionally assumed the CIO role.
At Delta Air Lines Inc. in Atlanta, for example, the CIO reports to the CEO, but CFO Michele Burns heads Delta Technology, the airline's IT subsidiary. At Burger King, incumbent CIO Tom Giordano actually left the company when new CFO Bennett Nussbaum was hired, since the CFO will oversee management information systems, among other areas. Furthermore, in today's shaky economy, and with more than 70 percent of U.S. companies scarred by costly technology missteps, CFOs are increasingly expected to evaluate the ROI potential of any new technology investments.
But does this mean all finance executives need to become propeller heads? Not quite. "What is required is a degree of discernment so that you're not always jumping on the new technology bandwagon," says Craig Watson, who in 1998 became the first corporate CIO at $3.9 billion FMC Corp. after stints as a divisional CFO at the Chicago-based chemical maker and at PepsiCo. (He is now president of Payment Engineering.)
"Vendors of, say, procurement systems will tell you their systems save you 30 percent on indirect goods," he continues. "It's very important to understand that 80 percent of that cost reduction is derived from better understanding your spend and rationalizing your supplier base, which has nothing to do with technology."
Applying Due Diligence
The good news for finance executives is that discernment about new technologies involves a skill that is already associated with traditional due-diligence processes: asking the right questions of the right people.
And due diligence is critical when it comes to evaluating the vendor's financial stability. "You can't afford to get into bed with a vendor who's not going to be around in two years," says Richard Lester, CFO of Portland, Maine-based IntelliCare Inc., a provider of patient communications systems for the health-care sector. In the company's current search for a new telephony vendor, the CIO is creating the specs and issuing an RFP, but Lester is helping to narrow the list of finalists with some standard financial due diligence. "We're considering start-ups and mature companies, but the key thing is whether we think they'll be around to support their products," he says.
The first questions Digital Insight Corp. CFO Kevin McDonnell asks when he's presented with a new vendor are, "Who's backing them?" and "Who's the management?" This line of questioning has led him both to established players, such as Great Plains Software, and to several start-ups, depending on the business needs of his company and the viability of the vendors.
Last year, for example, in the wake of three acquisitions that quadrupled the employee population, McDonnell needed to buy a new purchasing system very quickly. But he knew the Calabasas, California-based firm "wasn't in a position to buy a million dollars' worth of software, which is what it would have taken to get [E-procurement giant] Ariba." So instead he agreed to be the first Ariba customer for E-commerce application service provider CoreHarbor Inc., a Norcross, Georgia-based start-up, largely because CoreHarbor was founded and led by Jay Chaudhry, a respected entrepreneur who had successfully launched two other companies and sold one to VeriSign.
Penetrating Vendor Hype
Of course, the financial viability of the vendor is only the first issue. Figuring out whether the system will function as anticipated often proves far more complex, requiring the CFO to obtain clear and honest assessments from both vendors and prospective users.
Just ask Thomas Steinberg, CFO of $30 million Chicago-based Allied Hospitality Group Inc., which manages 12 hotels throughout the United States. Steinberg had an experience with a previous company in which, after allocating $60,000 to automate sales and catering data in 1995, he found that users "didn't understand the functionality of the tool, and were not committed to making it work," an attitude that made the vendor defensive and uncooperative.
While the problems were eventually resolved, he says, he was "left holding the bag" far longer than he would have liked. Now, Steinberg leans on his recently formed internal tech team to help spot potential implementation problems with such items as online reservation systems, digital subscriber line connections, and wireless room phones. But he also relies on a network of colleagues from Hospitality Financial & Technology Professionals, a professional association, and makes a point of attending the group's annual conference. "You see how fast things are changing — often what's a very hot product one year is hardly mentioned the next," he says.
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