"It's one thing for a CFO to demand a solid approach to ROI, and another for a CIO to deliver it. We have to solve this problem, but there's been little progress."
"At some point, it all comes back to ROI — in theory. But ROI is just one tool for setting priorities."
"Every year there's talk of giving the business units control of IT spending, and each time the decision is, 'Not this year!' "
The preceding thoughts came from a CFO, a CIO, and a college professor, but can you guess who said which? The first comment comes not from a frustrated CFO, but from Mark Cotteleer, an assistant professor at Marquette University's business school and a senior consultant for the Cutter Consortium, an IT research firm. Cotteleer recently served as guest editor of an issue of the Cutter IT Journal that examined the perpetually vexing question of ROI analysis as it pertains (if it does) to IT investments.
The second comment comes from Michael Zellner, CFO of Wind River Systems Inc., an Alameda, California, software company. While CFOs are often portrayed as absolutists in the quest for rock-solid ROI analysis, Zellner's pragmatic approach is in line with many of his peers'.
The final quote is attributable to Al Etterman, senior vice president of corporate infrastructure at Openwave Systems Inc., which makes software for the telecom industry. Etterman is in some ways a CFO's worst nightmare ("When you do ROI, the numbers are always suspect, and can you even put business improvements in financial terms?"), but in other ways his best friend ("When I started my job here, there was a big capital budget waiting for me, and I gave it all back. The CFO's jaw dropped.").
All of this serves as a lengthy preamble to our third annual IT Directions survey. These comments capture many of the challenges and disagreements that are threaded throughout this year's results. In polling nearly 250 senior finance executives at U.S. companies, CFO IT uncovered a number of sharp divisions, disappointments, and even a certain disillusionment. But there was also a surprising consensus on the ultimate potential of IT, and on the working relationship between finance and IT.
Battle of the Metrics
CFOs remain optimistic — improbably optimistic, some might say — about the role that IT can play in their companies. Despite a surfeit of talk about IT becoming a commodity or a utility, fully three-fourths of respondents said they consider IT to be strategic, and of those, about 60 percent will spend more on IT next year as a result.
But they despair of spending it wisely. Despite assuming greater involvement in setting IT strategy — a trend in effect for several years — CFOs remain unconvinced that IT investments are paying off, or that they know how to properly assess IT projects before giving the green light. Fewer than half believe the IT expenditures they've made in the past year have achieved the return they had hoped for, and for every CFO who has resolved the ROI debate by adopting a formal approach for some or all IT projects, another continues to search for better ways to analyze the return on spending.
"At the end of the day," says Etterman, "these are judgment calls, not empirical decisions. We focus more on business metrics than financial metrics." As one example, he cites a recent project to improve his company's maintenance and service renewal rates. "We got a 30 percent improvement," he says, "and there was an IT component to it, but it also entailed changes to our processes. So I can't say exactly how much of the benefit can be traced to the IT portion of the effort."
Many CFOs still seem interested in trying. In September, 80 finance executives gave up a perfect San Francisco Sunday afternoon to attend a three-hour ROI boot camp taught by Ian Campbell, president and CEO of Nucleus Research, an IT advisory firm that specializes in ROI analysis. Campbell offers a more-intensive version of this training at Babson College in Wellesley, Massachusetts, where, he says, finance and IT staffers often show up "having been given a mandate from the CFO to put a process in place; some structured approach."
But wasn't that what finance was supposed to bring to the table from the start, its structured approach to investment analysis? What does it mean when CFOs and their reports have to get training in what was supposed to be their "value add" in IT strategy? "The calculations are easy," says Campbell, "but what people need help with is learning how to extract the right data; how to ask the right questions of the right people." A structured approach, he says, guarantees consistency, even if accuracy remains elusive.
The Governance Approach
Many companies have decided that having the right people ask the right questions is the single best way to keep IT spending on track. Unable or unwilling to impose a formula on IT project plans, they impose some form of governance instead (or in addition to, with the balance of power between numbers and human judgment varying from one company to another and even one project to another). IT investment decisions are made by one or more teams, with members drawn from the executive suite and/or lines of business.
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