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CFOs who oversee technology should have no fear: a methodical, top-down management approach can produce strong results.
David McCann, CFO Magazine
May 1, 2010
When a CFO assumes oversight of IT, it may be cause for congratulations — and condolences. Information technology is often an underleveraged asset, and a leader who can tap its full potential will make a major contribution to the business. On the other hand, such an advance is sure to entail headaches and frustration.
Despite the complexities, CFOs seem to welcome the role. "It surprises me how much CFOs are interested in technology and eager to get involved," says Gartner analyst Barbara Gomolski, who specializes in IT finance. "I haven't encountered many who are asked to take on IT and dread it."
But Stephanie Hauge, president of the Financial Women's Association and a former divisional CFO who also acted in a chief information officer role for AT&T, warns that finance executives not well versed in technology can be "hoodwinked" by IT leaders bent on building or buying systems that don't deliver suitable return on investment. "Working with the latest technology is part of what keeps them motivated," she says. "If you're not knowledgeable, it's easy to be trapped by the lingo and their passion."
That raises the thorny question of just how down in the weeds a CFO needs to get. If a CIO claims 50 people are needed to support a new enterprise-resource-planning project, for example, does a CFO need to provide a solid counterargument as to why 20 will suffice? Most experts say no, and that the most important thing is to know enough to ask intelligent questions and provide guidance.
Michael Dinkins, CFO at USI Insurance Services, a large brokerage, calls it "issue-level recognition." At a prior company that was rolling out a relational database, Dinkins had little knowledge of database languages and methodologies, but he was aware enough about the advantages of moving to a relational structure to feel comfortable signing off on the project. "You want to be able to add value to the CIO," he says. "You can't walk into a room where they're talking about cloud technology and have a blank look on your face."
If necessary, make IT people explain, and re-explain, anything you don't understand, Dinkins counsels. Don't merely pretend to understand, and don't let ignorance push you to delegate significant spending decisions completely to the CIO.
There is a lot more to overseeing IT, however, than becoming conversant with established and emerging technologies. The following action plan can help CFOs manage IT with maximum effectiveness.
First Step: Ask Questions
In the early weeks and months as IT overseer, CFOs should define the company's IT objectives, governance, and mission by asking several important questions:
• What is the overall mandate for change? Determine whether IT is in sustainment, turnaround, or realignment mode, advises Susan Cramm, an executive coach and a former CFO and CIO.
Sustaining a well-functioning department requires relatively light oversight, but if IT is in turnaround mode (for example, critical systems are dying and product isn't being shipped) you'll need to take a field-general approach: roll up your sleeves, do root-cause analyses, and make decisions with a focus on time, not consensus. Don't let the reporting relationship with the CIO stop you from, say, talking to help-desk staff about what kind of calls they're getting, Cramm says.
Even more challenging is realignment mode, where IT is operating well but retooling is required — for example, for a new business strategy, like a big acquisitions push. You may not have to alter IT's capabilities overnight, but start educating the CIO right away about the strategic shift the business will undergo. The goal is to drive the future view down through the IT organization so that by the time change is at hand, the right people and skills are in place.
• What role does IT play in the organization? It may be a "solid utility," which predominantly supports the business through back-office processing; the requirements there are for high volume and reliability at a low cost, says Forrester Research analyst Craig Symons. It could be a "trusted supplier," which also develops applications to improve the business. At the far end of the spectrum is the "partner player," which provides a high level of strategic innovation such as a high-growth or financial-services business might require.
Determining the role isn't difficult, says Symons, but CFOs should beware the temptation to always view IT through a cost lens and thus mislabel a partner player as a solid utility.
• What is the relationship between IT and the organization's key risks? Get a feel for the IT-related controls over risks involving compliance, operations, industry-specific regulations, and data security. If an IT-specific risk assessment has not been performed recently, make it a priority, says Khalid Wasti, director of enterprise risk services for Deloitte & Touche. Look at how controls are tested and make sure they conform to an integrated control framework like COBIT. The CFO of a public company already will have attested to the adequacy of controls, but the IT-oversight role can provide a platform for a more informed view.
Next: Revisit Spending
Do whatever you can to discourage provincialism on the part of line leaders and functional managers. There is always stiff competition for IT resources, and they may emphasize getting their own jobs done while ignoring what's best for the company overall. "When all that interests someone is, say, how to sell Taco Bell Grandes in Pennsylvania, there may be an opportunity cost, because if that effort gets funding then other things won't get funded," says Cramm, a onetime CIO at the fast-food chain.
The antidote to business leaders who work counter to long-term strategic investments, Cramm suggests, is to cap the percentage of the IT budget devoted to nonstrategic enhancements, disperse it equitably, then delegate authority: line leaders can use the money as they see fit, as long as they adhere to the company's technology standards and don't buy new systems, which should require higher-level approval.
Deciding how to allocate the funds is never easy, but a cross-functional technology-governance structure provides the best chance. "The CFO should set up organizationwide decision-making around the relative priority of different ideas, which addresses whether people are supporting the enterprise or just building their silos," Cramm says.
Such a steering committee also could help prevent the costly purchase of systems with more power than the company needs. That is a common scenario, according to Ken Sanginario, whose firm, NorthStar Management Partners, provides interim CFO and CEO services in a variety of industries. Training time and costs are grossly underestimated, causing people to become frustrated and stop learning.
A related mistake is to buy new hardware or software when existing technology can suffice. Initiatives usually are done faster and cheaper when companies resist the urge to buy new gear and instead reconfigure existing systems, according to Cramm. The problem is that CFOs, like IT executives, "fall in love with bright, shiny objects," she says. She advises that for any project, IT should be required to include the use of incumbent technologies in the range of options.
Beyond its initial price tag, new technology exacts another cost — on users. Dinkins of USI Insurance says that when a previous employer implemented a new system that forced account managers to update customer policies using two computer monitors simultaneously (instead of transferring information from paper documents to a single monitor), the company underestimated the impact on workers. Most of the account managers were in their 50s and had been doing the job for many years, and the change was stressful. "When you're ready to move on a project, you have to stop and think about things like that," says Dinkins.
Also Key: Beware Your Bias
Most CFOs know that there is a lot more to IT than financial systems, yet a finance bias may still creep in when it comes to prioritization. Khaled Haram, who has held both CFO and CIO roles in his career and currently is president of Lighting Science Group, says he often sees the focus tipping too far toward finance. That can shortchange order-management, customer-relationship, and other systems that less directly benefit the CFO, or where the financial ROI may not be clear-cut.
As the ultimate allocators of resources, CFOs should have a holistic view of their company's needs, says Haram. They tend to look at the end results as reflected in the financial systems, but they should look more upstream, to the process.
Once in that mind-set, a finance chief may have a better appreciation of the difficulties of IT execution. Vilifying the CIO when projects are late and over budget may be unreasonable, especially since, Haram says, projects are often enhanced by delays as people start looking at them in different ways than they did at the outset.
That viewpoint is alien to most financial executives, who grew up in a very disciplined profession. "You have your debits, your credits, your accounting rules — it's all very methodical," Haram says. "But IT is not that buttoned up. The system itself will end up being methodical, but the process of building it is not." CFOs often conclude that CIOs don't manage budgets well and as a result impose arbitrary cost cuts.
And Finally: Foster Democracy
Once a CFO feels comfortable with his or her grasp of IT and has a high-performance IT capability in place, a viable goal may be to loosen that grasp and, as Cramm says, "democratize" IT. That means creating a platform and policies that allow business leaders to fulfill their day-to-day technology needs on their own. To do that, a new organizational model must evolve that "will allow IT to make sure IT is done well without trying to do it all," she writes in her new book, 8 Things We Hate About IT.
In the democratized framework, the technology department would shift from direct to indirect control of IT-related activities, from a servicing to a coaching role, and from providing "point" solutions to providing enabling tools. That, in turn, would free IT to focus more of its limited resources on innovation.
A good way to foster such democracy is to recruit technology "power users," people outside the IT department who have a natural affinity for technology — who, for example, can work wonders with data-analysis tools — to mentor the less advanced. "People who are extremely motivated to innovate and really maximize technology might be one of the most underutilized resources in many companies," says Cramm. She recommends setting up a GATE (gifted and talented education) program, in which power users are rewarded with more freedoms, and personalized IT support for helping the "barely users."
Ultimately, Forrester's Symons suggests, CFO oversight should result in greater IT accountability. "IT has been run as this opaque black box for years, and it shouldn't be," he says. "CFOs should realize that IT can be held to the same standards as any other organization in the business."
David McCann is senior editor for technology at CFO.
Who's the Boss?
New thinking on a perpetual conundrum
IT often reports to the CFO, but should it? Conventional wisdom holds that the CIO should report to the CEO at companies where IT is deemed "strategic," or the company regards itself as an "IT-intensive" business.
But new research by professors at Temple University, Stevens Institute of Technology, and Singapore Management University comes to a different conclusion. The reporting relationship should be governed, they argue, not by how IT is regarded but by how the business defines itself. Companies that emphasize product differentiation are well served by a CEO-CIO reporting relationship, while cost leaders are better served by a CFO-CIO relationship, even if IT is an essential component of maintaining a low-cost edge.
One academic paper won't settle a debate that has raged for three decades, but it might remind executives that the quest for IT-business "alignment" should be determined by the company's core strategy, not the perceived value of, or politics surrounding, its IT department.
To former CFO and CIO Susan Cramm, however, it doesn't matter who the CIO reports to, as long as it is someone who cares. "It should be someone who has an emotional connection with technology — whether the person is mad, happy, excited, depressed, or whatever," she says. "That connection can be channeled into some kind of leadership conversation or partnership with the CIO." — D.M.
How to Hire a CIO
Whether the CIO reports to you or works with you, if you play a role in hiring here's a short list of questions to ask, supplied by CIO recruiter Martha Heller.
Problem: The IT organization is not aligned with the business mission.
Question: "How have you changed the culture of your current IT organization?" Look for an emphasis on client focus, business focus, and accountability.
Problem: Users are dissatisfied with the company's IT services.
Question: "How would your current users rate your IT organization? How do you know?" A good answer will cite a rigorous, methodical customer-satisfaction survey process.
Problem: The IT department is overwhelmed with projects at the expense of building relationships.
Question: "What are your most important business relationships and how do you maintain them?" If the answer is "my vendors," that's a bad sign.
Problem: IT champions the latest technologies without addressing ROI.
Question: "What is the most exciting technology advancement you've been responsible for?" A good answer is not IT-focused ("blade computing") but business-focused ("increased market share in a key demographic").
Problem: A love of arcane terminology and acronyms.
Question: "What do I need to know about services-oriented architecture?" Can the candidate discuss a complicated subject in straightforward business language? — D.M.