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Stand by Me

While finance and IT don't always see eye to eye, many companies have learned how to transform a mere reporting relationship into a true partnership. Could this be the path to genuine alignment?
Scott Leibs, CFO IT
September 15, 2004

Two years ago, at a panel discussion on the sometimes contentious relationship between CFOs and CIOs, one finance executive drew a hearty laugh from the crowd when he said, "My relationship with our CIO poses no problem at all — because the position is currently vacant."

At about the same time, another company, Diebold Inc., also had a vacant CIO position, and CFO Greg Geswein was eager to fill it. The 146-year-old company was in the middle of a 6-year acquisitions-driven growth spurt that would see its revenue double from $1 billion to $2 billion, and Geswein knew he needed a new IT leader who could "act as a real business partner and get involved in strategy, adding value to things like the due diligence around mergers and acquisitions." But more than that, he says, the company wanted someone who could help build a sense of excitement around the many changes that Diebold anticipated making to its overall business.

Enter John Crowther — eventually. "It was tough to find a guy like John," says Geswein. "He wasn't a traditional CIO steeped in technology. We looked at quite a few people before we found someone who could go beyond managing IT as a utility, and instead think about the art of the possible and the role that IT plays in business transformation."

That sounds like the sort of dream job CIOs have all but been told to forget about, especially if the CFO looms as the boss. "When we market [the] CIO [position]," says Mark Polansky, CIO practice leader at executive-recruitment firm Korn/Ferry International, "one of the first questions we get is, 'The job doesn't report to the CFO, does it?'"

Increasingly, it does. And that has broad implications for both finance and IT. While in some respects, this movement to have IT report to finance represents a return to old ways (see "The Shape of Things to Come"), it is not simply deja vu all over again. While Crowther's experience overseeing a major ERP implementation at Cummins Inc. was one factor in his being hired at Diebold, for example, it was his non-IT background that made him an ideal candidate — he had spent more than a decade in a variety of posts, including marketing, operations, and finance. And, having served as controller of the components group at Cummins, Crowther knew a thing or two about managing complex processes. This is essential at Diebold because, as Geswein says, "we pound and pound on the idea that this business transformation effort is not an IT project — it's something much bigger than that."

And smaller. While the company's investment in ERP was sizable enough to merit a mention in its annual report, Diebold's overall IT budget is staying flat — due in part to outsourcing — and its overall footprint (that is, number of staff) is actually declining. If Diebold was to represent a growth opportunity for Crowther, it certainly wasn't going to come in the form of an expanding IT fiefdom. Rather, it would come from a chance to help drive overall growth, something he says was lacking at his previous job, where cost-cutting was the top priority.

Now, working side by side with Geswein (literally, as the two have adjoining offices), Crowther says the prevailing sense of partnership makes all the difference. Geswein agrees. "In some ways, we're lucky," the CFO says. "We have this huge project that we can rally the entire organization around, and it really pulls finance and IT together. Other companies lack that."

They may lack the project, but many companies are attempting to rally the troops around this new reality nonetheless. A recent survey by McKinsey & Co. found that the number of CIOs reporting to CFOs doubled in 2003, and the consultancy expects that trend to continue as companies look to get more value from IT. Other surveys have found similar results, and IT consulting companies and magazines are now bursting with advice for CIOs on how to get along with the new boss.

At many companies, they don't. As we reported earlier this year (see "The Great Divide"), when given the chance to speak candidly about their working relationships with CFOs, many CIOs expressed frustration that they are constantly asked to do more with less, are shut out of key committees or teams that shape strategy, and are unfairly tainted by distant memories of failed projects for which they do not deserve blame.

If You Only Understood
While those gripes are legitimate and unlikely to vanish overnight, as companies adjust to this new world order they are finding ways to develop strong working relationships between finance and IT, relationships in which finance does not merely approve (or deny) budget outlays, but works side by side with IT to achieve the alignment that has eluded most firms for so long. Recent studies from Accenture and Bain & Co., to cite but two, find a majority of executives simultaneously crediting IT for boosting productivity and enabling growth and also blaming it for failing to deliver benefits proportionate to what's spent on IT and inhibiting growth in a number of ways. Those mixed reviews often lead to frustration with IT and hence to the new alignment between CFOs and CIOs.


What do good finance-IT partnerships entail? CFOs and CIOs we spoke to said a shared sense of mission and an organizational structure that gives IT the proverbial "seat at the table" are critical. Several companies said it makes little difference whom the CIO reports to as long as he or she participates on the committees that drive strategy. Most CFOs agreed, and seem eager to have CIOs participate in such efforts versus being brought into the loop after the fact.

Perhaps more important, if less quantifiable, is a certain comfort level between CFOs and CIOs that, whether CIOs like it or not, often comes down to the technologist possessing a strong grasp of finance even as the finance expert makes do with only a rudimentary knowledge of what technology can and can't do. "We have a running joke," says Geswein, "in which I ask why we can't do this or that and John will say, 'Well, if you understood the technology....'"

At some companies, it's not only the CFO who happily swears off a detailed knowledge of technology; the CIO does, too. At Saucony Inc., a small ($136 million) publicly traded maker of athletic footwear and apparel, CFO Michael Umana says that while the company's senior vice president of operations and technology, Sam Ward, does report to him, "I'm happy to stay out of the fray. In fact, I love the fact that I get to forward ERP vendor phone calls to Sam."

But Ward, who went through General Electric's financial-management training program before earning an MBA and then working as a consultant at Arthur Andersen, disavows a deep knowledge of technology, saying that he's most comfortable with supply-chain, operations, and IT planning issues. He relies on Andy James, vice president of MIS, to serve more as a "pure" technologist. So James is the person steeped in computer science? Not at all — before moving into IT, he served as controller and was once an accountant at a Big Eight firm. "Managerial training and financial literacy are the keys to solving business problems," says James. "Some people in IT don't get that."

Saucony's everyone-is-a-finance-guy approach may be unusual, but it does underscore the way in which finance and IT are working more closely together. "Finance," says Ward, "is the language of business decisions, from IT to marketing to operations."

United by that common language, Umana, Ward, James, and other leaders have spent a significant amount of time and money not on IT strategy per se, but on streamlining operations, with IT as a vital part of that process. Umana may not feel pressure to understand the inner workings of software, but when he says, "We've gone from 2.5 to 5 inventory turns per year; improved our gross margins, working capital, and several other financial metrics; and now have a 98 percent on-time delivery rate," it's clear that he understands exactly how IT has played a part in all these achievements.

"We have a shared vision in how we want to move forward," says Umana. "There are no gaps in understanding between decision-makers, and finance education is key to that."

That's not to say that CFOs have simply convinced CIOs to deliver status reports long on finance buzzwords and purged of technobabble. Geswein says he spends about one-fourth of his time involved in IT issues, while Umana says that "we combined operations and IT because they are so closely linked that we can't tell where one ends and the other begins, and I spend a lot of time with Sam and Andy working through operational issues that have a huge IT component."

At First Tech Credit Union in Beaverton, Oregon, CFO Mike Osborne says, "I spend more time thinking about technology strategy implications to our business than I do on the finance side." The 12-branch, $1.4 billion (in assets) credit union has a very tech-savvy client base — one-third of its 130,000 members use electronic banking services, an industry high. The credit union places such a premium on cutting-edge features, in fact, that Osborne has no fewer than four CIOs reporting to him. "IT used to report to the CEO," he says, "but I think it wore him out."

So Osborne, the credit union's controller, and the four CIOs (who oversee core systems, development, E-business, and security) all work closely, to the point where Osborne says that finance and IT are "joined at the hip" regarding business strategy. Osborne describes himself as a voracious reader of anything pertaining to IT management, but also says that "one advantage of being a CFO is that I get to ask dumb questions, and every once in a while, I'll stumble onto something we hadn't thought about."

Osborne also teaches his IT staff about the credit union's current business climate, from current income to interest rates to priorities for the next 12 months. Vice president of E-business Char Shinn says that's helpful, in part because "prioritizing IT projects can get to be contentious, so it's important to have a clear sense of business direction. If your project gets shot down, you know why."

Kitchen-Cabinet Approach
Nothing about finance-IT cooperation mandates that the CIO report to the CFO, of course. At DTE Energy, both CFO David Meador and CIO Lynne Ellyn report to CEO Anthony Earley, but find themselves working closely together, in large part because of two major projects: Sarbanes-Oxley compliance and the rollout of a new ERP system meant to tie together what growth-by-acquisition hath wrought.


While the ERP system will be phased in over time, it is nonetheless a very large project, representing what Ellyn calls "the creation of a virtual company into which we'll merge all of our operations over time." To help it stay on track, the CEO, CFO, and CIO visited a number of companies and came away with some useful lessons. "One thing we decided," says Meador, "was that the project should not be led by finance or IT, but by a line executive, with us acting as a kitchen cabinet."

Finance and IT also worked together to develop a standard template for technology proposals, one based on risk-adjusted returns. Projects that meet a certain threshold win funding, while those that don't are dropped. "It creates a certain tension," says Meador, "but it also fosters respect."

Cross-pollination among finance, IT, and the business units takes several forms: business-unit controllers work with vice presidents to develop business cases for IT projects before they are presented to senior management, and one of Ellyn's staff members works with a controller in much the same way. She has also had IT staff leave her group to go into corporate audit and other finance roles. "Sometimes it's hard to distinguish between who's in IT and who's in finance," she says.

That's also true at Sun Healthcare Group Inc., an Albuquerque, New Mexico-based operator of long-term and postacute care facilities and related products and services. While CIO Bruce Stabile reports to CFO Kevin Pendergest, he also has daily contact with controller Jennifer Botter. "I bless the day she came," he says, "because she brought financial prowess to the implementation of two major software packages."

In fact, Botter joined Sun Healthcare as an IT staffer in charge of those finance-software rollouts, a multiyear effort complicated by the fact that the company entered Chapter 11 shortly after the project began. Despite eliminating the company's international operations and reconfiguring other aspects of the business, the project managed to succeed (as has the company, returning to profitability this year). Both Botter and Stabile credit that success to having finance and IT staff that each understand the other side of the business. "Jennifer is very tech-savvy," says Stabile. "She understands how data flows work and how to improve them."

For her part, Botter says the flexibility provided by the new software is made more powerful by having IT and finance staff that understand what the business is trying to accomplish. Because Sun Healthcare comprises several subsidiaries, each with unique systems needs, rolling up financial results is complex, but essential. "There was a time when finance thought that IT 'owned' the data," she says, "and if there were any problems, it was IT's fault. We changed that. We made sure that IT understood the implications and uses of the data and that each side has a full picture of what the other side is all about."

"The term partner is overused," says Stabile. "You have to do many things before you can claim to be partners. You have to build trust, maintain respect, and work through conflict. Those core issues have to be resolved first."

While the companies we spoke to were unanimous about the quality of their finance-IT interactions, they often had the benefit of the CFO having hired a CIO he felt confident with. Saucony's Umana and Ward had worked together previously at Andersen, so they have a particularly high comfort level. The question for other companies will be whether CFOs and CIOs who are thrown together can quickly build the trust and respect that, as Stabile says, underlie true partnerships.

Scott Leibs is the editor of CFO IT.


All Together Now
Communication between your company's
CFO and CIO/CTO is:
Good 31%
Fairly good 41%
Horrible 2%
Don't know 12%
How well does IT sell technology projects to financial executives?
Well 24%
Fairly well 40%
Poorly 17%
Horribly 2%
Don't know 17%
Source: Cutter Consortium

Agreement, of a Sort
CIOs and business managers are equally polarized on how difficult or easy it is to align IT spending with business goals.
Alignment is: IT executives Business managers
Easy 38% 42%
Neither easy nor difficult 24% 26%
Difficult 38% 32%
Source: Accenture



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