According to a recent Gartner report, “How CIOs Can Work Effectively with CFOs to Optimize Cost,” CIOs “have not demonstrated the ability to effectively optimize IT spending to their CFOs’ satisfaction, leading to arbitrary budget cuts.”
While the CEO and CFO tend to share the same narrative around financial and strategic goals, in most companies CIOs speak a different language. It’s important for a CIO to make friends with finance leaders in order to learn how they think about spend, risk, and outcomes — and how they define IT objectives with that as a foundation.
Seasoned CFOs take equal responsibility for developing a relationship with their CIOs, understanding how many of the priorities of a modern business succeed or fail depending on how well the corresponding IT strategy is executed.
CFOs and CIOs who can align business strategy with technology possibilities and constraints increase the odds of their mutual success. The CIO wins by maximizing the odds of approval for IT projects, and the CFO wins by steering those projects toward bottom-line results.
This article is addressed primarily to CFOs who want to improve the relationship.
The notion of a disruptive CIO is not new. There are many examples of CIOs who have taken their team through a transformation from a tactical, technology-only cost center to a strategic, business-savvy, bottom-line-focused organization.
However, it’s very important for CFOs to understand what kind of CIO the organization has and to empower that person to make the changes necessary to help the business succeed. There are three key components to becoming a “CIO whisperer”:
While the CIO-CFO relationship is crucial in order to align IT investments with strategic growth plans, few of the partnerships are actually characterized by mutual understanding.
To get finance and IT on the same page, it’s important to understand what drives the CIO. Below, I’ve categorized CIOs into three “personality” types.
Budget Maximizer. This CIO may want — or even require — more budget, but the trust required to earn it must start with proving that existing monies are being well spent. What motivates this CIO is cutting costs: no existing contract is sacred, no vendor too intimidating.
This CIO scrutinizes expenses others might take for granted, like enterprise software maintenance contracts set up to perpetually renew and increase on autopilot.
Cloud Chaser. While the cloud is big today, everyone agrees that it will only get bigger. That’s why the CFO, the CEO, and the board all want to hear that cloud alternatives have been evaluated before money is spent on software licenses and data center hardware.
This CIO might be excited by the promise of cloud efficiencies but will want to take a hard look at which software vendors really live up to the cloud’s promises of cost savings and flexibility — and which are wolves in sheep’s clothing.
Disruption Driver. Disruptive digital innovation is a wonderful thing when you are the disruptor, but not when you are the one being disrupted — when you are Netflix, not Blockbuster. Ambitious CIOs are on the lookout for disruptive innovations capable of reshaping markets, which they can pursue only with the backing required to make investments and take risks.
It is crucial for this CIO to get support from the CFO and the board, making sure all parties understand the risk of not funding innovation initiatives. This also means the CIO must demonstrate discipline about scrutinizing all aspects of the budget — not just asking for more money but looking for ways to fund innovation through IT optimization.
For IT organizations to provide value as a strategic partner, CIOs need a strong relationship with the CEO. As the leader of the company’s initiatives, the CEO’s priority is growth, whether it’s entering a new market, creating a new market, or coming to market with a new and competitive product. It’s increasingly common for those initiatives to have a digital component. In some cases, that might be smart software and connectivity embedded in the company’s products. Almost always, there will be digital prerequisites for retooling enterprises systems to support execution of a new strategy.
That’s why today’s CFOs are taking powerful and innovative approaches to optimizing spend and changing the way they view IT assets. They’re doing this by redefining vendor relationships and freeing up new, elastic forms of working capital to help the business increase top-line growth, reduce bottom-line costs, or both. CIOs must be part of these conversations.
Ideas are thrown at CIOs from every corner of the organization — from sales, which might want new graphics, to marketing, which might want new dashboards. It’s the CIO’s responsibility to separate the valuable ideas from the shiny objects — and come to meetings prepared for the inevitable question, “What’s the ROI on this?”
The CFO will often be the one asking that question. The relationship need not be antagonistic, but finance chiefs will want to see that the ROI justifies the proposed investments in new technology.
At least since the advent of the modern ERP system, CIOs have tended to build their strategies around the systems governing back office functions such as software for finance and supply chain management. The product roadmaps of the big vendors in those categories loomed large in those plans — to the point where the vendor’s roadmap often effectively became the organization’s own technology planning roadmap.
IT teams that didn’t follow the vendor’s lead in lockstep risked being punished by being denied access to technical support for mission-critical systems.
Acceptance of the vendor-dictated roadmap also restricted choices for the IT team, which might have preferred another offering with new capabilities. It was locked into what was on the long-range plan; the money and resources were fully committed to software deliverables, platform upgrades, and vendor maintenance, leaving nothing to fund even a proof of concept.
Along came companies like Netflix, Uber, and Airbnb, which built the user experience first and then filled in a roadmap to deliver on it. These companies didn’t go all in with a single vendor that forced them to swallow technologies they didn’t need at a pace that was not going to help them accelerate business growth.
In other words, they followed their own business-driven roadmap, built around their own priorities. This may not sound like a radical idea, but it is enough of a departure from how technology planning has been done at many companies that it will be challenging for some CIOs to adapt. Those who have become too accustomed to following vendor-dictated roadmaps must learn how to draw their own in consultation with the CFO and leadership team.
Before green-lighting any project, the CFO should help the CIO understand how to articulate the risks and rewards involved.
For example, when pushing for a new business intelligence tool, company leaders must agree that the rewards outweigh the risks associated with implementation and user adoption. The CEO will want to understand what greater insights he or she and others stand to gain, compared to the shortcomings of current reporting and analysis tools.
Another example: When contemplating buzz-worthy technologies such as artificial intelligence and machine learning, the CIO must show how an intelligent system promises to make an existing business process faster or leaner — or, better yet, make an entirely new and disruptive business opportunity possible.
Even (or perhaps especially) when it comes to technologies with limitless possibilities, expectations must be tempered with a realistic appraisal of the possibility of cost and budget overruns or outright failure.
Before asking for more money, the CIO should evaluate options such as third-party support for ERP applications, which costs much less than paying for a maintenance contract from the vendor. The CFO and the CIO can work together to make the case to the CEO and board for using third-party support to quickly access new forms of elastic working capital that can be applied toward the bottom line or used to fuel top-line growth initiatives for the company.
Prepare a “top 10” list of risks and tradeoffs. For example, explain that you will be giving up access to vendor software upgrades and updates but can afford to do so because many updates are not relevant, or are difficult to implement, or alternative fixes are easier to manage.
In addition to hard dollar cost savings, detail the labor savings that result from not having IT staff members solve problems on their own because vendor support was slow or inadequate.
Only by working together with a joint understanding of financial and technological strategies can a CFO and CIO achieve the best bottom-line results for their organization.
Sebastian Grady is president of Rimini Street, a global provider of enterprise software products and services.