Having looked at life from both sides now, Bill Glassen is acutely aware of the often profound disconnect between finance and IT. In fact, he embodies it. The former controller at Borden Milk Co. says his lack of knowledge about technology once proved costly. “I overloaded my promises to senior management, using IT as my fallback position,” he says. “On one finance project, for example, I made promises I couldn’t keep because I wasn’t as technologically up-to-date as I should have been. We went over budget, exceeded the deadline by almost a year, and ended up with hardware that didn’t meet our needs.”
The project failed, and Glassen, a 25-year finance veteran, felt completely responsible. But the man who had often believed that “IT was the answer to everything” didn’t give up. Instead, he took classes on technology and then went back to his IT group, working with them to reformulate the project. Together.
The experience proved so valuable that in 1997 Glassen embarked on a new career path, heading up the IT department at 75-year-old Cashman Equipment Co., a Las Vegas-based heavy-equipment dealership with 530 employees. “I have a CFO here, Jim Moore, who understands technology and is directly involved in IT,” says Glassen. “We speak the same language.”
It’s a rare CFO who believes in technology too much, and then educates himself to the point where he can move into the role of CIO. More common is a tense working relationship in which each C-level executive secretly wonders whether the other one really gets it. It was summed up nicely at a CFO conference last fall when one panelist said, “I have no problems with my CIO — because the post is empty at the moment.”
Consultants say many CFOs throw dollars at costly IT projects without fully grasping the business need or understanding the value of the technology — an expense undertaken without the rigor given more easily understood capital investments. CFOs counter that they are oversold if not misled, and that when they question the value of a project or simply ask for more analysis, they are cast as Dr. No’s: hopeless number crunchers impeding the organization’s march into the future.
As Don Schulman, global leader of financial management solutions at IBM Business Consulting Services, sees it, “When you’ve got a CFO who is a business person and a CIO who is a technology person — and they don’t live in each other’s world — clash is inevitable. There needs to be fusion between these two strategic positions, or IT projects will fail.”
And fail many have. A survey of 450 companies by consultancy Mainstay Partners LLC indicates that companies are spending 25 percent more on IT than their budgets indicate. The survey’s woeful tale of companies bewildered by IT posits that a staggering 72 percent fail to tie IT investments to business strategy and goals. Small wonder that IT investments seem to have little impact on company financial performance. Also according to the survey, fewer than 12 percent of companies accurately measure the business benefits of their technology investments, 57 percent say their senior business executives are not involved in IT planning, and 82 percent concede they do a poor job communicating IT strategies across the enterprise.
While not all of that can be attributed to poor communication between CFOs and CIOs, “it’s pretty obvious that operations, finance, and IT are not sitting at the same table,” says Amir Hartman, co-founder and managing director of Mainstay Partners and a senior fellow at Harvard Business School Interactive, where he teaches seminars on technology strategy.
“The relationship between the CIO and the CFO, in particular, is based on fear and is often antagonistic,” contends Hartman. He isn’t shy about placing the blame squarely on one side. “Finance does not extend its role as gatekeeper and watchdog to embrace business-process changes, causing constant frustration within IT that finance just doesn’t get it. IT believes finance is peering over its shoulders constantly asking for hard ROI metrics, without understanding the business value of the project or what it takes to pull it off.” This, he says, leaves CIOs exasperated and burned out. “And that explains why average CIO tenure at a company is only 14 to 16 months — a fourth the average tenure of a CFO.” (RHI Management puts current CFO tenure at approximately eight years.)
Even Glassen, with his CFO experience, has felt the frustration. He says a former CFO at Cashman “did not have a clue about IT and what it represented or what I did as CIO. There was total reliance on me to produce the project, but never a question about what I was doing and how it was going.” Had the CFO been more knowledgeable about IT, he says, it would have helped in a number of ways, particularly in achieving greater employee buy-in when new technology was implemented. “It’s the old cliché,” concludes Glassen: “Tell me what you want and I’ll tell you what I think you said.”
Will no one say a word in defense of the CFO? Actually, yes. Yom Senegor, CIO of Safeco Corp., in Seattle, says CIOs must share the blame. “Often a CIO will have an agenda for technology without proper linkage to the business to grasp the value of that technology,” argues Senegor. “These CIOs are eager to get projects in play that may not fit the company’s needs.”
Perhaps one reason that the CFO-CIO battle seems a perennial stalemate is that there are actually three parties that must come together: CFOs, CIOs, and business units. “In most business cultures, there’s no partnership between the business person, the finance person, and the technology person,” says Karen Rubenstrunk, executive vice president of executive services at Stamford, Connecticut-based Meta Group Inc.
She believes all three constituencies have distinct roles when it comes to aligning business strategy with IT. “The business person is responsible for saying, ‘Given current business needs and within the scope of the strategic plan, this is a valuable business project,’ ” she explains. “The technology person is responsible for saying, ‘Under our current infrastructure and within our current architecture, from a technology perspective this project is doable.’ And the finance person must take on the greater role of proving the business case behind the project before spending money. All three must come together before they go forward, yet that rarely happens.”
When companies do align themselves so that finance, IT, and business units cooperate, good things can happen. At Office Depot Inc., the $11.4 billion retailer of office supplies and equipment, CIO Patricia Morrison reports to the CEO, and says, “In all respects, our CFO [Charles E. Brown] and I are peers. We have offices across the hall from each other and address IT issues in concert.”
Office Depot favors a portfolio-management approach to IT projects, balancing a project’s risks against anticipated rewards and then comparing it with other projects in the pipeline. “Charlie and I work together closely to develop the business case for a project and the related capital-management procedures,” says Morrison. They approach ROI by agreeing that some projects can provide specific, predictable, and quantifiable returns, while others are more strategic and resist easy cost-justification. In either case, it’s left to Morrison to source IT capacity, either internally or by using third-party vendors, and bring the project to fruition. Then she and Brown are held jointly accountable for meeting the specified objective. “At times it’s difficult to determine who’s in finance and who’s in IT,” Brown says, “because we share a passion for technology.”
Where does the business unit come in? “Ideally, projects must be championed by the business units,” says Morrison. “They put their best and brightest dedicated resources behind it,” she explains. “With specific people in a business assigned to work with specific people in IT and finance, it becomes a truly shared effort.” As one example, she points to a major Web-enabled human resources-finance system implementation under way right now, a project that is global in nature. It’s driven by finance but also represents one of the largest initiatives ever undertaken by IT and HR; therefore, the project manager reports to the head of HR, the CFO, and Morrison. “The poor guy has three bosses,” she says, “but the system works. It’s the kiss of death when an IT project is led by IT.”
This three-pronged strategy is also in play at Safeco, where CFO Christine Mead says, “If a project initiates in finance, I don’t toss it over the wall to the CIO. It will be addressed by my organization, IT, and the business units that are impacted by it — as a whole.”
Any discussion of solid working relationships is bound to come down to reporting relationships. While many CIOs report to CFOs, the trend is toward parallel positions. Historically, CIOs reported to CFOs because the first computers were assigned to automate accounting and payroll systems, which fell under CFO oversight. IT was therefore deemed a cost center requiring financial controls. Yet a study by executive search firm Spencer Stuart indicates that 64 percent of CIOs now report to either a company’s CEO, president, or COO. Rubenstrunk says that a change in reporting structure is often the catalyst for a new working relationship between CFOs, CIOs, and business units, but that cooperation can be achieved regardless of who reports to whom. “The key thing is understanding that the roles of the finance chief, the CIO, and the business-unit heads are equal when it comes to determining the investment value of a project, and the follow-through,” she says, because the project serves the business, is based on technology, and costs money.
CIOs insist that any change in reporting relationships is not about ego-gratification but about the very nature of information technology and how it’s used by corporations. “You don’t see a senior sales executive interested only in sales-information systems,” says Len Couture, CIO at Enterasys Networks Inc. “He wants supply-chain data, credit information from finance, and other intelligence as well.” As newer systems become more sophisticated and reach across the enterprise, he says, CIOs must integrate information across company boundaries, tailor it to different users, and “tighten the information cycle” from beginning to end. Consequently, “the CIO has become much more of a strategic adviser.”
Enterasys doesn’t ignore the business groups, however. Couture is part of an executive leadership team that comprises the heads of worldwide sales, marketing, HR, and finance (represented by CFO Richard “Rip” Haak). Haak says it’s less a case of dictating from on high than of making sure that “every project is user-driven — that it has a strategic or tactical benefit.” In fact, Couture says that user acceptance is a key part of the company’s approach to ROI. “Someone may propose a project that will do great things for the first link in the supply chain,” he says, “but then causes links 2 through 10 to suffer to the point where the investment isn’t worth it.” By cooperating and communicating with everyone up front, that kind of pain can be avoided.
While a change in reporting relationships can be a catalyst for change, it’s not a requirement. “What really matters,” says Rubenstrunk, “is to recognize that both the investment value of an IT project and its execution require that the CFO, the CIO, and the business-unit head all have equal power.”
Mainstay’s Hartman says that often comes down to accountability. “If business-unit heads are evaluated in part on the efficacy of the IT projects they are involved with, that helps enormously,” he says. He recommends making sure that an IT steering committee brings all three parties to the table regularly, and that funding for specific projects (not infrastructure or broadly used applications such as ERP, but targeted applications involving, say, HR or sales) comes from those departments’ P&L.
Beyond the Org Chart
Reporting relationships can be a distraction, of course, and regardless of how a company organizes itself on paper, ultimately “it’s less about relationships and more about processes,” says Safeco CIO Senegor. He and CFO Mead happen to be peers who both sit on the senior leadership committee. “There are no agendas here, other than common ones,” explains Senegor. Given the intensive data demands of the insurance business, Mead says that IT consumes a fairly sizable portion of Safeco’s capital spend, but she won’t say how much. “We’ve always got tons of data that needs to be transformed into information for the right people to drive the right decisions,” she says. “Technology is critical in differentiating this company.” That’s one reason why Senegor is both the CIO and senior vice president of corporate strategy.
It’s also why he produces midyear and annual reports, similar to shareholder reports, and disseminates them throughout the organization. “We want to show finance and the business units what we did with their money in terms of achieving business value, and we account for every penny,” he says. “I want to change the perspective of IT from being a cost center to [being] a value-delivery center.”
Given Senegor’s hard-nosed focus on results, wouldn’t he logically report to Mead? “Actually I’m surprised you’re not asking me why CFOs don’t report to CIOs,” he jokes. “In a financial-services company, technology is paramount.”
Mead doesn’t miss a beat: “Yes, but remember: in the end, it’s all about the numbers.”
Russ Banham is a Seattle-based writer. He is the author of The Ford Century, a 100-year history of Ford Motor Co.
Doubling Down on Technology
For every CIO who reports a happy working relationship with a CFO, there’s one with a horror story to tell. Tim Stanley, CIO of Harrah’s Entertainment Inc. in Las Vegas, was once the CIO of now-defunct National Airlines. There, he says, “IT was treated as a cost center, and I reported to finance.” He maintains that “when you’re under a financial organization, there’s less linkage with the operations side of the business, where strategy is developed. Consequently, IT becomes more of a cost-driven exercise than a strategic ROI-driven exercise.”
Stanley says National failed to leverage technology to solve thorny passenger and labor issues. “Airlines are some of the worst marketers in the world, despite the availability of CRM and other technologies that can make a big difference.” He says that whenever IT had such discussions with operations and finance, “it boiled down to dollars and the cost angle, as opposed to appreciating the business value.” In National’s “defense,” it should be pointed out that in its three-year history the low-cost airline never found the sort of solid footing that might have made for looser fingers on the purse strings. But Stanley believes that greater investment in IT would have helped, not hurt.
At Harrah’s, says Stanley, senior management does not view IT as a cost center, or begrudge dollars spent on IT that might have been spent elsewhere. “By reporting to the COO, I’m more directly aligned with business and operations,” he says. Yet he achieves that alignment by, oddly, splitting his IT department in two: one group focuses on existing systems, while another looks at new technologies and approaches. Staffers devoted to existing IT are financially savvy and scrutinize technology assets to see how the company can become more efficient and drive more existing business value. Those on the “new IT” team focus on initiatives that can drive top-line growth or slash costs; they partner with business units, build the business case, conduct ROI analyses, and implement the technology.
“At National, whoever was the squeakiest wheel or knew the CFO personally got his or her IT project funded,” says Stanley. “Here we apply rigor to ROI, not just up front but also over time, for every project. We have a 10 to 15 percent ROI threshold, and if a project doesn’t meet that, it doesn’t get out of committee. For example, we recently canceled a Web-based HR project because it no longer penciled out.”
That’s not to say that IT will overrule a business unit. “Every project we undertake is initiated by a business sponsor,” Stanley points out. “My definition of world-class IT entails technology enabling, supporting, and driving the business. It’s one in which finance or HR or any other unit sees IT as its customer and vice versa.” Bottom line: when it comes to IT, there will be no rolling of the dice at Harrah’s. —R.B.
A Summary of Their Parts
A good working relationship between a CFO and a CIO depends on many factors, including a consensus on the role of business units.
Company: Safeco Corp.
Business: P&C and life insurance