Seven years ago, when David Lifschitz hired on as both the CFO and CIO at Los Angeles-based Gehr Enterprises, he did the unthinkable — he pulled the plug on the privately held company’s MRP project, then in the second phase of implementation. “I saw immediately that we were heading into more and more costs, hundreds of thousands of dollars on top of what was already spent, yet there was no buy-in among users,” explains Lifschitz, who previously had spent a decade as a consultant in the Enterprise Group at Arthur Andersen.

Gehr employees weren’t thrilled with the system; many felt it was automating processes that were out of date or had never been optimal. As Lifschitz studied the situation, he discovered that a full implementation would be, at best, a partial fit and would require extensive additional modifications. So he put a stop to the project and took an entirely different approach — in this case, a completely customized MRP solution.

Gehr, a diversified concern with interests in wire and cable manufacturing, wholesale industrial product distribution, and high-tech equipment sales and marketing, knows that many IT initiatives launch with great fanfare only to sputter and stall. Fifty-five percent of CRM projects, for example, fail to deliver measurable benefits, according to technology research firm Gartner. The result is often finger-pointing, with operations blaming IT, IT blaming the business units, and the buck stopping with the CFO — the executive who signed the big check for the project in the first place.

Caught in the crosshairs, CFOs are rolling up their sleeves and getting more closely involved in IT strategy. In fact, a CFO magazine/Morgan Stanley survey of more than 250 CFOs found that upward of 70 percent now spend more time on IT issues. (For full results of this comprehensive survey, see “Numbers Please.”) In some cases this simply means scrutinizing project costs more closely, but there are also companies at which CFOs are leading veritable IT revolutions: they’re demanding evidence of clear business values before funding IT initiatives, timetables of project deliverables, and hard ROI metrics that must be met before the next stages of project development are financed.

At their instigation, many IT departments are now responsible for building the business case for an IT project before it will be funded. And several CFOs are taking leadership roles in IT, working with business-unit heads to discuss IT requirements before the IT organization is even brought into the picture. These CFOs are piloting or co-piloting (with the CIO or CTO) their organizations’ overall IT strategy and specific IT initiatives, assembling cross-functional teams to examine business-process changes, obtaining full user buy-in, and managing user training and systems maintenance issues.

These changes are long overdue, says Jeremy Grigg, research director in the Business Management unit of IT at Stamford, Connecticut-based Gartner. “Many CFOs began to see IT as a cost center that had to be squeezed because it did not deliver on its promises,” he explains. “Now they’re scrutinizing ROI extremely closely, insisting that IT projects be broken into multiple pieces to determine at each phase if the project should continue. And they’re requiring that traditional financial concepts like earned-value analyses and real-options analyses be used to decide when to abandon an unsuccessful IT investment. The days of writing blank checks are over.”

Double Threat

Of course, CFOs can’t effectively rein in IT unless they truly understand technology, a point made by Jack Welch years ago. To do their jobs well in the 1950s, he said, business leaders came from manufacturing and logistics. In the 1960s and ’70s they came from finance, and in the 1980s and ’90s they came from legal backgrounds. From 2000 on, Welch said, they’d come out of technology.

Lifschitz fits Welch’s profile twice over: he’s a CFO who understands the intrinsic value of technology from a business process improvement perspective, and a CIO who knows how to leverage it. “I’m knee-deep in the IT river,” he jibes. “By [my] being both the CFO and the CIO here, we avoid the common tensions between these functions. I’m able to both promote and justify technological advances to improve our systems.”

The Domino Effect

Most companies don’t resolve the tension by combining the roles, but by fostering a very close working relationship between finance and technology. At Florida Crystals, a major producer and seller of sugar, sweeteners, and derivative products, CFO Luis Fernandez works closely with the privately held company’s IT team leader, CIO Don Whittington. Fernandez believes that IT is the key to wringing out more profits in the highly competitive commodities business, so he and Whittington hold weekly meetings at which business strategy and technology are viewed as one subject, not two.

Even the most technology-savvy CFOs are wise enough not to second-guess IT departments on every aspect of operations. Instead, they pick their targets based on cost and overall impact on the organization. At Gehr that meant a shift in ERP strategy. At Florida Crystals, recent meetings between Fernandez and Whittington have focused on some daunting postmerger integration challenges, with ERP once again at the heart of the problem.

During the past decade, Florida Crystals has expanded from agribusiness to the consumer-products market, launching its own line of sweeteners. Last November, the company took a bold step in this direction by acquiring the large northeastern sugar company Domino Foods Inc. from British conglomerate Tate & Lyle Plc — a deal that presented huge IT issues. The chief problem was the need to quickly transition Domino’s core information assets, which were contained in the seller’s enterprisewide ERP system, over to Florida Crystals’s ERP system.

In effect, Florida Crystals acquired Domino without acquiring any actual technology assets. Fernandez had to work out a leasing arrangement with Tate & Lyle to tap into its ERP system simply to run Domino, at a cost of several hundred thousand dollars a month, according to Whittington. Clearly this is not the most cost-efficient way to operate a new subsidiary. It’s also not the most private — Florida Crystals’s business data was now open to Tate & Lyle’s perusal.

The situation called for outside help, so Fernandez hired Miami-based Adjoined Consulting to determine the quickest, least costly, and most effective technology transfer. “Luis held our feet to the fire to make sure we quickly brought up Domino’s as a stand-alone system, with its own hardware, software, and network,” says Adjoined CEO Rodney Rogers. “We did it in three months, which has to be something of a record in the ERP universe.”

Transferring a 500-user base onto three SAP R/3 systems with all of their accompanying support applications while also migrating to a newly developed hardware and communications environment was a challenge, but it represented only the first phase of the postmerger integration strategy. Fernandez also wanted another Florida Crystals company spun into the better-known Domino to achieve a centralized sales, marketing, and customer-service environment. And he wanted this combined company connected to Florida Crystals’s transactional-based ERP system so customer orders coming through Domino could be routed to the appropriate Florida Crystals plant for fulfillment.

But Fernandez didn’t want integration at any price. Florida Crystals already had an ERP system in-house and wanted to make the most of it, so it used enterprise application integration (EAI) software from WebMethods to glue everything together, and plans to do so again as future acquisitions present new IT challenges.

All this technology didn’t cost peanuts (Fernandez won’t divulge the total expense), but it was calculated prior to the Domino acquisition and worked into the deal. “The hard ROI in this case was the anticipated cost of the technology, consulting fees, and our internal process and infrastructure changes, which were added up and subtracted from the cost of the acquisition,” says Fernandez. That put pressure on IT to stay on budget as the work progressed, otherwise the acquisition would have proved too costly. (Editor’s note: Benchmark the cost-management performance of your company, or thousands of public companies, with the CFO PeerMetrix interactive scorecards.)

That’s precisely the kind of situation in which a close relationship between the CFO and CIO is vital. “Luis understands technology as it relates to the company’s business drivers,” says CIO Whittington, “and that is fairly unique for a CFO. I’ve heard of many IT projects that fail because the IT group operates in a vacuum and finance comes in only after the fact in an audit capacity.” Whittington says that at Florida Crystals, IT and finance collaborate not only on budgets but also on expectations and execution. Rogers adds that Fernandez is “very disciplined” about capital spending: he’s willing to spend big, but only when the return is well understood. (No easy task, to be sure. See “After the Deluge.”)

If some CFOs keep a steady hand on the rudder, others are up in the crow’s nest watching out for new technological opportunities. At Global Payments Inc., a $500 million credit-card payments processor and check-authorization services company, CFO Jim Kelly was the principal advocate of a new Web-based merchant-enrollment system.

Global Payments had been in the credit-card processing business for 20 years before being spun off from National Data Corp. in an initial public offering in February 2001. With a new management team, a billion-dollar market cap, and 12 Wall Street analysts following its every move — and competitors like First Data and Concord hardly ready to roll over — was it wise to spend $5 million on a new Web-based system of any kind? Kelly believed it was. “The previous way in which new merchants were brought into our system was incredibly manual and imprecise,” he says, “with sales personnel filling out a form containing basic information and then faxing it to our back office.”

From there it got worse: staff would take that information and key it into seven different legacy systems, such as applications for credit-card authorization, merchant accounting, and customer service. Sometimes the handwriting was illegible, and a customer waiting for a retail payment system would get one designed for a restaurant instead. “We were inferior to our competition in terms of servicing our customers,” says Kelly.

Kelly and CIO Barry Lawson assembled a cross-functional team drawn from operations, sales, credit, and IT. Weekly meetings were mandatory. Kelly also worked closely with Collective Dynamics LLC, an Atlanta-based consulting firm hired to flesh out the potential benefits of the system and work out the new business processes that would link sales, credit fulfillment, and customer service.

The project was approved predicated on a three-year payback, although Kelly says that based on the first year’s results, the payback should occur much sooner than that. Sales personnel now enter relevant merchant information into their laptops, and that data is electronically routed over the Internet to Global Payments’s seven legacy systems. Other than this single point of entry, there is no further human input and absolutely no paper. New clients can accept credit-card transactions within a single day, a far cry from the two weeks it took previously. The system is touted for leading a 30 percent growth in new accounts — not bad when you consider that Global Payments services more than a million merchant locations and processes 2.7 billion transactions a year.

Kelly concedes that he is not a technologist, but he believes that IT leadership falls squarely within a CFO’s domain. “A CFO should provide a framework for IT to take wonderful ideas and turn them into executable plans that have a suitable ROI,” he says. He insists that someone “must give IT a roadmap and fences. Otherwise, projects will invariably go off-course. That someone should be the CFO.”

Russ Banham is a Seattle-based author and journalist. His new book, The Ford Century, a 100-year history of Ford Motor Co., hits bookshelves on November 1.

Show Me the Mini: Making IT Work

CFOs are known for their hardheaded approach to ROI, but sometimes the best solutions require a different sort of problem-solving. When Gehr Enterprises CFO and CIO David Lifschitz wanted to incorporate business-intelligence tools into the company’s customized ERP solution, he asked his IT team to identify and analyze several competing products. “We pared down the list to four providers (Adaytum, Comshare, Hyperion, and little-known KCI Computing), explained our dilemma, showed them our systems, and asked if they could provide a solution,” he recalls.

“Of course, they all said they could. So then I asked for a ‘proof of concept,’ a small-scale miniapp showing the tool at work. Two bowed out, and the third vendor said OK but it would cost us. Only KCI was willing to put its money where its mouth was.” The Torrance, California-based vendor markets an analytical processing application called Control that provides a unified view of all financial and operational data across an enterprise.

Buoyed by business-intelligence capabilities, Gehr’s ERP system enabled business-unit heads to create a bonus incentive strategy linking employee compensation to sales and customer-related performance metrics. It also helped the company make quick adjustments to pricing strategy.

There was one hitch, however. The total system needed more storage, bandwidth, and network connectivity, some of which required imaginative thinking. “When we tried to establish a wireless bridge to our remote warehouses, we were told it couldn’t be done, because the line of sight to our headquarters was blocked by trees and tall buildings,” recalls Lifschitz. The solution: Gehr obtained permission to bounce the signal off some of those buildings, thus working around the obstacles while saving 60 percent off the cost of land lines. — R.B.

Close to You

It’s one thing for CIOs to report to CFOs — in fact, a majority do — and quite another for them to actually work closely together. When the bond is strong, good things can happen.

When David Wajsgras and John Crary, CFO and CIO, respectively, at automotive supplier Lear Corp., decided to build a global profit reporting system, they did more than simply trade memos. “We met every day, either face-to-face or over the phone,” says Wajsgras, “to figure out the most efficient way to incorporate the latest technology into what we needed to deliver from a business standpoint.” The company’s finance and IT leaders have also collaborated on a cash-management financial-data warehouse and a product-data management system.

“And before we launch the project,” Wajsgras adds, “we have a very good understanding of what it would take to implement it from a cost standpoint and people standpoint, and what the ultimate deliverable would be. There has to be a tangible benefit to any IT initiative. Otherwise, it’s a waste of money.”

The two executives jointly approve each IT project. Once an initiative is green-lighted, they assemble a cross-functional team comprising finance and IT personnel and establish a rigid review schedule for project updates. “John and I jointly lead these discussions,” says Wajsgras.

As projects progress, people outside finance and IT are brought to the table to offer their opinions on how best to move forward. Says Wajsgras: “Every IT project involves changed behavior on the part of employees, so we want their input. After all, we’ve got to get them to adopt what we’re selling.” Most of what they’re selling revolves around three key goals: generate cash, pay down debt, and improve returns over time.

“Since 1999, the year we refocused our efforts to build a financial infrastructure based on the latest available technology,” says Wajsgras, “we’ve reduced our debt by $1 billion, or 30 percent. From my perspective, IT is a core driver of our business, raising us to the next level of competition.” — R.B.