The Great Divide

Or, what your CIO would really like to say to you if only the job market were better.
Laton McCartneyApril 21, 2004

A CIO recently complained to an executive recruiter that his company’s CFO was making his life a living hell. “The CIO came on board to effect change,” says Kevin M. Rosenberg, a managing partner with BridgeGate, an executive recruitment firm in Irvine, California, “but he is constantly being pummeled by demands of his company’s CFO to focus on cost controls and produce savings, while expecting service levels and IT efficacy to increase.”

Forced to pinch pennies, the CIO has not been able to roll out the services he envisioned for the company, and “his stock has fallen drastically with his users,” says Rosenberg.

The IT chief’s unhappiness with his CFO is hardly unique. Many CIOs voice the view, publicly and privately, that CFOs often don’t grasp the strategic importance of IT, that they use CIOs as scapegoats for cost overruns and failed IT projects, and thanks to their increased role in IT management, have so devalued the position that no quality CIO would take the job—at least if he or she had to report to a CFO.

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CFOs, of course, have their own gripes, which can be largely summarized as: “IT is expensive, complex, and often fails to deliver, so let’s do something about it.” CFOs answer to investors on a quarterly basis, and with IT now accounting for more than half of all capital spending, it’s not only a logical but an essential place to look for savings.

That said, few would disagree that greater harmony could be brought to bear in CFO-CIO relationships. Toward that end, CFO IT spoke to a number of CIOs and encouraged them to be as candid as possible about their grievances. Think you’ve heard it all before? Think again.

Blame the Consultants

As one example, consider a recent survey by The Hackett Group that found that at nearly half of 22 companies polled, there is no IT representation on the critical steering committees that are addressing Sarbanes-Oxley compliance efforts. “CIOs are being ignored even though no company can possibly deal with Sarbanes-Oxley without IT,” says Allan A. Frank, president and chief technology officer at Answerthink, The Hackett Group’s parent company.

CIOs didn’t help their cause—or their credibility—much when many of the major IT initiatives of the past few years proved less successful and more costly than expected. “There was push-back after many Y2K, CRM, and ERP efforts didn’t deliver as advertised,” says Michael Zammuto, a former corporate CIO who is now chief technology officer at Ecometry Corp., in Delray, Florida. “As a result, the CIO position today is more reactive than proactive.”

“CFOs believe that CIOs do not care, can’t manage budgets, and always require more money for systems that generate no revenue,” says Dhafer AlShahri, CIO at AlFanateer Hospital in Saudi Arabia.

AlShahri argues that this image of the CIO as the last of the big-time spenders—and IT as a money pit—is hopelessly out of date. And many CIOs argue that expensive and ultimately disappointing (or worse) projects were sold by big consulting firms, which pitched ERP and the like as silver bullets to CEOs and CFOs, often going around, instead of through, IT.

“The consultants come in and say, ‘Your IT people are good’—because they’re not supposed to criticize IT—’but we can help you do the job much better,’” says Thomas Bihun, former IT director at Wabash Technologies. “They’re often the ones who created unrealistic expectations.”

On occasion, Bihun and other CIOs assert, CFOs will take the lion’s share of the credit if a project is a success, while being quick to point the finger at IT if the opposite is true. Worse, once the project is up and running, CFOs may lose interest in it even though their continued involvement is key to maintaining its effectiveness. “It’s not only the CFO, but most of the CXOs, including the CEO, who fail to follow up,” says AlShahri.

The lack of follow-up can create problems, especially with ERP systems that dictate an organization utilize one central database so that all its numbers and data are consistent. “Without the CFO’s backing, people start using spreadsheets instead of the ERP system,” says Bihun. “And the numbers may not jibe.”

A Matter of Time

With the recent economic downturn and the demands of Sarbanes-Oxley compliance, many finance executives today have little time or energy to devote to technology issues, CIOs assert. “Because of the state of the economy and the competitive environment we are in, the CFO has to concern himself with the financial condition of the company,” says Bihun. “That was not true in the past. The CFO was there when I needed him.”

“The CFO function itself is changing, with more time required for risk management, due to Sarbanes-Oxley, versus strategy,” says Randy S. Stone, vice president of enterprise information technology at Teradyne Inc., a Boston-based electronics manufacturer. (Note: In our IT Directions 1.0 survey in “The Truth about Tech” (CFO IT­, Fall 2002), 73 percent of CFOs surveyed said they were spending “significantly” or “moderately” more time on IT issues.)

AlShahri adds that CFOs often have a “quarterly oriented mentality,” given their focus on meeting Wall Street projections every three months, while CIOs are process-oriented and take the longer-term view. “It is like two people; one is having a magnifying lens and the other has a wide lens,” he says. “Who can see more of the road?”

Stone agrees that it is critical for a CFO to have a broad lens when looking at IT investments. For example, when Teradyne moved some of its electronics manufacturing operations to low-cost regions such as the Philippines and China, its technology costs went up because of the need for systems and communications capabilities to operate in these areas.

“CFOs have to appreciate this kind of thing,” she says. “Their lens has to be very broad.” Stone says that Teradyne CFO Gregory Beecher “absolutely” understood her concerns. Score one for teamwork.

CFOs who refuse to look beyond the bottom line tend to characterize IT as strictly a cost center. In these situations, the CIO serves essentially as a project manager with a mandate to get maximum ROI on every initiative, spending most of his or her time supervising vendors and outsourcers.

“When I worked as a CIO, the CFO had to approve all purchasing decisions and was very cash-flow-focused,” says Zammuto. The environment was one in which Zammuto had to quantify benefits on everything, which he sometimes found unrealistic. “It is notoriously difficult to quantify benefits on various technology initiatives, such as E-mail, despite all the emphasis on ROI,” he says. Frustrated at being excluded from mainstream management decisions, Zammuto, a former CIO, resigned to take the same kind of job at Ecometry.

Stone says that at Teradyne, they talk about these costs as “balloons” and “anchors.” By focusing only on IT cost cuts—the balloons—the CFO can effectively negate enterprise cost savings the anchors might bring about.

Ups and Downs

One challenge that has long confronted CIOs centers on with whom exactly they should have a dialogue. When IT was a back-office function, typically served by a mainframe or other large computer system, CIOs didn’t talk with much of anyone. Throughout the 1990s and in the run-up to dot-com mania, IT emerged as a strategic discipline, and CIOs often found themselves reporting to the CEO. When the economy sputtered and “Internet time” was tossed on the buzzword scrap heap, CIOs found themselves reporting to CFOs. Sometimes that relationship is strong, but often it is not.

A number of CFOs, CIOs, and others say that, regardless of which way the lines fall on the organization chart, a successful partnership between the CIO and CFO is key if the elusive goal of IT/business alignment is to become a reality. That goal is further advanced when CIOs have the ability, through their own skill sets and the mandate that’s given to them by their companies (read: bosses), to approach their jobs strategically.

As a model for just such a CIO, Rosenberg points to Guy Abramo, who as executive vice president and chief strategy and information officer for Ingram Micro Inc., the world’s largest wholesale distributor of computer products, serves as chief architect for both the company’s strategic business and technology direction. (CFOs might be interested to know that before becoming CIO, Abramo headed up worldwide marketing, giving him a big-picture view that some CIOs lack.)

Co-Equal Billing

CFOs may be relieved to learn that the onus is not solely on them. “Today, CEOs are far more interested in how information affects the strategy of an organization than in the past,” adds Stephen P. Mader, president and CEO of executive search firm Christian & Timbers. “They want IT woven throughout the organization, and they are showing more sensitivity to CIOs, to having them work with CFOs and other senior managers.”

This tends to be truer in some industry segments than others, notably media and consumer goods. “Companies that routinely turn on a dime need to know in a hell of a hurry what’s going on in consumer trends so that managers can make quick decisions regarding, say, logistics or the supply chain. Margins can be greatly impacted,” says Mader. The input used to make those decisions has to come from both IT and finance working in concert, he says.

Despite sounding like an oxymoron, co-equal is a term that many experts pull out to describe a proper relationship between the CFO and CIO. That can be difficult to achieve, particularly when one reports to the other, but companies have found ways to foster such a relationship.

At Rockford Health System, for example, CIO Dennis L’Heureux was given a say in picking a new CFO. “I recommended finding someone who appreciated the strategic value of IT, understood benchmarks for IT. Someone that I could work with every day,” he says. Both executives report to the CEO and work well together, says L’Heureux.

Belt-tightening is a perpetual exercise at the $400 million—plus company. Even so, working with the CFO, L’Heureux has been able to add new technologies. “Recently, for instance, we put in a time-and-attendance system, which increases our capital expenditure and operating and maintenance budgets, but it is expected to reduce payroll expenditures by 1 to 2 percent.”

L’Heureux praises both his CEO and CFO for their grasp of technology. “I don’t have to educate them,” he says, “because they understand the value, and they know that you can’t realistically slap an ROI analysis on some kinds of projects.”

As the former CIO of Federal Express and AT&T, Ron J. Ponder, now CIO of $20 billion WellPoint Health Networks, in Thousand Oaks, California, has witnessed firsthand the many vicissitudes in the CIO-CFO relationship. While Ponder does not report to WellPoint CFO David C. Colby, he says they work closely together. In fact, they have achieved what many might consider the ultimate aim of a CFO-CIO partnership: budget-conscious strategic advantage. Colby, whom Ponder describes as “technology literate,” has been working closely with Ponder to achieve ROI from technology investments and ensure that they correspond with business objectives. “David worked really hard at helping me integrate the three-year technology plan into our three-year business plan,” explains Ponder.

That close coordination, Ponder says, has enabled WellPoint to implement ambitious applications that will put the company significantly ahead of its competitors. In January, for example, WellPoint announced a $40 million program designed to get physicians to stop writing prescriptions and instead to issue them electronically, a major cultural shift that doctors have been reluctant to make.

“We’re working with Dell, Microsoft, and Cap Gemini Ernst & Young to jump-start E-prescribing and provide doctors with the tools they need to do this,” says Ponder. The program launch comes at a time when WellPoint is merging with another $20 billion health-care company, Anthem Inc., to create the largest company of its kind in the United States. Ponder argues that a vital, mutually supportive CIO-CFO relationship is one of the cornerstones of such efforts.

Laton McCartney is a New York-based writer and editor.

Why Is Your CIO Ticked Off?

IT chiefs get really concerned when CFOs and CEOs react to a sound bite or print story about a new technology. “They come running in and say, ‘Hey, everybody is going to voice over IP. What are we going to do about it?’ ” says Teradyne CIO Randy Stone. These unsolicited promptings are especially unwelcome in organizations where senior management has been beating up the CIO for spending excesses and implementing less-than-successful IT initiatives.

CIOs also hate it when top executives’ eyes glaze over when they’re trying to explain something IT-related. In recent years, CIOs have made an effort to learn business-speak, yet some CFOs and other C-level executives still tune out as soon as an IT leader opens his mouth. And, oh yes, CIOs point out that finance-speak is often less than enthralling and every bit as jargon-laced as IT talk.

Although they’re getting better at it, CIOs have never really mastered the art of political gamesmanship, a.k.a. sucking up to the big boss—something they believe occupies much of the CFO’s time and effort. “CFOs are more concerned with managing up than looking down,” says former IT chief Thomas Bihun. The upshot: CIOs get blamed when an IT project tanks or may not get proper credit when IT scores a success, especially if the CFO claims ownership. “CIOs can chart the course,” Bihun says, “but they’d like more confirmation that the CFO agrees that it’s the right course.”

CIOs believe that CFOs and CEOs are—often at IT’s expense—easily bamboozled by the new boy in town, some slick consultant who comes along promising the moon. Of course, the loyal but not-so-flashy IT chief ends up having to implement the consultant’s magic remedy, or look like a defeatist or naysayer if he or she points out problems with it.

CIO Wish List

Let’s assume that the relationship between the CFO and CIO is so good that the CIO feels empowered to push new technology projects. What would they be? Not, as some CFOs might expect, glitzy, cutting-edge efforts worthy of a James Bond movie. When we polled CIOs, we found that they are most interested in systems that address Sarbanes-Oxley compliance and the need to react quickly and effectively in volatile markets where profits are often razor thin. Software applications dominated the list, including the following:

  • Business-process management (BPM) software, which can (according to the brochures) provide corporations with transparency into and documentation of a range of processes as required under Sarbanes-Oxley. Beyond that catchy selling point, BPM is really focused on overcoming the silos in companies that make a given process duplicative, slow, or otherwise inefficient. Answerthink’s Allan Frank stresses, however, that prior to going the BPM route, companies must streamline and simplify core processes themselves. Otherwise, the overlay of BPM technology isn’t going to prove effective. Meta Group, a Stamford, Connecticut-based research firm, expects BPM sales to jump by as much as 20 percent this year over last year’s $1.1 billion and projects that 85 percent of major corporations will launch BPM initiatives within the next 18 months.
  • CIOs have long been concerned about inconsistent data and numbers that result when corporate users don’t all drink from the same centralized ERP well, relying instead on such subversive tools as spreadsheets. Now that Sarbanes-Oxley mandates that Corporate America generate consistent numbers and data, CEOs and CFOs have come to share this concern. As an upshot, businesses are relying more and more on a range of data repositories (data warehouses, data marts, and newer but equivalent approaches) to unify corporate information and allow management to drill down and understand the fiscal underpinning behind any set of figures and then deal with inconsistencies. One CIO notes that data warehousing is far from new but has moved up many wish lists, again because of Sarbanes-Oxley.
  • Further down the list, another software application, known as service-oriented architecture (SOA), provides unity of a different sort, assembling small software programs into larger ones. There’s been a lot of buzz about Web services, which is a key part of SOA but not the entire story. Analyst firm ZapThink LLC says that the market for SOA products will reach $43 billion by 2010. Big vendors such as Computer Associates and Hewlett-Packard have recently moved into this arena. The next time your CIO brings up Web services, ask him or her if the discussion instead should focus on a proper service-oriented architecture. If that doesn’t go a long way toward moving your partnership to a whole new level, nothing will.

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