CIO Mark Sunday’s collaboration with the CFO helps Oracle IT reduce costs, increase value, and mitigate risk.
by Aaron Lazenby, November 2010
Soon after Mark Sunday joined Oracle in 2006, he was faced with devising a sound, flexible strategy that could support the company’s acquisitive nature—ultimately integrating the IT operations of more than 50 companies. That meant big decisions, big budgets, and high stakes. But the strategic influence of Oracle’s CIO goes well beyond the decisions that keep IT systems running. Working closely with Oracle CFO Jeff Epstein, Sunday is making efforts to bridge the historical gap between corporate finance and technology departments. Profit spoke to Sunday about his IT vision, the interplay of enterprise technology cost and value, and how a partnership between the CIO and CFO can help manage risk for an organization.
Profit: You shared the stage with Oracle CFO Jeff Epstein at an Oracle OpenWorld 2010 session. How did that come about?
Sunday: One day while waiting for a meeting to begin, Jeff and I started chatting about the cultural differences that separate finance and technology. We both recounted conversations we’d had with peers about the sources of tension or misunderstanding that arise between the two departments.
We identified some common themes—for example, how the CIO is often insecure about how the work of the IT department is evaluated by other parts of the business. It’s common that the CIO senses a disconnect between the perception and the performance of IT. What doesn’t help matters is that of course the IT department is being judged—specifically by finance—regarding how efficiently the department’s budget is being used.
We realized our conversation—and the way we addressed or avoided these issues in our own professional relationship—might be useful to help others bridge the gap between the two departments. So we decided to take it to Oracle OpenWorld.
Profit: What are some of the cultural barriers you identified?
Sunday: Jeff said one failing he commonly found with CFOs was they often measure IT success by the money saved in the operation of enterprise systems. In that mindset, the cost of IT as a percent of revenue is the only metric a CFO has to evaluate the CIO’s performance—and how to allocate budget.
The CIO of course uses technology budget to reduce operational costs in a business—otherwise, we’d be doing business forecasting and analytics on an abacus or pocket calculator. Technology is an enabler of efficiency, and efficiencies save money. But the focus should expand to include getting the best return for money invested in IT. This is a distinction between the ways IT reduces cost and the ways IT creates value.
CIOs and CFOs operate in highly specialized worlds with complex rules and vernaculars. But if their working relationship starts with a shared interest in maximizing the return on their IT investment—not just reducing the total cost of IT ownership—these executives can form a truly powerful partnership.
Profit: Is there a difference between reducing the cost of ownership of IT and using IT to reduce cost in the lines of business?
Sunday: Absolutely. As I said before, IT is first and foremost an enabler of business efficiency. This goes back to some core principles Oracle has promoted since even before my time as CIO.
Complexity is the enemy of success in IT, so simplifying the overall environment will make technology infrastructure less brittle and less prone to failure. Standardization is also essential—you can’t waste time and money chasing random and assorted hardware or software specifications. You want to find optimal solutions and repeat them throughout the environment.
Also, top executives must strive to centralize IT operations, so any new investments bring existing technologies closer together and promote economies of scale. They also have to wring bottlenecks and friction out of the system by promoting process automation across the organization, starting with some fundamental functions like accounts payable and accounts receivable.
Simplify, standardize, centralize, and automate; these are the concepts that drove Oracle’s own business transformation more than a decade ago. Since then, we’ve seen operating margins expand from below 20 percent to 46 percent, even as we’ve integrated more than 60 acquired companies. That’s almost unheard of. Those are numbers any CFO would be happy to see.
Profit: Should CIOs be looking beyond cutting IT costs?
Sunday: Yes. A survey from the Corporate Executive Board revealed how business leaders see corporate IT evolving. One key finding is corporate IT’s ability to reduce cost is reaching a limit. Cost-cutting initiatives are becoming the new normal—soon, automating your expense reporting and the like will not deliver an advantage over your competition. As we move forward, IT will need to create value for the business.
But I believe we are in a unique time for IT to influence revenue creation. There are new business frontiers for IT, but they require a much deeper knowledge of the lines of business. This is another place where collaboration between the CFO and CIO is crucial, because it demands more-intimate understanding of how the business functions.
For example, Oracle IT plays a key role in the build-out of live virtual classes for Oracle University. And we’re the platform provider for the various Oracle On Demand solutions. These offerings generate significant revenue for Oracle and are a result of partnerships between my team and other departments at Oracle and wouldn’t be where they are today without that collaboration.
There are other functions where IT can create value—business intelligence, enterprise collaboration, customer interaction, and sales and marketing, for example. Incremental increases in spending in these areas can generate new business for a company. So the old metric of total cost of IT as a percent of revenue does not do justice to the impact IT can have on the bottom line.
Profit: Are there other functions where collaboration between the CIO and CFO is critical to the success of the business?
Sunday: Risk is a major issue that can be addressed by a strong partnership between IT and finance. The CFO owns certain business risks that are directly influenced by the CIO, and vice versa. For example, the CFO must sign off on financial disclosures that are generated and stored in systems managed by IT—disclosures that describe the risk exposures of a company’s finances and carry real penalties if not executed according to law. The same goes with verification of credit card transactions or adherence to security and privacy mandates like HIPAA [Health Insurance Portability and Accountability Act]. The CIO supports these and many other regulatory mandates and mitigates the risk assumed by the CFO—as well as customers, partners, and shareholders.
But the shoe is sometimes on the other foot. Some risk is fully owned by the CIO, such as securing access to critical business data, ensuring business continuity, and maintaining the availability of mission-critical information systems. And the CFO must fund those initiatives appropriately to prevent the risk of systems failure damaging the bottom line.
So assessing risk becomes a very important joint effort for the CFO and CIO. Resources are not unlimited, and not all risks have the same likelihood or consequences. Finance and IT need to work together to understand their risk exposures and deploy the resources appropriate for keeping the business safe.
I believe that when CIOs and CFOs can find ways like these to truly collaborate—whether it’s about mitigating risk, reducing costs, or using IT to create value for the business—the whole organization benefits.