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CFO 2.0: How new market pressures are changing the relationship between IT and finance

by Minda Zetlin

Dallas Clement, CFO of Atlanta, Georgia–based Auto Trader, first started working in corporate finance 22 years ago. He says that before the advent of the internet, IT often reported to the CFO. In those days, most corporate IT served functions such as finance or human resources. “The CFO was the primary purveyor of those back-office requirements,” he says.

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Then things changed. The internet and other new technologies created more IT capability that served a broader set of functional groups, including customer-facing ones. “IT became a part of the business and very strategic. In many cases, IT started to move out from under the CFO, and began reporting directly to the CEO or president,” he says.

Now the trend appears to have come full circle. A survey conducted by Gartner for Financial Executives International found that 45 percent of IT leaders report to the CFO in their companies. That’s up from 42 percent in 2011—and more CIOs and other top IT executives report to a CFO than to any other title.

“In many organizations, the CFO now has the top responsibility for IT, which wasn’t the case before,” says Marie Hollein, president and CEO at Financial Executives International.

As enterprise technology continues to expand, both as an expense and as a strategic element of business success, more CFOs are charged with direct authority over IT departments. To succeed in this new reality, CFOs need to ensure that their organizations have agile business processes and systems that let them maximize resources and deliver real results. Financial smarts alone are no longer enough to meet these new challenges—today’s CFOs need technology expertise as well.

Process-Based Transformation

From security and compliance to business intelligence and e-commerce systems that can help reach new markets, financial leaders clearly understand how the right technology can protect a company from risk and help drive success. “As a category of spend, technology is growing, and that’s not going to change any time soon,” says Collin Harrison, vice president of finance at Plano, Texas–based Alliance Data.

63%
Percentage of CFOs
planning business intelligence and/or performance management projects in 2012 (Source: 2012 Gartner FEI CFO Technology Study)

But today’s top finance leaders need to see enterprise technology not only as a growing expense—a major capital investment that needs to be reviewed and approved—but also as a way to boost profit margins. “There are downstream cost savings that on a net basis can make the spend more strategic,” Harrison says. “You may be able to reduce some of the support cost elsewhere. And now technological capabilities are driving revenue as well as creating operational efficiency.”

For example, leadership at the District of Columbia Water and Sewer Authority saw technology as having the potential to initiate a complete business transformation. Before 1996, the Authority was a part of the Washington DC government, and before that the federal government. Since 1996, the Authority has been an independent entity—expected to be self-sufficient and function like any other utility. “Strategically, we had to decide what would be our catalyst for change and how we could transform into a world-class utility,” says Olu Adebo, CFO at the District of Columbia Water and Sewer Authority. “We converged on technology being that catalyst for change.”

According to Adebo, that has been the result. Early on, his department scheduled many technology projects for the organization—including financial management, payroll, customer billing, and an automated meter reading system. Management leveraged those new technology investments to create change. “We reorganized our business processes and our organizational structure around the best practices for our technology,” he says.

Having the CFO directly involved in technology decision-making can lead to better investments than IT could make on its own. It can also lead to more-powerful business benefits to the organization: connecting real operational insight to IT projects, initiating a full review of the value of a project, and investing in the right projects at the right time.

Operational Insight

According to Scott Rottmann, managing director at consulting firm Morgan Franklin, the CEO is a company’s face to the market. That leaves the CFO to step into some of the roles traditionally managed by the CEO. CFOs are now fully engaged in overseeing their companies’ operations.

“Behind every successful CEO, you’re likely to find an equally dynamic CFO,” Rottmann says. “The days of the CFO simply being a signatory of financial documents and steward of the company’s assets are long gone.”

In this position, a CFO can sometimes help IT clarify the requirements of a business group that has asked for a new IT project. Clement says he often finds himself in this role, facilitating a discussion (or debate) about what technology is needed and what it needs to do. “A business group may ask for chocolate ice cream, but IT may say, ‘We have vanilla, will that satisfy your need? The cost is minimal and we can deliver right away,’” he explains. “The business may give three reasons why they really need chocolate, and IT may counter by offering vanilla ice cream with chocolate sauce. A CFO can facilitate those discussions and get all parties to balance the cost and functionality requirements.”

Once an IT system is in place, a modern CFO can use technology to get an even better view into the company. Financial Executives International members report that the close at the end of a month or quarter can take an enormously long time in a large organization—time that the use of technology can dramatically shorten. “With an effective technology system in place, they can focus on corporate performance management and business intelligence,” Hollein says. “It allows them to see the forest instead of the trees.”

Assessing IT Value

Technology may be able to help the bottom line by lowering cost and increasing revenues, but sometimes it’s hard to tell beforehand which technology projects or investments actually will pay off and which won’t really have an impact.

“I’ve worked in companies where the CIO reported to the CFO, and also in environments where they’re peers,” Adebo says. “But the reality is that technology is an investment, and as with every other investment, there’s a need for the CFO to validate whether that investment will return value.”

Today’s CFOs have both the opportunity and the requirement to learn a great deal more about technology.

Clement believes that projects involving big data provide an example of how a CFO can help manage the efficacy of an IT project. He reports that Auto Trader generates massive amounts of data, and that someone in the organization—in a fit of big data exuberance—could ask to store every byte. IT might respond to this request by purchasing massive multipetabyte storage in geographically diverse locations, at a significant cost. “A CFO can ask, ‘How am I going to present all that data? And what is it telling me?’” Clement says. “You really need to ask, ‘So what?’ Before you build massive technology to report and store data, you need to know what the business purpose is.”

Auto Trader executives have seen firsthand the value of the right data. The company acquired vAuto, which aggregates data from online auto listings and parses it by zip code and other factors. This information is packaged with software and sold to dealers to help properly price inventory and determine what cars are likely to sell.

“That’s an example of productizing data,” Clement says. “You can’t have 100 projects. You have to have just a couple, and you have to be clear and resolute that the ultimate measure of your success is a financial one,” he adds. “The CFO is in a good position to understand that.”

Right Projects, Real Value

When a new technology project does make sense for a company’s bottom line, the CFO can make it happen right away—in time to take advantage of opportunities or avoid impending risk. “If the finance leader is involved in the strategy from the start and understands where the competitive advantages are, then things can happen a lot more quickly than if it’s IT going up the hill with a request for pure spend,” says Harrison.

Clement says some CFOs still focus only on their financial tasks and don’t take on the role of broad business leaders. But those who have broader operational influence can serve an invaluable function for IT. “They have the ability to really drive priorities, and driving priorities is one of the hardest things to do in a business.” Different interests within an organization are constantly petitioning IT for different new technologies, and often they aren’t clear about their requirements. Faced with this onslaught, IT can look to the CFO for help in establishing priorities. “That’s enormously helpful to the technology group,” he says.

Once a project has been completed, the CFO can act as an enforcer. Adebo believes that it’s not enough to deploy an enterprise IT solution if management is not willing to reorganize business processes around technology investments. CIOs may lack the authority to tell users to change how they do their jobs; but a CFO can make it happen, getting business leaders to commit to new processes and systems. That makes it much likelier that the project will yield real benefits. “It’s up to the person in my role to make sure the ROI comes not just from technology but from a whole business transformation,” he says.

CFO Upgrade

Today’s CFOs have both the opportunity and the requirement to learn a great deal more about technology than they’ve ever needed to before. But it’s an education they will have to initiate themselves. “You’re not going to get put through any training in technology,” Harrison says. “And it’s not textbook or even conventional wisdom yet. But it’s something you need to be aware of, and you can really help yourself by rolling up your sleeves now and learning about technology.

“If your company is going to grow, you need these things,” Harrison sums up. “So IT and finance are not very separate organizations anymore. Going forward, they’ll become more and more blended.”

Minda Zetlin is coauthor of The Geek Gap: Why Business and Technology Professionals Don’t Understand Each Other and Why They Need Each Other to Survive (Prometheus Books, 2006).

 
 
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