Chief information officers (CIOs) tend to be viewed as outsiders by their CXO counterparts, lamented speakers at the Great Debate segment of the CIO Conference held in March this year. Among them, a debater, who is a CIO, recalled that his fellow executives even decided not to invite him for golf sessions.
One of the reasons for this situation is that CIOs and chief financial officers (CFOs) do not share the same view on IT. The result is the tightening of purse strings by the CFO, leaving IT short of investment funds. In the long run, this can translate to meaning the CIO is left out of the executive golfing team.
CIOs and CFOs simply have different ways of perceiving where enterprise project planning and management focus should be and how the budget should be spent. For medical and security services provider International SOS’ CFO Nigel Pool, financial justification is one important decision tool. “You look at the return on investment or the different types of financial models—productivity gain, prospects, etc,” he says.
Generating Value
The CFO’s view is often to make full use of underperforming assets in order to generate value for the customer, which creates shareholder value through profit growth, points out Subrato Basu, vice president Asia Pacific, The Research Board. Contrast that with the view of a CIO whose role is to undertake IT projects that support business capabilities, which builds value over time for the enterprise, he adds.
When both executives look at project timelines, the CFO often thinks short term in terms of meeting quarterly and annual targets. “The CIO’s model typically includes lots of multi-period investment needs that don’t necessarily bring direct financial payback in the short term,” says Basu.
In terms of project benefits, the CFO’s perspective is naturally skewed towards cash flows and physical assets. The CIO’s view is somewhat different. “Capabilities that enhance value such as advanced analytics, and qualities like agility are hard to capture with the CFO’s tools,” says Basu.
The two CXOs’ financial considerations differ as well. The CIO’s view is biased towards a straightforward ‘profit and loss’ view of value, while the CFO’s includes a ‘balance sheet’ view and shareholder view where investor needs, tax, currency and other non-operating concerns must be considered in project portfolio selection.
The CFO’s outlook is probably shaped by the nature of his work. The role of a CFO not only covers the financial aspects of the organisation, but takes on that of an overall custodian of the stakeholders. Then the perspective a CFO takes on IT is how technology can affect the enterprise as a whole.
Quantitative
“As one of the main roles of a CFO involves viewing things from a quantitative perspective, it is essential that the CIO emphasises how the project implementation is likely to provide significant benefits and add value that will outweigh the cost of implementing the project,” says Thomas Ho, CFO, PowerSeraya. The company is an energy generation specialist based in Singapore.
The value of the IT initiative to the organisation is another pivotal factor. For Ho, projects need to have a strong business case and reflect the needs of the business, while “still sitting within a reasonable budget”.
How a project manages to bring out the value of investment is important for the CFO. Typical CFO questions are “What is the impact on current processes? Is there any addition to organisation’s eco-system? Will the stature of the company in the industry be improved? Will the project help improve corporate results? Will it encourage innovation and employee commitment?” says Basu.
For International SOS’ Pool, the organisation-wide impact of a project is important with the company’s operations spreading across 60 locations globally. “I am interested in is the ability of the team to execute. It is all very well to say we can execute in a sophisticated environment perhaps such as Singapore, London, Paris or New York, but can we execute in Nigeria, Kazakhstan or Angola? These are a lot of the countries where we have to perform as an organisation, so one of the key things that I’m always asking is, can we execute this globally?”
Nitty-gritty Stuff
And if the CIO is able to demonstrate that his project can pull off the oft-used phrase of ‘doing more with less’, brownie points are guaranteed.
The ability of the project to be able to overhaul the cost base is essential to the CFO, explains Basu. The areas that the CFO assesses include how end-to-end processes can be improved, whether organisational capabilities can be enhanced without increasing costs, how existing assets can be leveraged, and attaining business unit cost view as well as how an organisation’s cost activity view can be accomplished.
Also, the CFO is concerned about the project risks involved. The CFO integrates traditional finance risk with business risk arising from the project, points out Basu. “I want to know all of the things that could possibly go wrong with the project,” adds International SOS’ Pool.
Having corporate governance in place is one key guide for CFOs and other executives, describes Pool. For instance, after six or 12 months have passed for a project, the management would review and check on the project’s performance such as key performance indices (KPIs) or financial milestones. “It is like a structure of how we are going to do the project. The financial part of it will be a part of that plan, and it will be very clear on deliverables—what exactly is it supposed to deliver and in what time frame,” says Pool.
Tech Agenda
Despite the different ways the CFO and CIO look at technology projects, both executives can help each other in their field of work.
“I think the CFO can learn from the CIO a lot, in terms of how we can use technology to change the business, and then the CIO learns the financial skills of the CFO,” says Pool. “I think overall, if they work together, it actually brings the technology agenda to the forefront of the business.”
And at PowerSeraya, the theory works. Ho’s role is to effectively assess the functionality of an IT project together with his CIO, who is able to provide the in-depth technical knowledge and expertise required for the project. “Our emphasis in the company is to work together as a team and share opinions on any project, with a common view to maximise its returns,” says Ho.
In today’s difficult financial climate, it makes sense for both CXOs to keep IT decisions fluid in the areas of budgeting for projects. “The circumstances of the business can change in 12 months. Keep re-visiting your budget. At every quarter, we sit down and say well, fine, we are allocated this amount, but we want to re-prioritise in terms of what we are doing,” says International SOS’ Pool.
So, thanks to the global economic recession, the CFO has become a crisis containment leader for the organisation, notes Basu. “With businesses under scrutiny by industry bodies, compliance remains a priority, along with effectively managing internal financial controls,” he adds.
Today's Scenario
Looking forward, the CFO’s role is likely to evolve further. Results from Capgemini’s CFO-Agenda 2008 survey found that the CFO will take on the role of the ‘wealth creation navigator’ for the organisation. “So it is vital for the CFO to understand what drives corporate performance and value,” says Basu.
Having to deal with these two drivers means there is a greater need for the CFO and the CIO to work closer than before. Corporate performance management (CPM) applications can empower CFOs to understand the drivers of performance and significantly improve the effectiveness of their planning systems. Financial governance technologies offer new ways of reducing material weaknesses in internal controls.
New technologies such as Extensible Business Reporting Language (XBRL), service-oriented architecture and software-as-a-service will impact the way new applications as well as systems are deployed and managed.
“This is the time for CIOs to work more closely with CFOs and senior finance personnel to develop strategies for improving the effectiveness of finance systems while clearly identifying the benefits that will help CFOs deliver increased operating efficiencies,” says Basu.
| CIO HELPING THE CFO If CIOs are able to address the following questions, they will be able to improve the chances of getting the IT project approved by CFOs.
Source: Subrato Basu, The Research Board |
CFO helping the CIO Since CFOs have a helicopter view of the organisation, they can be strong organisational mentors to CIOs by:
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