Technology’s critical role in organizations, the opportunities and risks of social media and the growing threat of cybersecurity are forcing CFOs and CIOs to work more closely together than ever before. The CFO-CIO relationship, however, can be bumpy and fraught with miscommunication, misunderstandings and missed expectations.
“Technology is rising to the forefront of many business functions as data analytics and social media become critical value and innovation drivers,” notes Karen Mazer, vice chairman and managing principal of U.S. industries, Deloitte LLP. “The significant number of CFOs who have IT as a direct or dotted line report means that getting this relationship ‘right’ is increasingly important,” she adds.
Indeed, CFOs are increasingly finding themselves responsible for the IT function. According to the first-quarter 2011 Deloitte CFO Signals survey, 45% of CFOs surveyed had IT as a direct report, and about 25% more as a dotted line report. “That’s a big organizational shift, and many of the CFOs I work with are struggling with that change,” says Bob Comeau, a principal with Deloitte Consulting LLP and co-author of Data-Driven: The New CFO/CIO Dynamic.
CFOs often fault CIOs for not being able to align IT projects and spend with company strategy and value creation. They also sometimes find CIOs unable to communicate the priorities of IT projects, spend and ROI in a manner that connects with CFOs’ focus on both the top and bottom lines. “I hear many CFOs say that even when they have a good relationship with their CIO, they often don’t understand what they’re saying,” notes Mr. Comeau.
Meanwhile, CIOs often find the expectations CFOs and other senior leaders have of them can be unrealistic, and CFOs and other leaders may lack awareness of the realities of managing and implementing technology at large organizations. Moreover, CIOs often do not have a seat at the C-suite table where decisions that impact IT—and, equally important, decisions that IT should influence—are made.
These issues are just a few of the many challenges shaping CFO-CIO relationships as their worlds grow closer, and they generally fall into the categories of governance, ROI, portfolio management and communication. “These themes come up repeatedly in discussions of challenges between CFOs and CIOs,” observes Ms. Mazer, “and they also provide guideposts for how to bridge the gap.”
To Help IT Align with Strategic Priorities, Give CIOs a License to Lead
For CFOs, CIOs’ difficulty in aligning IT spend with strategic priorities can pose a governance problem. “CFOs are telling us they expect the CIO to be a business leader on IT and to guide them through the technology issues that should get priority and why,” says Mr. Comeau. Yet, CIOs are often ill-equipped to lead IT as a business and can find it difficult to align IT to strategic plans on which they had no input. “Running IT can be very complex and demanding, and sometimes that fact goes unappreciated by their CFOs,” says Mark White, principal and chief technology officer of Deloitte Consulting LLP.
CFOs should recognize that part of CIOs’ ability to provide leadership on IT investment can depend on whether they have the license to be leaders in the organization, says Rich Penkoski, a principal with Deloitte Consulting LLP and co-author of Data-Driven: The New CFO/CIO Dynamic. The positioning of the CIO role and function inside the organization, regardless of the reporting relationship, can be critical to effectively aligning IT spend with business strategy.
“Organizations typically reporting a high level of satisfaction with IT have a formal leadership dialogue around what is needed from technology to support the business strategy, and they give the CIO a seat at the leadership table for that dialogue,” Mr. Penkoski says. Once the priorities are set, the organization should send the message that “this is the entire leadership team’s decision, not just the CIO’s,” adds Mr. Comeau.
Other IT governance issues are:
—Lack of accountability. “Many CFOs find the IT organization like a magical mystery tour. It’s hard to find out who to talk to within IT to get things done. And it can be harder to find out who’s responsible when something goes wrong, particularly the deeper one goes into the IT organization,” says Mr. Comeau.
—Outsourcing, which can blur the lines of accountability. When IT is outsourced, it can be more difficult to find out why a project went wrong, who’s responsible for it and who can fix the problem and how.
Coach CIOs to Focus on the Business Case for IT Investments
CIOs often have a hard time explaining how projects in the IT portfolio can create value for the business. “CFOs want to see their CIOs driving IT to focus on delivering value and helping them figure out ROI on IT investments, but CFOs are telling us that that’s not happening,” Mr. White says.
CIOs should bring CFOs the same business case analysis as the treasurer does for adding a financial instrument to the treasury portfolio, he observes. “Just as in a treasury portfolio, an IT investment has an acquisition, an operation, a disposition or sunset,” he says. Noting that people who ‘grew up’ in IT may not have those communication skills, Mr. White says “CFOs can coach their CIOs to answer their questions on ‘why this project and not that one’ from a business case standpoint and teach them to provide information in the language of the business.”
Other practices companies have employed to help improve IT’s value and focus include:
—Building an IT decision-making framework to help improve project management and processes. “CFOs want to see more discipline around the IT planning process,” Ms. Mazer says.
—Having business units own their IT projects. “Organizations that tend to have effective IT projects place them under a joint business-IT leadership team. Each business owns its IT projects and budget, and the business leaders agree to the target ROI,” says Mr. Penkoski.
—Including maintenance costs upfront in the business case. Maintenance and upgrade costs can account for a significant portion of an IT project’s budget, which CFOs sometimes discover long after approval. “CIOs should make clear the ongoing costs of a given project versus the cost of the initial investment,” says Mr. White.
—Using industry benchmarks for IT spend when a clear ROI measurement can’t be made.
For CIOs Who Want CFOs to Listen: Communicate Clearly and Directly
Poor communication or lack of it can get in the way of the CFO-CIO relationship. CFOs can find that CIOs speak in abstract terms or ‘technology-speak.’ Or, they may take a “big picture” approach when the CFO would prefer more granularity.
“There is no decoder ring available for CFOs to understand their CIOs, so CIOs should find a way to talk about technology and IT in a language their CFOs—and other non-IT staff— understand,” notes Mr. Comeau.
Short of that decoder ring, following are other ways to help improve communication between CFOs and CIOs:
- Use business analysts to act as interpreters between IT and the finance function and business units.
- Assign business technology leaders to each business unit and function, such as finance, to serve as liaisons.
- Establish rotational assignments through IT and finance to help improve cross-functional understanding and communication.
- Put in writing what’s working and what’s not. Transparency can serve both CIOs and CFOs in their communications.
In this data-driven age, CFOs and CIOs should work more closely. According to Deloitte’s most recent CFO Signals survey, CFOs view the transformational impact of technology as far reaching. They name mobility, social business and customer data as the top technologies that will transform their businesses. When asked about their top priorities for capability improvement, CFOs listed IT/information management second after strategic planning—all the more reason CFOs should work with CIOs to identify the kinds of information needed and how they want it delivered.
For their part, CIOs need to make the business aware of the information available and the way that information can add value to the organization.