June 2008

Why the CFO and CIO Need Better Partnerships (and how to get started)

CIOs may want to consider these questions regarding the financial health of their organizations:

• Do you know where your business is today on all key financial and non-financial performance indicators?
• Can you predict what the next 18 months are likely to bring and how to influence that period?
• How is your business doing against those of your peers and your own best practices?
• Do you know your business's key value drivers and where value is created and destroyed?
• Are corporate resources following the best business opportunities, and is your corporate strategy working?

At numerous seminars and workshops in various parts of the world, I have asked thousands of high-level managers — not just CIOs — these questions over the past two years, and I can count on one hand those who said yes to all of them. In fact, most executives at all levels can't answer yes confidently to any of these questions. Yet these are the same questions that the boards of directors, functional leaders and operating managers in every innovative, fast-growing and adaptive organization need answered consistently and quickly.

It's no longer the CFO's role alone to stay on top of economic metrics; CIOs need to be part of the team that's formulating sound financial strategies and creating tools to carry them out. It's fair to say that businesses which are not paying full attention to their finances and are unaware of competitive business trends may be following an outdated plan, wasting a huge amount of resources, missing current business opportunities and failing to take action to avoid potentially disastrous problems.

Only when CFOs collaborate closely with their IT teams do the business benefits become clear. Currently, too many corporate finance teams still use an array of disparate systems throughout the organization, requiring them to spend the first few weeks of every month knitting these systems together — often re-keying information into spreadsheets — before they can show top leaders a complete picture. Business-line managers then have to wait up to nine working days, on average, before they receive management accounts and other month-end reports, which means they're "flying blind" for around six weeks at a time. Needless to say, this is not a comfortable position to be in when orders suddenly take a dive, customer defections loom or profits take an unexpected tumble. In a fast-changing market, or in the first few months of a new product launch, limited or delayed access to timely business information can mean the difference between making the right decisions and the wrong ones — which can have a major impact on the bottom line.

That's where IT can help. Fast, relevant, accurate information for decision-making depends on providing the right key performance indicators (KPIs) and designing the right reports. IT's strength is to provide reliable, integrated systems that are easy to use. Although collaboration would seem to be the clear course, friction often marks the relationship between finance and IT managers. CFOs clearly need to change their mindset and welcome IT's perspective and expertise about the role technology can play in improving efficiency and financial performance. Just as CFOs' responsibilities have broadened, so have the responsibilities of the CIO. The key is to recognize the common ground and work together to reach joint goals.

Too often, there's a lack of trust between these two parties or there is misunderstanding about the role of the other. Finance traditionally sees IT people as overpromising, underdelivering and overspending, while IT often sees finance as interested only in controlling costs and meeting targets without understanding the strategic importance of the IT solution. There's no doubt that the two need to build a much stronger relationship if the organization is to transform itself into a low-cost and responsive competitor. Ideally, theirs should be a relationship of equals, but that's seldom the case.

In my recent book, Reinventing the CFO (Harvard Business School Press, 2006), I set out six roles for the new CFO: The CFO as freedom fighter, analyst and adviser, architect of adaptive management, warrior against waste, master of measurement and regulator of risk. These roles were translated into six imperatives for change that, when taken together, form a new "vision for finance" (see chart on next page). This vision takes finance on a journey from accounting specialist to business partner.

But such a journey can be traveled safely only with the IT team as a full partner sharing the same vision. In other words, both teams need to think more strategically and act on the whole system rather than its parts. They each need to realize that their shared vision and system design will influence how managers think and act throughout the organization and will have a major impact on bottom-line performance. In the chart, I have set out ways that IT can contribute to this joint vision.

Finance teams at such companies as American Express, Southwest Airlines and the Norwegian energy company StatoilHydro are starting to adopt this new vision for change in conjunction with their IT colleagues. And it's no coincidence that all are at or near the top of their peer groups on a wide range of performance indicators.

The successful implementation of the vision for finance will have a huge impact on the whole organization, but it will be a nonstarter without the support of IT. Once the CFO and CIO form a closer partnership, they will extend empowerment rather than tighten control. Of course, the CIO will claim that this revolution will require more investment, and the CFO will argue that much of this can come from releasing existing investments in duplicated databases and redundant systems. Both are true. For sure, more investment will be needed, and not every investment can be subjected to a detailed ROI calculation. But, on the strategic and risk-impact scale, there can be no doubt about the returns. Making this investment will enable both managers to build a stronger, better-managed organization that can provide sustainable growth and profitability — and that's best for the corporation as a whole.

Ask the Expert

Jeremy Hope, Founder of the Beyond Budgeting Round Table
jeremyhope@smartenterpriseexchange.com