The other day I was talking with a financial analyst for an investment company who was asking about how companies were using IT in the current economic environment. When I mentioned that CIOS were focusing on issues such as increasing free cash flow, the financial analyst cut me short and said, “Free cash flow is a finance issue and the responsibility of the CFO, what does IT have to do with it?”
In response I asked, “why is that the case?”
His reply was that CFO’s manage free cash flow by dictating and enforcing policies such as no capital expenditures, reducing budgets, or changing payment terms. Since these were the domain of the CFO, the CIO and IT did not have a role.
I asked a clarifying question, “So achieving free financial goals is just a matter of policy?”
The financial analyst’s voice went up a beat as he explained that yes that the CFO made the policies and enforced them and that those policies achieved the goal.
So I asked a follow-up question, “I understand the policy point, but given these policies, what is different about the underlying operation?”
There was a pause, then the statement: “They are following a new set of rules, new policy that is what is different.”
I countered, “Yes but how does the underlying operation change?”
The reply, “It doesn’t it is following new rules.”
Now it was my turn. I commented that I understand that policies and rules can make short term changes in financial measures — like free cash flow — but its hard to see how a company can sustain those changes without changing the way they work, changing their underlying operations. So you can implement a new rule without changing the operations, but you cannot sustain that rule without making operational change.
The financial analyst thought for a moment and said, “Is that what the CIO does?”
I responded yes, but not alone. CIOs and their business peers change the way the company works to achieve, sustain and extend performance beyond the temporary gain from new rules and policies. I pointed out that too many bright people have been thought to think of finance and operations as two separate things. That separation weakens a company and its ability to achieve it goals. Achieving and extending performance requires both.
A policy edict may be successful for a few quarters, but without changing processes the policy loses effectiveness leaving the CFO to declare other policies.
A process without clear and consistent policy lacks direction, leaving managers with little guidance for managing to results and targets, reducing their effectiveness and value.
Separating policy from process creates a gap between finance and operations, between the CFO and CIO that weakens companies and reduces their effectiveness. It is time to bring these things back together to achieve and sustain results by changing the way we manage (policy) and the way we work (process).
Have you seen policies work effectively over the long run without changing the operations and processes?
What are the signs of effective collaboration across finance and operations?
Have you experienced the consequences of a policy and process mismatch?
Or should finance and operations remain apart.