There is a renewed discussion of the CIO reporting relationships. It is a discussion that is sure to generate debate as who you report to is important both personally and professionally. The perceived increase in CIOs reporting to CFO’s is a topic that goes through this cycle much like call of Paul Revere in the American Revolution – the “The CFO’s are coming, the CFO’s are coming, to arms the CFO’s are coming.” See related article in CFO Magazine. Warning this is a long blog post.
Rather than wade into this debate and conjure up images of gray suited executives with cost focused microscopes as a way to discuss who should the CIO report to – that is the subject of other blog posts – lets offer some requirements of the CFO to ensure that they are qualified to oversee IT.
In the 2012 Gartner Executive Programs CIO survey more than 2,300 CIOs provided ratings on the the knowledge of various C-Level Executives on IT topics. 21% of the survey respondents said that they reported to the CFO.
Not surprisingly that 69% of CIOs responding to the survey gave their CFO having strong knowledge in terms of understanding IT budgets. But these results also reported challenges in the other areas related to IT, specifically in declining levels of strength:
- IT governance, where 40% of CFO’s were seen as having strong knowledge
- IT strategy with 37%
- IT service levels with 33%
- IT metrics with 28%
- IT project and portfolio management with 27%
- IT security 14%
Considering the connections between IT and Finance, these scores point to knowledge and skills gap at the CFO level in terms of basic IT management and leadership practices.
Here are some suggested qualifications for a CFO to oversee IT. They are based on observation and discussion rather than quantitative study and offered to help make better reporting relationship decisions. They are in rough order of importance with the most important first.
- Direct Operational Experience, either in their current role as CFO or in the role immediately prior to becoming CFO, preferably in the last three to five years.
Even better if the CFO has run a division in the past, particularly one related to your company’s supply chain. Operational experience requires the CFO to think beyond the budget and annual financial plan as they have had to address day to day considerations based on how you make something work rather than how much it costs.
- Long term growth and profitability make up the majority of their executive compensation and performance plan. These two factors are essential for having a “strategic outlook.” However the term strategic outlook is overused to the degree that it has lost its meaning.
Delivering the current annual financial plan is the central job of the CFO, particularly as it relates to earnings. This is one of the reasons why they can appear to be so cost adverse and highly skeptical about investments that will generate revenue in the future. “A dollar going out of the company is gone – never to return while a dollar not spent drops to the bottom line.” Such an attitude is counterproductive for the CIO as IT is expenditure driven to support current operations and future investments. A CFO with a long-term view on growth and profitability will segment IT spend into operational and investment buckets. Looking for cost reduction in the former and viewing the latter as an investment to drive scale efficiencies and speed to market across the enterprise.
- Responsible for more than Finance as many finance organizations represent the exception to enterprise operations rather than the rule.
While finance people seem to be everywhere in an organization, most finance organizations are relatively small, with straightforward operational processes, consistent tools and populated with people who have very similar backgrounds. CFOs who have responsibility for operations outside of finance have to deal with different types of people, processes, tools and responsibilities which should prepare them better to handle responsibility for a diverse and different group of people in IT.
- An open attitude and respect for expertise. Finance is the way company keeps score and the CFO is expected to be the chief scorekeeper.
The prevalence of financial and quasi-financial tools can lead the CFO to believe that they know more than they actually do. By the way, the same goes for the CIO who knows the company’s systems and therefore believes that they know more about the way the company works, its processes, etc. Both are misguided. A strong CFO is one that knows their limitations and the limitations of financial views of the enterprise. A CFO who recognizes the expertise of others and is open to their involvement in issues that cross their expertise should be a benefit to the enterprise and its application of IT.
- Measures IT’s contribution beyond its ability to manage its budget and resources to incorporate long term changes in productivity, speed, capacity, business performance, etc.
This is an important point as current accepted practices for IT measurement are incomplete at best and detrimentally biased in most cases. IT creates value through time by changing the way the enterprise works to raise productivity and create new opportunities. If those aspects are not part of the way the CFO will measure IT’s contribution, then they are deliberately limiting their view and the enterprises potential future value.
- They have led a major ERP implementation in their current company or past company.
It would be great to say that the CFO should have been a CIO sometime prior in their career, but that is somewhat unrealistic given the different career paths and disciplines of the two roles. Leading a major ERP initiative should give the CFO an understanding of the complexity, scale and intimacy that IT has with the way the company works. Particularly if the CFO leads the effort, makes the tough choices, bears responsibility for the results. If the CFO is the titular head, a sponsor, transmitting these issues down onto the CIO, then chances are they have learned the wrong things about IT — only the complains — and not built the capabilities required to effectively be responsible for such a complex operation.
- An open attitude toward risk, one that looks at risk in terms of potential variance in results rather than the possibility of loss.
Risk exists in every part of the enterprise and it is an essential part of executive decision-making criteria. A CFO who sees risk as the potential for loss – will naturally be more conservative in their outlook and choose the status quo over an uncertain future. That can be devastating for IT’s contribution to innovation, as the CFO in this case would tend to be closed to new uses of information and technology. A CFO who see’s risk as a variance of results, recognizes that while there is some chance of loss, that chance can be managed through different ways. CFOs with this attitude should be more willing to support ‘fail fast’ innovation projects and a broader use of information and technology.
- A collaborative approach to leadership that is inclusive rather than exclusive.
A CFO who controls access to the CEO by being the only one to meet with them, not only places themselves at professional risk, they also demotivate the entire leadership team. A collaborative executive brings people into the conversation and discussion as needed. IT is a pervasive fact across the enterprise to a degree that cannot be ignored by the CEO, unless the CFO shuts that door as a means of control.
- Outsourced Financial functions, this is one of the more narrow criteria.
Business Process Outsourcing of back office functions like Accounts Payable, Receivables, Cash Applications, General Ledger, etc give the CFO the direct operational experience in working with service providers and alliance partners. It is preferable if they are the ‘owner’ of these processes and actively responsible for their service levels to the CEO and the rest of the executive team. CFOs with this type of responsibility have experience with service-based relationships, which are an important part of the CIOs world. A CFO with experience and responsibility for similar service arrangements has a deeper understanding and ability to support IT.
These are a few of the criteria that come to mind. We could argue about the order, and I am sure that the list is incomplete.
I welcome your thoughts and comments on what you think qualify a CFO to be responsible for IT. Please remember these thoughts reflect my personal observations and views. It would be great to hear yours.
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