CFOs shouldn't act without CIO advice

Allowing financial heads to act unilaterally in making IT investment decision will not be in keeping with good industry practices, note market observers, who say CIO-CFO relationship central to how IT investments are made.
Written by Edwin Yapp, Contributor

Financial heads who act unilaterally without the input of CIOs may be detrimental to their organization, warn industry watchers, in response to a recent survey which suggests CFOs wielded more clout over IT spend in modern enterprises.

According to the Gartner study, close to half of IT organizations reported directly to CFOs, with 33 percent reporting directly to the CEO. It noted that 26 percent of IT investments in the past year had been authorized by CFOs alone, up from 18 percent last year.

The survey also noted that in 51 percent of cases, the decision was made either by the CFO alone or by the CFO in a collaboration with the CIO, up from 45 percent last year. The study revealed that CIOs made investment decisions alone for only 5 percent of the time, down from 11 percent in 2010.

The survey polled 344 respondents who were qualified in providing a perspective on technology deployment within their enterprise, where those who did not fit the criteria were omitted from the study. Titled "CFO update: the top 10 technology priorities", the survey was largely U.S. focused, though, 47 percent of respondents were from companies with global operations.

Ng Wai Heng, executive director of PwC Advisory Services, said the survey should be interpreted in its proper context as some organizations may dictate that the IT investment decision lies with the CFO, as this role oversees the company's finances.

In an e-mail interview, Ng said: "The key question here is whether the investment decisions were made with guidance and input from both the business and IT divisions.

"This trend is not in keeping with good practices, if indeed a CFO acted unilaterally in making IT investment decisions."

He noted that IT investments were often made by an IT steering committee comprising members from the IT, business and finance teams. While the CFO might be the final person to sign off on an investment, the decision made would be one of consensus and backed by a robust business case, he explained.

Ravi Navaratnam, executive vice president of corporate finance at Mind Consult, suggested not reading too much into the survey results as the reporting structure of the two roles is more a function of how each company prefers to draw its reporting lines. Mind Consult is a Malaysia-based engineering and project management consultancy.

"I would think both these positions are key in implementing the core strategies and directions of the company," he explained. "IT is a key driver toward realizing these strategies and directions."

Navaratnam added that, generally, there are two levels in IT investments. The first looks at core IT platforms that require capital investments and are purchased to keep the company running. The second comprises IT systems likely to be identified by a CIO, and that are needed to meet an enterprise's future needs so that it can stay ahead of the competition.

"Decisions primarily being authorized by CFOs alone are likely in the first category," he explained. "It is the second category that may require collaborative authorization by the CFO and CIO, in tandem with the strategic directions as agreed with the board and other stakeholders."

CFOs in concert with CIOs
Several CFOs ZDNet Asia spoke to agreed that while the CFO may have greater influence in today's IT spending decisions, the CIO-CFO relationship is still central to how collective decisions on IT investments are made within today's enterprises.

Greg Poarch, CFO of recruitment portal Jobstreet.com, said that generally speaking, IT is going to become increasingly critical to organizations and, as such, should be headed by someone in a CTO or CIO capacity reporting to the CEO.

"The CFO as a strategic business partner and, with fundamental understanding of the company's finances and expected returns from various initiatives, should be involved in IT investment decision-making in collaboration with the CTO or CIO."

Noorliza Abu Bakar, CFO of IBM Malaysia, believes that in practice, there are no hard-and-fast rules as to whether a CIO should report to a CFO or other C-level executives within the company. "Whether a CIO should report to the CFO depends on a company's organizational structure, business objective and strategy," Noorliza said.

Noting that while CFOs may have general understanding of technology, she said they are unlikely to have the in-depth IT knowledge that can help advance the company to the next level. "Thus, I think CIOs still have a vital role and scope in any enterprise," she said.

Siva Prakash, finance manager for Eversendai, pointed to a perception that the CFO and CIO roles are at odds with each other because business and IT priorities have always been considered by management to be vastly different from one another. Eversendai is a Malaysian construction and engineering company.

"It is rare for executives outside of the CFO office to focus on the strategic management of IT," Prakash said. "[So] creating a strategic and long-term connection between the corporation's business needs and IT returns can be firmly established by the active involvement of the CFO in the IT governance process."

PwC's Ng suggested that CFOs should work in collaboration with the CIO and the business team in making IT decisions, to ensure these are aligned to the organization's objectives.

"We expect that there will constantly be friction, and not just between the CFO and the CIO. To manage this, a collaborative working relationship built through frequent honest, open communication is critical, and can be done through an IT steering committee that brings together management, IT, finance and business functions to deliberate IT issues and investment decisions," he said.

Edwin Yapp is a freelance IT writer based in Malaysia.

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