CIO vs CFO: How digital transformation is changing IT budget decisions
The relationship between the CFO and CIO is changing. The CFO used to keep a tight rein over the CIO but now – in the age of digital transformation – there's now a more nuanced view of who controls IT spending.
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CIOs increasingly believe IT is moving from a 'cost centre' to a 'trust centre', according to the 2019 CIO Survey from Grant Thornton and the Technology Business Management (TBM) Council. The report says CIOs are taking on a new role as a trusted business partner who drives strategic initiatives, not just someone who buys PCs and servers.
If that's really the case, then it could be good news for CIOs. The business no longer has a requirement for a traditional IT director, who spends most of their time ensuring that their tightly controlled budget is used to supply sturdy systems and services to the business.
SEE: Tech budgets 2019: A CXO's guide (ZDNet special report) | Download the report as a PDF (TechRepublic)
That shift in responsibilities has also occurred in part because the purchase of IT has been effectively decentralised. Budget management is no longer a simple one-to-one relationship between CFO and CIO. Sales and marketing, HR and finance managers are now buying their own cloud-based solutions to their business challenges, so CIOs need to find a new role.
"The days of the CIO serving strictly as an IT operator are over," confirms LaVerne H. Council, national managing principal at Grant Thornton. In a summary of the firm's research, she says that creating an IT strategy that aligns with overall business objectives is now a top priority for CIOs.
In most cases, that strategy is all about delivering digital-led business transformation – and the creation of that strategy is more of a collaborative effort than one directed in isolation by the CIO, the CFO or another senior executive, says Neil Ward-Dutton, vice president at researcher IDC.
"Modern transformation efforts often start – and need to start – in one particular business function or line; so, for example, transformations are often initially led by marketing chiefs, chief digital officers or CIOs. However as transformations move beyond their initial stages, the critical success factor becomes all about collaboration and cross-functional working," he says.
CIOs who are eager to play a key role in these cross-functional debates must establish themselves as trusted partners, says Council. That opportunity should play into the hands of CIOs, as they have the technical knowledge to help their businesses exploit digital transformation.
Yet the road to this new position of trusted advisor is from easy. CIOs might want to move from managing operations to leading innovations, but this shift also relies on the rest of the C-suite – and most notably the CFO – being sure that the CIO's smart ideas will deliver value for the rest of the organisation.
So to be successful, CIOs must work in close harmony with finance chiefs and articulate the value of IT spend to the business. That sentiment resonates with Kristian Hjort-Madsen, who used to be both a CTO and CIO in other finance firms before joining the executive board at Alm Brand in October 2018.
As CIO and chief innovation officer for the Danish banking and insurance firm, Hjort-Madsen is part of the executive board. He says great relationships with the CFO are all about collaboration and finding common ground.
"It's easier if you have a problem – never waste a good crisis. If you can create a shared desire for transparency, then that will make things easier. My IT leadership peers often want to keep finance away from IT; they just want the budget. But inviting the CFO into the IT ship is a huge advantage. It creates a much more fruitful dialogue," he says.
Hjort-Madsen, who spoke at a recent TBM Council event in London, says these kind of "grounded discussions" make a big difference in terms of helping IT move away from being perceived as a cost centre. He says too many CIOs think being detached from the rest of the business is the best way to work – and it's not.
"Being hidden is not as much fun as being able to show the value of your investments. Because if you can show the value, you get more money to innovate," he says.
Nik Puri, senior vice president for international IT at delivery firm FedEx Express, is another IT leader who works closely with the finance department to make the most of his IT budget. He is responsible for the management of mission-critical IT systems and resources across more than 200 countries outside of the US.
Puri says his firm is "very consciously" moving towards digital transformation. Yet his IT organisation also faces tight budget constraints. The potential value of any technology initiative must be proven to the finance team in order to satisfy shareholders.
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IT, of course, isn't the only area of investment that the business needs to consider. Certain capital items, such as planes and lorries, are expensive but critical items of spending for a logistics firm like FedEx. Deciding where to invest involves a trade-off between senior colleagues on a regular basis.
"That's a problem for many of us as CIOs," says Puri, who says FedEx uses the cloud-based business management tool Apptio to help decide how to invest in IT. The tool measures the cost of installing, developing and maintaining each individual piece of software and hardware across the firm's IT infrastructure.
"With the shift towards digital transformation, there isn't incremental funds in any of our IT shops," he says. "Having a tool that gives you a baseline – and that shows how you've shut down hundreds of applications as part of an application optimisation strategy – allows you to have the money to transform the business."
Puri says these facts and figures help him prove to his CFO that the IT team is doing all it can to make the most of the money it's given. He says to other CIOs that creating a baseline and delivering on application optimisation makes it more likely the board will treat you as a trusted advisor to the business.
"That approach creates incremental value," says Puri. "And if you're showing you're doing your part, then it becomes clear that you're delivering business transformation."