Where finance chiefs should get involved - and where they should keep out
More and more CFOs are becoming responsible for businesses' IT function. Andrew Donoghue explains what they must know to manage CIOs.
Financial chiefs are only going to become more involved in IT decision-making in the future, recent research from analyst Gartner shows.
Around 23 per cent of CIOs surveyed last year said they currently report to the head of finance, compared to 38 per cent who reported to the CEO. According to Gartner, if this trend continues, by 2013 more CIOs will be reporting to the head of finance than the chief executive.
The CIO may be more familiar with the intricacies of the technology but the CFO will make the final call on whether the project goes ahead. So how much does the chief financial officer really need to know about technology to feel confident in their decisions?
silicon.com spoke with industry insiders, senior financial staff and academics to find out what insights about technology CFOs need to equip themselves with to effectively oversee the IT operation.
1. You don't need to be a techie to understand IT
As anyone who has ever dealt with a so-called 'helpline' can attest, some IT staff have a hard time empathising with people who don't share their technical knowledge.
But according to Ian Sibbald, financial controller of Cranfield University, it is possible to work closely with, and even make decisions on IT projects without having an intricate knowledge of the systems concerned. "Our IT department is very good at not going down purely the technical aspects of an IT system," he says. "We will think about what are the right solutions from a business perspective."
Ian Singer, IT partner at accountancy firm Littlejohn, agrees CFOs should focus on the business benefits and not get too wrapped up in the technical details. "CFOs shouldn't get bogged down by the detail of technology features. CFOs faced with new technology should ask their CIOs, 'what are the benefits to the business of implementing this change/buying this new system?'"
More important than technical knowledge is the ability to ask the right questions and illicit responses in clear language from the head of IT, says David Chan, director of the Centre for Information Leadership at City University. "You don't need to be a techie, you just need to be able to probe and get them to explain things in plain English. If you don't have technical staff that can answer those questions, then recruit them or train them."
2. Think themes not technologies
Rather than focusing laser-like on specific technologies or products, it is more realistic given the rapid pace of development in the IT sector for CFOs to think in terms of general topics and let the tech experts fill in the details, experts argue. "I would say it is more themes in technology. Some of those that we have been looking at recently would be voice over IP, ERP solutions, and carbon management," says Cranfield's Sibbald.
Amir Sharif, professor of operations management at Brunel Business School, agrees that a broad understanding of technical strategy is more useful to CFOs than wrestling with specific products. "CFOs definitely need to know what's going on with IT - they don't need to know the specific nuts and bolts obviously but a good, broad understanding of the strategic use and risks of IT are essential," he says.
That said, Sharif also argues against complacency and expecting the IT department to spoon-feed all the requisite information. "One fundamental danger that CFOs face is that of 'Leave it to IT'," he warns.
3. Don't believe vendor hype
While becoming too bogged down in detail has its own dangers, the popular adage that a 'a little knowledge is a dangerous thing' also holds true, especially when it comes to dealing with IT vendors, says City University's Chan. "Finance directors and chief executives are often targeted by some of the major IT services companies and suppliers. They know exactly what the key buttons to press are and basically they tend to swallow it," he says.
According to Chan, it's very important that finance heads don't take vendor claims on face value and when possible ask experts to scrutinise the proposals. "I think that is a key point - don't believe the vendor's hype and if necessary find an independent source," he says.
4. Be energy efficient
One area which merits special attention from the chief financial officer is so-called "green" or sustainable IT. Cranfield University's Sibbald says that his organisation's focus on cutting carbon emissions includes using energy efficient IT equipment where possible. "Being in the government sector things are becoming more and more important in terms of keeping your carbon footprint down. So we are looking at what we can do in terms of eco-friendly PCs," he says.
Many progressive CFOs should already have investigated carbon accounting especially in light of the UK government's Carbon Reduction Commitment legislation due to be rolled out early next year.
5. No licence to ignore
Software licensing might sound like something that is firmly in the remit of the IT department but according to the Business Software Alliance, there is plenty of scope for finance chiefs to be more involved with software licensing.
"I don't think this is an issue that in most companies is part of the CFO's agenda and therefore it's not necessarily given the prominence that it deserves. Yet this is an area of compliance and often the CFO is the person responsible for all compliance issues in a company. So there is definitely a role for the CFO," a spokesman for the organisation told silicon.com.
6. Outsource IT services but not strategy
Consultants might help you through the process of developing an IT strategy but the hard work has to be the responsibility of the company's senior management including the CFO, argues City University's Chan.
"You do get some chief executives and finance directors who think they can buy an IT strategy from consultants but the strategy they eventually get will be unimplementable. Consultants might help you through the process but you have got to end up doing the work," he says.
The idea that IT is a utility that can be "bought-in" might sound nice but it isn't realistic, according to Chan. "If you pay someone else to manage IT governance and strategy, you're basically paying someone else to do your job."
7. Know your financial tech
It might sound obvious but annother area where it makes sense to have some specific IT knowledge is the finance department's own systems. "Once you get down into finance systems then it's more important that there is some detailed knowledge in there. In fact the MIS systems in total, when you are talking about the HR systems and the student records, then that is something I need to have a detailed knowledge of," says Cranfield's Sibbald.
According to recent research commissioned by ecommerce technology maker GXS, ERP systems are also a potential headache for the CFO and should be monitored closely.
8. Don't make your CIO a plumber
Having overall budgetary control over IT projects is part of the CFO's remit but that shouldn't be to the detriment of the IT director or CIO's role, says City University's Chan. "The first time the email crashes everyone expects the CIO or IT director to be the plumber. If you take a senior IT person on, you can't treat them like that. Sadly that is one of the issues - some finance directors would love IT to be a utility," he says.
According to Chan, he has spoken with several heads of IT recently who have seen their strategic role overshadowed by short-term fire-fighting. "It takes a very skillful operator to turn that around," he says.
9. Think outside the accountancy box
Just as some IT directors come from a technical background which didn't promote communication skills, finance chiefs may need to transcend the limitations of a career begun in accountancy.
"As financial careers have evolved beyond the reconciliation of numbers, accounting professionals must be adept at communicating with a diverse group of people, have an acute knowledge of their company's business systems and make sound recommendations on technology-related investments," says Paul McDonald, executive director of recruitment company Robert Half Management Resources.
According to City University's Chan, IT requires fundamentally different skills than finance - skills which the finance heads must acquire to be successful in making tech decisions.
"Accountants are great at linear extrapolations. How is bad debt going to perform? Let's look at bad debt for the last year," he says. "But the world doesn't always happen like that as there are structural changes happening. That is a real danger with IT because they will look at history and use that to predict the future."
10. Embrace the chaos
IT is not only about processes that support the business. It is also about using technology to disrupt old ways of doing business when necessary. This chaotic and creative aspect of IT is hard for some staff from a financial background to grasp, according to experts.
Consumer devices such as the iPhone, social networking and cloud-based collaboration tools are just some of the technologies threatening to derail established ways of doing business and should not be ignored, warns Sharyn Leaver, vice president and research director at analyst Forrester.
"Organisations trying to impose control over these chaotic technologies from the top down with pages and pages of policies and guidelines will fail," said Leaver at Forrester's recent leadership conference. "Chaos is the new norm."
11. It's the business continuity, stupid
IT is essential to just about every business carrying out their day-to-day tasks. So if a server crashes or email goes down - or any number of IT disasters occurs - it can have serious consequences for the business. "Like the equivalent large-scale infrastructure projects, IT can go horribly wrong. And when it does, it generally means delays and costs well beyond expectations," says Martin O'Neal, managing director of IT security consultants Corsaire.
The CIO might be responsible for the IT systems but any disruption to the functioning of the wider business ultimately rests with the CFO and CEO. And that's why the CFO must pay particular attention to business continuity plans - especially as a result of any potential IT outage.
"The CFO is responsible for the stability and the financial probity of the company. He or she would be absolutely slated if something happened to the firm in term of disasters," he says. "As Terry Pratchett writes in his Discworld novels - the million in one chance occurs nine times out of 10."