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Build a strong CIO-CFO alliance in 2011, or put IT strategy at risk

It's time to reinforce the CIO-CFO alliance, or get busy establishing one. The CFO is playing a bigger role in IT decisions, and that's expected to continue beyond this recession.

To CIOs who have struggled to get the ear of their CEO, cozying up to the CFO can seem like a step back. The data suggests otherwise, however. With projected IT spending in the U.S. flat in 2011 and expected to remain that way until 2013, CFOs are playing a bigger role in IT decisions than in the past, according to Gartner Inc. As the country crawls out of the recession, building a strong CIO-CFO alliance will be important to executing IT strategy.

Chris LafondChris Lafond, CFO, Gartner Inc.

"This is not about the reporting structure," Gartner analyst Barbara Gomolski told a group of CIOs at the recent Gartner Symposium/ITxpo 2010. Gomolski specializes in IT metrics and finance at Gartner and is managing vice president of its CIO group.

A joint survey of CFOs that was conducted by Gartner and the Financial Executives Research Foundation and published in May showed that 77% of CFOs shaped IT decisions as a function of either their presence on the steering committee or their relationship to the CIO, or as a solo player. Senior financial executives at 41% of the almost 500 organizations that responded to the survey viewed themselves as being the main decision maker for IT investments. Today, more IT organizations report to the CFO (42%) than to the CEO or any other executive, and 53% of CFOs said they would like to move to this reporting arrangement, the survey found. The numbers add up to more CFO influence over IT decisions today than in the past decade, according to Gomolski. "I think that trend is here to say," she said.

Darko HrelicDarko Hrelic, CIO, Gartner Inc.

Rather than see these statistics as a threat, however, CIOs should work to build a strong CIO-CFO partnership, Gomolski advised. An alliance between Gartner CFO Chris Lafond and Gartner CIO Darko Hrelic has been forged, but the two insist there is no magic to their solid CIO-CFO relationship. Any CIO who has locked horns with a CFO over IT strategy, however, might be wondering if this duo is for real. (Learn more about the inner workings of the Gartner CIO-CFO relationship; read a interview with Lafond and Hrelic.)

For starters, both men report to Gartner's CEO and have his support for setting the IT agenda. When IT decisions or conflicts arise, two people settle them -- the CFO and the CIO. Both are closely attuned to what is happening in each other's realm, talking informally several times a week since Hrelic became CIO in 2007. Each executive deploys a liaison or "relationship manager" who shuttles between the departments. The IT representative is in on every meeting and every memo Lafond originates, and the finance rep is ensconced in Hrelic's IT department.

When asked how they have built this CIO-CFO alliance, Lafond said he has "developed a much deeper understanding of what it takes for IT to be successful." Hrelic, formerly CTO of Automatic Data Processing Inc. and a 21-year veteran of IBM, said it is how he does business. "I understand what Chris is trying to accomplish, and I see it as my job to try to help him with that," he said, adding that what makes the relationship work is "complete transparency": "There is no discussion in the smoky back room, on the IT side or the finance side." By the way, the two are not playing for peanuts. At Gartner, IT expenditures come to about $60 million a year, and another $20 million goes to capital spending.

In most organizations, CFOs set IT investment levels and capital budgeting, so it's important that CFOs understand what IT can do for the business, and what IT can't deliver because of limited resources, vendor timetables and so on. CFOs also play a key role in monitoring business processes, meaning that when IT does any work with business process optimization, the CIO will bump up against the CFO. In many organizations, the CFO has the most influence after the CEO and often functions as the CEO's right-hand person. In addition, the CFO may be the CIO's boss. The conventional wisdom is that CIOs who report to CFOs are less strategic in the enterprise, Gomolski said. These CIOs often are less visible to the CEO and the board, but that makes a strong alliance with the CFO even more important, she said.

To strengthen the CIO-CFO bond, get lunch together

One way to build a strong CIO-CFO alliance is to understand that CFOs need the IT department's help to do their job, Gomolski said: As a financial steward, the CFO needs accurate information and the means to report it in a timely fashion. As an optimizer of business and financial performance, the CFO needs advanced analytics and the ability to maximize ROI. To become a visionary leader, CFOs need automation so they can focus on strategic issues, as well as sophisticated tools to model the future.

Nearly 50% of large enterprises and 75% of midsize businesses still use spreadsheets or legacy applications to manage financial processes, Gartner estimates. Many financial systems do not provide a detailed view of profitability at a product or customer level. To improve the CFO's ability with profitability, for example, CIOs can offer profitability management applications, which are a component of corporate performance management software suites. The CFO's job in managing business performance will benefit from better data integrity and management dashboards for key performance indicators, or KPIs. IT can help the CFO integrate finance with other business functions through corporate information sharing and consolidated approaches to budgeting, planning and forecasting, Gomolski advised.

If CIOs can help CFOs do their jobs, CFOs can reciprocate and help CIOs understand how the business measures value. In this way they together can align IT metrics, investments, timing and financing structures to the business strategy. To start that conversation, Gomolski recommended that CIOs ask the CFO the following questions:

1.  What are the critical performance measures in our enterprise?

2.  What are the key sources of value in our enterprise, and which of these are underperforming?

3.  What is our business planning horizon, and where do we need maximum agility?

4.  Which financial structures --buy versus build, own versus lease, staff versus contractors and so forth --best support out business objectives?

Let us know what you think about the story; email Linda Tucci, Senior News Writer.

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