Gartner

A powerful alliance between the CFO and CIO will deliver better business performance

As businesses face difficult decisions due to the global economic crisis, it’s crucial for the CFO and CIO to build a powerful alliance to increase business value, writes Dave Aron

CIOs have been told for years that they must demonstrate the business value of IT, but the problem is much deeper because of misaligned mindsets between the CIO and CFO. The CIO and CFO have to devote time to aligning the economic and the enterprise architecture of the business. Due to increased fiscal scrutiny, more IT decisions now rest with the CFO for final budget approval, so this relation becomes even more critical.

As stewards of critical enterprise assets, in horizontal roles that span the entire enterprise, the CFO and CIO have similar responsibilities. Their operational interactions focus on the financing of IT and the provision of information to support the finance function. However, a relationship based solely on these interactions is incomplete because it limits the ability of each executive to manage and transform enterprise performance.

Although the CFO and CIO have the potential to form a powerful strategic alliance to drive enterprise performance, their relationship rarely reaches this level.

For CFOs and CIOs to ally closely, they must come to a shared vision, a shared approach to value and risk and aligned styles.

The potential of the CFO-CIO alliance hinges on both executives understanding each other’s vision of business success and finding ways to align them.

While the CIO thinks in terms of capabilities, the CFO thinks in terms of economic architecture—i.e., the financial and risk aspects of the business model that will lead to success.

The CFO and CIO must spend time together to uncover and align these two perspectives, with a focus on metrics, leverage points, timing, agility, capabilities and financial structure. As a CIO, ensure that IT initiatives are explained in a simple way and presented in terms of options, not as “the only alternative.”

Creating an alliance between the CFO and CIO based on trust generates better business value. Specific ways in which a strong CFO-CIO alliance can increase business value include:

• Greater executive influence—in situations where the CFO has greater access, credibility and/or influence at the executive committee and board level, the CFO may be able to shape demand for more impactful IT investments and generally influence those governance groups to make superior decisions about IT.
• More flexible collaboration—when the CFO and CIO have established trust, they are often willing and able to give each other the benefit of the doubt, as well as some flexibility. This can mitigate the problems inherent in fixed, formal planning, and reduce the burden of communication.
• More strategic planning—when the CFO and CIO have achieved a common understanding of the business model, business priorities and each other’s role, time together can be spent on genuine strategic planning to maximize the benefits of information and IT, rather than more-tactical, operational issues.

In 2009, 13% of CIOs in Asia report to the CFO, while 54% report to the CEO. Gartner data from 2002 to 2008 shows a gradual upward trend in the proportion of CIOs reporting to the CFO.

By 2012, 13% of CIOs in Asia expect they will report to the CFO. However, this figure is very low compared to the worldwide average, with 24% of CIOs worldwide currently reporting to the CFO and only 38% to the CEO.

There are multiple drivers of the CIO’s reporting line, including the focus of the CEO and perceptions of IT’s role.

In general, reporting to the CFO is less attractive if IT-intensive transformation is critical to the success of the enterprise, if the CFO is focused on finances (and therefore less strategic), or if IT is relatively stable and mature.

CFO reporting is more attractive if IT is in an immature state, if the CEO is very outward facing or has too many direct reports, or if the CFO has a broad scope that includes a deep understanding of IT’s value.

Where IT fundamentals are strong and the CIO is looking to add the next level of value, CFO reporting often creates a challenge in that CIOs must work harder to break out-of-the IT box.

There are two clear pieces of evidence for this. First, only 45% of CFO-reporting CIOs have leadership roles outside of IT, compared with 63% of CEO-reporting CIOs. Second, CFO-reporting CIOs spend one day less per month with the board and senior executives than do CEO-reporting CIOs.

The message here is not that CFO-reporting CIOs are doomed to failure. Rather, it is that these CIOs need a focused plan to break out-of-the box, which should include influencing the CFO to be more IT-savvy and to understand the CIO’s full capabilities as a contributor.