This article was first published in the March 2012 Singapore edition of Accounting and Business magazine.
Driven by business productivity and efficiency gains, information technology (IT) has secured a foothold in organisations, both large and small, and so have the executives that run these departments. Over the past decade, IT heads or chief information officers (CIOs) have become more influential and taken a central role in decision-making, with some even having been elevated to the C-level suite.
However, the CIO’s clout in making IT-related investment decisions appears to have been increasingly clipped by CFOs, according to the findings of a recent report by technology research and analyst firm Gartner.
The report suggests that close to half of IT organisations report directly to CFOs, with 33% reporting directly to the CEO. The report, CFO Update: The Top 10 Technology Priorities, notes that 26% of IT investments in the past year have been authorised by CFOs alone, up from 18% in the previous year.
And in 51% of cases, the decision is being made either by the CFO alone, or by the CFO in a collaboration with the CIO, up from 45% in the previous year. The study also shows that the CIO makes the investment call alone only 5% of the time, down from 11% in 2010.
Ng Wai Heng, executive director of PwC Advisory Services, says CFOs will continue to make IT decisions in areas that are directly under their sphere of influence, notably, in the finance function of the company.
‘In such cases, finance also equates to the business and as a user, the CFO will have a strong influence over the type of solutions [obtained] and how these are to be implemented,’ he explains.
Ng says some examples of these solutions include enterprise resource planning (ERP), management reporting and financial analytics, as well as specific IT software solutions designed to meet accounting standards such as International Financial Reporting Standard (IFRS) 139.
However, Ng points out that it’s ‘not good practice’ for CFOs to be unilaterally making IT investments. Ng also says the survey results must be put into context as organisations may dictate that the IT investment decision, or any investment decision, lies with the CFO as the authority overseeing an organisation’s finances.
‘The key question here is whether the investment decisions were made with guidance and input from both the business and IT [departments]. If a CFO acted unilaterally in making IT investment decisions, then this trend is not in keeping with good practice.’
From PwC’s advisory experience, Ng notes that IT investments are often made by a forum comprising IT, business and finance executives, typically in an IT steering committee. The CFO may have the final sign-off authority but the decisions are made by consensus, backed by a robust business case, he adds.
Susanna Lim, partner at Ernst & Young Advisory Services, concurs but adds that the reporting structure between the CIO and CFO is not as important as how the two work together. ‘To me, the more important factor is the team dynamics and whether the two C-level executives are connected and can work together. In the final analysis, it’s about managing the IT agenda at the C-level for the company.
Lim says the goal of IT is to create value, be able to manage risk and rationalise cost. These factors are what makes an organisation successful, and not so much the kind of reporting structure it has, she adds.
She points out that the way an organisation is set up also influences the reporting structure; in this case, whether a CIO reports to a CFO or not. ‘Where investments involve applications which are business-driven, such as that of ERP, a CFO will drive the project together with the business process owners,’ she explains.
‘On the network and infrastructure side, CIOs tend to drive these areas as they are more technical in nature,’ adding that in her experience, CFOs tend to leave it to the experts and will only get involved when it comes to final approvals.
Finance professionals acknowledge that while there may be a rising trend in CIOs reporting to CFOs, the situation doesn’t have to lead to conflict, as the two roles may complement one another.
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 to other C-level executives within a company. ‘Whether a CIO/IT organisation head should report to the CFO depends on a company’s organisation structure, business objective and strategy,’ she says.
Noorliza says that when IBM is doing its annual planning, the CFO and CIO will meet and look at business objectives, issues, challenges and opportunities together. ‘We will discuss what is the best approach or solution to adopt, in helping to improve operational and business performance,’ she explains. ‘We have open communications and involve the CEO/MD and the management/leadership team as well.’
Noorliza says CFOs may understand that technology can help advance the company or propel the company to the next level – whether in terms of cost savings, improved productivity or efficiency – but they may not have a deep understanding of IT and the actual value it offers. Therefore, CIOs still have their vital role and scope, and will remain crucial for the next few years, she says.
Ravi Navaratnam, executive vice-president of corporate finance at engineering and project management company Mind Consult, says one should not read too much into the Garter survey. He believes how the two roles are organised is down to how each company prefers to draw their reporting lines and splits the running of the company.
He notes that CFOs are likely to authorise normal operational and capital investments, such as core IT platforms, by way of renewal or replacement or hardware and software, which are required to keep a company running.
‘As for the case of new technology or IT infrastructure, these are likely to be identified by the CIO in collaboration with the CEO/CFO in order to meet the future needs of the company, and keep them ahead of the game.’
Siva Prakash, finance manager at Eversendai (see box), says that the two roles may appear to be at odds because typically, business and IT priorities have always been considered by management to be vastly different from one another.
‘It is rare for executives outside of the CFO office to focus on the strategic management of IT,’ he says. 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, he adds.
CFOs can still play an active role in an organisation by helping it achieve greater business-IT alignment and bring the IT function to the mainstream by personally assisting with the definition of the IT vision, Siva says.
PwC’s Ng believes that, ultimately, for an organisation to function in today’s competitive world, the CFO should work in collaboration with the CIO for the sake of organisational alignment.
‘We expect there will constantly be friction, not just between the CFO and the CIO, but also with [other] business leaders as balancing business needs and priorities against ever-present financial constraints will always be difficult,’ he explains.
To manage this, Ng suggests that a collaborative working relationship be built through frequent, honest, and open communication. ‘An important mechanism to achieve alignment, collaboration and communication is through a forum such as an IT steering committee – it brings together management, IT, finance and business functions to deliberate IT issues and investment decisions.’
Edwin Yapp, journalist
Case study: Eversendai
According to Siva Prakash, finance manager at Eversendai, the company needed to review the requirement of an enterprise resource planning (ERP) system to replace the current one. The CFO took the lead to review the company’s requirements and developed a requirements plan that best matched the overall organisation’s strategic business objectives. Once developed, Eversendai called several tier-1 ERP system vendors to present their proposals.
The final recommendation on the selected ERP solution was made by the CFO to executive management for approval. It was eventually awarded to the vendor which was able to match the requirements of Eversendai, a leading Malaysian construction and engineering company.
The involvement of the CFO did not stop at this stage. He was involved in the project in its entirety including the development, prototyping, training, implementation, user acceptance, data cut-over, reporting and post-implementation maintenance and support.
While the CFO was part of the executive management, Eversendai did not ignore the IT heads and had a very close working relationship with them. By making the right investments in IT, with measurable outcomes, Eversendai was able to stand out in a crowded and competitive marketplace, balancing this with strong near-term financial management and governance that created an unbeatable business-IT alignment over time.