As the CFO for WGroup, a leading technology management consulting firm, I’m in a unique position to understand how critical it is for IT and Finance departments to work together. The CIO and CFO have the same objective—the creation of shareholder value—but each individual may approach this objective from a different direction.
In today’s world, the strongest competitive threats come from technology-driven competitors. Consequently, the capability for competitive response often lies within the technology function. Both the CIO and CFO want a technology group that does more than just provide basic IT services. The technology function must accelerate the business, open new competitive fronts, drive analytics to better understand customers, and enable cost reduction throughout the enterprise.
Obviously, delivering on this vision requires investment in technology. Here are some strategies that we have seen for successfully enhancing collaboration between IT and Finance leaders when it comes to IT transformation.
1. Foster a strategic partnership with your CFO
Don’t wait to approach a CFO until you need something. It may sound remedial, but the best CFO-CIO working relationships are built out of just that: relationships. Achieve a better relationship by being an active participant in business conversations. Define ways for IT to make a specific contribution in new business investments, and focus on adding value to finance. IT has a team of advanced technologists and analytics professionals: How can those resources better enable the top objectives of your CFO—have you asked?
"A strong CIO-CFO partnership ensures that the company stays at the forefront of technological innovation, which ensures sustainable business growth"
2. Define the value of transformation
I don’t see technical debt discussed often enough between the CIO and CFO. Legacy systems, ancient technology written in 30-year-old code, and overly complex infrastructure and application environments drive excessive cost, elevate operational risk, and prevent the organization from operating at the competitive speed it needs to.
Quantifying the impact of technical debt and exposing the true cost of inefficient IT is eye-opening for securing modernization investment. Build a data-driven story with metrics on performance, reliability, costs, customer satisfaction, speed of operations, and security risk.
In addition, clearly communicate the bottom-line benefits of IT transformation:
• IT investment should be evaluated based on strategic value, not just cost
• Lack of IT investment could cost the company many times more in lost revenue
• IT transformation allows a company to offer new products, lower costs to customers, and capture new market opportunities
• Possessing the right technology can mean the difference between a company surviving or being overtaken by a nimbler competitor
3. Translate IT investment to business impact
Shift the budget and investment planning conversation to explain how IT is a driver of innovation and competitive advantage. When defining and articulating IT strategy, explain how investments in modernizing a system, changing technology partners, moving to the cloud, or implementing new capabilities will be better for the business. CFO and finance leaders are not usually technologists and may not intuitively understand why a new system is better, or why the old one even needs to be replaced. Every IT program should be described in business terms. Define how the IT investment will either increase revenue, reduce costs, or eliminate risk. If it won’t do one of those three things, question whether the project should be done, or if it can take a backseat to other initiatives that will have a greater impact.
The most successful CIOs that I have seen translate IT projects to the impact on earnings per share. Provided the numbers are accurate, I couldn’t ask for a more appropriate way to describe business impact.
4. Explore ways to fund transformation internally
Wherever possible, IT investments should be self-funding. Rather than requesting a large transformation budget, first evaluate opportunities to optimize service delivery, capture upfront cost savings, and then re-invest those savings into transformation programs. We have seen a few innovative ways to approach this.
One of the most common areas for cost savings is in eliminating IT that isn’t needed. Nearly all IT organizations have more applications than they need, and some applications that are rarely, if at all, used. A light-touch application rationalization effort may identify immediate opportunities to turn off applications (and eliminate the associated infrastructure) for things that aren’t adding business value.
In another instance, a WGroup client in the healthcare industry offset a $10 million network transformation with money from a federal credit program. WGroup uncovered this program, applicable to healthcare organizations with operations in rural markets, and used it to fund a comprehensive network modernization.
And in a third case, a client engaged WGroup to facilitate changing out a key managed service provider. Market pricing had fallen so dramatically since the last contract that all service provider bidders offered a $1 million upfront transformation credit. The winning bidder was able to deliver services at 25 percent less cost than the prior vendor, without any transition expenses, at much higher service levels, and with new tools and automation capabilities—plus, of course, that $1 million upfront payment.
Conclusion: Finance also wants IT transformation
It is especially vital for CIOs and CFOs to work together to decide how to fund and allocate investment on major initiatives such as moving to the cloud or establishing new technology capabilities. A strong CIO-CFO partnership will ensure the company stays at the forefront of technological innovation, which in turn will ensure sustainable business growth.
In fact, I believe having a CIO who is more than an operations manager—who thinks about generating revenue, value, and growth—could become a company’s biggest differentiator, and can move the company from merely responding to competitive threats to becoming the foremost disruptor in the industry. I guarantee your CFO wants that kind of IT leader, too.