Embracing your inner CFO: getting what you need to manage IT spend
You wear many hats. As an IT leader, you’re a fixer, innovator, counsellor, advisor, resident technology expert, and fierce competitor for enterprise dollars. Undoubtedly, your job is complex.
But it’s that last competitive hat that makes your relationship with corporate finance complicated. The CFO is the hurdle you have to clear to get to the things you need to accomplish. In fact, adapting your economic rationale to the corporate financial management system and defending your numbers to the CFO is one of the most exhausting and stressful things IT leaders do.
When we sit down at our corporate budget conversation once a year, we are a magnet for every bow and arrow shot in the organization.
SVP and CIO CHRISTUS Health
In their Partnering for Performance series, EY reports that CFOs’ insufficient understanding of IT issues is the number one barrier in their relationship with CIOs. So here’s a question: is a lack of transparency making the negotiation between CIO and CFO more complicated than it needs to be at your company?
It doesn’t have to be this way. To get what you need from the CFO, you have to understand what the CFO needs from you. Tuning in to your inner CFO helps align expectations and provides perspective needed to frame technology investments in terms that resonate with executive leadership. This perspective helps you get what you need to be an effective strategic partner to the business.
What the CFO needs from IT
CFOs wear many hats too. They’re boardroom advisors, cost containment experts, profitability seekers, investor relations managers, and enterprise-level problem solvers. And most of them don’t have a clue how the money you spend ties to desired business outcomes.
This problem isn’t your fault (I hope) but it is yours to solve. If you want a stronger, more productive partnership, you’ve got to prove either a) your investments are moving the company closer to its objectives or b) your budget is holding the company back.
You do that by framing IT spend in language the business understands. How does your investment in servers demonstrate financial stewardship? How does your TCO of applications and services support agility and collaboration? What percentage of your budget helps manage risk? Ultimately, how IT spend drives competitive advantage and shareholder value (increasing revenue or reducing expenses) matters most to corporate finance teams.
Cost discipline versus strategic value
CFOs tend to fall into two camps: the reporters/controllers and the strategic partners. Many finance leaders are both of course, but understanding where your CFO’s priorities lie is key to success.
In the sense that a CFO position is a reporting and controller role, your message is going to be one of cost savings, control, and visibility. It’s important in this environment that IT demonstrates an ability to govern and optimize spend to meet cost reduction and avoidance objectives.
When the CFO is a strategic partner to the CEO and other members of the executive leadership team, their role is primarily to figure out how to allocate resources in support of the company’s strategic initiatives. What matters to this executive is transformation and growth. What will forward your agenda with this CFO is drawing a clear connection between technology investment and outcomes.
Either way, the CFO can have a profound effect on how well you adapt to innovations like cloud, agile, and other transformations that are changing the face of every business today. To have the right effect, the CFO needs a few things from you.
- Visibility. Can you tie business demand to things like resource costs? Where are the gaps and what are you going to do about them? How are you going to get to the cloud, and why? What will the financials look like and what are the levers? Where are you still doing waterfall development and where are you embracing agile? What are the trends?
- Responsiveness. Can you shape consumption of your services? Can you pinpoint where you are relative to budget and whether or not you have discretionary money you can release to help the business meet financial objectives? Timely, accurate information is critical, especially in fast-moving, go/no-go situations.
- Context. The business doesn’t want to hear about middleware, and neither does the CFO. How do your IT costs support specific business solutions? Are you spending money in the right places? How do you know? Do you understand your total cost of ownership? Are your fully burdened costs competitive?
- Education. CFOs may not admit they need this because they don’t have the same need to geek out on emerging technologies that you do. But know this: they fear the disruptive technology coming around the bend that has the potential to nullify competitive advantage. And they need your watchful eye on the horizon.
What IT needs from the CFO
Effective dialogue is a two-way street, of course. The CIO is a critical link between the CFO and business demand, and could use some clarity and support too. Here are a few needs your CFO should meet for you:
- FP&A for IT. Are your services competitive? Can you forecast service demand? Are you able to detect budget variance before it becomes unrecoverable? The CFO expects every other business unit to know what’s going on in their business and provides the financial systems needed to manage this closely. You’ve got to ask for this financial planning and analysis (FP&A) support too, so that you can make sound financial decisions about IT products and services.
- Finance automation. Too often, traditional line item/cost center accounting is applied to IT the same way it is to other shared services departments. But this fails to account for the complexity of interdependent, tiered technology services. The allocation math required to calculate costs at this level is beyond the reasonable capacity of humans with spreadsheets. Automation is key to business leadership in IT, reducing time and resources spent gathering and manipulating data. This improves accuracy, provides real-time visibility into budgets, forecasts, variance, and contracts, and increases bandwidth for analysis.
- A seat at the executive table. Do you know how technology supports or (better yet) drives business strategy? How will technology factor into competitive advantage in the future? Does the executive team understand IT’s role in shaping operational efficiency, compliance, and security? A better understanding of how technology shapes the business requires greater collaboration between the C-suite and IT. The CIO needs to know how technology can solve business problems, which gives the CFO confidence in ITs ability to proactively answer these questions.
- Permission to say NO. The CIO needs to say “no” to the business sometimes. This isn’t a power play. Is the project strategic? Is the total cost of ownership realistic and competitive? Does it make sense to keep investing in legacy systems? The CIO benefits from CFO support for fact-based, defensible decision-making.
- Options. Instead of mandates to reduce headcount, CIOs need CFO collaboration to solve financial problems together. This includes providing levers to respond to cost reduction objectives. Learn how CHRISTUS Health saved jobs by using cost transparency to debunk the perception that IT was resource heavy
How to collaborate
OK, so we’ve established that the CFO needs answers to fundamental questions about IT. The problem is this: corporate financial tools don’t work for the types of decisions IT leaders make. Corporate FP&A teams create cost center- and account-based financial plans, but this methodology does not provide the granular view that IT needs in order to manage spend that meaningfully drives business objectives.
You can’t overcome this barrier without an IT-specific financial system, which means you and your CFO need to team up on the solution. More than one-third of Fortune 100 companies use Apptio’s suite of TBM applications with their existing ERP, GL, and chart of accounts solutions (such as SAP Financials, Oracle Financials, and NetSuite). Why? Because this enables high-level corporate financial data to merge with operational data from IT applications that contain information about assets, applications, labor, projects, vendors, etc. Apptio takes input from these sources and translates the data into fact-based infrastructure, project, application, and IT service views that demonstrate fully burdened costs in terms the business understands.
How? Well, you have to visit Apptio to learn more about that. The moral of this story is that the applications exist to help your IT finance team do this important work. Given the right tools, you can achieve the view of the spend that both you and your CFO need to feel confident you’re getting the best possible value from your technology investments.
To learn more about building productive relationships with corporate finance, download the recorded webinar with McDonald’s Tom Dillon (Finance) and Phil LeBrun (IT).