Financial Director, The rise of the CIO and its impact on the CFO
TECHNOLOGY is no longer about’keeping the lights on’; organisations require new forms of IT to enable their business, and to give them a competitive edge. And as the years go by, the importance of the person managing IT – the chief information officer (CIO) – has steadily grown.
CIOs are increasingly reporting to CEOs, and becoming part of their company’s executive board.
This year’s Harvey Nash/KPMG CIO survey found that more than a third (34%) of CIOs now report in to the CEO, up from 13% in 2009. This is mainly at the expense of the CFO, who has seen CIO reports fall from 19% to 12% in the past seven years.
For some CIOs, this is a critical move for organisations to make.
“Digital transformation has brought the CIO role and contribution into sharp focus; businesses who continue to hide IT under a CFO and treat it as a cost to be reduced are missing the point and will ultimately miss the boat,” Phil Jordan, the global CIO of telecoms firm Telefonica, tells Financial Director.
“If a CEO isn’t investing in digital IT and feeling the need to bring a CIO who can lead digital transformation into the executive team directly – my guess is their business won’t be here in ten years,” he adds.
A changing dynamic
Robert Gothan, CEO and founder of Accountagility believes that these changes – particularly within the financial services industry, have led to growing tension between the CFO and the CIO – particularly as CIOs are given larger budgets, which he claims they use for ‘technical vanity projects’ of which there is questionable value.
He advises CFOs to “consider business partnering approaches in order to raise the profile of finance and tilt the boardroom in their favour”.
And indeed, this is a shift that Capital One Europe plc CIO Rob Harding has seen first-hand in the last five years.
“From my experience, the CFO is now looking for a partnership with the CIO to help reimagine cost and growth opportunities across the whole business,” he says.
However, while Harding acknowledges that the change in reporting lines could be a part of this change, he doesn’t think that is the only factor for this switch.
“I think it is much more about technology teams being positioned to see an integrated picture across all aspects of a business,” he states.
Data isn’t just for IT
At software company Advanced, the IT department has switched from reporting to the FD Andrew Hicks, to reporting directly to the CEO via chief technology officer (CTO) Jon Wrennall.
Hicks explains that his role now involves being a ‘data champion”.
“The best person to drive our business forward operationally using data is the CFO, as [the CTO] Jon is focused on the products that we go on to sell…although other businesses may instead use a specialist CIO who can champion that connected view of the business,” he says.
But Hicks isn’t the only FD that is taking on the ‘data champion’ role; according to a recent CFO survey from Adaptive Insights, nearly half of CFOs see data ownership shifting to finance.
“The CFO is no longer just a recipient of data with the aim of determining historic performance, but they can now use predictive and prescriptive analytics to drive future results,” Steve Treagust, global industry director of finance at IFS, explains.
Hicks suggests that that since the IT team and its CTO have reported into the CEO, he has been more involved in the IT application side of the business and less involved on a day-to-day basis in the IT infrastructure side of the business.
This is because the applications contain business’ core data; data which is required to get a connected view of the entire business.
Procurement process
While the CIO may have more responsibilities than years gone by, there has also been a corresponding increase in pressure on CFOs.
“CFOs cannot sit on an investment for a year – they need to demonstrate results in nine to 12 months following implementation, or they run the risk of missing yearly targets,” says Andy Bottrill, regional VP of BlackLine.
“They’re now demanding technologies or recommendations of technologies that have much quicker and visible benefits than they used to,” he adds.
However, there are exceptions; for example, Advanced has spent a significant sum on a new CRM system – which has exceeded the firm’s anticipated IT spend. However, Hicks explains that the insight the company will get into its customer base and the added benefits it will give to the firm’s lead generation activity means that Advanced is confident it will get a higher return on investment.
When the firm is procuring for other areas in IT such as compliance, or day-to-day IT running capabilities, the firm is always looking to minimise and reduce costs, says Hicks.
Hicks works alongside Wrennall for procurement of all IT-related projects.
He signs off on projects that go “beyond any meaningful size”, while the day-to-day budget is handled by the CTO and his team. In most organisations, it is likely both IT and finance need to be involved when procuring technology. Recent research by Computing and CRN found that the FD’s influence grows in the final two stages of procurement: when shortlisting a vendor, and when the final decision is made. By the fourth stage, they are the third-most important involved – still behind the IT director and IT manager.
A positive push
Technology was seen a hindrance to the business not so long ago, and CFOs may have been reluctant to sign off on many IT products, particularly as many IT departments of old may have not made the best of their budgets.
But times are changing; the best CFOs are learning more about technology and using data to help them make better decisions on procurement and for other areas of the business. They are partnering with the CIO – rather than battling for control over technology, and they are seeing positivity in the change of reporting lines.
“The impact on CFOs is largely positive; removing the responsibility of managing technology means they’re freed up to concentrate on what they’re good at and can therefore take complete ownership of their position,” says Clare Eades, associate director at Venquis.
While the general trend is toward a CIO reporting to a CEO – there are plenty of examples of CIOs reporting to CFOs.
Ironically, as CFOs get more tech-savvy, becoming ‘data champions’ of their organisations, and having an expanded remit beyond the traditional finance function, CIOs reporting to the CFO may make more sense in the years to come than it does now. However, it is a natural step for organisations to ensure their CIO is on their executive board, to emphasise the importance of technology and data to their organisation.
But reporting lines don’t necessarily matter – what matters most is that the CFO and CIO can work effectively together, putting any lingering tension aside.