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Strategy and innovation
CIO and CFO: a fruitful relationship that must be nurtured every day.
The CFO and the CIO are called upon not only to collaborate but also to integrate their roles by bringing them closer together through a new, collegial and business-centric relationship. How can we make this collaboration more efficient and fruitful?
It is a win-win relationship for both functions. The Chief Information Officer (CIO) needs more funding for digitalisation, while the Chief Financial Officer (CFO) needs valid grounds for this increased spending and, above all, to understand and actually lead the process, while also making digitalisation part of his own sphere of action. Both figures have become much closer since the pandemic erupted and there is no turning back, according to analysts, because digitalisation is synonymous not only with strategic growth and performance, but also with survival.
CFOs and CIOs need to join forces, though this process will take time. While the COVID-19 pandemic has accelerated the CFO-CIO alliance, it can still only be seen in some 30% of companies, according to a recent survey by consulting firm Gartner. This might seem paradoxical, because such a fruitful union is actually conductive to digitalisation.
Indeed, strong CFO-CIO relationships are 51% more likely to easily find funding for digital initiatives, 39% more likely to keep digital spending in line with the budget plan and 18% more likely to achieve the intended business outcomes, according to the same Gartner study.
This is also a view shared by consultant Carlos Fernández García in a recent article on LinkedIn.
“Organisations in which the CIO and the CFO have a close relationship and focus on business objectives have greater transparency when it comes to the funding available for digital initiatives and gain greater control of the budget. This has a direct impact on the company's ability to achieve its digital objectives”.
The CFO has to deal with requests from different departments each and every day, all citing good reasons for what they are after. Logically, those that appear to offer the highest returns receive preferential treatment; an aspect that has made the CIO's role more difficult due to CFO concerns over the merits of particularly heavy and complex investments. To ease these tensions, organisations need an extra dose of understanding and communication.
What aspects should the CFO and the CIO improve upon in their mutual relationship?
- Promoting direct dialogue. Empathy is a increasingly important value in businesses. Always seeking to understand where the other person is coming from. The CFO is said to possess this ability, yet the CIO should also be required to have greater financial knowledge in order to understand the reasons for a “No”, or for a postponement, for arguing that the organisation's legacy systems are still capable provided that they do not jeopardise the business, or for citing operational and even workforce difficulties in integrating new systems or technologies. It is an ongoing negotiation that never ends.
- Building a more strategic relationship. Digitalisation is unstoppable and technology is no longer a department, but the main driver of differentiation and growth. The CFO's growing strategic role places him or her at the forefront of the digital push, omni-channelling and Big Data management. That is why CFOs and CIOs have become allies in anticipating the future and working to achieve greater synergy between their departments. All analysts agree that both departments should work with some degree of integration. In a recent study, US consulting firm TechTarget presented the success stories of companies that had assigned somebody from finances to the IT department and an IT employee to the finance department.
- Striving to retain talent. It might seem like a minor issue, but the recruitment of technology profiles – from data technicians to the CIO him or herself – has become quite a headache for many organisations. Many employees claim that, aside from pay, the recognition of their work by non-technological departments influences their decision on whether to stay or walk away from the company. According to Workday, 57% of tech professionals claim that financial constraints are the most important factor influencing their work.
Benefits of the CFO-CIO partnership
According to technology consultancy firm TechTarget, greater collaboration between CFOs and CIOs yields three concrete benefits:
- Better investment in technology. The CFO brings more financial discipline to the table, i.e. more transparency and accountability.
- Ensuring information security and compliance. We hardly need to speak about the importance of security breaches today, and how cybersecurity has reached the boardroom table and the desks of compliance officers.
- Improve budgetary decision-making. The CFO and the CIO, when they talk to each other, make light work of difficult matters and turn budget allocations into a driver of growth.
The five clauses of the CFO-CIO alliance that drive digitalisation
Above all, the main beneficiary of this successful relationship between CFO and CIO is digitalisation.
The CIO has become “a key partner within the corporate strategy and an influencer on the management committee, not only at a technological level, but also as a facilitator in any transformation initiative within this new normal”,
according to Fernando Echevarría, partner in charge of Technology Enablement at KPMG Spain's Consulting department.
And, more precisely, the CIO has become the CFO's key partner. To build a smooth relationship conducive to digitalisation, the consulting firm Gartner identifies five steps for developing a strong relationship between the CFO and the CIO in its “Funding Digital Initiative Survey”.
- Generating long-term value ahead of short-term profitability. Progressive CFOs, according to Gartner, shift the discussion (“digital capex versus opex”) from short-term profitability to long-term value creation. Digital investment not only generates new business, but also delivers operational and strategic benefits, such as workforce productivity and operating margins.
- Using an expanded set of metrics to measure digital investment success. The operational metrics used by CIOs should enrich the way the CFO measures the success of digital investments. We are talking about new indicators such as usability, access data, customer engagement expressed digitally or user participation in generating value. It is also important, as market research firm Forrester points out, to start talking in technology more about effectiveness than efficiency.
- Finding a common KPI framework between Finance and Technology. Integration between the Finance and Technology teams is key. According to Gartner, they must work together to build the right set of metrics, in line with the previous point. According to the consulting firm, both parties can use this framework to better understand how digital initiatives impact key KPIs. It is about linking technology KPIs (e.g. user engagement) to intermediate outcomes (e.g. higher sales volume) and financial outcomes (e.g. increased revenue).
- Prioritising CFO involvement in the technology-roadmapping process. CFOs should be get involved from the outset in the design of the technology roadmap without waiting for a request from the CIO. According to Gartner, it is all about technology driving and being integrated into the company's overall strategy. It is the CFO who can provide certainty and rigour to ensure the financial viability of technology plans.
- Making the digital cost structure more transparent. Gartner emphasises CFO-CIO collaboration in communicating the value of digital costs in the context of measuring performance improvement, and the contribution of digitisation to, the business objective of maximising organisational value. CIO Spain quotes Christopher Gilchrist, an analyst at Forrester: CIOs need to provide a 360-degree view of decisions, critical performance metrics, and key priorities “to generate greater transparency and feedback across all operations”.
A mistrust between Finance and Technology that continues to simmer at some companies
We cited earlier that 57% of IT professionals claim that financial constraints are the most important factor influencing the success of their work. The survey reveals a mistrust between the two departments (Finance and Technology), which is rooted in the finance department's own difficulties in automating and digitalising itself.
According to the same Workday study, half of the finance departments are the worst performers when it comes to use of technology, while only 12% outperform. Notably, a third of those polled by the consulting firm admit that the data they need is inaccessible or too difficult to integrate. As it happens, seven out of ten employees spend most of their time on data preparation and only three are able to spend more hours on analytical tasks. A gap that greater overlap between CFO and CIO would certainly help to close.
“The CFO-CIO partnership will become even more essential as the pace of technological innovation at the finance department accelerates over the next decade. Innovations in areas such as artificial intelligence, blockchain and the Internet of Things are increasingly making their way into core software applications such as ERP”, claims Workday.
In parallel, things are also changing at the technology departments. They can now focus more on higher-value activities by reducing the time spent on maintenance, patching and upgrade work, such as through the use of cloud-based software. According to Workday, this means spending more time on improving the application environment to modernise business processes and provide more useful tools to the departments that deliver business results. The alliance between CFO and CIO helps the IT department become more efficient in managing its resources and improve its performance.
