Aligning the IT organization to boost financials: a well-managed IT organization can be a valuable partner in addressing change and managing risk enterprise-wide. Aligning this awareness with the primary profit drivers involves managing IT as a professional services organization.

Most financial executives would concur that information technology (IT) plays a leading role in an organization's success. As such, when IT fails to support corporate objectives, the results can be highly destructive to corporate economic and shareholder value.

Consider recent headlines reporting IT implementation failures--and their financial impacts to well-established, brand-conscious organizations. In one notable case, a defective database triggered a reduction in stock price that wiped out a year's worth of earnings growth. In another, a market leading company blamed a troubled enterprise resource planning (ERP) implementation for a multi-million-dollar hit to its bottom line.

These examples aren't extreme; they're merely the ones that became public. But, they serve as very good examples of the need for senior finance executives to support the development of the IT organization as an agile, effective, change-embracing contributor to corporate performance.

Some already do--at least, in principle. After years of belaboring technology's cost and the requirements imposed by regulatory compliance, a rapidly expanding cadre of senior finance professionals are, indeed, now very much aware that a well-managed IT organization can be a valuable business partner in addressing change, managing risk and improving financial performance for the company as a whole.

But translating this awareness into measurable performance depends on a critical assumption: that IT can be effectively aligned with the enterprise's primary drivers of shareholder value.

These drivers include revenue and earnings growth, capital spending, marketing and advertising expenditures or investment in research and development--depending on the organization's specific industry and objectives.

The difficulty is that while the notion of aligning IT with these drivers isn't exactly new or revolutionary, the processes for achieving this IT alignment often remain elusive. That's because relatively few C-level members of the corporate management team recognize that in order for IT to provide measurable business value, the IT organization must be managed and organized in a way that gives it the change-embracing agility it needs to keep pace with constant volatility in the business and technology environments.

Think of it this way: maneuvering IT's performance as closely as possible to the cutting edge of business performance is no longer about having IT personnel just perform a job. It's about having a high-performing IT organization deliver high-quality services at a competitive price.

And that takes commitment--a broad-based, leadership-sanctioned, C-level commitment to transforming the culture of IT from an administrative, task-oriented environment to that of a team-based professional services organization.

Support Developing IT as a Professional Services Organization

For finance executives, this should be an intuitively attractive model. Think about the outcome if IT were managed as a services organization that placed a real-world value on IT from a profit-and-loss perspective. Such an approach would make it far more likely that IT's value would be market-based, buyer-driven and shaped by the same forces--supply, demand, pricing and competition--that define capital markets.

But don't misunderstand. The point is not that embracing a services approach to managing the IT organization requires the imposition of a formal profit-and-loss structure. The more pressing call to action is that finance professionals need to join with other corporate executives to support the development of IT leaders who can run the IT organization in a businesslike manner with the full complement of appropriate professional disciplines in place.

Such an approach may actually be one of the best ways to position the finance function for success. "What Finance Wants from Technology," a September 2004 study developed by Forrester Research, revealed that while most finance decision-makers consider IT to be vital to their success, nearly half view the IT shop as not understanding how technology can support the finance department's goals. Taking an active role in building new bridges of under-standing between the two departments can yield a very strong return.

In order to begin building this bridge, finance leaders need to be familiar with the prerequisites necessary to establish a change-embracing, service-focused IT organization. These include: a chief information officer (CIO) who understands and lives the business, not just the technology; an IT workforce that is agile, capable, adaptable and change-embracing; and an IT organization team structure that is flexible, networked and often virtual. Each of these basic "building block" investments in future corporate and financial performance are briefly addressed below.

* HELP YOUR CIO DEVELOP DEEP BUSINESS AND FINANCIAL INSIGHT

Just as the CIO must be well-informed about the relationship between IT investments and profitability drivers, so, too, should the CFO be knowledgeable about the challenges and constraints that CIOs face in maintaining a well-aligned IT organization.

For the IT organization to align itself with the drivers of business value, finance professionals should be ready to work closely with the CIO and key IT staff members in defining what those drivers are, how to recognize them and what effects IT can have on them. This assistance will prepare the CIO to meet with business-unit leaders, listen to how they describe their technology needs and then, if necessary, have the confidence and information to say, "No, that is not what you need, because that will not really have an impact on our key business drivers."

With the CFO's support, the CIO will be more likely to have the credibility necessary to encourage the business-unit leader to accept such a statement as professional insight, as opposed to a personal affront.

The kind of relationship a CFO should look to build with the CIO is one that is based on mutual acknowledgement that the finance and IT agendas should be focused synergistically on the same thing: achieving the business's objectives in a cost-effective and professional manner.

For the CIO, this means understanding the important business drivers, and not just the technology. For the CFO, this means making the effort to understand the real promise and potential of a business-aligned IT organization. Such a relationship doesn't just require close communication on a relatively frequent basis. It also requires that the executives "walk in each other's shoes" from time to time. Financial executives should be ready, for example, to look beyond accounting rules at times in order to help CIO's disentangle IT costs from the business cycle.

Is it really necessary, for example, to require that CIOs and IT staff members develop a business justification for every purchase? If IT leaders operating in a capital expense environment are constantly working up such justification, this can detract from the time they need to dedicate to understanding how the IT strategy meshes with the business strategy and how to effectively manage the organization.

One CEO was concerned about the fact that his IT organization never seemed to finish anything it started. An exploratory review by outside experts revealed, among other practices, a classic pattern of providing funding in one year, then removing funding in the next year. Many IT efforts had been launched, but because they often spanned more than one fiscal year, most were never finished because costs were cut and funding rescinded. This resulted in a continuous up-and-down funding cycle for IT and high levels of wasteful spending.

In such a boom-and-bust fiscal environment, it's almost impossible to align the IT organization tightly with business strategy. At the same time, it becomes increasingly difficult to attract, inspire and retain another critical IT resource: top-performing talent.

* SUPPORT DEVELOPMENT OF AN AGILE AND CHANGE-EMBRACING IT WORKFORCE

When the right combination of IT skills are cherry-picked from a globally fluid inventory, when project-specific teams or crisis squads are assembled on a just-in-time basis, when the IT organization can be readily reshaped into high-performance virtual teams at an hour's notice, companies can double or triple the IT organization's effectiveness, productivity, speed and quality of service.

Finance professionals need to understand that IT is not analogous to accounts payable; it is not a static, transaction-driven "support function." And it isn't an organization that thrives in a hierarchical and control-conscious environment.

Instead, a successful IT organization is fluid, dynamic and team-based. It requires a management corps that champions innovation, a staff willing to constantly upgrade its skill sets and a core set of disciplines that support agility in IT service and performance. Problems have to be "swarmed," and project or crisis teams often must be assembled on an ad hoc, just-in-time basis to ensure that personnel with the right skills are in place to deliver service on time and on budget to the right user constituency.

The CIO should be working to ensure that individuals within the IT organization understand the variety of roles they may be asked to play in providing services to various constituents. He or she must be able to compensate these individuals based on their current and future roles and skills, their relative value in the marketplace and their specific individual and team performances.

The CIO must also be able to inspire IT personnel to view their individual contributions as highly valued inputs necessary to transforming the IT organization from an aggregation of technical jobs, involving discrete tasks and activities, into a global team of people building both measurable business value and long-term professional careers.

Consider the experience of a global financial services company that asked its CIO to reorganize the IT function--consisting of a collection of national and regional IT groups--into one global organization. Convening a meeting of senior IT personnel from operating divisions scattered across various countries and regions, the CIO had committee members nominate individuals from their local or regional organizations to work on a global, high-performance team with the task of designing and implementing an upgraded global communication system.

As it turned out, both the best technology supporting the global communications platform and the best manager to take on the project were located in Asia. The CIO, an American, felt this was wonderful because it would further embed the concept that both the IT organization and the company were truly global, and not just trying to export American IT solutions around the world.

The project combined the knowledge gained by the Asian project manager during his regional implementation of communications technology and the expertise of local IT staff from countries around the world. What made the project so successful was the ability of the CIO to rapidly assemble the right team to design and roll out the new system globally on a highly abbreviated implementation timetable.

* HELP YOUR CIO ESTABLISH A FLEXIBLE IT ORGANIZATIONAL STRUCTURE 

Finance executives may be pleased to learn that building such an organization doesn't always have to be about increasing the level of investment in the IT workforce--although for some companies, that may be a strong prerequisite for change.

Plugging IT capability holes with better talent isn't the solution, either, because the best talent isn't worth much if their competencies aren't carefully aligned with what the business needs. In order to play their part in a newly business-aligned and service-oriented IT organization, IT personnel need to understand exactly how to transform themselves into flexible, high-performance team players.

What's required is a flexible IT organizational structure--a comprehensive career, skills and competency model. Such a model provides the planning structure and discipline that allows the IT organization to continually reshape and realign itself with constantly shifting business objectives. Such a model also helps managers determine the right balance of functional, managerial and geographic accountability and responsibility. It supports the development of both "hard" technical skills as well as "soft" management skills such as customer relationship management expertise.

Additionally, it also provides the CIO with managerial visibility across different levels of skills and capabilities, and gives employees a clear line of sight into the specific criteria management uses to reward progression and performance across competency levels.

One exuberant proponent of such a model currently serves as the CIO of a leading industrial supply company with a rapidly expanding global footprint. About 18 months ago, the company introduced its global IT organization to a newly designed skills-based career development program.

As a result, it chalked up a 38 percent reduction in IT staff turnover in the first quarter. That was rewarding, to say the least, but, perhaps, not surprising, especially since a quantifiable return-on-investment measure isn't always a "realizable" benchmark for IT investments. But more importantly, the company has now significantly enhanced its ability to grow its own staff internally--particularly with regard to new IT skills. This, in turn, has had a substantial impact on the firm's ability to hold the line, and in some cases reduce its total IT HR costs.

Finally, don't underestimate the collective impact on corporate profitability and shareholder value when each member of a highly skilled, change-embracing IT organization understands exactly how his or her particular contribution supports bottom-line, quarter-to-quarter corporate performance.

RELATED ARTICLE: The CFO Role in Aligning the IT Organization with Profitability Drivers

CFOs can take seven concrete steps to ensure that their company's information technology (IT) organization is agile, flexible and adaptive enough to deal with constant change.

1 Work closely with your CIO to make sure that the organization's most critical drivers of profitability and share-holder value determine IT priorities and resource assignments.

2 Let your CIO know that--as a key member of the C-level team--you are interested in supporting his/her commitment to transforming IT into a professional services organization.

3 Support your CIO by making sure that IT is not funded at a level that makes it impossible to meet the demands of both corporate leadership and individual business units.

4 Help ensure that the IT organization does not suffer because of decisions made by others to hardwire inefficient and ineffective operating practices into complex IT networks and systems.

5 Ask your CIO to collaborate with you in developing a presentation to your organization's executive management team and the board highlighting exactly how the IT organization is structured to handle change in a focused and cost-effective manner.

6 Join forces with your CIO and the head of human resources (HR) to develop an IT organization career model that is focused on the IT organization's needs in the context of the company as a whole.

7 Include your CIO in strategic scenario planning sessions and regularly engage him or her in dialogue concerning how the IT organization would respond to different strategic scenarios confronting the business.

RELATED ARTICLE: take aways

* While most executives recognize IT as a leading player in organizational success, translating this awareness into measurable performance depends on aligning IT with the primary drivers of shareholder value.

* Relatively few C-level executives recognize that the IT organization must be managed and organized to provide it with change-embracing agility.

* It takes a C-level commitment to transform the culture of IT from an administrative, task-oriented environment to a team-based professional services organization.

Mark D. Lutchen ([e-mail]), a partner in Pricewaterhouse-Coopers' advisory practice and former global CIO for the firm, was responsible for reengineering, reconstructing and integrating its worldwide IT systems during its late-1990s merger. He is author of Managing IT as a Business: A Survival Guide for CEOs.