Finance and IT: a need to work together; While their roles are very different, CIOs and CFOs say that more than ever, they need to cooperate and plan together to cost-effectively deliver systems and applications that companies need to thrive.

Yin and yang, heavy metal and Mozart: The interpersonal dynamics of information technology (IT) and finance officers have often been portrayed as a clash of opposites, starting from their formative days as pizza-craving programmers or buttoned-down accountants.

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If you talk to chief information officers (CIOs) and CFOs today, however, that cliched vision evaporates. They are seasoned professionals, intensely aware of the importance of finance and IT talking and walking together in the face of ever-escalating demands for corporate systems to provide everything from automated financials and procurement, to real-time links to global offices, to protection against a myriad of viruses and other operation and security threats--and do so cost-effectively.

"There is clearly a need for financial executives and IS (information systems) executives to come closer together," says Ed Trainor, CIO of Paramount Pictures and the 2003 president of The Society for Information Management (SIM). "There is a mutual desire to do that, and we all can do better." FEI is co-locating its Forum on Finance and Technology with SIM's annual event, the SIMPosium, in Chicago this month, giving top finance executives and CIOs an opportunity to rub elbows and compare notes.

The evolving relationship between CFOs and CIOs doesn't date back that far; as recently as the 1980s, relatively few companies had designated someone as a CIO. More than likely, the top technology manager at that time ran a data center or some other back-office function, and didn't have the C-level interaction with the CFO, COO or CEO that many do today.

And if you go back more than a generation, when computer projects were distilled from stacks of IBM Corp, punch cards and programmers still sported horn-rimmed glasses and pocket protectors, automation and finance were still mostly in separate worlds.

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"When I started, we were still in a mode of transitioning from manual general ledger entry to a general ledger package, which then interjected the first direct relationship with IT in support of an application," says Todd R. Stephenson, CFO of Lincoln National Life Insurance in Fort Wayne, Ind., a 27-year veteran of the insurance industry. "With the interface of that data into the general ledger, the accounting folks became more computer-literate."

It's been onward and upward from there for most organizations, yet over the years the stories have persisted about companies that still had IT and finance in separate "silos"--and some where the IT group was seen as insufficiently aware, or concerned, about the cost of systems. In such cases, finance came to view IT as one of the dreaded corporate bogeymen: a cost center.

"Where I've seen silos, it's where [IT] was seen as a cost center. But what ends up happening there is you get a very disjointed strategy," says Michael Doyle, CFO of EasyLink Services Corp. in Parsippany, N.J., and a former finance executive at companies including Pepsi-Cola Co., AlliedSignal, Cendant Corp. and Dun & Bradstreet.

In some, mostly smaller organizations, there have been situations where the CFO has taken charge of buying applications for finance, apparently because finance either didn't trust or respect the IT group enough to involve them. "I would have a real issue with that," Doyle says. "Some ERP [enter-prise resource planning] systems might not accommodate all of a CFO's needs, but you still need that link to the CIO."

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Paramount's Trainor is similarly taken aback by the notion of the CFO buying finance applications and bypassing IT. "I've never experienced that situation," he says. "That means you'd be talking about a very decentralized function; it sounds illogical. In that kind of instance, you are building silos. There would be duplication of information. There would be redundancy, and more expense."

Doyle chuckles at a reference to the CFO as a "Dr. No" taking a scalpel to IT budgets. "The challenge we face is the tendency for the systems folks to say, 'We have to have best-in-class for everything.' I've faced that as a divisional CFO, and here [at EasyLink]. We have to make sure that the IT activity and the resources match well with the strategy.

"Sometimes it's a question of how often you upgrade," he adds. "You don't always have to have best-in-class." Corporate security costs, he notes, keeps coming down, thanks in part to vendor competition.

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"What's important is that IT and finance are in a partnership to improve efficiency and bring down costs," says Elizabeth Monrad, CFO of TIAA-CREF, the New York-based pension and mutual fund giant. "What may have happened in the past was that IT was asked to build what I would call 'intergalactic' homegrown systems aimed at solving all the information needs for an organization. When that software was homegrown, there was often a high failure rate or significant cost over-runs. By the time those packages were ready, the organization's needs may have changed, and that's why IT sometimes had a reputation for being difficult to control."

And it's too facile simply to blame the IT managers for escalating budgets, says Stephenson. "Over time, those [cost] discussions have included the business process owners for the systems application or hardware tools; they also have opinions," he says. "As much, if not more, it's been the user area that has a desire for more sophisticated hardware, not the IT folks. Today, the IT folks are more likely to partner with finance to ensure that the long-time cost of ownership is something that is considered when systems are being developed."

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CFOs and CIOs interviewed agreed that the overall jump in computer literacy in the past couple of decades--facilitated by the personal computer--has helped IT and finance communicate better. "I've seen a lot of evolution because business people in general have become, through business and college training, more computer-literate. They're no longer behind the glass wall," says Stephenson. "There's greater partnering because the ability of both sides to talk the same language has improved."

"IT leadership should bridge the communication gap," says TIAACREF's Monrad, "and be able to translate complex technical matters into layman's terms--just as finance professionals need to be able to communicate technical financial matters (such as derivatives, stock option, pension accounting) in plain English. Our CIO is excellent at such communication--I can't think of a conversation where she hasn't put technical issues into understandable terms."

Cooperation and partnership are brought up often, and it's often noted that this has been facilitated by emergence of the CIO as more of a "player," as companies have anointed a single person as their head technologist and given him or her a stature commensurate with other key managers.

With that, technology leadership isn't enough for CIOs anymore, says David Luce, assistant vice president and CIO of The Rockefeller Group, a commercial real estate services company based in New York City, and SIM's president-elect for 2005. "There's a greater emphasis on having a good understanding of the industry we represent," he says. "We need to be businesspeople. Technology happens to be our product. It's extremely important for me to be able to talk with senior people about commercial real estate, and I need to relate the technology to the business requirements that we have."

Change from the Old Ways

"I think [organizations] are most successful where it's perceived that the business processes own the systems and look to and work with IT as partners in enhancing those systems," says Lincoln National's Stephenson. "What happened a long time ago was that a systems person came into the business manager's office and asked, 'What information do you want to get out of the system?' Then IT designed an [application] to create those reports. Unfortunately, if you decided later that you wanted other information later, it didn't have the flexibility" to do that.

Today, many of those "tell me what you want" conversations are more interactive--and it's widely agreed that regulations like The Sarbanes-Oxley Act, with its intense focus on internal controls, can only drive IT and finance closer together.

"In general, each year we continue to drop five days [from the deadlines for] the 10-Qs and 10-Ks," notes EasyLink's Doyle in a reference to Securities and Exchange Commission filings for public companies. "The need to get information faster will force a need to automate faster. Ideally, you want to have systems that are limited in complexity, and you can eliminate manual processes. Having one good integrated system, with the ability to deliver greater transparency, will allow us to segment and drill down more effectively."

Adds Trainor at Paramount Pictures: "The two sides have to work together, [yet] I don't think the things that are covered by Sarbanes-Oxley are where all the vulnerabilities are. Departments have to go beyond Sarbanes-Oxley in protecting those assets, such as corporate data and networks," and making sure they are protected from outside intrusion.

Interestingly, as worrisome as Sarbanes-Oxley has been in corporate finance suites, it's become equally troubling for some CIOs for another reason entirely, noted CIO magazine in its June 2004 cover story.

"Some CIOs see a darker agenda at work [with Sarbanes-Oxley]--a conspiracy," the article noted. "They fear [Sarbanes-Oxley] has become a stalking-horse that CFOs are using to assert control over IT and displace the CIO as the company's business process expert. Egging CFOs on, this theory goes, are the Big Four accounting firms, desperate to reassert themselves after the Enron debacle (which turned the Big Five into the Big Four after Arthur Andersen bit the dust) and needing consulting revenue to replace what they lost when most split off their consulting divisions."

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The article added that only 12 of 22 companies surveyed by The Hackett Group had IT representation on their Sarbanes-Oxley steering committee, and just 65 percent of 75 companies surveyed last fall by Gartner Inc. said IT was involved in those committees.

Provocative as it is, this "agenda" theory remains mostly rumor and innuendo. The CFOs and CIOs interviewed for this article consistently underscored the need for a stronger working partnership between finance and IT.

"At Pepsi, [the relationship] worked extremely well because IT was very tied into the strategy and what we were doing," Doyle recalls. "They had a seat at the table. We were revamping a lot of processes and how we got to the customer." Adds Stephenson: "Success comes when the IT folks think of themselves not just as contract programmers doing a specific chore, but have experience and interactions with business line people."

Luce says, "For a CIO to be successful, you need a strong partnership with the CFO. So much of what we do revolves around funding and the resources that are required. Analysis for major projects needs to have the blessing of the CFO.

"There's a tremendous emphasis for the CIO to be a stronger business leader, and to have a better understanding of the financial impact of business decisions," Luce adds. "The CFO needs a stronger appreciation of what technology is about. [IT] can be very instructive to the CFO in helping gather the necessary level of understanding."

RELATED ARTICLE: Who Does the CIO Report To?

In perhaps half of companies with the relevant titles, the CIO or an equivalent reports to the CFO, according to technology industry surveys. But that's apparently most common in smaller organizations, and most of the executives interviewed for this article disagreed with that structure.

At EasyLink, the CIO reports to the to chief operating officer, which is "very appropriate," says CFO Michael Doyle. "It's a technology company, so that makes sense--IT is a support center and part of product development, and not folded under the CFO. Even if you're not a tech company, you can make a case for the CIO having that seat at the table.

"There are very few things in terms of product development and delivery that systems won't touch, across the organization. If you keep the reporting at the COO level, I think you get a very effective organization."

At Lincoln National Life, CFO Todd Stephenson says the CIO reports to the COO, which enables him to "comanage and leverage technology for the purposes of process improvement." Having the CIO report directly to the CFO, he says, "is not the most effective model."

"It depends on the business," says David Luce, CIO of the Rockefeller Group, who reports to the CEO. "If it's highly financially oriented, [reporting to the CFO] may be the [appropriate] case. The situation has been changing rapidly in the past five to 10 years, and there's been a different view of what technology means to an organization, and the importance that has to be given to it. You tend to have CEOs that have a far greater interest in it."

Adds Elizabeth Monrad, CFO of TIAA-CREF: "The CEO may want IT as a direct report when technology represents a strategic, competitive advantage for the company, and the CEO wants to stay close to the area."

--Jeffrey Marshall

RELATED ARTICLE: Who Should Control IT? The Champy View

Excerpts from an interview with James Champy, chairman of Perot Systems' consulting practice, co-author of Reengineering the Corporation and other books, and a noted authority on business processes.

FE: A common perception is that finance and IT have operated too often in silos and didn't communicate as well as they could have. Looking back on your own experience as a consultant or researcher, do you have any perspective on how that might be changing?

Champy: IT began reporting into finance, as a function, and in many organizations, that has continued. That's because the first function that IT provided was the automation of the finance function. There's been ongoing debate over the last 25 years over whether IT should continue to report to finance, and it's gone back and forth. In some organizations, IT reports more to the operating lines.

The truth is, going forward, it may not make sense to have IT report to finance, because I think companies will go through in the next few years a tremendous amount of process change that will be IT-enabled. The finance guys just sometimes don't have the operating knowledge--and I'm being hard on the finance guys here--to help IT go through this change. IT is being asked to do a lot of new stuff, and the finance guys, sometimes, are at a loss how to manage that.

FE: Is it because they're looking at the confines of their own world, and what their parameters are, and saying, 'I need this report or that report?'

Champy: They're either doing that or they're asking if what they're spending on IT is adding value to the company. If the answer comes back that they aren't getting the return--and that's true, unfortunately, for a lot of IT spending--the finance guys are often at a loss about what to do about that. Or even if they know what to do, they can't fix it because the problem really lies back with the operating heads.

Companies have spent tens of billions of dollars on systems. The problem is that the line managers take a lot of these IT projects as tech initiatives and really ignore the amount of process and work change that is involved. They often don't go far enough in making the work change, so they don't get the benefit out of what they're spending. And that's not the fault of the finance folks.

For me, the issue isn't so much about silos. It's about who should assume accountability for what IT is spending and IT is doing. This is the time for IT to be in the line area. There's also an ongoing debate right now whether IT is strategic or nonstrategic: that it's a commodity, and managers don't have to pay that much attention to it because everybody can get onto the Internet, and it doesn't provide differentiation. I think that's a lot of bull. This is a very critical time for companies to be considering how they are going to digitize their processes and change how they're going to do their work, to make it much more technology-enabled.

FE: There's been a lot said and heard about the myriad capabilities that a CFO needs these days, particularly when you consider the regulatory front. But what about the CIO? Isn't he or she required to be a bigger, broader player than five or 10 years ago?

Champy: Absolutely. What's been interesting about the technology function for years is that the CIO often has more perspective around the processes and systems of a company than any other executive in the company, because the CIO has been called upon--at one time or another--to automate a lot of those processes. At the same time, although the CIO has that broader view, he or she hasn't always had what I would call the organizational skills to effect the degree of organizational change that's required.

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About 10 or 15 years ago, that situation was recognized, and there was a move to put folks with more business operating skills into the job. Some of that paid off. I might say that it's time again to put line managers into that job because technology is at a point--an inflection point, perhaps--about influencing the way business is done.

--Jeffrey Marshall

RELATED ARTICLE: The Case for Working Together

Editor's note: This article, written by a technology executive, is more partial to IT than finance. But it raises important points, and argues that a winning model will require adaptive responses from both departments.

If you asked someone in corporate finance how they leverage the IT department to drive strategic value in their day-to-day operations, their reaction will most likely be some quizzical head-scratching or grumbling about how the question doesn't really apply to their business function. Similarly, if you pinned down an in-house IT professional and inquired how he or she uses an intimate knowledge of technology to create more efficient processes for the finance department, you will probably be dismissed with, "Well, that is really a question for someone who works in finance."

Put simply, there is a counter-productive phenomenon that plagues the relationship between the corporate finance and IT departments, and its name is culpable deniability--or, in layman's terms, "that's not my job." This disconnect appears to be linked to practical and cultural factors, ranging from the traditional esoteric practices of both the IT and finance functions to the mix of each unit's well-established corporate culture.

But are the times changing? Propelled by the mass proliferation of IT technologies and the productivity demands of the modern global corporate environment, a trend toward a more distinct collaboration between the IT and financial departments certainly seems necessary. But how this trend manifests itself is yet to be seen--for instance, can we expect a new executive hybrid role that blurs the previously segmented responsibilities of the CFO and CIO?

Certainly the irony of the current situation is that the finance department, an organization's central resource management function, has been one of the last business units to effectively embrace new technologies, even though proactive use of today's various technologies could eliminate antiquated manual processes, better allocate resources and improve strategy and productivity. Likewise, the IT department, which has long existed in an insular environment, would reap value in a closer alignment with the corporate finance unit. With a better understanding of overall business objectives and departmental nuances, IT can reposition its function as a more strategic influencer aimed at helping to drive new levels of efficiency, rather than just serving as a technology support mechanism.

While a complete blurring of these two departments is unnecessary and unlikely, organizations are steadily laying the foundation for a metamorphosis into integrated hubs that ultimately deliver a winning business strategy. To understand what this will look like in the not-so-distant future, it is important to look closely at the factors that have precipitated the collaboration of the respective business units.

Tried-and-true for Finance

Traditionalists at heart, finance departments have been cautious in incorporating new processes and technologies, content to rely on dated processes and tools that have proven reliable through the years. The day-to-day operations of most finance departments revolve around manual, laborious reporting exercises built around the preferred tool of the trade, the spreadsheet. Further, the workflow in corporate finance departments has literally been reliant on the speed, flexibility and accuracy of the mailroom.

Like all manual tools, these methods are extremely labor- and time-intensive and cannot offer timely strategic value. Instead, they are the principal causes of redundancies, disconnected information sources and unreliable data capture methodologies. A contributor to this resistance to change is the collective consciousness of finance departments: You could argue that finance personnel have been acutely aware of the consequences associated with automating a business function out of existence (such as resource reallocations and head-count reductions). In recent years, while finance departments have incorporated some technology-based tools, many of these tools have been clunky homegrown applications with little relevance outside the department.

On the flip side, IT has seen a dramatic rise in importance over the last 15-20 years, with the advent of the Internet and the establishment of large enterprise software players like SAP, Oracle Corp, and PeopleSoft Corp. With a roaring economy and competitive pressures to implement leadingedge applications to streamline operations in the late 1990s, there was an intense market-wide focus on corporate software.

Given the scale and scope of these systems, the IT unit quickly began to grow in size, and because massive investments supported and promoted an organization's competitive interests, the CIO role was trumpeted with much corporate fanfare. But the heyday was short-lived.

The economic downturn and the bitter reality that huge capital investments in corporate software and support staff were not delivering on business cases or meeting corporate expectations called into question the very function of the IT group. In particular, the failure to produce return on investment (ROI) in line with previously stated goals highlighted a glaring cultural problem that made it unclear how IT departments should collaborate with other business units.

To put this into context, outside of technology, IT has traditionally been wholly dependent on the advice and translation of a particular business unit for its understanding of the process it is supporting. This fact has prompted many corporate officers to see the IT department as highly compensated, skilled laborers with a limited strategic impact on overall business objectives, including those of the finance department.

Despite IT preaching transformation as a core value, the unit has been one of the most resistant to change. Instead, IT departments continue to focus narrowly on the technology itself. As a result, IT has failed to speak the language of business executives or understand the dynamics of a business before a problem has surfaced.

A Silver Lining 

Yet, for many organizations, there has been a silver lining in the gloomy cloud that has hovered over the economy in recent years. Corporate belt-tightening has forced companies to focus strictly on core competencies and look for ways to shift their organizational structure to maximize the strategic value of each business unit.

This has led management to begin to reassess the roles and level of collaboration between the corporate finance and IT departments. This attitude shift suggests that there will soon be new work models that use a collaborative structure to lower costs, improve data accuracy, reduce process cycle time and redundant processes, reallocate staff and adopt process management principles for consistency and measurement.

These models will essentially redefine the traditional IT unit, while the finance department will broaden its knowledge base and increase its interaction with the IT function. In this next phase of evolution, we can expect a more comprehensive understanding from both business lines as they aim to leverage infrastructure to meet business objectives. Over and above maintaining technical efficiency, the emphasis will be on ROI management and bottom line year-to-year operational improvement.

Additionally, the revised approach will alter how IT decisions are made--instead of taking take shape in a vacuum, all decisions will consider a more expansive set of business needs. In today's typical decision-making process, the business unit independently identifies a process that can be improved and coordinates with the CFO and finance department to obtain funding. If approved, the IT unit is then asked to identify a solution and make the necessary infrastructure decisions.

After every detail is approved, IT is charged with implementing the systems and providing technical support and maintenance, as well as providing later upgrades. This process, which does not leverage the collective strategic knowledge of each business unit involved, is the de facto standard in today's organization--and one that often leads to overspending on individual solutions.

For many IT staffers, understanding a business unit's basic technology requirements is likely to be only the beginning. The subtle rationale behind the requirements could make the difference between a successful piece of code or one that fails, even when it meets the unit's written requirements. Thus, several people within IT may also work in the business unit championing the project, performing the same work as others in the group in an attempt to improve and/or supplement existing procedures.

Throughout this collaborative process, traditional IT roles will also begin to bleed into finance roles, particularly for planning purposes. As IT infrastructure becomes more commoditized, the finance group will take on a larger role in managing IT decisions, especially with the planning and budgeting process, which has traditionally been self-contained within an IT budget that was difficult to separate from larger-scale projects.

Advocate or Detractor?

At the more senior level, the CFO will be held to a much higher standard by the board for the promised ROI on technology projects and, in turn, will either choose to be a technology advocate or detractor. At the same time, things like vendor management, long the province of finance departments, will become more strategic parts of the business. Partnerships that benefit both sides of the supply chain are critical to maintaining a technology vision and further enrich the time invested with key suppliers.

Whether this cross-pollination between corporate finance and IT departments will come to fruition sooner rather than later remains to be seen. Much will depend on individual market pressures. What is crystal clear is that corporate finance and IT departments will not continue to exist as the isolated island states of today. In the organization of the future, there will be a clear recognition that all departments must play a strategic role to ensure business success.

By Matthew Mullen 

Matthew Mullen is Director of Business Process Automation at Visa International. He can be reached at 650.432.3200.