It security, investment top CFO concerns: Financial Executives Research Foundation (FERF) analyzes the results of its eighth annual CFO technology issues survey.

The nature of data security breaches has been changing, with stories about purloined laptops or lapses at huge data centers getting more attention than network penetration by malicious "hackers." Still, technology security ranked first among senior finance executives expressing their concerns about technology issues, even above the perennial challenge of aligning information technology (IT) with strategy.

The results were compiled by Financial Executives Research Foundation (FERF) in its eighth annual technology issues survey. The survey, which represents a cross-section of industries, brought another record turnout, with more than 700 responses, and more than four-fifths of those from CFOs.

Respondents were asked, "Please indicate how important you believe each of these technology issues is to your organization." They then rated each of a list of 15 issues as "Critical," "Important," or "Not a Concern." The top five critical technology issues for 2006 are:

* Identifying the appropriate level of technology security;

* Prioritizing technology investments;

* Aligning business and information technology (IT) strategy;

* Identifying the appropriate level of technology investment; and

* Establishing and maintaining effective dialogue between IT and users.

Technology Security

It is not surprising that technology security scored the highest average rating. Companies struggle to keep customer data and other proprietary information confidential, while the media constantly reports on theft of confidential customer and corporate data. Add to that the number of companies reporting access to systems and other IT-related issues as significant internal control deficiencies, and it is easy to understand why senior financial executives worry about technology security.

Many of the survey respondents reported their companies had experienced some level of intrusion. In fact, one out of every 10 respondents reported at least one major interruption during the past year (defined as a business interruption that lasted for one or more days, with adverse media coverage); and one out of every 20 respondents reported at least two major incidents. With these types of odds, technology security will continue to remain prominent on the CFO radar screen.

Interestingly, for large companies, with over $1 billion in annual revenues, technology security slipped to the number four position. The number one issue for these companies is aligning business and IT strategy. This is no doubt a reflection of the increased complexity of making the proper technology decisions as an organization grows in scope and scale.

Another interesting outcome is that while security is the most pervasive, it is not the most critical concern for CFOs. When CFOs were asked, "From the preceding list, which is your most critical concern?" identifying the appropriate level of security ranked 6th. (Upgrading or replacing legacy systems was the most frequently rated number one critical technology issue.)

Technology Investment

New investment in technology is a perennial issue for CFOs. In fact, prior to 2005, "prioritizing technology investments" occupied the top spot for a number of years. In some respects, this is not at all surprising, given the size of many of the investments and the consequences of good and bad decisions over the past years.

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When respondents were asked, "Does your organization plan to upgrade its analytical and decision support capabilities in the next year?" 64 percent of the CFOs answered "yes."

Respondents were then asked, "If you answered yes to the previous question, please describe your plans." The two most frequently mentioned areas for investment were "planning, budgeting and forecasting" and "management dashboard."

Surprisingly, "customer and product profitability" was the least-mentioned area for investment, despite its intuitive importance to companies (and high-ranking in terms of need; it's been ranked number one or two for the past several years).

One possible explanation is that there are few, if any, commercial off-the-shelf (COTS) software packages that are available. CFOs recognize that developing a solution means custom development, with the attendant uncertainties: Will we actually develop a solution? How long might it take? And, how much might it cost?

Most CFOs--having experienced one or more custom development failures--are more reluctant to take on significant custom development. A well-designed COTS solution for product and customer profitability would seem to have a ready market for the software vendor that steps up and addresses this issue.

CFOs were split on their perceived returns on past IT investments. Only 10 percent of the respondents said they enjoyed a high return on investment, about half were satisfied with a medium return, 20 percent reported low returns and the remainder did not really know their return on investment. It is possible that this last group does not do post-completion audits?

Outsourcing 

Outsourcing got relatively high overall marks from responding CFOs, especially the outsourcing of payroll and IT. It is probably not a coincidence in that payroll and IT are the most commonly outsourced activities.

Respondents were asked, "Has your organization already outsourced any activities of processes, or does it plan to do so within the next year?" Over half of the responding CFOs said that their companies outsource payroll, and another 5 percent plan to outsource payroll in the coming year. Of those CFOs who currently outsource payroll, almost two-thirds said that the outsourcing arrangement is highly successful; about one-third said that it is moderately successful. The remainder, less than 5 percent, said either that their experiences with payroll outsourcing were disappointing or they had no opinion.

IT was the second most-outsourced activity (and the most common among the largest organizations), indicated by about one-quarter of the responding CFOs, and more than 5 percent said they plan to outsource IT in the coming year. However, outsourcing of IT was not deemed as successful as payroll. While over half of the responding CFOs said that their IT outsourcing was moderately successful, only about one fourth rated it "highly successful."

XBRL 

XBRL (the acronym for eXtensible Business Reporting Language) continues to be relatively unknown, even among larger companies (those with over $1 billion in annual revenues).

When asked, "What is your organization's level of knowledge of XBRL and its potential implications and benefits?" only about 3 percent of the responding CFOs from large companies (and less than 2 percent of all respondents) claim to be highly knowledgeable about XBRL. At the other extreme, over 10 percent of CFOs from large companies and over 30 percent of all respondents admit to no knowledge of XBRL whatsoever.

Almost 90 percent of the respondents have no current plans to adopt XBRL. It's worth noting that this survey was undertaken in early 2006, before the U.S. Securities and Exchange Commission (SEC), under the leadership of Chairman Christopher Cox, announced new initiatives to encourage adoption of interactive data, including XBRL. Also, over the past year--and following administering this survey--FERF has disseminated several research reports on XBRL, with the intent of educating financial executives on the benefits of the protocol.

However, CFOs' other priorities, such as technology security, compliance with Sarbanes-Oxley and technology investment during the past year, may be part of the reason they've not focused on XBRL. It will be interesting to see if these percentages change significantly in next year's survey.

Chairman Cox and others at the SEC continue encouraging companies to adopt interactive data. However, it is doubtful that the use of XBRL will be mandated until such time that the SEC concludes that investors truly want it.

William M. Sinnett ([e-mail]) is Director of Research at Financial Executives Research Foundation (FERF). Gerald Boltin ([e-mail]) is Senior Partner and Business Intelligence Practice Leader for Computer Sciences Corp. (CSC). The full report will be sent, complimentary, to FEI members and is available for purchase to non-members at the FERF bookstore www.fei.org/rfbookstore/.

RELATED ARTICLE: conference schedule

Fall Private Company Forum

October 25-26, 2006

Boston | Sheraton

As private company executives your unique issues and information needs will be addressed in this executive seminar.

Current Financial Reporting Issues: Shaping the Future of Financial Reporting

November 16-17, 2006

New York | Marriott Marquis

For information, visit FEI's website: www.fei.org/events.

Speakers to include: Neil Cavuto, FOX News Robert H. Herz, FASB Thomas E. Jones, IASB Carol A. Stacey, SEC Scott A. Taub, SEC

RELATED ARTICLE: takeaways

* The top five critical technology issues to CFOs and other senior finance executives are: security, prioritizing investments, aligning business and IT strategy, spending on IT appropriately and establishing and maintaining dialogue between IT and users.

* Surprisingly, customer and product profitability was the least-mentioned area for investment. In prior years, it's been ranked number one or two. Most frequently-mentioned areas for spending this year are planning, budgeting and forecasting and management dashboards.

* XBRL is low on the list of CFO priorities, if there at all, but the survey came prior to the SEC urging its use.