CFOs and IT: finding the right place.
Woo Song, CFO, chairman and cofounder of Intrasphere Technologies, headquartered in New York and with international operations in London, says that while all organizations are struggling to strike the right balance among value, cost and risk with regards to strategic IT spending, most miss the mark.
"People understand and want to be strategic in IT spending," says Song, whose company designs and builds applications for large enterprises with numerous systems and platforms. "But I find few who are really strategic. The key to striking the right balance is to understand that technology plays a supporting role for most companies."
An experienced entrepreneur and a recognized leader in the IT industry, Song believes financial executives should regard IT projects more like investments and less like expenses. But others say CFOs, far from being technophobes, simply need the ROI clearly and convincingly explained before they are willing to spend.
With good reason: IT spending accounts for a significant portion of corporate budgets. Some reports suggest that some 50 percent of capital spending goes towards software, hardware and services. Clearly, it behooves financial executives to require chief information officers (CIOs) to explain not only how the technology works, but also how it will benefit the company.
Anemic economic growth, heightened by the lingering impact of September 11, is one of the factors contributing to cautious IT investments. But, recent economic forecasts suggest a turnaround in corporate spending on IT is imminent. The Aberdeen Group, for instance, says worldwide spending on IT products and services could increase 4 percent in 2003, with long-term growth in the 4 percent to 5 percent range. Technology-related purchases in the U.S., it adds, will increase 3.6 percent this year, with annual increases between 5 percent and 6 percent from 2004-2006.
Additionally, In-Stat/MDR projects that, by 2006, U.S. enterprises will spend close to $256 billion on IT, up from about $225 billion in 2002. IDC, furthermore, says global revenue for IT software, hardware and services will grow 26 percent by 2007, rising to a combined $1.1 trillion.
Meanwhile, Canaccord Capital, an investment dealer based in Vancouver, British Columbia, issued a report showing that 49 percent of the 90 senior IT managers polled believe IT spending will increase modestly this year. On the downside, Aberdeen Group says the SARS health debacle will reduce Canada's IT spending by $308 million this year.
Aloof CFOs vs. Astute CFOs
An improving economy could ultimately result in there being more money to spend on needed infrastructure, but current economic realities are forcing businesses to tighten their belts and spend cautiously, prompting critics to say that (CIOs) often have to kick and scream to get the CFO's attention.
"Technology's true value is in the level of support it provides to the core business," says Song, adding that CFOs and CIOs tend to be at opposite ends of the spectrum when it comes to investing in technology. "I don't see this changing as long as there's a disconnect between the CIO and CFO."
But Song's belief that many CFOs fail to see the importance of strategic IT investments isn't universally held. Nancy Macnab, CFO and VP of Finance at SMART Technologies, based in Calgary, Alberta, is in the opposite camp. "If I have to look at IT spending, I actually don't see it as different from any other kind of spending that we do in our organization," says Macnab. "So regardless of whatever the initiative is, we have to have some kind of return to the company."
Asked whether CFOs are, generally speaking, more focused on the bottom line than they are on strategic IT spending, Macnab responds by labeling financial officers who are fixated on short-term benefits, even to the point of sacrificing long-term goals, as poor strategists.
"CFOs understand the new IT world more than they are given credit for, because [with] the reduction in IT budgets, IT organizations must focus on ROI and getting the most out of each IT dollar," says J. Peter Maughan, director of IS&T Commerce Services at Novell Inc. in Provo, Utah, the provider of solutions for identity management, Web application development and cross-platform networking services. As the person responsible for figuring out strategic IT investments for the company, Maughan says: "This [is] exactly how CFOs think: If I give you money, what is the company going to get back in return?"
In today's trying IT environment, firms must leverage their current technology investments through lower-cost integration technologies. For instance, Novell has been able to put some proverbial sizzle in its steak by using its Extend product line of Web services to integrate enterprise applications, pull the critical data together and present it in a form that management can access it.
And, speaking of steak, even restaurant chains like Ruth's Chris Steakhouse, based in New Orleans, can benefit from better thinking about IT. Keith Webb, Ruth Chris's vice president of IT, told the company that implementing a new payroll and workforce management solution would prove financially beneficial and help enhance its employee-focused philosophy. His venture paid off, enabling managers and employees to be more proactive in their day-to-day jobs.
"I've had the great fortune of teaming with CFOs who look at technology as a strategic asset rather than a support network," says Webb. "And while support is a standard cost of doing business, a CIO with vision can undoubtedly share business improvement strategies that incorporate new or often existing technologies."
Song says CFOs too often view technology investments as an "expense item" and ask themselves--and he admits to doing this, too--whether they really need certain solutions. Others, however, see CFOs as astute enough to make a key decision: pay now for required tools or pay later to correct the inefficiencies that those tools might have addressed.
Mark Hamdan, president and CEO of HRsmart, says the CFOs he's worked alongside were balanced about IT spending. They had the bottom line in mind, but they didn't cut expenses without first looking at the impact of those investments on future profitability. HRsmart, headquartered in Piano, Texas, provides a fully hosted suite of talent-management software solutions, including applicant tracking, online recruiting and performance management.
"In today's environment, where the CIO is more of the liaison between the end user in the company--which could be the sales department, the marketing department or any user of technology--and the vendors, the providers of the solution, there is less of a need for the CFO to be involved," says Hamdan. "The decisions need to be made at the user level, at the department level, and the CIO becomes the consultant for that department to make things happen, versus having CFOs being involved in this."
Osama Arafat, CEO at Q9 Networks, one of Canada's leading providers of outsourced Internet infrastructure and managed-hosting services, couldn't agree more with the notion of having the CFO help rather than dictate.
"The CFO has to assist the IT department in evaluating the financial consequences of outsourcing," says Arafat. "In many cases, our target is the CFO as well as the IT department, because we talk to the CFO about the financial benefits of outsourcing and we talk to the corporation about the IT benefits of outsourcing."
Getting Things Done
"I don't see IT spending in isolation from what the business is trying to do," says Eric Bjarnason, vice president of information services at SMART Technologies. "I don't have my own agenda. There are some minor projects that I undertake that I call bandwidth-stealing projects, where if we have the bandwidth to do something that I see as an opportunity to improve our business process in some way, we'll do that. But if it's going to be a... large-resource initiative, it's a certainty that the CFO, president, CEO, myself and the functional VP would be aware of it and committed to it."
SMART's Macnab says Bjarnason's business background has equipped him with the tools necessary to offer value propositions, not just technology requests. Stating the value proposition for investments makes good business sense, but it also makes good legal sense, particularly in the U.S., where the Sarbanes-Oxley Act imposes stringent financial reporting regulations on companies. Because of the Act, CFOs are asking more questions about spending, and this forces CIOs to better communicate in terms CFOs can understand.
But what this all comes down to, really, is doing what's best for business interests.
"People are starting to realize IT must serve business and not the other way around," says Sam Goldman, chief technology officer and co-founder of Intrasphere Technologies. "IT can be aligned to serve a lot of different purposes. All IT spending needs to be measured against the company's objectives."
Even so, determining the appropriate balance can be somewhat difficult, according to Ron Babin, an associate partner with Accenture. Babin helps companies try to get the best value out of their IT spending, both in terms of the investments they make and the projects they conduct.
"It's a balance between looking at value, looking at risk, looking at cost, looking at payback--all in the context of what's right for a company at a given point in time," says Babin, who is based in Toronto. "Companies are realizing that zero investment in the long run is dangerous, [but] it's equally dangerous to overspend or over-invest in IT, and the trick is getting the right balance."
Ian Palmer is a freelance business writer in Brampton, Ontario. He can be reached at email@example.com.
How Can CFOs and CIOs Better Communicates?
Woo Song, CFO, Chairman and Co-Founder, Intrasphere Technologies
[CFOs and CIOs] need to spend a lot more time with each other, In larger companies, they don't cooperate and work with each other; they only meet when there's a [battle] for resources. CIOs need to educate CFOs on the value of IT.
Nancy Macnab, CFO and VP of Finance, SMART Technologies
Our VP of IS understands, as a member of the executive team, the need for the value proposition and doesn't present spending simply for the sake of it. 50, I've never actually encountered a situation where we [didn't] agree on a course of action.
Mark Hamdan, President and CEO, HRsmart
There should not be any [difference in] direction between the CIO and CFO. They both have the same interest in mind, in an ideal situation. The only place where the two may differ is when there are limited funds available and the CIO needs more than the CFO is willing to give. In those cases, it behooves both the CIO and the CFO to make sure that every dollar spent has a return behind it that leads the company to improve its services. They need each other. CFOs can do a much better job of understanding the technology, and at the same time, CIOs can do a better job of understanding the financial impact of the decisions they make on the bottom line of the company, short-term and long-term. We need more of that cross-pollination of skills between the two.
Keith Webb, VP of IT, Ruth's Chris Steakhouse
Hire appropriately Get good communicators, not just good technologists. Find IT leadership that can sit on an executive team and speak of their roles, projects and missions in the same business vernacular as a human resources or financial executive. Let the CIO make some decisions, then hold them accountable for return on investment and the impact those decisions make on the company--then mentor and help them improve their abilities to implement strategies that truly benefit the company, both short- and long-term.
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|Title Annotation:||IT spending; Chief financial officers|
|Date:||Dec 1, 2003|
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