Talk to me

When money talks, IT has nothing to say. CIOs need to learn to talk dollars and cents because this is the only way they will be heard by their CFOs.

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By  Angela Prasad Published  February 28, 2005

|~|zaki-2.jpg|~|CIOs need to educate their CFOs of the evolving role, says Zaki Sabbagh, CIO of Zamil Industrial Investment |~|Back in the 1970s, IS gave way to IT and data processing managers were plucked from the technology closet. The corporate CIO was born. Since then, the relationship between an organisation’s CFO and CIO has been a strained one.
Although 50% of CIOs now report to the top fiscal watchdog, it is apparent they struggle with that relationship.

The CFO sees the IT department as a cost centre with no significant return on investment (ROI), while the CIO complains of being misunderstood; hence the ongoing corporate mêlée.

According to a survey conducted BetterManagement.com, 81% of the 300 executives polled felt the CFO is a trusted adviser to an enterprise, playing a major role in shaping strategic direction at the highest levels. CFOs are keenly aware of the pressure to balance day-to-day stewardship with long-term vision.

However, that ideal is stymied by tools and tasks that were not designed for predictive insight or which leave little time for long-term strategising. Nearly 75% of the respondents said their current business intelligence technology does not enable them to effectively identify and exploit revenue opportunities, evaluate performance across the enterprise or identify operating-level changes that would optimise overall performance.

The survey results point to some significant disparities between expectations and empowerments, and between perception and reality. It is hard to adopt a strategic perspective when the view is blurred or obscured. Furthermore, it is impossible to generate accurate foresight with financial intelligence systems that are fixed on the past. Also, it is a feat to sustain a visionary mindset when cost-cutting initiatives, compliance tasks, period-end closings and routine reporting mire days.

Due to the global IT downturn a few years back, enterprises in the Middle East and around the globe have become disillusioned by empty ROI promises IT vendors made. Today, as corporate boards remain focused on cost cutting and tighten the reins on IT, every technology investment is heavily scrutinised, leading many CFOs to once again seize control of IT budgets and get involved in the IT decision-making process.

In addition, enterprises are going for an off-the-shelf IT strategy. Businesses believe that they can manage with plug-and-play technology that is simple and gets the job done.

This further diminishes the role of CIOs in the eyes of a CFO. The 2002 dotcom bubble burst and Y2K remediation that failed to impress did not help CIOs. They had no credibility left and CFOs did not need to look far for a scapegoat. They blamed the CIOs. Therefore, CIOs who were slowly moving up in the executive ranks were suddenly denied that access.

They were once again back in the server room and CFOs took charge. Does this mean that the 21st century CFO is primarily a financial steward, managing issues of cost and compliance —or more of a business strategist, working closely with CEOs to guide the company toward maximum shareholder value?In the quest for an accurate grasp on operations and finances across the enterprise, CFOs seem to be constrained by systems and processes that just were not designed to generate that kind of comprehensive and verifiable picture.

78% of the survey respondents cited sophisticated analytics and predictive planning as important, while nearly as many said these functions were difficult to achieve with their present financial intelligence systems.

So, while CEOs and the board are looking to CFOs to provide strategic leadership, the finance function is still grappling with fundamental tactical issues such as consolidating data from disparate business units and converting that data into a valid foundation for analysis to drive meaningful change. Once again, CFOs blame the IT department for not providing adequate resources to collect appropriate data.
||**|||~|brent2-copy-website.jpg|~|IT and IT systems are seen as business enablers, says GFH's James Brent |~|Whatever the reasons for the disrespect the CIO has become heir to, one thing is obvious, the role of the corporate CIO as the commander in chief of technology-driven business is still shaky.

86% of CFOs surveyed do not believe that IT spending is under control, while two-thirds of the CFOs report their organisations’ CIOs are less than effective at managing and controlling IT expenditures. These findings point to a significant split within the executive ranks regarding the link between overall strategic business decision-making and technology.

Furthermore, a majority of CFOs view their companies’ CIOs as technology implementers, versus true drivers of business change through the deployment of IT.

Although CIOs and CFOs do not see eye to eye, they need to learn to play nicely in order to exploit opportunities available in the Middle East’s booming IT industry. Global research firm IDC is predicting a robust global economy for the next five years, which will drive up IT investments, despite the fact that CIOs remain cautious about spending. As spending picks up, enterprises will first invest in upgrading systems that were neglected during the economic downturn.

Zaki Sabbagh, CIO of Zamil Industrial Investment in the Kingdom of Saudi Arabia (KSA), concedes that CIOs and CFOs need to work as a team in order to take advantage of the emerging opportunities. “The role of a CIO traditionally has been to facilitate project implementations and look after the IT department, rather than help the CFO on budget allocations, but that is changing,” says Sabbagh.

“Today, CIOs are expected to work alongside their CFOs on project budget allocation, as well as oversee the implementation.”

While Sabbagh takes heed of what today’s CFOs are looking for in their CIOs, he believes they need to change as well in order to make the relationship work. “In the past, CIOs were not at the executive level. IT executives did not enter an organisation’s boardroom because they were not part of the strategic decision making process, but today they are fully involved in that process. The change is happening, but CFOs are resisting the change,” he adds.

“Let me give an example. My operating expense for 2005 has increased and our finance department views this as high expenditure, which in my opinion should not be the case. CFOs should see the CIO as an enabler. If he or she spends a little bit more on technology, the move will help the enterprise save money in the long term,” he notes. Sabbagh believes CIOs need to educate their CFOs of the evolving role, however he is not expecting overnight changes.

“Unfortunately, this is not going to be an easy process. There are many factors, but it is mostly to do with the culture. People in the Middle East do not like accepting change.”

CIOs need to salvage their relationships with key executives. Communication is key to forging a strong relationship with CFOs. Learning to speak the CFO’s language can bridge the communications gap and get recognition for the CIO’s message and projects.

The successful CIOs are focused on meeting business objectives through technology. They need to speak the language of the business and build business cases around IT. Listening and understanding the business language of others is also critical so that the CIO can translate technology’s capabilities into business solutions.

Rashed AlOthman, IT chief of Riyad Bank, enjoys a strong working relationship with his CFO. However, their relationship was not always this strong. AlOthman says he had to work on strengthening his relationship with the CFO for sometime.

“Today I have a very good relationship with the CFO and the management of the bank, but it was not always the case. I had to develop it over time and it was not an easy ride,” he says. “Let me give an example. A few years back when we wanted to overhaul the bank’s legacy IT platform and I made the suggestion to the management, it thought the idea was crazy. I had a hard time selling the idea to the management, but in the end I succeeded,” he explains. “I was told that I was a dreamer and I took that as a challenge. I had to convince the CFO that the new IT infrastructure was going to be state-of-the-art and take the bank into the 21st century.”

The same executives that were previously not keen on the project, are now supporting it 100%. AlOtham firmly believes the reason behind the management’s support is because it has understood the merits of the new technology and the benefits it will bring to the bank.

When the project kicked off in 2001, AlOtham was allocated a limited budget by the finance department. Today, he has a bigger budget. However, it took him four years to secure that budget. CFOs will only invest in technology once they start believing in it. “It is up to the CIOs to make them believe in their projects. I believe I would not have had this much success if I had not managed to convince the management. I needed the CFO to believe in my project and I made that happen,” he notes.

“It is crucial for the CIOs and CFOs to understand each others’ language. Communication is key. Today, my CFO is right by my side when it comes to supporting me on my projects and this was only possible once we started to understand and respect each others’ requirements.”

However, it is more than just a matter of “talking-the-talk”. CIOs must also “walk-the-walk”. They need to familiarise themselves with financial jargons. CFOs have armed themselves with enough knowledge of technology, which means that CIOs can communicate with them in a language they understand. If CIOs provide them with hard data and explain the total cost of ownership (TCO) and return-on-investments (ROIs), they will have easy time in selling projects and securing funding.

Nobody understands this equation better than AlOtham. “CIOs need to speak business language and my advice comes from personal experience. They have to think like a businessperson. At the beginning, it was difficult for me to get the CFO on my side because I was not speaking the language of business.”

Today, when he enters Riyad Bank’s boardroom, AlOtham presents himself not only as a CIO, but as a businessman as well. He speaks the language that executives can understand.

“I did not believe in this, however once I was having business dinner with the bank’s deputy CEO. We were talking to a large corporation and my CEO explained the bank’s IT infrastructure in business terms. He amazed me because he said every thing I wanted to say. That incident provided me with a comfort zone because it showed me that the management does understand technology. That is when I decided to explain my IT requirement in business language to the management,” he enthuses.

CIOs get so caught up with technology that at times they forget other important aspects of an enterprise. IT is an enabler and a small part of an enterprise and CIOs should always remember that. CIOs were initially technology driven, whereas now they should be driven by the business. The CIO now operates closer to the business and at the executive management level. Ideally, the CIO should be aligning IT initiatives and strategies with business initiatives and strategies.

Ahmed Tahlak, CFO of Dubai-based contact centre The Telservices Group, shares AlOtham’s sentiments. He says CIOs need to translate the importance of IT projects in simple business language. IT projects most times have enormous ROI, but CIOs fall short of translating that in a language that CFOs can understand. The two parties do need a common language to overcome the communications barrier that exists between them.

“CIOs in the Middle East and around world need to understand their customers’ business and speak the language that business strategists like the CFOs and CEOs can understand,” Tahlak states. “One suggestion I would make to organisations that want to improve the relationship between their finance and IT departments is that they deploy customer relationship management (CRM) solution.”

IT is taken seriously at investment bank Gulf Finance House (GFH), according to the company’s CIO James Brent, because the firm views technology and IT systems as business enablers. GHF’s technological finesse comes from its early realisation that it needs to have a state-of-the-art IT platform in order to compete in a highly globalised market.

“At GFH, the relationship between the finance and the IT departments is very good. IT and IT systems are seen as business enablers, and the various divisions in GFH work as a team toward common goals, which have been clearly defined and understood,” he adds.

Brent agrees that CIOs and CFOs have different perspective on things, but he remains confident that there can be a genuine alignment between the IT and finance departments. All IT initiatives, projects and investments are ultimately driven by business requirements and even those of a more technical nature, such as investment in security, can be demonstrated to have a business benefit. So, simply put, an enterprise must define the common business strategies and agree on each department’s role in achieving them.

“However, a prerequisite for this to succeed is that the common vision or strategy must be clearly mandated and directed from the top-down by the CEO. This is the case at GFH and the two departments work together extremely successful,” explains Brent.

One major cause of the communication gap that exists between the CIO and the CFO, according to Brent, is that historically the two executives have had different priorities, which were often contradictory. IT departments often reported through finance departments, and therefore were subject to constraints imposed by the finance department.

These constraints however, may or may not have been in the best long-term interest of an enterprise. The problem can be resolved, provided the CIO and CFO are on an equal level and both report to the CEO. Secondly, the common vision for an organisation has to be directed from the CEO downwards, if CIOs and CFOs are to work in partnership.

ROI on IT is always an issue with CFOs when it comes to funding projects because it is difficult to demonstrate. Brent says if enterprises follow standardised guidelines, it is relatively easy to present a business case that relates investment to quantifiable business benefits. This is a document which is then understood by both the CEO and CFO alike, and to which the proponents can be held accountable.

Tahlak says the reason why CFOs are particular about IT budgets is because it impacts the bottom-line of an organisation. He states that CFOs are not against funding an IT project, although it may be perceived that way. CFOs ask a lot of questions because they have to know how the money will be spent.

“If CIOs explain it well, CFOs are fine with it. I do not have much issues when it comes to allocating funds for an IT projects because I understand the importance of technology and how it can contribute toward an organisation’s profit margin,” he adds.

Skand Bhargava, who is the manager of Softool Middle East, has reservations about CIOs or CFOs and questions their credibility. Bhargava says the titles CIOs and CFOs have been created for executives who have a limited knowledge of their jobs. “Today’s CIOs are basically IT managers, they are not business managers and that is why it is difficult to forge a strong relationship between the two parties. We do not have real CIOs. It goes for CFOs as well. The region does not have real CFOs,” says Bhargava.

However, he remains confident that a healthy working relationship can exist between the two parties, provided they conduct themselves professionally at all times. “First, they need to understand their own work areas and get rid of the enormous egos they have.”

Analyst firm Meta Group’s advice to CIOs is that they should become more authoritative when lobbying for IT budgets. They need to justify IT investments. “In order to be heard by the CFO, IT managers need to explain to him or her the value of the investment and how it is going to fit into the business plan of an enterprise,” says Todd McGregor, regional vice president of Meta Group Middle East.

“Be it enterprise resource planning (ERP) deployment, infrastructure overhaul or any implementation, CIO should be able to explain the ROI. The justification of technology spending is much more today then what it used to be in the late 90s,” he adds.

McGregor says organisations in the Middle East are maturing and CIOs are starting to enjoy more prominent role in the management circle. However, since CFOs view IT executives and departments as a cost centre, any request for increased budgets is going to be heavily scrutinised. “There is definitely that connotation that IT departments and anybody related to it is considered as a cost centre. In addition, technology has a far more prominent position in terms of overall expenditure, which means by default it gets noticed by the CFOs and CEOs.”

However, he remains confident the relationship between the two parties will improve over time as enterprises mature in terms of understanding technology and how it can help grow businesses.

Finally, CIOs need to show the CFO that their departments are more than money pits and prove their worthiness. They need to bridge the CIO/CFO communications gap before it gets too late. For instance, if an enterprise makes profit due to business process automation systems, the CIO must make sure the management comprehends the effect the technology investment had on this achievement.

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