A new reality for CIOs and CFOs

A new reality for CIOs and CFOs

The shock of the GFC has intensified efforts to make technology meet business needs - and CFOs and CIOs are beginning to sound a lot more like each other.

AT GE Capital Australia and New Zealand, the global financial crisis forced chief financial officer Mark Toohey and chief information officer Matt Mansour, along with their fellow executives, to introduce a different way of managing IT investment. As a United States-based company, GE Capital was severely affected by the GFC. Toohey says the significantly tougher hurdles for return on investment that head office then introduced meant the local arm's old practice of putting up individual projects for approval wouldn't be accepted any more.

While a hold was put on new capital expenditure in IT from the beginning of last year, a committee that included Toohey, Mansour and a range of other senior executives took the opportunity to begin consolidating and simplifying systems that had been taken on through acquisition during the strong growth that preceded the downturn.

Overall, Mansour says, IT running costs were cut by about 20 per cent in 2009, and GE Capital locally began more strategic planning.

"The GFC gave us more time to work out where the priorities should be in our IT infrastructure," Toohey says. "It allowed us to develop a far more wide-ranging focus on the complexity issue and the need to simplify our business model."

If they had continued to ask for money on the basis of smaller projects without an overall long-term plan, he says, they probably wouldn't have been funded.

Mansour says it has been a tough 12 months, during which about 80 per cent of his team were replaced. But they now have a better view of long-term profitability as the changes give them much more detail on the costs of delivering each product.

The GFC clearly wasn't as severe in Australia as expected, he says, but the restrictions on funds meant they "couldn't afford to have any slack in terms of the cost of project delivery" - and that discipline continues. They also have a clear strategy for the next three years. With that in place, they have been given approval for more expenditure on IT than they ever had in the past.

Goodman Fielder CFO David Goldsmith hasn't experienced quite the same overhaul of processes, but he also had to delay a major project. Again that breathing space has given the company time to improve its approach and prepare itself for change.

It was about to embark on the daunting task of rolling out a single enterprise resource planning system across the food manufacturer's Australian and New Zealand businesses when a big rise in the price of the commodities it uses, followed by the debt-funding drought brought on by the financial crisis, got in the way.

The SAP software was something the company was committed to roll out to its Fresh baking and dairy businesses (which include dairy and bread products delivered daily) to get better information from these businesses and remain competitive. As the $43 million project would not deliver a return on investment until five years after completion, it had to be put on hold.

The project is now going ahead again, however, and while it is still Goldsmith's baby, he can step back a little.

During the delay, the company had more time to mature, he says, with divisions now working more closely together after their time as a private company owned by Burns Philp. Staff have also been able to prepare for this big task, he says, and crucially they have hired people to help implement it.

Although he sponsors a steering committee dedicated to the task, which is chaired by his CIO, who reports to him, Goldsmith has also appointed an ERP director to oversee the day-to-day running of the three-year project. The director has divisional CFO experience as well as IT project experience and his job is to make sure the business is getting what it wants.

Gartner group vice-president, executive programs, Linda Price, says the GFC appears to have reinforced the priority placed on linking business objectives with what IT actually produces. It is an obvious and perennial objective for CIOs, but that also highlights that it is a continuing problem. In a recent survey, Gartner found that CIOs named their top priority for the next three years as positioning IT as a partner with the business, followed by "demonstrating their value proposition to the business".

Price says the crisis has prompted more executives, like Goldsmith, to hire people who have both IT and financial expertise to bridge, as Goldsmith puts it, the "language" gap for the life of large IT projects.

As well as providing a practical link between the business and IT and someone line managers can go to when a problem needs to be fixed quickly, Goldsmith says, the ERP director role is aimed at influencing perceptions about the project.

"Without him it would be mainly run by the CIO and his team," he says.

"The risk then is that it's seen as just another IT project. It's essential that it's seen as a company-wide project, not just owned by the CFO or IT."

Andy Rowsell-Jones, a Gartner research director, says that, overall, business IT budgets shrank by about 8.1 per cent globally last year, undoing the previous three years of growth. "Last year the CFOs interposed themselves into the approvals process," he says. And in order to achieve the necessary swift cuts "many of them centralised the decision-making process".

Even in government circles, where in many cases funding has gone up for infrastructure renewal and improvement, there was an expectation engendered by the tightening everywhere else that they needed to spend more wisely.

Marcus Darbyshire, the chief information officer for South East Water, which services south-east Melbourne and nearby areas, says that last year, for the first time, incentives were added to bonuses in his organisation to give everyone some "skin in the game" of cost reduction.

They didn't feel the force of the GFC, but a new executive team decided they needed to be more efficient and find $1 million in operational expenditure savings. "Bonuses are tied to operational performance," he says.

"I think it was a case of a new managing director, who started last year, and also the CFO as a result of the financial climate thinking that everyone's tightening their belts and we need to be seen to be doing the same."

While the pressure is on again to get skilled staff, funding sources are still a lot more expensive than in the boom times and finance is not keen to lose the leaner ways of the past couple of years. Now the economy has stabilised, Price says, CIOs are still being asked to achieve the same level of productivity with fewer resources.

Security boost

In IT security last year, the common enemy of the financial crisis helped bring senior executives' views into line with those of their CIOs and technology managers - sometimes to reduce, but often to maintain or even to increase spending.

CEOs, CFOs and CIOs all had the same top concerns in relation to technology security, PricewaterhouseCoopers' annual Global State of Information Security Survey, released in December, shows. Two of the top three concerns were the impact of more complex and burdensome regulations, partly due to the financial crisis, and cost-cutting making it harder to meet security requirements. The second highest concern was the need for an increased role for the IT security function.

Out of 17 possible plans, CEOs and CFOs also said the most important strategy for meeting security objectives during the downturn was increasing the focus on data protection, something that CIOs and CTOs had, for many years, found very difficult to move to the top of their bosses' agendas.

On the other hand, CIOs and CTOs said prioritising security projects based on risk was most important, something a CFO would have been more likely to say in the past.

The convergence of views was a marked change to previous surveys. PwC partner Andrew Gordon says the meeting of minds was driven by increases in targeted security breaches in recent years, combined with the financial crisis, which focused minds on survival and what threatened that.

"Senior management were worried about their information assets and how they were going to protect them - whether that was customer information, intellectual property or proprietary information," he says.

"I think businesses have been focusing on growth for a number of years, but now they really have to think about protecting what they have and how they maintain their place in the market rather than potentially going backwards." They know growth might be on hold for some time, so they're wondering how to protect what they have.

Those surveyed who expected spending on IT security to increase fell by about 6 per cent to 38 per cent compared with the previous three years. The economic downturn jumped to almost the top driver of security spending, just behind business continuity and disaster recovery. However, nearly two-thirds of all survey respondents said spending would either increase or stay the same.

Gordon's colleague, PwC partner Stephen Woolley, says some of the solutions to improving costs involved increasing automation and reducing staff, which also propped up IT investment.

Suncorp-Metway's CIO, Jeff Smith, says projects were put on hold and the company introduced more automation, including to loan lodgement processes, over the past couple of years. It is something it would have done at some stage, but just as the global crisis put some big projects on hold, it also ensured that this and other cost-reduction initiatives arrived earlier.

Smith came on board three years ago after Suncorp's merger with Promina. His job since then has been focused on reducing costs and stripping out duplication in the firm's technology, so the GFC just reinforced that. Part of doing that is keeping IT teams to a minimum by making sure they concentrate on actual development work, rather than just documenting it. This not only keeps costs down but also improves performance, he says, because the smaller teams can work together more effectively to fix problems. He has also favoured appointing graduates to his development teams, following the example of the likes of Amazon, Apple and Google.

"We've recruited more than 90 grads over two and a half years," he says. "A study done by the University of California Berkeley asked where the step changes happened [in IT and internet companies]. It went back 20 years and looked at companies like Sun [Microsystems], the [development of the] first Mosaic browser, then Yahoo! The common characteristic is that those companies were all formed by graduates."

Graduates tend to have much less "constraint of thought", he says, and can learn far more quickly than their older colleagues. "They come in and ask why things won't work. Their listening skills are more acute - it's not really about their age but the environment that they came from."

The relationship over the past couple of years with finance and senior management has changed (particularly now, as there is a new CEO and the new CFO starts work in May) with closer and more regular communication between IT teams and senior executives.

But this is mostly due to the system of project development Smith has introduced in IT, which requires developers to provide daily updates on progress and problems. His teams are also focused on doing the job they're required to do, he says, rather than employing extra people to write and update project documentation. It means they spend much less on development and can change direction quickly if necessary.

People before technology

Given that the GFC was a shock to everyone, the big push now for CFOs is somehow to get a whiff of what's coming so they can prepare the business. Scenario analysis has become more popular in finance teams, and as that relies heavily on obtaining good quality data on factors that affect performance, companies are trying to improve their access to information from other parts of the business and externally.

The results of IBM's latest global survey of chief financial officers (see page 21) show a growing gap between demands to link data from business operations with financial indicators and the ability of CFOs to do this, access it and draw conclusions. Integrating information from all parts of the enterprise was important for 73 per cent of respondents, but only 39 per cent said this was being done well.

These needs seem to be driving some investment in business intelligence software, but Gartner predicts the hype connected with predictive analytics will outpace the skills to analyse and use it effectively in 80 per cent of businesses by 2012.

Similarly, Thomas Monahan, CEO of the Corporate Executive Board, which claims 200,000 senior executive members, maintains that one of the lessons from the GFC is that you can't use technology as a substitute for the people making the decisions or to predict the future.

"The big new conversation about risk management and the lesson from this downturn is risk velocity," he says. "There was nothing that people didn't have on their list of risks; it was just the speed with which they occurred.

"People have groped for information, but it's not so important to identify and predict. It's more important that we have a corporate system that responds and moves quickly enough as risks materialise."

Top 10 CIO concerns

What are the most important issues for you and your IT organisation between 2010 and 2013?

1. Positioning perception of the IT organisation as a partner with the business.

2. Demonstrating IT's value proposition to the business.

3. Managing a common set of IT priorities across multiple business units.

4. Reorganising IT to raise its performance (efficiency, quality, productivity).

5. Raising business productivity by more than 10 per cent.

6. Improving IT investment priorities and decisions (eg, higher ROIC).

7. Consolidating business operations as part of post-merger activities or corporate reorganisation.

8. Raising collaboration within the enterprise and with external parties.

9. Assessing and securing the right level of IT skills to deliver IT's mandate in the enterprise.

10. Incorporating cloud computing into IT's strategy and operations.

Respondents were CIOs in Australia and New Zealand.

Source: Gartner

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