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Power struggle myths

Power struggle myths

Despite perceptions of uneasy relations, Fairfax Business Research’s recent survey of both CIOs and CFOs reveals a good deal of mutual interest and a positive working relationship.

There have been many discussions about the nature and quality of the relationship between the chief information officer and chief financial officer within an organisation. It has been said this working relationship may suffer because they don’t understand each other’s responsibilities well enough, or that a CIO would prefer to report directly to the CEO rather than through the CFO. In February this year, Fairfax Business Research (FBR) took up the challenge of putting some solid data in place in a bid to dispel some myths and the results reveal a greater degree of unity than is often realised.

FBR carried out a survey in Australia of more than 200 CFOs and CIOs on behalf of MIS and CFO magazines, both sister publications of CIO New Zealand. The sample was evenly split between the two roles. All of the organisations that participated in this survey have more than 50 employees.

It is interesting to look at some of the quotes from survey respondents and then bear them in mind when looking at the results of the survey itself. When asked about general perceptions rather than specific details, the relationship between IT and finance appears decidedly more fractious.

The following quotes must remain anonymous in line with the conditions of the survey. Nevertheless the comments are still worth pondering.

A house divided

The first CIO surveyed believes IT and finance must sit on an even corporate footing (See related sidebar “Who’s in charge?” ). "Having reported both directly to the CEO and through the CFO, I am now of the opinion that for an organisation to get the best from their IT department, it needs to report directly to the CEO, regardless of the strength of the relationship between the CFO and CIO. Reporting through the finance area does not provide sufficient visibility and portrays IT from a finance-centric view."

A second CIO, responding to questions about how well their CFO understands the purpose of the CIO’s investment plans, complains about the poor level of understanding and support from the finance chief:

“Little understanding, which has led to little concern over the fiscal management of high-value assets because they are not understood. Willing to spend extravagant sums on fixing problems that are high visibility, but no value placed on robust support for daily tasks.”

A third CIO expresses a commonly held view of the frustrating, short-sighted cost-slashing mentality that disheartens CIOs who report to the finance department: “[Finance has the] overwhelming desire to curtail new investment or replacement investment, until the last minute and as a result, poor outcomes and high costs result.”

From the other side of the fence we found that one CFO advocates a corporate structure that many CIOs have long railed against. It is an interesting flipside to the idea that a CFO is a roadblock to IT progress: “I believe the best organisational structure is for the CIO to report to the CFO, which assists in the management of costs and assignment of priorities for the best cost/benefit outcomes. Unfortunately, where I work the CIO reports to the CEO, so decisions take forever to be made, often due to a lack of knowledge.”

And finally we come to the most commonly expressed frustration heard whenever you get a group of finance-minded executives together to talk about technology: “A key tension is the balance between state of the art systems and capability versus dollar cost [and] versus value of the output in terms of decision-making. No one measures the dollar value of bad decisions facilitated by poor IT systems. Someone should!”

Room at the top

Now we can move on to what executives from both sides of the fence actually said when quizzed on specifics.

If CIOs believe their careers would benefit by reporting directly to the CEO, then overall they have only been partially successful in obtaining a seat at the table with their organisation’s top management team. While the finance chief nearly always reports to the CEO, the reporting line for the CIO is more or less equally split between the chief executive and the CFO.

This reporting line directly to the top is valuable, not only in their current role, but also in helping the CIO to take the next step to progress in their career. Both the CIO and CFO agree the chief executive is key in facilitating career progression, while 58 per cent of CIOs say the CEO has a positive role to play in their career. But the CEO is viewed as important by more CFOs — that is, by 72 per cent.

Somewhat surprisingly, given the CIO often reports to finance, the CIO has a role to play in helping advance not only their own career, but also that of the CFO. Also, 27 per cent of CFOs believe that the CIO can facilitate their careers.

So, is the relationship as combative as the comments in this survey and previous discussions indicate? This is where the results were unexpected. As shown in the chart above, “The working relationship”, the number of CIOs who rated their working relationship with their opposite as one of the top-three scores (67 per cent) was almost identical to the proportion of CFOs who rated their CIO similarly positively (69 per cent). Taking into account all responses, the average rating of the success of the working relationship was 7.8 from a maximum possible score of 10 from both — which means a very successful relationship in this context.

The research at this point had established that despite the sentiment behind some of the disaffected comments, the quality of the working relationship was not only rated positively, but also viewed identically as a good one, by both camps.

Move up, move on

A divergence in opinion came instead when respondents were asked to identify their next career step and satisfaction with current remuneration.

A similar proportion of both CIOs and CFOs indicated the next step to progress in their career was to stay in their current role, but move to a different organisation. It is among the remainder there is a difference of opinion, and the suggestion is that CIOs may feel at a dead end in terms of progression in their organisation.

Nearly all of the remaining respondents see themselves in a different role in the future. But the CIOs are twice as likely to see themselves leaving their employer to pursue new roles, while the CFO is far more likely to see the opportunity for a new role — presumably a promotion — without having to leave the organisation.

The desire of CIOs to leave their employer to either seek a new role or stay in the same position elsewhere, may be driven in part by a lack of satisfaction with their remuneration. CIOs were only half as likely to report feeling well-rewarded for their role as was the CFO — and at the other end of the scale, the CIO is also more likely to report dissatisfaction because they are underpaid.

CEO job contenders

The survey could not investigate or reveal all the opportunities for new roles the respondents envisaged for themselves, but chose to focus on aspirations for the CEO role for both groups.

Aside from a few well-publicised cases, such as Rob Fyfe at Air New Zealand, Mark Ratcliffe at Chorus and Ralph Norris at the Commonwealth Bank of Australia, who moved from IT roles into the top job, the path from IT executive roles to the CEO office is not a well worn one.

There was more variation in responses to this question than anywhere else in the survey. As shown in the chart above, “Top job: Are you CEO material?”, the majority of CIOs in this survey simply did not see themselves as candidates for the number-one job, while also believing the organisation would view them in a similar light. It is not possible to discern which of these views drives the other. Regardless, it can be seen from the graph that while 11.2 per cent of CIOs see themselves as potential CEO material, more than four times the number of CFOs (49.4 per cent) reported the same.

Not only do CFOs see themselves as having the right qualities for the CEO role, they are also far more confident that their employer will recognise their business leadership capabilities.

So, the research has dispelled some myths about the working relationship between the CIO and the CFO — each tends to view the other not only positively, but also in a similar light in terms of the working

relationship.

Unhappy campers

At the same time, the research identifies a level of dissatisfaction for CIOs with remuneration and career options. CIOs are more likely to be dissatisfied with their remuneration, more likely to be looking for a new job elsewhere, and more likely to feel that they need to leave their current employer to move into a new role.

Will this stop people pondering the nature of the two disciplines? Probably not. Will it stop resentment bubbling over when a CIO feels undermined by a CFO or vice versa? Definitely not. All we know is that for a business to perform to its optimum, both IT and finance must make a positive contribution to future business strategy — whether the business discussions are held through gritted teeth or not.

Beverley Uther is principal analyst and research manager, Fairfax Business Research. For further information on this survey, contact beverleyu@fairfaxbm.com

Sidebar: Speaking the same language

New Zealand ICT executives share their complementary and contrary views on the CIO and CFO survey.

By Divina Paredes

Derek Locke is one of the rare executives to have held both CIO and CFO roles, and he was chief executive of internet registry company Domainz.

Locke, an accountant, was chief information officer of the New Zealand Defence Force until he left last year to become CFO of FX Networks in Wellington.

Having sat on both sides of the fence, he agrees the working relationship between the CIOs and CFOs is better than each group may think.

But he is emphatic on one issue raised by some CIOs in the survey — that they should be reporting to the CEO in order, as one respondent puts it, to get the best from the IT department.

“The CFO and CIO must be aligned and in step within any organisation, irrespective of where the CIO reports,” says Locke. “The reporting line is important, but it is not imperative that the CIO is at the top table. In my experience, most senior executives don’t ‘get’ IT and only tend to get confused or try and interfere — which makes things worse.

“I am looking at it from the perspective of [an executive] trying to do the best for the organisation. Where you sit on the organisation is not the key point. Aligning your strategies and goals to the organisation and in particular aligning your strategy with the CFO [is important]. [Otherwise] it could be bloody miserable. You won’t get the money.

“The key issue about the alignment comes down to the budget and overcoming the perception that IT is an area that is a very large black hole to pour money into. Unfortunately, there have been high profile IT failures both in New Zealand and overseas that tend to get noticed at the board table,” he says. But this perception can be overcome if the CFO and CIO are aligned over budget and expenditure.

More provocatively, he states, “CIOs also need to get over themselves. I noticed with a number of CIOs in my time at NZDF that IT and related areas are obviously vital to the CIO and IT community. Here’s the thing. They may not be top of mind for the CEO and indeed the CFO. There are a number of competing items at the board table, not the least of which is ensuring the long-term viability and sustainability of the business of which IT plays a part. Sometimes IT has a role to play and it’s important and sometimes it doesn’t.

“If you look at a lot of CIOs, most have had a business background — the IT manager should never be the CIO! — and must be capable of talking to the key business heads about their businesses other than IT issues.”

He says having a finance background is important as most large ICT shops have big budgets. “In summary, get on with the CFO and support each other or pay the consequences of poor decision-making and poorer budgets!”

Richard Tims, chief information officer of Paymark, reports to the chief executive, but says the ICT team and the CFO in his organisation have a “joint relationship”.

“We have the same objective and we know we are working on the same thing, because I am focused on business outcomes as the CFO,” says Tims.

“The CFO can oftentimes be perceived as the person who holds the purse strings,” and this could affect project implementation. But this is not the case at Paymark, which he says is “relatively small” with 120 staff. “We work alongside each other on projects all the time,” says Tims. For instance, when his team will come out with a costing for a project the CFO will come down and say, “Do you think we can do this and we can do that?” And we work out what is the best end-solution to fit the needs.”

“It helps when you both can talk the language and you understand what they are talking about and they understand what you are talking about to a degree,” says Tims, who has a background in both accounting and information technology.

However, he is not advocating that an accounting qualification is critical for a CIO. “You would need to have a base understanding of the fundamentals,” he explains. “Like any relationship, you need to understand it from their perspective and get their side.”

Sidebar: Who’s in charge?

Many New Zealand companies are realising the CIO and CFO relationship needs to be formalised within the business structure, with the reporting relationship officially being one of equality.

By Steve McGowan

Forty or 50 years ago when IT began to have a role in business, it was known as data processing — and was firmly under the control of the CFO.

There was a good reason for that — the first business processes to be automated were the accounting functions, so obviously IT belonged within the same reporting structure.

But everything changes. Rather than simply being a process for saving time when crunching numbers, IT has become integral to every business function and process. As such, the relationship between the finance and IT functions has been gradually changing.

It started about 20 years ago, with a small minority of companies shifting from a relationship of superior (CFO) and direct report (CIO) to one of executive peers. There is still some resistance to such a relationship, but is this antagonism realistic?

Let’s take the example of a billion-dollar New Zealand corporate that recently spent $11 million on an SAP system. That’s the sort of purchase that shows up in company accounts. Some believe the CFO should have the final say with such purchases. But what happens if the CIO doesn’t have the authority to purchase the

optimal system, even if it does cost slightly more? What if efficiency is sacrificed for a short-term financial outcome, because the CFO doesn’t understand the operational implications of the wrong IT decision?

The business implications of having a less-than-optimal system running every company function are profoundly financial — and rather than showing up in one year’s accounts, they’ll haunt them for several.

No company can survive in today’s market unless it employs the most appropriate systems across every department and function, which is done through the decisions of its CIO.

The answer to what may be perceived as a conflict is for the CIO to have not just a technical mind, but also a strategic business mind, thinking at all times beyond the technical requirements of a project to the financial implications for the business.

But it is just as important for CFOs to be fully conversant with technology and all its business implications, thinking beyond narrowly defined financial efficiency to understand the strategic consequences of most, if not all, IT decisions.

No senior executive — CIO, CFO or anyone else — can afford to be narrowly skilled and focused. Just as Robert Half Finance & Accounting surveys are showing more and more of New Zealand’s finance professionals recognise the need to improve their communication skills, IT professionals also need to develop their “soft” skills.

Chief among those skills is the ability to communicate — at CIO level that means the ability to put a convincing business case for any IT recommendation.

So back to that billion-dollar New Zealand company and its SAP system. In this company, the CFO and CIO are not, officially, peers. Their relationship is still a reporting one.

But the relationship of trust between the two incumbents, and the business focus of the CIO, meant the decision was put in his hands. The CFO trusted him to make not only the optimal IT decision, but the optimal business one as well.

It is said that as long as the relationship between the individuals is good and communication is open, it does not matter who the CIO reports to. But what happens when there is a change in incumbents?

More and more, New Zealand companies are realising this is a relationship that needs to be formalised, with finance and IT equally crucial to any business. That recognition needs to be formalised within the business structure, with the reporting relationship officially being one of equality.

Issues such as staffing shortages, competitive pressures and market uncertainty cannot effectively be dealt with by an executive acting in isolation — they need a joint approach from colleagues who see different facets of the same issues and different parts of the solution, but act as equals.

Then it is no longer a question of who’s on top — because neither should be — but of how well finance and technology can work together to produce optimal business outcomes.

Steve McGowan is division director, Robert Half Technology New Zealand.

© Fairfax Business Media

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