What CFOs want IT managers to know now
- 28 October, 2010 05:43
You can't run a company without technology, but you can't invest in technology without the blessings of the finance department. And thanks to the long-stagnant economy, the pendulum of power between finance and IT is swinging decidedly toward the chief financial officer's door these days.
"The power dynamic in the C-suite really does change when the economic times are difficult," says Bob Martins, a CFO partner at Tatum LLC, an executive services firm headquartered in Atlanta. "And right now any kind of spending decision requires much more scrutiny."
All of which means now is an excellent time for you, as an IT manager, to really listen to what Finance has to say. To make that job a little easier, Computerworld asked several CFOs what message they'd most like to get through to their top technologists. Here's their advice.
Say goodbye to bells and whistles
During better economic times, Don MacKenzie, CFO and chief operating officer at Accounting Management Solutions Inc., a professional services firm in Waltham, Mass., could be convinced to buy a more expensive system if it offered nice-to-have usability options or extra functionality.
But these days, the age-old battle between cost and functionality is being won by cost. So when his company needed new customer relationship management software, MacKenzie told his CIO at the outset, "Maybe we don't need the Cadillac. Our problem might be better solved using a Chevy solution."
As he always has, in good times and bad, MacKenzie expected the CIO to deliver an analysis that looked at several systems, detailing how much each one cost, what features each one offered and what type of ROI each one could be expected to deliver. But with the financial pressure on, MacKenzie admits the weight was almost all on the cost side of the equation.
"I'm not suggesting that there wouldn't have been a financial analysis [in the past]," MacKenzie continues, "but the focus then would have been more on functionality and on [the software's] tie-in to other applications. That might have overridden the financial considerations," he says.
These days, that's not the case. One of the options the CIO presented was "a 300-pound gorilla with all the bells," MacKenzie says, "but [after] we did the analysis, we went with an appropriate one that was a lot cheaper."
Play with the toys you already have
Tibco Software Inc. in Palo Alto, Calif., has made significant investments in IT in the past, and one of those was the acquisition of an ERP system. So before Executive Vice President and CFO Sydney Carey opens the coffers to buy more hardware or software, she wants to make sure that the company is making full use of its current resources.
"The recession has focused us more on the fact that we've made investments, so we need to ask, 'Are we really getting all we can from them?'" she says.
Specifically, Carey explains, "We need[ed] to leverage our systems, automating or integrating or getting the right information to the right people at the right time to make decisions" -- but without making any more big investments in infrastructure.
That meant working with the CIO and the IT staff to get more value from the ERP system. Toward that end, Carey had the IT staff add business process management (BPM) software and other programs to the ERP front end to make the company's order fulfillment system run more efficiently.
Although the software additions did require some in-house development, the investment was quicker and cheaper than buying and rolling out an entirely new system. Yet the results were significant: Carey says the department that handles orders has been able to increase accuracy and double the number of transactions handled each quarter without adding staff.
Know what the business needs now
It's always a priority for tech managers to be aware of their company's business strategy, but in tough times, CFOs say, it's imperative for IT to be up to date and ready to help with corporate changes on an almost daily basis.
For example, Teknor Apex Co., a custom compounder of advanced polymers in Pawtucket, R.I., recently completed a major acquisition, and CFO Jim Morrison says he had to make sure IT understood the challenges the merger presented.
His message to IT: Bringing the new acquisition into the fold is your No. 1 priority for the foreseeable future. For six to nine months, IT will be "pretty much consumed" with the acquisition -- indeed, "the whole company will be," says Morrison, a member of the Business and Industry Executive Committee at the American Institute of CPAs.
Morrison says the acquisition illustrates how IT needs to help drive forward the company's strategy and that the department needs to be able to rapidly adjust priorities as the strategy evolves. To be sure, Morrison supports his CIO's road map of long-term strategic initiatives intended to increase efficiencies and save money, but he also needs IT to be able to shift resources as corporate events warrant.
Tatum's Bob Martins agrees. He says a CIO needs to understand his company's short-term financial situation, its near-term tech requirements, and its current risk tolerance level -- as well as its future vision.
Understanding all that, he says, will help a CIO better identify and prioritize the projects that mesh with the company's needs right now.
Show me an ROI that I can trust
Martins wants CIOs to look beyond price tags and projected future savings when they're making a case for a tech investment. He says those figures aren't really enough to calculate the true return an IT investment will generate.
"I see ROIs all the time that can have a wide range of values depending on how you work your assumptions," he says.
Martins, who works in the Washington, D.C., area as interim CFO for a government contractor and as a financial adviser to two other companies, says CIOs need to include more details in the ROI figures they present.
For example, he says, if a $500,000 investment helps generate $2 million in revenue, the ROI needs to account for the revenue that would have happened anyway.
And IT managers also need to identify the risk associated with each investment.
"If there's a $500,000 expenditure, you have to consider the magnitude of success, the probability of success, and the risk if you don't succeed," Martins explains. "Because even if you properly discount the probability of return but don't factor in the cost of risk, then you're not really presenting an accurate ROI."
He cites a case he has knowledge of, but didn't work on directly, where an IT department implemented a $2 million CRM system that was approved without calculating the whole range of costs associated with it or how much it would generate in returns.
As a result, the company ended up with a system that did half of what it was expected to do but cost twice as much as anticipated -- all just as the economy tanked and the company's market shrank.
"It's been a significant drag on that company's performance," Martins says. Further, it limited the company's ability to generate new business at a crucial time. With more-accurate pre-investment projections, the company might be in a better place today -- or at least it would be using a less-expensive CRM system.
Emphasize short-term returns...
Breslin Longstreth wants his CIO to seek out projects that deliver benefits quickly.
"It's all about what're the short-term and medium-term returns," says Longstreth, senior vice president of finance at A Place for Mom Inc., a Seattle-based service that helps people find care options for elderly parents.
Case in point was the company's decision to reconfigure all software licenses, standardize equipment, and upgrade and integrate phone and computer services. Longstreth says the company was looking at six figures worth of investment to get the project done -- he declined to disclose the actual price tag -- but found that the ROI would likely be within a year.
"We move quickly if we think there's a strong, quick ROI. If it's not obvious, we're probably not going to do it," says Longstreth, a finalist in the Puget Sound Business Journal's 2010 CFO of the Year competition.
Longstreth says A Place for Mom, a private $50 million operation, is growing so quickly that it's hard to predict what it will require from IT beyond the next few years. That's one reason why he encourages his top IT person, the vice president of development, to think about projects with quick ROIs.
The economy is another reason, he says. Although the company is financially healthy, Longstreth says he doesn't want to put cash into technology with a long-term ROI and potentially leave the company cash-strapped.
"Making a bet on something with a return three to five years out has too much risk right now," he says.
...But don't abandon long-term investments
Even with the economy in the dumps, Teknor Apex's Morrison wants his CIO to continue proposing projects that will help the company reach its long-term goals.
"If there's a project needed for our strategic well-being, I don't necessarily [want IT to] put it on a back burner because the economy has taken a downturn," Morrison says.
As a private, family-owned company that's not driven by quarterly performance, Teknor Apex has the luxury of being able to focus more on long-term results, Morrison acknowledges. But that doesn't mean he can fund IT projects that don't support the corporate agenda -- especially in today's economy.
"Outside of upgrades of hardware, everything we do from an IT perspective is put forth as either being strategic in nature or increasing our efficiencies," Morrison explains.
When the market went south in 2007, Morrison says the company reduced its head count by five per cent to 10 per cent, but at about the same time he OK'd spending $150,000 for software for the credit department. "It was probably one of the best projects we ever did," he says, explaining that it allowed the company to reduce staff in the credit department while improving performance. As a result, the new system paid for itself within two years.
Morrison says those are the kinds of technology investments that he'd like to see IT managers bring forward.
"We look at IT as an enabler of a lean company. I don't think there's a function that doesn't feel that the IT systems are absolutely essential to their performance," he says. "So we give them what's needed. They just have to show there's a good return."
How to sell to the CFO
Most CFOs still see IT as a black box -- they have limited visibility into the value that IT creates for their organizations, says Gregg Rosenberg, managing director and manager of the IT practice at The Corporate Executive Board, a research and advisory services company.
So it's no wonder that IT managers have a tough time convincing their chief financial officers to spend on new technology today, Rosenberg says.
By making changes in their pitches, IT managers can overcome that roadblock and get the CFO's stamp of approval for more projects, Rosenberg and other consultants say. Those changes should include reframing proposals and spending requests to highlight the business values that technology creates.
In a white paper, Rosenberg writes that CIOs should take these seven steps to illuminate the cost and returns of IT projects:
* establish needs
* reflect relevance
* centralize accountability
* invoice responsively
* motivate performance
* price strategically
* map resources
Each step includes many smaller underlying tasks, of course, but Rosenberg says that overall, any moves that IT makes to transform the way it calculates and presents costs will be well received by CFOs.
Beyond that, IT managers need to align large infrastructure improvements with smaller, specific departmental requests. For example, if the IT department believes that the company needs a new ERP system, the CIO could make the case that a new application requested by the accounting department would perform better and more cost-effectively on the upgraded ERP system than it would on the current one.
Rosenberg further says that comparisons between systems should also include the total cost of ownership (TCO) under both the current and desired scenarios. In the case of an IT department that wants a new ERP system, for example, the CIO could calculate TCO for the accounting application with the existing ERP system and the TCO for the application with the upgraded ERP system.
In addition, in pitching their requests, successful tech managers should use business metrics and key performance indicators that matter to the company's leaders, says Saby Mitra, an associate professor in the College of Management at the Georgia Institute of Technology and co-author of a study titled "How CIOs Measure and Communicate IT Performance" from the Society for Information Management's Advanced Practices Council.
IT might present the CFO with figures showing how a proposed technology project will improve the cost of business processes or how platform performance improvements will decrease unit costs. And then, says Mitra, "the CIO is talking about things that really matter to that business head."
Pratt is a Computerworld contributing writer in Waltham, Mass. Contact her at firstname.lastname@example.org.