“There are plenty of good CIOs and plenty of good CFOs,” says Jim McGittigan, Research VP in the CIO Research group of Gartner. “Part of what makes them good is they understand one another. When they work well together, it has a huge impact on the effectiveness of the organization.”
CIOs and CFOs who have this chemistry know that the relative success of the relationship runs along three dimensions:
The reporting structure: “Where the CIO reports should fit the nature of the business,” says McGittigan. “The reporting structure should enable positive interaction between the CIO and CFO.”
How well the CIO understands finance: “The CIO should run IT like a business within a business,” says McGittigan. “The best of them are good at telling both a cost and value story around IT.”
How well the CFO understands the value of IT: “The CFO needs to understand the business outcomes that can be produced by technology,” says McGittigan. “The best CFOs help CIOs—and business executives—build a case for investment.”
The reporting structure
Sometimes it makes sense for the CIO to report to the CFO—and in other cases, a different reporting structure may be better suited to the nature of the business. “If the CIO role is limited to running the day-to-day of enterprise IT, then reporting to the CFO or COO is appropriate,” says Carol Lynn Thistle, director of client delivery at Heller Search Associates. “CIOs are also more likely to report to the CFO in certain industries, such as manufacturing, CPG, higher education, and logistics and supply chain management.”
Thistle, who’s been recruiting C-level executives for over three decades, says that CIO candidates generally prefer not to report to CFOs because it signals that the organization considers IT as more of a cost center. By contrast, when a CIO reports directly to the CEO, it’s viewed as having a seat at the table. “Being a senior member of the executive leadership team contributes to a CIO’s success in driving business process change,” she says.
But some CIOs find it very natural—and even useful—to report to the CFO. “The CFO understands the real business value of the transformations you’re pushing for,” says Amcor Global CIO Joel Ranchin, who reports to the CFO. “They also know the potential risks. This balance between value and impact is key to successful transformation. I used to think it’s a sign of maturity when the CIO reported to the CEO versus CFO. I’ve changed my thinking on that. There are many advantages to reporting to the CFO—as long as the relationship is based on trust and constructive growth discussions.”
Of course, there are other places where a CIO might report. Some technology companies, such as AMD, create and sell products that are based on information technology and are also used within the IT department. In these cases, it makes more sense for the CIO to be part of the CTO operation.
Mark Papermaster, CTO of AMD, runs an organization that includes customer facing CTO functions, large elements of R&D, and the IT function, which is headed by the CIO. “Every day, feedback goes back and forth between the IT department, which consumes the technology we make, and the R&D side of my organization,” he says. “That way we get immediate feedback on our products and services, and we gain a deeper understanding of customer requirements.”
Even in the case at AMD, where the CIO is in the CTO organization, what’s essential, says Papermaster, is they operate seamlessly as one team with the CFO. He supports a clear line of communication between the CIO and the CFO, knowing what’s most important is that each knows the other’s business. The CIO should understand what the CFO is trying to achieve with the company, and know which technologies will impact both the bottom and top lines. Equally, the CFO should understand the CIO’s views on digital transformation.
How well the CIO understands finance
A study conducted by Gartner, detailed in the report “CIOs: Improve How You collaborate With Your CFO,” found that when CFOs are asked how well their most senior IT executive understands the impact of technology on finance, more than half indicate that their IT counterparts are lacking in this area. But surprisingly few companies choose CIOs for their financial skills. “Financial knowledge is not something clients typically ask for when recruiting a CIO,” says Thistle. “However, the CIO will be expected to understand and manage IT costs and budgets, both Capex and Opex.”
And McGittigan says that nearly every IT budget he’s ever built has been broken into run versus change. “About 70% of the money is spent keeping the lights on—desktop services, applications, and infrastructure services,” he says. “The other 30% is spent on new things. There’s an opportunity for the CIO to educate the CFO by explaining the change part in the same terms as the run part, but the average CIO lacks a sufficient understanding of finance.”
In some organizations, the CIO has a financial director running the finances of IT—a role McGittigan performed in five different organizations before coming to Gartner 12 years ago. “Even when there is a CFO of IT, the person at the top, the CIO, still needs to understand finance,” he says. “Most CIOs don’t have the benefit of a background in finance. I’ve never met a CIO who went into IT to manage money, yet that’s what they have to do. They have to run IT like a business within a business.”
The biggest challenge is not getting a handle on cost, but on value. CIOs can easily show cost on a general ledger. But estimating the future value of technology is more art than science. Investment decisions need to be driven by business outcomes that can be measured and, ideally, monetized. The best CIOs identify the unknowns and build a business case that includes ways of managing those unknowns.
How well the CFO understands the value of IT
“A really good CFO listens and tries to understand the potential impact of technology; not the technology itself, but the business outcomes,” says McGittigan. “CFOs should never take their eyes off cost, but they should also spend time thinking about value and finding ways of measuring and monetizing what technology can do for the organization.”
IT needs to be managed differently both from a cost and value standpoint. A general ledger is often inadequate. What’s needed is more of an investment model to represent that impact of digital transformation—including cost, value, and acceptable risk level. The best CFOs know how to communicate the IT value story.
A good CFO will also help the CIO find ways of funding important projects—but this only happens when there’s a very good human relationship between the two executives. And sometimes the help goes beyond funding.
CFOs may also play a decisive role in deploying new technology. This recently occurred in AMD. “The CFO took the lead role in partnering with us on the ERP implementation,” says Papermaster. “We jointly participated in weekly executive reviews with the CIO and our integration partners, which made the difference. This partnership led to a very successful ERP transition.”
When magic occurs in the relationship between a CIO and a CFO, most observers see it and understand the reasons behind it. Sometimes it comes down to the basics of human relationships. “The reporting structure, the CIO’s understanding of finance, and the CFO’s understanding of the business value of technology are all important,” says Ranchin. “But for me, the most essential aspect of the relationship between the CIO and the CFO is trust and respect.”
CFO, CIO, IT Leadership, Relationship Building