E-Business requires CFOs and CIOs to redefine their roles and relationships

News categories: the role of finance and financial management, Information Technology

Information Technology has become the lifeblood of the business organization of today. It enables it to share information and knowledge more efficiently between employees and with business partners. This allows companies to built much more robust relationships to customers, suppliers and other important stakeholders to the business, increase efficiency, reduce costs and working capital, and free up people from non-value adding tasks. Automation of these tasks with the help of IT will get them focused on the work that is creating the real value in today’s organizations: innovation through knowledge work and the creation of Intangible Assets. The recent E-Business wave is pushing corporations even further in the adoption of IT based business processes and concepts. And the question is arising: How much should CFOs know about IT, how much should CIOs know about the business, and how does this affect their respective roles and their relationship to each other ?

Should IT still report to the CFO ?

Finance was the first function in enterprises to use Information Technology for business purposes. Accounting was typically the task that was automated first by using financial software applications. And the technology guys needed someone “serious” who overlooked their activities. So it was often a natural choice for companies that IT was a sub function of finance and that the CIO or CTO was reporting to the CFO. According to an article published on CFO.com (Alix Nyberg, “What’s your IT IQ ?”, Oct 04,2001) still 50% of CIO are reporting to the CFO. But this situation is changing.

CFO’s are increasingly expected to evaluate the ROI potential of any new technology investments. This requires at least a foundation of IT knowledge so that the CFO can understand the basics and is able to argue with the CIO on the usefulness of an IT investment. But on the other hand as technology issues have become so complex today and there is just too much to know too quickly as a CFO could keep pace with and digest with all his other duties, more and more CFO’s are happy with that IT becomes an independent function. In addition, for most organizations that adopt E-Business models, IT becomes so critical to the success of the organization that management thinks that it has to be reported directly to the CEO.

What are the new roles of the CFO and of the CIO ?

CFOs are responsible for a company’s ability to manage systematically for short term performance and long term value, for managing its cash flow, for enabling it to leverage capital, and for maintaining adequate levels of funding. They also need to ensure that the company is able to generate enough cash flow to finance important acquisitions and initiatives and to reward shareholders. And increasingly they are involved in external communication to investors and other major corporate stakeholders that become more and more important in the competitive race for financial capital and stakeholder support. Good CFOs know how to do this from both a business and process point of view. They are probably not the specialist in how to automate these tasks with the help of IT, but they should be able to understand at least IT solution architectures and to articulate their needs in discussions about such architectures.

So CFO’s have to have a good understanding of the operating side of the business and how the company is creating value for its customers and finally for shareholders. They need to know or conceive concepts and tools managers need, to make better decisions that increase profit and shareholder/stakeholder value. The CFO has to find ways how “to keep the numbers together” and to issue these in a more timely manner in today’s fast changing and often decentralized organizations, where business models are becoming far more complex (which both is making this task not easier).

Yesterday you could look at a balance sheet and P&L for the essential information needed to run a business or make investment decisions. Those days are over. Today most of the value in enterprises is created much earlier than a sales transaction is taking place and revenue is generated. It is created through investments and activities in product development (which can take years to materialize in revenues), through the built up of a brand, corporate reputation and of a loyal customer base as well as of a skilled workforce. So today, management and investors need a much broader, keener perspective into both financial and non-financial issues, into tangible and intangible assets. It’s the task of the CFO to provide these insights across the entire business – even if it is based on a complex IT system landscape.

And this is where the task of the CIO is starting. His task is to look for opportunities how IT can better support the actual business and strategy but also emerging future needs. He has to find a good mix between technology innovation (adding value mid to long term) and efficiency (keeping costs low). For this the CIO has to watch technology trends and has to decide at which point in time it makes sense for his company to use a new technology. Two other major topics for the CIO are flexibility and reliability.

Most companies are today so dependent on IT, that the crash of an E-Business server for example will stop immediately the entire operations. So 99,99 % reliability of the IT infrastructure is one of the major tasks of the CIO. But his department also has to be able to react in time to new challenges from the business side. E-Business will bring a far higher rate of change as companies have been used to in the past. Because the change of digitised business models which can be accessed through the Web by customers and business partners require often only a reconfiguration of the underlying software applications, the deployment of such changes can happen much faster than in brick-and-mortar businesses (where you have to train before for example your entire sales force and staff) and will therefore also require competitors to react to such changes much faster. This will force CIOs to allocate their resources very carefully in order to be still able to react to unexpected changes and new urgent requirements from their businesses. The problem of many traditional IT departments often is, that all available people are stuck up in maintaining the existing system landscape. This is not acceptable any more. The CIO has therefore constantly to look for new ways how to increase the efficiency of his people, how to free them from low value adding tasks, and how to create a highly flexible, efficient, and user as well as business centric IT organization.

The CFO and the CIO share a common bond

CFOs are the guardians of a company’s economic well being. Their main expertise lays in understandings the economics of their business and to conceive the right concepts to manage for profit and value. In delivering superior services to the business based on this expertise they are dependent on the appropriate IT solutions and need the help of the CIO to select and to built these.

CIOs are the guardians of a company’s blood circulation system, that is of its capabilities to exchange information internally and with business partners in the most effective and efficient way to power major business processes and new business models. For this the CIO has to understand the fundamentals of the business and of the company’s strategy and has to map technology solutions with these in order to be able to make the appropriate IT value propositions to his or her organization.

IT and Finance share a common bond: neither views its mission as that of merely a service provider, but rather as a partner who actively contributes to the business strategy of the company. Both are experts in their fields and can contribute individually in a significant way to a company’s economic success. And when they join forces, the whole should be greater than the sum of its parts and so should be the overall benefit for the company.

Additional resources:

Interview with Juergen Daum by SAPInsider Magazine: Leveraging E-Business Opportunities for Finance – How CFOs and IT can join forces to create Value ( -> click here for the PDF (print) version)

White Paper written by PWC's global Financial Management Solutions consultancy team and Juergen Daum: Empowering Finance for E-Business - How to Exploit Technology to Optimize Value - SAP White Paper

Previous related new New Economy Analyst reports about this topic:

April 11, 2001 – How to make software developers more productive through “Extreme Programming”

April 10, 2001 – What the CEO expects from his CIO

Febr 15, 2001 – E-Business has a far reaching impact on Finance – J.D.’s finance management best practice channel is live !

Dec 18, 2000 – New E-Business Models require new E-Business Software and business application architectures

I will continue in future reports to report on financial and IT issues related to managing companies in our information and Intangible Assets based economy of today. To subscribe for my free-of-charge e-mail newsletter click here.

The emerging new role of CFOs and CIOs as well as a comprehensive concept for a new management system for knowledge and intangible assets based businesses, that integrates strategy management (strategic innovation) and product and market development (product and market innovation) with operations management (supply chain management, customer relationship management) and resource management (finance, hr, alliances, IT) is described in detail in my forthcoming book "Intangible Assets oder die Kunst, Mehrwert zu schaffen: Erfolgreiche Unternehmensführung im Zeitalter des Intellectual Capital" ("Intangible Assets or the Art to Create Value: Successfull Enterprise Management in the Era of Intellectual Capitalism").

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