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The Decision Factor offers insightful comments and observations on analytics—from views on new technology approaches and market dynamics to the latest industry trends driving demand for faster, smarter information analysis. This blog contains personal views, thoughts, and opinions from SAP employees, mentors, and friends working in the area of analytics. It’s not endorsed by SAP nor does it constitute an official communication of SAP.


Why the New Breed of Chief Financial Officer Will Own IT

Why the New Breed of Chief Financial Officer Will Own ITThe increasing number of chief financial officers (CFOs) and their peers from Generation X and Generation Y that are now heading up finance functions are irked by poorly performing business systems that fall way short of the likes of Google and iTunes that deliver exactly what you want in seconds. So it’s not surprising that many have accelerated automation projects already underway to enhance core financial processes with technology solutions that lead to increased productivity and lower costs.

It’s the only way they can free up headcount from traditional finance functions like reporting, and treasury and transaction processing in order to engage in supporting other commercial and operational functions. Then they themselves can take the lead in driving the company’s business model and overall strategic direction. 

An increasingly proportion of these younger CFOs will not have come up through the traditional accounting, consultancy, or treasury track like the previous generation. They have made their mark as financial leaders in pre-IPO companies, where making best use of limited funds, winning the next deal, and excelling at financial planning and analysis are the pre-eminent financial skills needed for success. These people and their peers are now bagging CFO jobs in listed companies, where they’re grasping technology to drive transformation with an enthusiasm and vision that convinces their boards and CEOs to give them the CIO as a direct report.

As yet, this is far from universal, with only 21% of the 2,300 CIOs who participated in the 2012 Gartner Executive Programs CIO survey saying they reported to the CFO. Although 69% of responding CIOs said their CFO had an excellent understanding of IT budgets, I doubt whether this gradual change of reporting line is solely based on the need for better cost control in an area of major corporate spending.

I suspect it has more to do with this new generation of tech-savvy CFOs having better credentials to oversee IT —they have increasingly relevant skills needed for the leadership role. The Gartner findings show that CIOs themselves increasingly recognize the situation.

They reported the percentage of CFOs that have strong knowledge in the following areas as:

  • IT governance: 40% of CFOs
  • IT strategy: 37% of CFOs
  • IT service levels: 33 % of CFOs
  • IT metrics: 28 %of CFOs
  • IT project and portfolio management: 27% of CFOs
  • IT security: 14% of CFOs 

However, these scores indicate that the majority of CFOs still have gaps in their knowledge and skills in terms of basic IT management and leadership practices – which in turn accounts for why only a fifth of CIOs currently report to the CFO as mentioned above. 

New IT Direction for the Office of the CFO 

My belief is that the newly emerging CFOs from Generation X will soon close the gap. They’re increasingly taking time away from finance to gain operational experience heading up divisions or managing major business transformation projects. There, they’ll soon discover that the important thing about IT is that it actually has to function properly to make the supply chain and other business critical processes work – it’s not just about how much it costs.

This hands-on experience will undoubtedly temper any tendency the CFO may have to see IT expenditure simply as foregone profit rather than an investment in developing distinctive capabilities and long term efficiencies that ensure sustainable returns.

Experience outside of finance also means the CFO will have dealt with a wide range of people with differing priorities and customer-facing, business-critical processes. This will stand them in good stead in managing the diverse group of people typically found in IT.

At the same time, many companies are extending their use of outsourcing for back office functions and cloud solutions for human resources, CRM to core financials and entire transactional platforms. As I’ve written before, this is resulting in the traditional IT function withering away.

Replacing it is a smaller department with greater skills in negotiating and managing serviced-based contracts and monitoring delivery with the focus firmly on getting value from IT rather than simply havin’ IT. All of this seems to weaken the role of the CIO and shift the ground in favour of the CFO as the one having ultimate responsibility for IT.

But the fundamental reason why an increasing number of boards and CEOs can be expected to give the CFO responsibility for IT is that they can be expected to be accountable. Any IT investment is capable of delivering a tangible return—that it eventually does deliver and that it’s on schedule and on budget is the challenge.

The CFO is increasingly the chief scorekeeper, already measuring and monitoring performance and risk across a gamut of financial and operational areas. These can easily be extended to incorporate a cash hungry function such as IT, which increasingly looks to be a natural bedfellow.

It’s already happening, and the speed at which the change is occurring will only get faster. What might seem like a seismic shift to IT folk today will most likely be a done deal by 2020!