The Executive Question: The CIO's CFO

How to justify an IS function's worth to the wider business? It's a perennial question for those in charge, often the CIO. Executive advisor and veteran IS consultant to giant companies David Butler has an idea...

"The best job going in IT at the moment," said a knowledgeable friend of mine, "is to become the CIO's CFO."

"Oh why’s that?" said I.

"In lots of businesses the job of interpreting the results of the IS department's work - interpreting the numbers - is left to the corporate finance department. And they like bad-mouthing IS, putting a negative spin on the numbers. So if the CIO appoints her own CFO, then the numbers are fairly and positively interpreted. The reputation of IS goes up and budget reviews get easier. That’s the way to make a name for yourself."

I was left wondering. What my friend said had a certain ring of truth about it but it was a fairly aged truth, like listening to an old episode of the Archers. Knowing that the readers of silicon.com would be interested in a wider range of views than mine alone, I consulted some of my friends. Does this antipathy between IS and corporate finance still exist? And if so, is it a good approach for the IS department to have its own finance function?

Paul Strassmann is a prime example of a unique American hybrid, the scholar/businessman. He has been CIO at the Xerox Corporation, the US Department of Defense and also at NASA, supervising some of the biggest IS budgets in the world. And he has written a string of learned books and articles. Paul was the first to strike an important qualifying note.

Yes, he agreed that IS must have its own financial controls, in place to monitor the cost reductions obtained by advancing technology.

But no, he did not believe that CFOs are a malign influence. The jaundiced view of IT belongs to the past. CFOs now embrace IS as a tool in the never-ending hunt for competitive advantage.

Strassmann used programme managers to set up projects and to articulate their value. Obviously such animals worked closely with the business leaders, helping to generate projects whose costs were embedded in the business units’ budgets. But here Paul differs from another friend I contacted, a man who deals every day with some of the biggest hitters of the IS world but who (for that very reason) prefers to remain anonymous.

Of course, says my anonymous mate, all IT departments have their own CFO. The ones he deals with are, after all, big businesses in their own right, with budgets around $500m to $2bn. The function of these CFOs is to monitor spend, correct any false optimism, create depreciation policies and (very often) administer recharge policies.

There is in these mega-corps an increased interest in the value of IT. But smart CIOs know how to deal with it. They demonstrate, yearly and unmistakeably, costs shifting downhill in the operational and infrastructural business. No one can argue with that. But they don't sponsor development projects. They leave that to the leaders of the business units, who compete for funds for IT developments just like anything else.

In the fight for continuing cost reduction, in this gentleman’s opinion, the CIO currently has three important weapons: outsourcing, offshoring and consolidated purchasing. Enterprise-wide purchasing agreements are, I know from my own contacts, moving to centre stage - and yielding massive rewards.

My third witness was Gareth Williams, formerly CIO at Marks & Spencer and then CEO of one of the largest privately owned businesses in the Middle East. Gareth has looked at this question from both sides of the table, CIO and CEO. Interestingly enough, he still perceives that the value-for-money proposition posed by IT requires some careful justification. The costs of IT are now very diffuse within the company, not easy to pin down. Some boards of directors still have only a limited understanding of the benefits of IS. And even today, the CIO is not always on the board to make sure the case is understood.

Under these circumstances the IS function becomes a natural target for budget cuts, delaying developments, cutting staff, enforcing outsource agreements. The prophecies of gloom become self-fulfilling as the IS department grows weaker. Gareth also attaches great importance to the selection of an appropriate CIO. Given his own background, it’s no surprise that he believes the CIO should be first and foremost a business leader able to dialogue on peer terms with the rest of the board. He also makes the point, more timely than ever these days, that a CFO who was willing to put negative spin on the results of any department is these days a dangerous animal, who understands little of the real world of corporate governance.

Still, it happens that business judgement is clouded by less objective factors. I was once walking into the Blackfriars head office of a major corporation, just about to begin a fairly significant piece of consulting work, accompanied by the finance director.

"Of course, David," he said, "this business is riddled with internal politics, people scheming and plotting. Naturally, as FD I have to keep right out of it."

As he spoke a man emerged from the headquarters building, a man I later came to know as the marketing director. "Good morning Norman," he said to the FD.

The FD turned to me with anger and fear writ large across his face. "What the hell did he mean by that?" he said.

I suppose the lesson is that if you work for Xerox, NASA or any of the mega-buck corporations my anonymous friend knows well, you assume different rules. The context is all.

David Butler was formerly chairman of Butler Cox Plc and is now chairman of the Executive Learning Alliance, a company that tracks developments in emerging markets. He can be contacted by emailing editorial@silicon.com.