CFO, CIO Alliance Can Deliver Strong Business Performance

As businesses face difficult decisions ahead due to the economic crisis, it’s crucial for the chief financial officer (CFO) and the chief information officer (CIO) to build a powerful alliance to increase business value, according to Gartner Executive Programmes (EXP).

“CIOs have been told for years that they must demonstrate the business value of IT, but the problem is much deeper because of misaligned mindsets between the CIO and CFO,” said Dave Aron, vice president and research director for Gartner EXP. “The CIO and CFO have to devote time to aligning the economic architecture and the enterprise architecture of the business. In order for CFOs and CIOs to ally closely, they must come to a shared view of value. The most powerful tools for achieving this alignment are portfolio management and enterprise architecture.”

Creating an alliance between the CFO and CIO based on trust generates better business value. In situations where the CFO has greater access, credibility and/or influence at the executive committee and board level, the CFO may be able to shape demand for more impactful IT investments and generally influence those governance groups to make superior decisions about IT. Further, when the CFO and CIO have achieved a common understanding of the business model, business priorities and each other’s role, time together can be spent on genuine strategic planning to maximise the benefits of information and IT, rather than more-tactical, operational issues.

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In 2008, 23 percent of CIOs report to the CFO, while 38 percent report to the CEO. Gartner EXP data from 2002 to 2008 shows a very gradual upward trend in the proportion of CIOs reporting to the CFO, as well as CIOs’ expectation of reporting to the CFO in three years’ time. If this trend continues, by 2013 it would result in more CIOs reporting to CFOs than to CEOs.

“CIOs’ three-year expectations remain distant from the reality, based on their belief that reporting is driven by IT performance,” Aron said. “In fact, there are multiple drivers of the CIO’s reporting line, including the focus of the CEO and perceptions of IT’s role. Our survey shows that cost focus is not a dominant driver of whether the CIO reports to the CFO; it is a similar business priority for CFO-reporting and CEO-reporting CIOs.”

In general, reporting to the CFO is less attractive if IT-intensive transformation is critical to the success of the enterprise, if the CFO is focused on finances (and therefore less strategic), or if IT is relatively stable and mature. CFO reporting is more attractive if IT is in an immature state, if the CEO is very outward facing (sometimes the case in the public sector) or has too many direct reports, or if the CFO has a broad scope that includes a deep understanding of IT’s value.

“Where IT fundamentals are strong and the CIO is looking to add the next level of value, CFO reporting often creates a challenge in that CIOs must work harder to break out of the IT box,” Aron said. “There are two clear pieces of evidence for this. First, only 45 percent of CFO-reporting CIOs have leadership roles outside of IT, compared with 63 percent of CEO-reporting CIOs. Second, CFO-reporting CIOs spend one day less per month with the board and senior executives than do CEO-reporting CIOs.”

“The message here is not that CFO-reporting CIOs are doomed to failure,” Aron said. “Rather, it is that these CIOs need a focused plan to break out of the box, which should include influencing the CFO to be more IT-savvy and to understand the CIO’s full capabilities as a contributor.”