For organisations to view IT as a strategic differentiator, it's key for CFOs to be actively involved with IT governance and calculate IT ROI in a structure manner.
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The Case for CFO Involvement in IT Governance and Investment Decisions
1. • Cognizant 20-20 Insights
The Case for CFO Involvement in IT
Governance and Investment Decisions
Executive Summary Five Common Problems of
In most large organisations, information IT Governance
technology (IT) is still viewed as a support Large organisations face largely common IT
function. In fact, many business executives still governance challenges, even though IT’s impact
find it difficult to accept the potentially transfor- on the business may vary significantly. The
mative role of IT. They are unable to embrace process by which these benefits accrue lends
and accept IT as a change catalyst, given the itself to common management and governance
supportive role IT has historically played across issues. These challenges are tackled in different
industries. organisations at different levels, although it
is most common for executive management,
Business and IT priorities are considered by senior especially the CFO, to be detached on a day-to-day
leaders to be vastly different from one another. basis. Thorny issues typically ensue, including the
Executive managers in most large organisations following:
are expected to manage business priorities;
it is rare for executives outside of the COO or • Customer-facing applications are allocated
CFO organisations to focus on the strategic a disparate share of the technology budget.
management of IT. However, if these executives Every year during the budgeting process,
are not closely connected with the business, it the business tends to provide a wish list of
becomes difficult, if not impossible, to measure needs, with impacts as important as maintain-
any return on IT investment. Creating a tight and ing market relevance or creating competitive
lasting connection between the corporation’s advantage. However, many of these items
business needs and IT returns can be established are related to how customers perceive their
by the active involvement of the CFO in the IT experience of interacting with the company.
governance process. Consequently, a large portion of the annual
budget tends to be spent on IT systems and
CFOs should view IT as a strategic differen- infrastructure that is customer-facing. As a
tiator for their organisations. The return on IT result, core processing or business operations
investment should be calculated in the same remain reliant on old, legacy infrastructure
type of structured manner that is necessary for that is badly in need of a fundamental overhaul
all large initiatives. The CFO’s involvement is key but making do with piecemeal changes.
to driving this behavioral change, as this brings
more accountability to and correlation with the • The business has limited involvement in
organisation’s business objectives. the process of IT delivery. Having provided
cognizant 20-20 insights | july 2011
2. a wish list and won agreement on the IT involved with transformational IT initiatives
programs for the year, the business does in most large organisations. IT programs
not tend to get actively typically require heavy organisational change
The CFO can and involved with the process of management and buy-in from power centers
should help the IT delivery. While expected to
team would be
no business across the organisation. Lacking an executive
writ, they tend to fail more often than not.
organisation achieve manage technology projects, The real investment made into these large
greater business-IT this behavior creates a chasm programs is not fully realised by the business,
alignment and bring standing the business’s under-
between
of technology risks
as various stakeholders establish individual
primacy and guide program direction to suit
the IT function to and priorities and the real their business unit requirements.
the mainstream by implementation situation.
CFO Involvement in the Management
personally assisting Business users’ involve-
ment tends to become very of IT: Setting the Right Precedents
with the definition of episodic in specific phases In most large organisations, the technology
the IT vision. of the software development function reports directly to the CFO via the chief
lifecycle (e.g., requirements information officer (CIO). Within the executive
definition and user validation), but they don’t management team, the CFO is best situated to
understand the impact that an IT lifecycle can change many of the aforementioned governance
have on core operations. challenges, in a permanent manner. The CFO can
•
Little effort is spent on prioritising IT ini- and should help the organisation achieve greater
tiatives. The prioritisation of IT initiatives and business-IT alignment and bring the IT function
the real definition of the value they bring to to the mainstream by personally assisting with
the business lack sufficient the definition of the IT vision. This includes the
following:
CFOs can play attention. In effect, effort is
sum of money and
a great
an active role in spent on running the organ- • Link corporate objectives to IT objectives.
Each year, the business undergoes an
extending the isation rather than exploring elaborate process of business planning and
organisational transformationalIT is options.
Transformative almost
defining specific objectives to attain on an
financial planning never funded over the long annual or multiple-year basis. This planning
forms the basis for IT investments (or budget
and analysis term with proper visibility. cuts). The IT organisation should mirror this
capabilities to the IT Businesscutcycles, therefore,
tend to into budget avail-
planning process in terms of creating its own
function, ensuring ability and prioritisation planning cycle. The planning process should
specifically look at creating greater business
better planning and of these programs. IT that alignment and defining IT objectives and goals
forecasting, with enables long-term business
objectives frequently gets
as a function of individual business objectives
long-term investment side-stepped in favor of and goals. CFOs are well placed to provide this
direction, with a solid view of the business
requirements in mind. immediate business require- thought process, as well as eventual account-
ments and priorities.
ability for IT.
• IT is not considered a strategic differ-
• Institutionalise the IT budget allocations
entiator, but as a means for delivering
process, including required CFO sign-off. In
operational benefits. Business teams may not
a decentralised decision-making environment,
always consider IT as a strategic differentiator
IT budgets are typically agreed to by divisional
to the business. They look at IT as a support
CIOs and divisional business heads. If the CFO is
function, more or less essential to keeping the
made part of the IT budget allocation approval
lights on. Very few business executives spend
process, it will create additional oversight for
time coaching and mentoring their staffs to
ensuring that the budget allocation balances
derive undefined and blue-sky value from their
short-term business goals with the pursuit
technology initiatives.
and fast-tracking of long-term organisational
• Executive involvement is limited to strategy.
reviews and progress tracking rather than
active guidance and executive sponsor- • Link IT budgets to business impact at
a program level. CFO involvement in the
ship. Executive management is not closely
cognizant 20-20 insights 2
3. budget approval process will also formalise and priorities, and in the process, it may not
the practice of measuring the business impact always be able to leverage IT for driving dif-
delivered for each program rather than ferential value beyond the set objectives.
abstracting the benefit proposition at the line- A better understanding of the IT return on
of-business level. Depending on the size of investment and the future business impact
the organisation, appropriate thresholds can of current investments may help change that
be determined, beyond which CFOs should behavior. CFOs are, again, placed very well to
explicitly approve program-level budgets. make the difference. If current investments
are guaranteed for transformational IT not-
• Improve the planning and forecasting
withstanding the business cycles, the business
process for technology requirements,
can aim for a multiplier effect on this initial IT
providing business a future rolling view
innovation outlay. Over time, these investments
of investment needs. The effectiveness of
can become self-financed and potentially even
financial forecasts in any organisation is critical
operate as a profit center. However, active
to the stability of the business model, as well
communication of financial considerations and
as the ability of executive management to shift
benefits will be fundamental to creating any
focus from worrying about quarterly guidance
such “IT innovation reserve.” Again, the CFO is
to longer term strategic opportunities. While
best placed to take that long-term view.
most large organisations have effective insti-
tutionalised practices in place when it comes • Ensure IT architecture is a function of
to demand forecasts, the same rigor is not business architecture. The IT architecture
replicated on the supply side. CFOs can play involves the details of how business processes,
an active role in extending the organisational organisational units and operational activities
financial planning and analysis capabilities are modeled in an IT environment. Various
to the IT function, ensuring better planning organisations spend different amounts of
and forecasting, with long-term investment time and effort in creating this architectural
requirements in mind. IT should be able to alignment. Quite often, several IT programs
regularly and accurately articulate a rolling just skip this initial planning and alignment
view of investments required to meet opera- phase. However, effective calculation of return
tional as well as strategic business needs. on IT investments will necessitate excellent
understanding of IT costs and benefits, which
• Ensure the organisational risk management
in turn can be understood only if the IT archi-
framework accounts for IT governance
tecture is business-aligned. While this subject
risks. Another potential area of synergy that
is not an area of active CFO involvement,
the CFO can create within his organisation is IT
linking the financial evaluation of programs
risk management. In most organisations, the
or IT outlays to defining this alignment as
chief risk office (CRO) reports to the CFO. This
a pre-requisite will automatically improve
role focuses on external risk management,
the financial governance of IT. This will help
adopting the best market practices and
increase accountability in the way large IT
responding to regulatory stimuli as applicable.
programs are managed and delivered.
However, the expertise and experience of
managing business risk is not fundamentally • Ensure the business is making the right
applied to an otherwise internal IT function. investments in high return areas like
At the program level, IT executives do look at business intelligence and data analytics.
risk management as a critical function, so the All organisations benefit from a greater
business expertise available in-house can be understanding of their customers’ behavioral
very effectively leveraged by the IT function. patterns. Many organisations, however, miss
CFOs are in the best position to create this making the right investments to create the
CIO/CRO synergy, leading to more effective IT infrastructure to consistently understand this
governance. behavior. If CFOs have a solid handle on IT
budgets and related business priorities, they
• Invest in IT innovation to drive differential
will be well placed to suggest compensatory
value. As mentioned earlier, the business may
measures, bringing to the fore these impactful
take a short-term view of its IT requirements
but under-invested areas.
cognizant 20-20 insights 3
4. Ensuring IT Advances Business Objectives
Business Goals IT Enablers IT Implementation Benefits Framework
Corporate Strategy IT Return on Investment
Growth, margin improvement, BU A nxA
integration, improvements in customer IT Strategy
touchpoints, time to market, diversification Scalability, cost
optimization
Functional Strategy systems and process Rollup of Benefits
integration, enhanced
Marketing Strategy CRM, process
re-engineering and
Supply Chain Strategy systems enhancement
BU Strategy BU IT Strategy
Programs and Benefits of Programs
IT Projects and IT Projects
BU 1 BU 2 BU 1 BU 2
BU n BU n
Corporate, functional and BU strategies inform the IT strategy / roadmap. The IT roadmap is translated
into the BU-level IT strategy, as well as IT programs and projects that accrue benefits on implemen-
tation. These benefits roll up to provide the return on IT investment, which is then used to provide
feedback to refine both corporate and IT strategies.
Figure 1
IT Strategy as a Business Enabler and • Benefits framework: Each IT program is
CFO Oversight subjected to a comprehensive benefits mea-
surement framework, where the underlying
We propose the following framework to ensure
evaluation items and considerations are
IT strategy is seen as a business enabler and is
pre-defined and known well in advance. This
tied tightly to long-term business objectives and
helps create greater financial accountability
vision.
and helps the business obtain an instructive
This framework for IT strategy closely aligns the view of the value delivered by IT. The actual
business goals with IT implementation plans. ROI also completes the feedback loop for the
Doing this creates a strong, well-defined feedback IT strategy alongside the corporate strategy,
loop for IT’s financial returns, which can create an thus providing periodic course correction and
informed future IT strategy. In this way, long-term directional guidance on the effectiveness of
goals and short-term objectives are equally made the money spent.
part of the IT governance process. This requires
The CFO organisation is ideally placed to create,
a focus on:
implement and refine the benefits framework,
which forms a key aspect of the feedback loop for
• IT enablers: The key inputs to IT strategy
from an outside-in perspective are all busi- IT strategy.
ness-related — business strategy, business
unit strategy and functional strategy. This
Moving Toward Strategic IT
includes long-term and short-term planning Executive management, led by the CFO organisa-
items, which creates a comprehensive input tion, can help guide IT as a strategic differentiator
view. The IT strategy is then deconstructed at for the organisation. By making the right invest-
the business unit level to ensure proper focus, ments in IT, with measurable outcomes, organisa-
while at the same time keeping the overarch- tions can stand out in a crowded and competi-
ing vision intact. tive marketplace. Taking a long-term view of IT
priorities and balancing it with strong near-term
• IT implementation: The business unit level
financial management and governance can create
strategy is broken down in various IT programs
unbeatable business-IT alignment over time.
and projects, which form the annual roadmap
for the IT division.
cognizant 20-20 insights 4