5 success factors in a strong CFO-CIO relationship

Insufficient understanding of information technology issues is CFOs’ top barrier in their relationship with CIOs, according to a global report by EY.

However, finance chiefs are making progress towards greater understanding. A majority say they have increased collaboration with CIOs or increased involvement in their organisations’ IT agendas over the past three years.

As the roles continue to grow closer together, due in part to rising cyber-security concerns and the growth of data analytics, it’s important for CFOs and CIOs to continue to learn from each other. A 2013 survey by PwC showed that organisations reporting strong collaboration between the CIO and the C-suite were four times as likely as those with less collaborative teams to be top performers.

Indeed, CFOs report making progress on the technology front. Sixty-one per cent in the EY survey say they have increased collaboration with their CIO in the past three years, and 71% report more involvement in the IT function, including 35% who said their involvement increased significantly.

But two key barriers still strain the relationship, according to the EY report, which polled 652 CFOs. First, finance chiefs see their main contribution to IT as being about cost management instead of strategy. And many of them say an insufficient understanding of IT issues prevented a closer relationship with the CIO.

The report detailed five success factors for a strong CFO-CIO relationship:

1. Take joint responsibility for driving innovation through digital IT. The CIO and CFO should work together on harnessing the power of data analytics, the report says, viewing that as a business issue instead of a technology issue. The survey linked data analytics prioritisation with higher EBITDA growth: 48% of companies who say that analytics is a very high priority had EBITDA growth of greater than 10% over the past three years. Among the companies that did not make data analytics a very high priority, 35% had EBITDA growth of greater than 10%. Helen Arnold, the CIO of German software company SAP, said in the report: “Analytics is the foundation for the CFO to get greater transparency and insight, and to steer the business.”
2. Shift the IT operating model emphasis from a capital expense to an operating expense. Instead of making a large outlay in the form of a capital expenditure, organisations should view IT costs as normal business operations. That way, they can pay only for immediate capacity needs and can scale up or down, the report said.
3. Manage risk exposures of new digital technologies. The CFO must play a key role in risk management, including that segment related to IT risk. “The risk tolerance needs to be agreed upon, vulnerabilities assessed against it, and a transformational road map developed to bring security to the appropriate level,” the report said. For example, the report lists questions that CIOs and CFOs should be able to answer about how to approach a risk such as data storage in a virtual, or cloud, environment.
4. Work as peers. In the report, 72% said the CIO reported through finance, a model that is most common in China, India, and Australia. The report says that CIOs and CFOs should have a more collaborative relationship as opposed to a reporting one.
5. Build finance executives’ understanding of IT issues. Better understanding of IT will make it easier for finance chiefs to set KPIs for that department and to better ensure it is adding value. In survey of CIOs from earlier this year, 52% said budget constraints were a top challenge, and 39% cited a lack of focus on resources beyond basic, “keep the lights on” functions.

Related CGMA Magazine content:

“How to Turn a Tech Team Into a Strategic Partner”: Donny C. Shimamoto, CPA/CITP, CGMA, offers eight questions that can help finance leaders get the most value out of the information technology function.

“Businesses Failing to Capitalise on the Potential of Big Data”: The use of data analytics can provide organisations with a wide range of benefits, from improving cyber-security to supporting strategic decision-making. EY research shows that few companies are taking advantage of these opportunities and just 23% have a formal data strategy.

—Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.