CIOs: Reporting to a CFO Isn’t Necessarily All That Bad!

A CEO reporting relationship is allegedly a symbol of political power and a clear indication that the IT function has attained a ‘seat at the table’ where company strategies are debated and decided. This is not just fanciful CIO hearsay. Gartner Research fully subscribes to this point of view. Gartner conducts annual surveys of CIO reporting relationships with the clear implication that a CEO boss is to be preferred over all other options.   

In the real world, however, a CEO reporting relationship may not translate into true political clout. I know of a CIO-CEO reporting relationship in which the CIO is allocated 30 minutes each month for a one-on-one conversation with his boss, boss’ schedule permitting. I personally worked in a company in which the CEO never convened an executive team meeting. He worked exclusively with our CFO and Chief Strategy Officer, conversed frequently with Board members and major investors, and spent the remainder of his time traveling internationally. Bottom line: a CEO reporting relationship and true organizational clout are not synonymous.

At the other end of the perception spectrum, reporting to a CFO is routinely considered to be the worst of all possible options. CFOs are stereotypically characterized as ‘bean counters’ who have no understanding of the IT function and consider IT to be a cost center that needs to be carefully managed and monitored.

In reality, a CFO is the most powerful ally a CIO can have. CFOs are frequently the power behind the throne, dictating to CEOs, COOs and other executives what their company can afford to do, not necessarily what they would like it to do. A CEO may exhibit enthusiasm and support for a particular idea during a one-on-one conversation with their CIO, and then ask the CIO to ‘try that idea out on Sharon (the CFO) and see what she thinks’. Under these circumstances, the CEO’s support has provided a pretext for getting on the CFO’s calendar and not much more.

Contrary to public opinion, most CFOs are strategic thinkers. They have to be. Public company CFOs have to explain their company’s financial performance within the context of their publicly stated business strategies every 3 months during quarterly earnings calls with financial analysts. CFOs don’t necessarily choose to become bean counters because they have a sadistic desire to inflict pain on others. In many cases they’re simply dismayed by the spendthrift compulsions of their executive peers and concluded that if nobody else is counting beans, they have to!

So let’s briefly recap this discussion. CFOs have more influence over the behavior of other functions than a CIO will ever have because they have the power of the purse. They are strategic thinkers, either temperamentally or because it’s an inescapable job requirement and a sure ticket to their own career advancement. And, if IT reports to them, they have a stake in the success of the IT function because failure or poor performance would reflect badly on them personally. So what’s not to like about a CFO reporting relationship?

Here’s a revolutionary thought: what if the issues commonly encountered in CIO-CFO relationships aren’t solely attributable to the shortcomings of the CFO? Perhaps CIOs need to shoulder part of the blame for their failure to turn their CFOs into outspoken IT evangelists instead of IT expense managers. CIOs intent on establishing true partnerships with their CFOs need to first establish their personal credibility by following these rules.  

Show that you can ‘run IT like a business’

Most CFOs don’t get into the minutiae of IT expense management because they think it’s fun. (OK – maybe some of them do think it’s fun, but they’re the exception to the rule. Most of them have far better uses of their time.) CFOs start asking questions about IT expenses because they feel they have to. Their CIOs have failed to convince them that they (the CIO) truly understands their organization’s cost structure and cost drivers. If you’re running IT like a business you should be able to answer the following questions at the drop of a hat.

• Labor costs are typically the largest single IT expense. What’s your current mix of labor expenses for FTEs, part time employees, contractors/consultants and managed service providers? What’s the target mix you’re trying to achieve in the future, and how do you plan to get there (e.g. automation, new tools, process re-engineering, outsourcing, etc.)?
• The majority of application and infrastructure expenses within the IT budget are likely being incurred through subscription models. How aggressively are you monitoring utilization of these services and negotiating volume-based discounts to guard against cost creep?
• How frequently do you benchmark the cost of specific internal IT operations such as your service desk, application support team, Security Operations Center, data center ops team, etc. Can you demonstrate that you are a best-in-class performer in terms of service quality and cost management? If not, what are you doing about it?
• Do you ever visit other companies to discover steps they have taken to optimize the use of cloud computing platforms, cloud-based storage services, business applications, etc.? You may not learn anything that is immediately useful but your CFO will be impressed by your proactive attempts to discover industry-leading cost control practices and learn from others mistakes.

If you can convince the CFO that you are really running IT as if it were your own personal business, they’ll likely feel far less compulsed to ‘help you’ manage the IT budget.

Establish a reputation for aggressive performance management

Nothing impresses a CFO more than a clear demonstration that you will not tolerate chronic underperformers within your organization. Why should you be awarded additional headcount if you fail to manage the performance of the headcount you already have?

IT leaders are prone to think that internal staff performance issues are not apparent to external business observers but usually the opposite is true. Business colleagues have high expectations for IT performance and when those expectations are not met they can be highly critical of specific individuals, IT managers and overall IT leadership. The only way to combat these perceptions is to clearly establish and enforce high performance standards within your team and take aggressive action when those standards are not met.

You might also get ‘extra credit’ in your CFOs eyes if you can credibly explain how you are leveraging staffing vacancies to expand value-generating roles within your organization at the expense of more routine support functions.  

Discuss IT spending plans strategically, not just tactically

CFOs hate surprises. If you’re embarking on a long term initiative to migrate data center operations to the cloud, strengthen security safeguards or exploit AI/ML technology, don’t simply discuss investments in these capabilities during the current fiscal year. Give your CFO a ‘preview of coming attractions’ in terms of objectives and potential funding requirements in subsequent fiscal years. Be very clear about what you plan to deliver in the near term but make it equally clear that you will be ‘coming back to the well’ for additional funds in the future to build upon the results you are committing to this year.

This is a delicate conversation. CFOs don’t want to feel trapped into making multiyear funding commitments because business circumstances and business priorities constantly change. Demands for a multiyear commitment might end up scuttling your entire initiative. But they also don’t like being surprised by requests in subsequent fiscal years for an initiative or activity that they implicitly considered to be a one year affair.

Provide insights on company operations that your CFO can’t easily obtain from other sources

CIOs like to claim that they and their CFO counterparts are the only two corporate officers that have a true end-to-end perspective on how their company operates. CFOs obviously have a financial perspective on how expenses in one portion of an enterprise translate into revenue and profit elsewhere. CIOs have more of an activity-based perspective because IT tools support almost every aspect of day-to-day operations.

Have you exercised your license to learn more about any aspect of your company’s operations to bring your CFO information they can’t easily obtain for themselves? You might discover that the sales process recently introduced by a new sales leader isn’t improving sales efficiency because the sales reps are dissatisfied with their compensation plans. Or, you might discover that members of the marketing team are secretly critical about the amount of money the CMO is devoting to paid advertisements. They believe that social channels are more effective at generating sales leads and they kid each other that the CMO just likes to see the company name emblazoned in prestigious publications. Or, you might discover that the new developer productivity metrics implemented by your CTO are the laughingstock of the entire development team. Individuals who are widely considered to be programming wizards are receiving low grades in the new metrics system whereas other developers whose skills are average at best are rated as programming Gods.

Your CFO might potentially obtain this information on their own but it will be much more difficult to come by and is unlikely to be immediately provided by the executives leading these other functions. Business savvy CIOs should consider themselves to be deputized secret agents who can investigate operational issues on their own initiative or at the request of their CFO under the guise of improving IT support for a specific function or activity.

Word of warning: there’s no way you can conduct this form of industrial espionage if (a) the IT function is in a perpetual state of chaos requiring your dedicated attention, or (b) you have such little business acumen that you don’t know what a sales compensation plan, lead generation pipeline or development productivity metric really is!

The brutal facts

Why should your CFO give you more money if they’re not convinced you understand the cost structure of your organization and are persistently taking steps to reduce wasteful spending, minimize vendor cost creep and redirecting existing spending towards higher value-added activities?

Why should your CFO give you additional headcount if you’re known to tolerate substandard performance by the headcount you already have?

Why should your CFO turn to you for business-related insights or advice when you’ve never provided any such information in the past that materially impacted their thinking or decisions?

CIOs who want to rejuvenate an existing CFO reporting relationship or get off on good foot with a new CFO boss need to be able to answer these three questions to the satisfaction of their CFOs. If they’re unable to do so, they need to change their own behavior before attempting to change the behavior of their boss. As Leo Tolsoy once said: “everyone thinks about changing the world but nobody thinks about changing themselves”.