The IT reporting riddle: the CFO or the CEO?

CIOs and IT managers share their views with John Mark V Tuazon

At a time when automation of business processes was the biggest fad among large enterprises, it was natural for CIOs to report to CFOs because such transformations occurred mostly in the areas of finance, such as in deploying accounting packages.

As businesses expanded - and as technological innovation became more fast-paced - IT deployments have gone out from the old setup and spilled over to influence the way entire organisations carry out their work.

A recent Gartner survey, however, suggests more and more IT organisations are finding themselves easing back into the old setup, especially due to the recent financial crisis and the fact that higher-ups are still stuck in the IT-as-a-cost-centre conundrum.

In the survey of over 480 senior finance managers, 42 percent of IT organisations are already reporting to the CFO, while a surprising 53 percent prefer to move to this setup.

Gartner's survey talked with finance controllers across the globe. Computerworld Philippines ran its own survey, asking local CIOs about reporting setups in their own companies. Of those surveyed, only 25 percent said they report to the CFO, while 65 percent report to their respective CEOs.

Of those CIOs who report to their CFOs, 80 percent said the setup has been beneficial to their company, while the remaining 20 percent said otherwise.

In the Philippine survey those who responded that they are not currently reporting to the CFO said their IT organisations are better off under the CFO.

"Where the CIO should report is a question as old as the CIO role itself," said John Van Decker, research vice president at Gartner. "CFO reporting can lead to success if the CFO has a deep understanding of IT's value.

Cultivating the CIO-CFO relationship

Therein is the effectiveness of this setup: CFOs who appreciate the work of IT understand the intricacies of the department's cost requirements and would generally vote in favour of IT investment.

This, however, is hardly the case in reality, according to Mayi Valdes, director of operations at Encash, an independent deployer of ATM machines. "CFOs tend to look at the cost of IT projects and will advocate evaluations looking for the most 'cost-effective' solutions," he relates, adding that this strategy has been proven, time and again, to be ineffective.

In the Gartner report, analysts said CIOs should invest on a CFO-CIO relationship, and that they "must understand the impact their CFOs have on technology decisions in their organisations and ensure that they are providing the CFO with the appropriate understanding of technology."

On the flipside, Valdes - who reports directly to the company's President - says CFOs should function primarily to mitigate enthusiasm on IT projects, and not to adversely control budgets, which could potentially cripple the entire organisation. "[Their role is] to remind the head of IT, as well as the project champions, that the real objective of any business strategy is to remain competitive and profitable - and not to be the first to use new technologies," he says.

The CFO-CIO reporting structure is an ongoing raging debate among most organisations around the world, with CIOs pining for long-overdue recognition of their department's vital importance to the enterprise.

Aside from the fact that it is in the finance department where IT's role was first appreciated, CFOs offer a buffer for the CEO who often do not understand the way CIOs talk about their technology implementations, according to a CIO.com article by Thomas Wallgum.

"There was also, perhaps not coincidentally, always a little breathing room between CEOs and the expanding and bewildering IT departments," he writes. "Of course, the CFOs spoke in 1's and 0's too - but the gulf between the two departments always seemed vast. Over the years, CEOs wanted constant control over ballooning IT spend. And who better to do that than the Chief Bean Counter?"

Randy Sac, IT infrastructure and services head at marine terminal operator Asian Terminals, argues that since IT has earned itself a C-level position over the years of efficient implementation, CIOs should be at the same level as the CFOs or the COOs, especially when it comes to decision making for their own departments. "[They] should [all] be in the same level, reporting directly to CEO simply because IT deployments are aligned to whatever the business mission and vision is, as set by the management committee, headed by the CEO," he retorts.

Valdes, meanwhile, believes that adding another layer in the decision-making process is at the least counter-intuitive, and at the most counter-productive. "Putting another layer in the decision-making process provides delays in the implementation of IT strategies. In fact, the IT strategy may even be killed at the level of the CFO, should the CFO decide against an IT initiative," he posits, adding that going against this tide means deviating from recent views of IT as a strategic enabler for any company.

This view is shared by Lito Estacio, CIO at Cypress Semiconductors Philippines. "Today's time calls for speed, accuracy, and competitiveness. IT provides these attributes. Why create an organisational bureaucracy if the shortest path is a straight line?" he asks.

The answer could be evident based on the sign of the times. According to the recent State of the CIO report, a global survey of IT leaders conducted by CIO.com, 43 percent of CIOs are currently reporting to the CEO, down three percent from 2009 data. A rise of three percentage points to 19 percent, on the other hand, was seen in CIOs reporting to the CFO.

CIO.com's Wallgum provides an analysis: "The dip from 2009 to 2010 is evidence of the downstream effect of the global meltdown and the 'New Normal' in IT: CEOs clamped down on spending and, in some instances, shifted CIO reporting relations to the CFO," he pointed out.

Considering that IT project implementations don't come cheap, it is highly plausible that the economic downturn had to do with the shift in reporting structures. Valdes, however, downplays this claim, saying that "the more IT savvy a CEO, the more chances the CIO will be a direct report," and that management views of IT - more than economic factors - play the bigger role in such circumstances.

CFOs as IT decision-makers

The debate is apparent, and all the more relevant given the recent economic conditions, but the discourse begs the question: how effective, really, is the CFO in making decisions for IT?

Not so much, if Cypress's Estacio is to be asked. "Nothing personal, but when CFO's make IT decisions, the beneficial impact is most likely to be short-lived," he suggests.

Estacio says the management depends on information - or good data - to make decisions, so the burden to influence the management lies in the hands of the CIO. Additionally, he says, CIOs and CFOs often do not meet eye-to-eye with expenditures. "IT strategic expenditures are planned way ahead of time, and CFOs don't have a vision of the IT infrastructure requirements," he adds.

Valdes provides a humorous quip, if businesses still opt for a CIO-CFO reporting structure: "The biggest contribution of a CIO is providing relevant management information at the right time," he reasons. "If the CIO reported to the CFO, then the senior/upper management of the company will have to content themselves with financial information and statistics as of month-end."

IT spending and budgeting is a tricky territory, one mired by constant tugs and pulls between the IT head and the financial controller. Granted, IT projects are strategic enablers of the company, but the reality is the organisation simply cannot grant every IT head's wish.

The challenge, therefore, lies in justifying the effects of IT implementation, whether on the process aspect or on the bottom line view. "The fine line that draws the balance between IT Investment and minimising costs is the return on investment (ROI)," Estacio suggests. "Generating ROI analysis and being able to sort a major decision out of it should be process-driven, and not based on personality or position."

Valdes, meanwhile, says that CIOs should look further away from saying that IT saves the company money, and into throwing arguments based on how much revenue IT can bring to the firm. "The myth that automating processes leads to savings in costs has been shattered many times over. CIOs need to see the impact in revenue increases to justify IT initiatives," he says.