How quickly the tide changes. Just a few years ago, technology projects seemed to be getting all the attention, and chief financial officers were under pressure to increase their technical know-how. Now CFOs are leaning on technology chiefs to improve their financial acumen as they demand accountability for promised investment returns.
So says a group of CFOs who were asked to assess how their technical peers are adjusting to added management scrutiny of IT budgets. Some say they now view an understanding of finance and accounting as an important checklist item for top-level technology recruits.
Comfort with numbers and return-on-investment disciplines was a vital criterion when ProLogis Trust, a real estate investment trust and operator of regional distribution facilities in Aurora, Colo., picked a new chief technology officer 18 months ago.
"We purposely hired someone with not only good technology skills, but someone who could also speak return on invested capital," says CFO Walter Rakowich. "If you have a person driving that group [who's] thinking numerically, that's the CIO of the future."
ProLogis CTO Timothy Harvie
Rakowich and CTO Timothy Harvie meet three or four times a week. For any IT investment of more than $100,000, Harvie must demonstrate how the project will produce a 20% return on investment capital, beyond depreciation, in three to five years, Rakowich says.
An internal audit department reviews the investment papers drafted by Harvie and tracks progress quarterly. This review process has been in place for about three years, Rakowich says.
Full participation in financial matters is a growing trend among top technology managers. Today's CIOs and CTOs are treated more like business unit chiefs than like heads of corporate functions such as human resources or customer service, says David Mark, a partner at McKinsey & Co., who heads the New York-based firm's North American IT management practice. That means that they act as partners with business units and are partly responsible for the profits and losses of those units, he says.
ProLogis CFO Walter Rakowich
"It feels like IT still has the strategic importance it had during the technology boom, but it's now being combined with the financial discipline of before the boom," Mark says. "In some sense, it's a maturing of the whole decision process around IT."
In a way, the burden of molding financially savvy CIOs is on the CEO, who sets the organizational structure. Rakowich says he believes CIOs and CTOs are more comfortable with finance and ROI if they report to the CEO rather than to the finance chief. Those who report to the CFO miss out on high-level interactions with other executives and exposure to the financial discussions surrounding important projects, he says.
Harvie "is in on meetings and sees that the company is driven by return on invested capital," says Rakowich. "He knows how to convey those thoughts to other levels in the organization. Without that, he and I would be like two ships passing in the night."
A Step Back?
But at least one CFO sees things differently.
"I've been seeing IT going more and more into the back room as a cost center, whereas for a time it was more upfront in a profit-center approach," says Fred Minturn, CFO at MSX International, an auto industry design and engineering services company in Southfield, Mich. "IT is just a tool for everyone to get their work done. It is a commodity within the business."
Donald Barger, CFO at worldwide trucking giant Yellow Corp. in Overland Park, Kan., refuses to make a distinction between IT and other corporate functions such as finance. "Specific to ROI, we don't treat IT any differently," Barger says. "If someone is trying to make a distinction between measuring IT projects vs. other types of projects, I think they're a little off base."
Barger, employing a practice that's used even in better economic times, insists on seeing any project plan with expenses of more than $50,000, including labor. As Draconian as that may seem for a $3.3 billion company, Barger says he views IT as vital to Yellow's logistics tracking and the reduction of labor throughout the organization.
IT is also responsible for several revenue-producing activities, including a Web-based service called Exact Express that promises on-time delivery according to customer specifications, including one-hour or same-day service to any location in North America. It has a 98% success rate, according to Yellow.
Barger and CTO Lynn Caddell meet at least weekly. Both report to CEO Bill Zollars.
McKinsey's Mark says that despite the greater financial scrutiny of IT projects, more CIOs and CTOs are reporting directly to the CEO. And that's forever changing the relationship between finance and information chiefs.
The budgeting process is "no longer an exercise where the CIO sets the budget and the CFO reviews it," Mark says. "Because the CIO and CFO are both leading an important function in the company, their two roles tend to be more intertwined than in the past."
Joachim is a freelance business and technology journalist in Port Jefferson, N.Y. Contact him at email@example.com.