For some CFOs, information technology (IT) and its related costs can look like a black box, one that they might be reluctant to open. Meanwhile, as the pace of digital technology innovations quicken – along with their ability to disrupt business – CFOs are being inundated with technology requests. Differentiating them can be difficult.
Traditionally, CFOs have often taken a bottoms-up approach to determine technology funding priorities, based on the needs and requests of their organization’s business units and functions. But today the disruptive power of the digital revolution has pushed decisions on technology spend into the realm of corporate strategy.
Even the largest, highest-cash flow organization can’t afford to do everything at once, and it will be important to determine different timelines for the IT investments
With this shift, CFOs and their finance teams need to be informed on technology innovations and how they can drive and support their organization’s strategic priorities. Moreover, as requests for new technologies and related funding stream in, CFOs should be prepared to help figure out which initiatives can best create growth opportunities, address competitive needs, and provide operational efficiencies.
That’s a call to action for CFOs to help their CEOs understand how the IT budget is being spent and whether projects are aligned with the strategy. No matter how promising the technology can be, if it’s not aligned with the strategy, the chances of getting the anticipated return on investment are diminished.
CFOs can address this challenge by taking a top-down, strategy-first approach to technology spend decisions – paired with a disciplined governance process to keep IT projects on track and on budget, and when completed, to fulfill their intended purpose and perform as expected.
To help sift through the multitude of IT requests, CFOs can start to gain clarity by viewing them through four broad lenses:
1) What IT spend is critical for maintaining the business – in other words, what has to get done now to keep the wheels running
2) Which IT initiatives will help execute the enterprise strategy, get ahead of competitors, and grow shareholder value
3) What IT projects will enable the organization to operate more efficiently; and
4) Which projects fall into the less critical, “nice to have” category
Based on my experience in developing and evolving a top-down, strategy-first approach to IT spend requests, the process entails not only discussions with IT. It also involves conversations with the CEO to determine what makes the most sense from a strategic and financial standpoint, given short- and long-term priorities.
In these conversations, CFOs should consider asking:
- “What do we want to accomplish this year and in the next three-to-five years?
- “Does the funding proposal support the strategy and how?”
- “How much do we have to spend to get there and on what? How much is going to maintenance and how much is needed for new initiatives, and in what time frame?”
Even the largest, highest-cash flow organization can’t afford to do everything at once, and it will be important to determine different timelines for the IT investments. Of course, there is also the matter of tracking the outcome, keeping in mind that some investments may not yield results for years.
To help make this process work, there are a number of steps CFOs can take:
Forge a close partnership with the CIO and embed finance in IT. It’s critical that CFOs work closely with their CIOs, and that they have a finance partner within IT.
For CFOs, it’s important to understand the CIO’s pressure points and to show what finance can do to help alleviate some of them. It’s also important for CFOs to work with IT in directing spend to address the organization’s broader strategic challenges—a triple crown for finance, IT and the organization overall.
It’s not enough to work with IT. I believe that finance needs to be embedded in IT to understand what technology is driving the business or is going to drive the business, and what’s working (or not working).
The time horizon should take into account commitments being made for maintenance costs, as well as upgrades for new initiatives and capex and opex to account for cloud-based, software-as-a-service costs
Don’t spare the horsepower: It takes high-level finance talent with special training in technology to be the resource CFOs need to understand where the technology spend is going, where it needs to go, and how to track and validate that what the organization is buying is really better than what it will be eliminating.
Take a longer-term view on IT spend. As CFO, I looked one year out and three-to-five years beyond to fully understand the total dollar outlay on technology and where the funds were going.
The time horizon should take into account commitments being made for maintenance costs, as well as upgrades for new initiatives that may require more than a few years to complete. The longer-term focus also has to include capex and opex, for example, to account for cloud-based, software-as-a-service costs.
Taking this more comprehensive approach to understanding IT spend is an arduous undertaking, but if you don’t, you might wake up in two years to discover your IT investments require massive amounts of maintenance dollars that haven’t been budgeted.
Determine the IT investment timing and monitor implementation closely. Does the IT project and related investment have to be done all at once, or can some aspects and associated costs be spread out over several years?
Implementing a new digital platform or system, be it for merchandising, the supply chain or another business need, can take time and may be a multi-year process. That requires disciplined tracking to make sure it stays on point.
Provide the discipline to govern IT spend and execution. Change can be hard when moving to a new system or technology, despite the benefits. Many CFOs have experienced firsthand what it’s like to authorize significant funding to purchase, install and train people on new technology – only to find them either using the legacy system several months later or both systems in parallel.
To make sure that the old technologies are phased out on a timely basis and new technologies are fully and correctly utilized, it’s critical that IT and finance work closely on process and change management.
That means validating the goals and benefits originally set out, and setting and tracking KPIs, white points and milestones to make sure the project being funded stays on track. And when things do not go as expected, which is inevitable, have a plan to get back on course.
Train for change and revisit the talent model. If people are to adopt new technologies to their fullest, a well-defined training program can be essential along with a dedicated group of change agents, including end-users and IT and finance team members who are charged with tracking and validating the training.
And don’t forget to revisit the talent model because the new technologies will likely alter the profile of talent needed to operate them.
Being strategic about IT spending decisions means that CFOs have to be willing to take some calculated risks
Get up to speed on digital and other technologies beyond finance. CFOs have to understand how digital and other technologies actually work, where they are going in the future and how their organization (and competitors) can use them.
When I looked at proposals for new technology initiatives, I made sure I understood what the full cost would be over the long haul. But importantly, my questions went beyond costs to the alignment with strategy.
“How relevant is the technology to the customer? Is it going to make decision-making better and faster? Is it going to move the needle for the company? Is it aligned with the strategy?”
Finally, being strategic about IT spending decisions means that CFOs have to be willing to take some calculated risks. That entails weighing risk factors against the strategic importance of the investment and possibly pursuing new technologies, knowing that although they might not work great the first time, it’s imperative to start down that path and learn from any missteps.
About the Author
Charles Holley, retired CFO of Walmart, serves as an independent senior advisor to Deloitte LLP and as CFO-in-Residence of the CFO Program. For more information about Deloitte’s CFO Program, visit www.deloitte.com/us/cfocenter.
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