On Nike’s latest earnings call, CFO Matthew Friend made the business case for IT investment. By investing in areas like digital fulfilment, predictive modelling and personalisation, digital revenue was about 10 points higher than wholesale revenue.
CFOs use such cold, hard facts when agreeing CIOs’ budgets. Friend’s comments suggest Nike’s CIO had succeeded in selling the importance of IT investment.
The CIO has gone from being someone who’s very technical to someone who’s about finding solutions and delivering value
Today, CIOs are more than tech specialists; they’re strategic members of the C-suite. The modern CIO must be just as comfortable talking to board members as they are to members of their own team.
That’s especially true when making the case for investment, where it’s essential to speak the CFO’s language. A global survey by Deloitte Global and Workday shows that 60% of “progressive” CIOs see strategic partnerships with the CFO and other stakeholders as key to succeeding in the role. These CIOs try to ensure their priorities are strategically aligned with those of the wider business and well understood by all key stakeholders.
“As a CIO you’re going across all the different departments, you’ve got to talk the same language as everyone you’re dealing with. The CIO has gone from being someone who’s very technical to someone who’s about finding solutions and delivering value, and therefore that language has got to change,” says Gerard McGovern, CIO for The Guide Dogs for the Blind Association.
Understanding investments
It’s fundamental that CIOs understand the language and the nature of business, McGovern says. They must be able to demonstrate a clear understanding of the return on any investment and present it in compelling language that the CFO understands.
“So you’re talking about net present value, return on investment, discounted cash flows. You’re not just saying, ‘well it’s going to cost £100,000, it’s going to give us £100,000.’ Because the CFO will turn around and ask: ‘Is that £100,000 now? Is that £100,000 In five years’ time? What’s the return?’”
However, it’s important to recognise that not all IT investments are the same. Stephen O’Donnell, CIO at workplace pensions provider The People’s Pension, points to three types of IT systems.
First is “commodities”, where the critical success factor is to keep them running reliably and as cheaply as possible: email and document management systems, for example. Second is legacy systems “where executives are only interested if the regulator or ICO has them in their sights”. Finally, there are key systems that “move the business needle and are core to delivering a competitive advantage for the organisation”, like digital customer-facing systems, logistics platforms or other critical applications that “executives are desperate to invest in”.
It’s this third investment type that’s caught the attention of many companies with the acceleration of digital over the past 18 months: one that can deliver a competitive advantage. The good news is there’s currently no shortage of budget for IT activities, says O’Donnell.
“Covid has made many boards aware of the critical importance of becoming a digital business. Across all industry sectors, this impetus to embrace a digital operating model is essential for survival,” he says, pointing to areas like customer self-service.
A place at the table
Anna Barsby is a former CIO of Asda, Morrisons and Halfords. She’s now a co-founder of Tessiant, which provides access to senior executives who can guide businesses through key stages of transition.
Barsby believes CIOs should be invited to board meetings where key decisions are being made. “If organisations want the CIO to speak the CFO’s language, then they need to ensure that the CIO is in the room when those business, financial and commercial conversations are taking place,” she says. For example, if a CIO can explain how a technological investment will get more products on the shelves at the right time and improve sales by 10%, “this is speaking the language of the CFO.”
However, many CIOs report to CFOs, she notes. This “devalues the CIO role and it’s not ideal that the CIO is working for, rather than alongside the CFO. If the CIO reports in to the CFO this also creates the perception that IT is a cost centre within the business, when IT should be viewed as a profit centre, an enabler of successful business outcomes and a driver of commercial success and increased shareholder value,” she explains.
Best friends?
CIOs can sometimes struggle to describe the impact of a requested IT budget on business performance. McGovern says he benefited from studying for an MBA and suggests CIOs familiarise themselves with the basics of finance.
“It doesn’t need to be intensive, it’s just so you know the correct words, phrases, concepts that you’re dealing with. You don’t need to go into the minutiae of bonds, advanced finance, the risk-free rate of return – you just need to understand the basic concepts.”
Ultimately, the CIO today is charged with helping to take the company to the next level through innovation. For this to happen, McGovern says the CFO should be the CIO’s best friend.
“They’re the person, other than the CEO, who’s going to sign the cheques and make sure that what you’re doing is financially justifiable. And if you can prove that, they’ll be your biggest supporter.”
