How small business CFOs bridge the IT GAAP

Overview

A joint survey completed in 2011 by Gartner and the Financial Executives Research Foundation found that 42% of IT organizations report directly to the CFO. This number quickly jumps to 60% for smaller businesses with revenues between $50 million and $250 million. Addressing the communication, cultural and professional problems that arise from this reporting structure is difficult even for large corporate enterprises. Several articles offer advice to CFOs and CIOs on tackling this issue at the enterprise C-Level, but for small to middle market companies lacking an IT executive, this reporting structure should be approached differently due to both human and financial resource constraints.

I've either reported to or partnered with CFOs from middle market businesses, non-profits and educational intuitions during my 13 year career as an IT professional. One reoccurring theme with CFOs, regardless of the personality type or management style, is they embrace convention and standards. Unfortunately the world of IT can be slightly more chaotic and non-standardized than the GAAP driven world of finance. This difference is the fundamental frustration I find when speaking with CFOs in regards to working with the IT department.

To help bridge this "GAAP" between IT and the business, I've developed 3 recommendations for CFOs (or any business leaders) responsible for their IT department. These recommendations are developed from thousands of hours collaborating with CFOs on IT initiatives and problems, and tailored specifically for small to middle market companies (typically $5 to $250 million in revenue). For each recommendation the differences are drawn between the enterprise and smaller environments, an approach tailored to address the differences, the approach's estimated investment and examples of anticipated outcomes.

Recommendation #1: Mentor Business Acumen 

There is no such thing as an "IT project", only business initiatives supported by IT. But IT departments lacking an IT executive can fail to support this concept. To help ensure your IT investments are properly aligned with your business objectives it is critical the senior IT staff member acquires basic business acumen.

Difference in Environment: Leadership development, rotational and partnering programs found at the enterprise level, which grow and foster business acumen, may not be practical for smaller organizations due to the time and financial resources required by these programs. Additionally the heads of smaller IT departments may not have the business education of their executive counterparts, such as MBAs, business administration undergraduate degrees or even a four year college education.

Difference in Approach: In smaller organizations the CFO is likely the single best resource to mentor a senior technical staff member due to a combination of the CFO's educational background and financial involvement within every area of the company. This level of involvement drives a tremendous amount of operational and strategic knowledge to pass on. Mentoring should include education on how the business functions, thinking strategically, developing proposals for new projects and improving delivery of technical content in meetings.

Investment: CFO's time

Outcomes: Less time revisiting the same problems, increased IT motivation through an improved sense of involvement and an IT department that delivers greater business value.

Recommendation #2: Improve Structure & Accountability

Information technology is a very new function to business, meaning operating practices are typically immature, especially when compared to the oldest function, finance. IT service management (ITSM) is a somewhat new approach to IT operations, and is a great method to improve IT's structure and accountability. The core principal is the IT department becomes a service provider to the business. Under this approach IT is responsible for predetermined service level agreements and delivering on those agreements, versus the widely used approach of IT providing best effort to keep the lights on.

Difference in Environment: Enterprises are adopting ITSM frameworks, such as ITIL, and the IT Operating Management (ITOM) software to support this framework. But even at the enterprise level, companies are still figuring out how to properly "right size" ITSM, and full deployments of ITOM can be complex and costly. Few IT departments at the smaller organization level have the expertise to adopt these frameworks or the budgets to fully implement the supporting technologies.

Difference in Approach: Operating maturity and accountability can be achieved without busting the budget, just ensure to start small with the appropriate scope. Also free software exists to support some of the fundamental practice areas of ITSM. Leverage an experienced consultant who's designed and delivered these operating practices in other similar sized companies to define the right scope that balances positive business outcomes and cost.

Investment: CFO, select employees and IT staff's time, IT consulting fees and potential for ITOM software acquisition costs

Outcomes: The ability to establish IT performance benchmarks, improve operating processes, track performance improvements and provide accountability through transparency

Recommendation #3: Leverage a Translator

Most technical professionals, whether they are an IT professional or an engineer, have a difficult time communicating technical problems or initiatives to C-level execs in business terms the executive can grasp. The select few that do climb the corporate ranks, are recruited into the consulting world or start their own business. For the remainder of these professionals, a translator is a great method to channel their intellect into successful business outcomes.

Difference in Environment: At the enterprise level the technical problems or initiatives go through several layers to abstract the technical language and translate the information into content executives can grasp. For example C-level execs use the CIO as a translator, who typically uses an IT director or manager to translate information from technical staff. For smaller organizations the IT manager is often the most senior and technically proficient staff member, and reports to the CFO with no buffer to translate the technical information into business content.

Difference in Approach: Without an IT executive, a seasoned IT consultant can translate technical content into material tailored for the CFO and other C-level execs. This includes developing business plans for new IT initiatives that describe positive business outcomes, potential risks, total cost of ownership (TCO) and alternative solutions. Or assessments of current technologies by identifying strengths in system flexibility and scalability, weaknesses in terms of business growth barriers or excessive costs, opportunities for improved business outcomes and risks in the context of business impacts.

Investment: IT consulting fees

Outcomes: Improved business outcomes, reduction in operating risk and excess cost

Conclusion

IT departments can feel isolated from the rest of the organization when viewed only as a cost center. All three of these recommendations focus on bringing IT closer to the business, with the goal of IT becoming a strategic asset and not just a drag on the company's bottom line. I am interested in the view point from both IT professionals and CFOs on this topic. Please feel free to post a comment or send me an email at ryan.latham@techalignment.net.