The CFO and CIO roles are interesting roles when compared from various dimensions. As it so happens, I just moved from supporting a CIO to supporting a CFO in a bank, so I thought of shedding light on some aspects of these two roles. The two roles are simple, one looks after the financial matters and the other looks after the information technology of a firm. One would expect the twain would not meet other than the CIO is supporting the CFO's technology and the CFO seeing the CIO as a supplier and a cost line, but life is much more complicated. In a small way, a good CFO-CIO relationship especially in financial institutions, can lead to massive competitive advantage.
Where does one start? One way would be to talk about the past and present of the technology/financial relationship and then my thoughts about the future. As there is a lot of information and facts about these two roles, this will be a series rather than an essay. But before delving into the prosaic matters of organizational structures and strategic alignment, there is the small matter of philosophy to be handled. And that is the philosophy of technology to the CFO herself. And this is where I see the crucial issue.
Accounting and finance, by their nature, are backward-looking and are oriented towards making sense of disorder according to strict rules. There is nothing wrong with that, because that is how you come up with a normative view of the world, something that you can compare and contrast with a fair degree of accuracy and consistency across the world. The field and thus the people working in it are also fairly predictive and reactive in nature. Their remuneration patterns are high and consistent in nature, job descriptions are standardised. This world handles change rather slowly, systematically and gradually, with due consideration and with controls - Salt of the (business) earth so to say. But that sits uneasily with the broader technology world.
The technology area, whether on the web 2.0, the applications, the networks, the technology people, their remuneration, the IC chips, the massively online multiplayer worlds, virtual worlds, ERM systems, virtual reality, Offshoring and outsourcing, SOA, you name it, are almost like the anti-thesis of what I described above. Change is something that is constant; it is creative destruction all the time. The basic foundations of what you believe in change so rapidly, skills become obsolete quickly, and so on and so forth.
You might want to ask, how does that matter to me as a CFO? Here is precisely where it hits the CFO, because technology is redefining our customers, our employees, our ways of doing business, our ways of valuing assets, the question of governance, the communication channels, the people interaction, the coverage of events, and so on and so forth. In other words, just when the CFO is desperately trying to make things simple, explain everything and keep things under control, technology is making things agile, mobile and hostile. You do not believe me? Well, here’s something that you can see for yourself. In a finance department, more and more people are non-financial or accounting people. More and more, the regulators are finding it difficult to just rely on accounting data and demand further information to control the business. And internally, the business also demands much more than just accounting data, it demands commentary which allows the business to be agile, mobile and hostile. Customers walk in and demand information which we cannot provide. Can you imagine trying to provide bank account level information as rich as what you can get from a web page counter software application?
How does the idea of a going concern relate to a website originated business which can be fully automated, dealing in virtual assets such as songs or coding applets with payment in Linden dollars and the possibility of doing a gift exchange within the World of Warcraft? How do you handle a customer who has no conception of paying for assets because he has spent his lifetime getting his songs, films, phone calls, entertainment, software, assets etc. for free or through swapping them online?
What is the role of an intermediary - like a financial institution - when the concept of assets themselves is changing and everybody is running like mad after Intellectual Property and Virtual Assets? How do you account for depreciation of assets which have no discernible way of judging decay or usage? I can put aside 33% every year for a machine because I guess it has a three-year life, but how much should I put aside for an online constantly regenerating random number generator which theoretically has an infinite life? Actually, most software online technology assets have infinite lives. And if the value addition is happening by a group of enthusiasts based on a free open source model, then what do you say to the tax man?
Lest you assume I am just talking about software, how about virtualization of servers? If the asset based was dependent upon a number of servers, then it has just been virtualized, and if you want to go for the virtualized servers, then they have just gone into the Google or Amazon cloud. It is not like everything is moving 100% into the technology world, but every bit of interest to the CFO is being impacted by technology and is making structural changes. Take the example of resource planning. Previously, if your business grew, you would simply increase the number of analysts and accountants you had and kept on supporting the business, but now you cannot do that. You have to have technology to preserve history, run the rules, generate the reports, do the regulatory stuff.
Basel II taught a deep lesson to the world of finance, namely that if a CFO ignores what’s happening in the business, then satisfying requirements such as Basel II will not be possible. This is so, because the front office business and their systems are simply unable to provide the information in the right fashion which the CFO wants, and mostly, it is because the CFO did not specify or demand the front office business and systems to be transparent and fungible as far as accounting and financial information are concerned. This very same point also applies to the CRO by the way. While there is a surprisingly large number of CFOs who are forward-looking and technology literate, CFOs should recognise that there is a philosophical tension between their profession and technology.
While you might differ, my gut feel is that a CFO has to have a very firm control over the technology that she/he has, what’s coming down the pipeline and what’s generally happening around the technical world. In other words, she/he has to be clued-up and work closely with the CIO to manage the business going forward. Now what does this “manage the business” mean? And what does “work very closely” mean? All these questions are strictly with reference to banking because the relationship between IT and Finance is industry and to a lesser extent size, specific. This is what we will find out in the next part.
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