Traditionally, the CFO represents the Finance function, just as the CMO represents the Marketing function, the CTO the Technology function and so on. Within the finance function, the CFO is expected to deal with accounting, taxation (both direct and indirect), banking, auditing, working capital management, risk management, corporate governance, internal controls, investor relationships (esp. relevant in case of a listed company), budgeting, costing. He has also to deal with various tax authorities (income tax/service tax/customs/excise/VAT etc. depts.), external stakeholders (customers and vendors for important commercial negotiations, auditors, govt. depts., stock exchanges and analysts in case of a listed company and private equity and VC investors in case of a private company), Board members (to explain the company’s performance, satisfy them regarding the company’s corporate governance processes etc.), company executives (i.e. heads of other functions and colleagues within the company in connection with the company’s operations), CFO’s of other companies (to share knowledge/information that may be useful to each other) etc.. Continue reading
The one key element that has changed the way of doing business is the flow of information. The new-age CFO must now realise that he is no longer expected to linger in the background and surface every time the results are to be announced.
As the one person in the organisation who has intimate knowledge of both the past performance and the expected future growth, it becomes his responsibility not only to steer the company towards a better future but also be able to provide a transparent, big picture view of the future, to internal stakeholders, customers and investors. Continue reading
Mr. Sohil Parekh is Vice President – (Finance and Accounts) with Sai InfoSystem (India) Limited (SIS), one of India’s fastest growing ICT conglomerate with group turnover of Rs.2000 crore, backed by a team of 2000 professionals. SIS has the business expertise in verticals of Hardware manufacturing, Software development, System Integration, Telecom Products, Disaster Management, eHealth, Data Center and Call Center Solutions. SIS has more than 100 support centers across India with overseas operations in Canada, US and Dubai.
He has overall 10 years of experience in the areas of Finance and Accounts. Academically, Mr. Parekh holds a degree in Law and is a Chartered Accountant from The Institute of Chartered Accountants of India.
Mr. Parekh is part of Management Core Team and Head of Department of a 30-member team, covering the functions of Accounts, Finance, Audit – (Statutory & Internal), Legal and Secretarial affairs. He is actively involved in advising management on strategic business partnerships, joint ventures and viability of new business avenues. He further manages evaluation, due-diligence, documentation and post-merger integration for all acquisitions both – overseas and domestic for different business verticals at SIS.
Prior to joining SIS, he was working with Azure Knowledge Corporation as Chief Financial Officer and has also worked with Motif Infotech as Director Finance in past.
Is IT a part of modern day CFO responsibility?
In today’s world there is no denying the importance of IT. The last decade has seen information and communication technologies dramatically transforming the world, enabling innovation and productivity increases, connecting people and communities, and improving standards of living and opportunities across the globe. The scope of today’s IT includes complete process of computer based information systems, Functional IT systems like MS, statistical analytical software, Network IT Systems like email, IM, electronic conferencing, Management IT Systems like HRMS, Financial MIS, Dashboards, Enterprise IT Systems like accounting software, CRM, Computing Hardware, Telecom equipment and services, E-Government, e-commerce, e-security, e-health, e-banking, ITES, BPO, Application development, Operating Support and security services, Networking, Data design, development, communication and conversion, Storage and Retrieval and many more.
There are few reasons that attributed to an IT failure like System failures and breaches of data security, great expectation and inability to deliver, inadequate spending due to lack of long-term strategy & high risk, lack of adequate skilled manpower and infrastructure, IPR, compliance and transfer of policy issues, poor project planning, weak business case, lack of top management involvement, new technology advancements etc.
It’s important to put the relationship between IT and the CFO into historical context as a backdrop for effective discussion on this topic. The good news is that IT has become better aligned with other areas of the business; the bad news is that IT has lost most of the benefits of reporting to the CFO (i.e., scrutiny, rigor, professionalism, credibility, legitimacy, etc.). We shall discuss the need for IT and CFOs to reengage – to perhaps forge a new relationship – one that will favorably impact the IT ROI.
Today, successful CIOs blend few roles that seem contradictory, but are actually complementary – To make innovation real, being a value creator, raise the ROI of IT and expand business impact at lower costs. Top of CIO’s agenda today is business involvement, business transformation with clear objectives, choosing a single vendor for integrated suite of application, having a clear business case for outsourced vs. in-house and benefit tracking during and after implementation.
The challenges to CIOs are that they are sometimes challenged to bring meaning to the vast amounts of data across the organization, lack of clarity around data and analytical requirements and data ownership, poorly defined business requirements and unclear business processes and data integration.
The CFO’s agenda today reveal a shift in focus from core finance to more enterprise focused activities. CFO today needs to have direct operational experience to think beyond budget and annual financial plan. A CFO with a long-term view on growth and profitability will segment IT spend into operational and investment buckets. Looking for cost reduction in the former and viewing the latter as an investment to drive scale efficiencies and speed to market across the enterprise. A broader enterprise focused role requires core Finance efficiency be in place to reliably support business insight and decision making.
The challenges to CFOs with respect to IT are that they are challenged to bring fact-based business insight on financial performance, lack of clarity on the performance scorecard, poorly designed predictive models, structural complexity of data and processes and adapting to changing business dynamics. Nowadays CFOs are more actively involved in Enterprise cost reduction, Selection of KPI’s, Capital asset management, Risk Management and Strategy/Business model innovation.
These are the few survey results that have been conducted by different agencies to understand the CIO-CFO relationship 2011 Gartner FEI technology study: More than 51% of the CFO has increase in their roles and responsibilities then in 2010; More than 27% are delaying work on IFRS. 40% of IFRS impacted organization has not yet involved IT and only 32% CFO see CIO as true partner in strategy.
Many organizations have experienced friction between CFOs and CIOs. Much of it stems from these two executive roles having different backgrounds and not completely understanding the challenges and complexities of each other’s world. When projects experience difficulties, for example, return on investment is affected and frustrations rise. This often causes CFOs and CIOs to “grow apart.” Here are few actual business scenarios where CIO reporting to CEO and CFO can be broadly categorized:
Business Scenarios where CIO can report to CFO:
- CFO can ensure that IT spending is controlled
- CFO can help liberate CIO with the problem of negotiating prices and maintenance fees with technology vendors
- If the business is only looking towards new IT investments and continuous improvements
- Companies which have business driven by costs which can offer low prices by achieving economies of scale, cost control and efficiency
- Can help CIO become strategic partners rather than simply purchasing managers for IT equipment
- CIO should welcome CFO who takes interest in where a company places its IT Investment bets
- As the business is all about profit and revenue earned, CIO should review the requirements in financial terms for executive decision making
- IT enabled Intelligence is what CFO should command as a task master from his CIO and MIS teams
- CFO directs decisions and budgets purely on basis of information and its reliability rather on subjectivity
- CIOs choose and evaluate systems, but cannot direct and execute decisions without a 360 degree view which the CFO commands and enjoys
Business Scenarios where CIO can report to CEO:
- As CEO focus is on business’ overall strategy and management, CIO should report to CEO in order to recognize and promote the relevance of IT to the business
- Where the company and industry is highly information-intensive (for example, banking and media) or moderately information-intensive (for example, services such as travel and retail)
- While a technology-dependent business model or company transformation is under way — for example, merger and acquisition process integration
- While a heightened state of information-related threat or risk is in play — for example, cyber warfare, industrial espionage, regulatory compliance or information-intensive business volatility
- With both IT and CFO reporting to CEO, CEO can break any ties regarding strategy versus costs
- With CIO reporting to CEO, some of the innovations will not get stifled due to a cost issue alone
- CEO can look across all business segments and can actually account for the productivity, innovation, and synergies
Everyone uses the same set of tools to select IT projects (payback, NPV, alignment with corporate goals). Everyone uses common industry indicators (IT as % of revenue). Existing measures aren’t perfect but they are good enough. Assessing IT ROI is difficult. The key point here is that we should not blame the tools. Although improved tools always help, the means to IT value is improved governance procedures to guide IT investment decisions – not measurement. Below are the relevant questions that CFOs should ask for right integration with IT:
1. Whether IT understand the information need from stakeholders’ perspective – shareholder, Board, Statutory reporting, Top Management.
2. Are the IT investments meeting the organization requirement?
3. Whether the enterprise strategy is as detailed as possible with respect to definitions and integrity? Global systems have local variation which should be factored into to provide analytics.
4. Whether the company has the right tool to manage, retrieve and analyze data?
5. What are the correct way to use the multiple tools for information access and delivery, how to deploy them and have the business adopt the same?
6. Whether the IT cases and budgets are in line with the organization strategy?
7. Whether the charge back mechanism is identifiable and pre-defined?
8. Evaluate the opportunity costs of investments in IT. It should compete with other capital projects in terms of feasibility assessment. All internal IT projects should be certified and should compete with other IT projects. It is best if CIO has no money and is forced to spend “everyone else’s money”
9. The IT projects should be accepted and evaluated on merit rather than on ego. If a system fails to receive funding or gets cancelled, it reflects badly on the sponsor/owner.
10. The project is forced to pass through a “gate” at the end of each stage of development. The gate is basically a “go/no go” decision. Both the costs and benefits should be evaluated at each stage by the CFO. Revisit current KPIs, departmental goals, and metrics to ensure that technology and IT are aligned to these important business measurement
11. How much time it will take to recover the costs? How the IT assets are to be written-off? What are the maintenance costs of any IT project?
12. Whether it has been determined to which projects and cost centers the IT costs be allocated and in what basis?
A responsible CFO invests time and energy in understanding dashboard views that predicts and reflects state of affairs. Multi locational, high volume companies suffer from creating and storing data that has not been analyzed and provide very little value to decisions support systems; it is the CFO who points to such data and coverts into information that can fortify MIS. With islands of information available on different set of systems, CFO would be a pivotal force in making bridge and view that showcases sensible data assists CIO in setting up of process aimed at higher value of returns from existing investments. CFO also needs to get close to the CIO and understand technology so that they both can work together and implement the best possible solutions in their organizations
One of the important thing that comes out of this is the fact that a CIO today needs to upgrade his skill set and be aware of finance and business dynamics to ensure that his position in the company is viewed with equal importance like that of a CFO. IT should become the bridge between the CEO and CFO and thereby integrate business leading and lagging functions.
CIOs and CFOs can collaborate to address their challenges above by defining the company performance scorecard, developing and supporting “one version of the truth”, instituting a data governance process, improving performance reporting with defined risk indicators, implementing Governance Risk and Compliance solutions to monitor business process changes, supporting automation and collaboration efficiency with enabling technologies, developing consistent policies and standardization of processes. The IT function should take ownership of the technology, the business takes ownership of the organizational transformation and the CFO takes stewardship of the benefits