CFOs: How to be Strategic and Tactical at the Same Time?
Much has been written over the last several years about the need for CFOs to be more strategic. This clearly has become a trend amongst leading edge CFOs. One area, however, that crosses both the strategic and controller sides of the CFO’s brain is IT application rationalization and consolidation. I am personally seeing more and more CFOs taking a leadership role in extracting IT cost from IT and making their IT organizations run better. The reasons for them taking this step are clear. Most IT organizations never turn off anything in their IT environment because they “might need the data on an old app”. This fact impacts both the cost and performance sides of the business ledger. It impacts cost because businesses are paying for things that they might not be using. Or worse yet it may be antiquated. For example, several years ago, a CIO for a major company told me that he had data warehouses that were created for an urgent business requirement that he didn’t even know still existed. So there are ripe opportunities for cost takeout if you look at IT from top to bottom, but CFOs should not forget as well about the strategic impact—i.e. the performance side of the business ledger.
How is IT impacting business outcomes?
The reality is that the business gets impacted in two ways. First, is organizations that do not migrate their data and eliminate unneeded IT expenditure have less money to invest in extending their differentiating business capabilities. This can impact a firm’s ability to deliver bottom line profitability. This occurs when business processes do not run as effectively. When this happens, business processes like order to cash run inefficiently. Making things scarier, enterprises are increasingly finding that they need to extend their business capabilities to remain relevant as the impact of digital transformation reduce long standing barriers to entry. The problem is for some IT organizations as much as 70% of the dollars spent on IT is for just keeping the lights on.
Second is a failing enterprise architecture. Your enterprise architecture is how your business processes and IT infrastructure are put together to support your way of doing business. The reason enterprise architecture matters is it determines your firm’s agility at responding to market and strategy changes. In today’s business, agility can be the difference between winners and losers. This is critical to providing the agility today’s digital transformation demands. And it could determine whether a business continues to be relevant in the markets that it operates in. While IT people can prefer a kind of biological homeostasis with their enterprise architecture, this is really bad for business. CFOs should demand that their IT leaders be continually consolidating their applications and improving their enterprise architecture to ensure that their businesses continue to have market relevancy. According to Jeanne Ross, IT organizations that commit to driving application consolidation and an improving enterprise architecture “keep getting better, faster, and more profitable”. The question that I suggest business people should be asking themselves today is how not improving the enterprise architecture hinders the achievement of business ends. The fact is “individually, the applications may work fine. Together they may hinder “companies’ efforts to coordinate customer, supplier, and employee processes.” (Enterprise Architecture as Strategy, Jeanne Ross, pg 7). IT organizations should, therefore, be able to present a continual improvement plan for moving their enterprise architecture from “business silos” to a “business modularity architecture”.
Clearly, most CFOs do not have application consolidation and improvements to enterprise architecture on the top of their mind. But hopefully, I have convinced you to a least have a conversation with your CIO. My point today is that it makes business and financial sense to refine and move forward your architecture and consolidation and harvesting applications and their data.
Solution Page: Corporate Governance