NCC news: View from the front line
How do CFOs and FDs gain greater competitive advantage whilst minimising their company’s costs? The National Computing Centre and ICAEW brought together senior finance executives and industry experts to debate this key issue.
In most organisations the economic decision maker for large-scale IT purchases is the FD, CFO or board of directors of which they are part. Despite this, there is a lack of understanding between IT and the finance function – as highlighted in PwC’s recent ‘Best of Enemies’ article (http://bit.ly/a17lVW).
The National Computing Centre (NCC) runs a series of CIO Round Table events which enable IT suppliers to sit with CIOs to discuss their needs and challenges. Given the large influence that the finance department clearly has on IT decision making, the NCC approached the Institute of Chartered Accountants in England & Wales (ICAEW) to collaborate on a similar programme for a CFO audience.
One such Round Table took place recently, with the support of HP Enterprise Services (formerly EDS). The topic was ‘Gaining greater commercial competitive advantage whilst minimising the impact on the balance sheet’ – and areas of discussion ranged from the role of the CFO to dealing with legacy applications. All of this took place in the context of a severe economic downturn and all conversation was coloured by the prevailing state of the economy.
Reflecting on both CFO and CIO Round Tables, it has been interesting to note the similarities in terms of both the level of discussion/interaction and the appreciation of the value that IT brings to the business. Given that much of the CFO and CIO’s strategic directions are aligned, increased communication between IT and finance can only help to build trust and understanding between the two stakeholders, thus ensuring successful delivery of IT enabled projects.
Attendees at the finance event included CFOs, FDs and COOs from Darley, BT, Yahoo Europe, Jones Lang Lasalle, Freshfields Bruckhaus Deringer and representatives from HP Enterprise Services, the ICAEW and NCC. The event was chaired by Paul Druckman, former president of the ICAEW.
At the start of the Round Table, the context for the debate was introduced by HR Enterprise Services and a key question was put to the attendees:
Question: Has the CFO role changed as a result of the current economic climate?
The overall consensus was that the role has not changed but that the influence of the CFO, the focus of the role and the pressure on the CFO have shifted – including:
- There is a greater demand for integrated, globalised and immediate data and information for the business.
- There is an increased need for the CFO to appreciate and manage risk and compliance within the organisation, and a greater drive for thorough business planning that incorporates full risk management. This has resulted in more standardisation around risk and compliance throughout organisations.
- The focus of the CFO role, and organisations in general, has become more short-term – managing and reducing immediate costs rather than longer-term financial planning. There is an increased pressure to deliver instant returns and results, and a focus on opportunistic rather than planned growth.
- There has been an increase in the frequency and accuracy of planning, and business forecasting has become a financial exercise. Hence, the economic climate has resulted in a much tighter management of data, costs and margins.
However, there have been some positive shifts in the behaviour of operational managers, with an increased desire to link their key performance indicators (KPIs) with the financial targets and outcomes of the CFO. They are therefore involving the CFOs earlier and more frequently in their processes.
This is not without its problems, though – it is a significant challenge for CFOs to link these multiple measures together to provide a meaningful and holistic picture to all areas of the business.
Question: Is there a focus on short-term savings and cost reductions initiatives that have an immediate impact on the balance sheet?
The CFOs around the table recognised the need to rebalance cost bases and identify more immediate wins in the current climate. These included reducing both fixed and overhead costs and finding more flexible ways of managing these costs, such as more adaptable outsourcing engagements which permit volumes to be varied more readily than could be achieved within the organisation.
In terms of IT, it is about instant wins. This may mean new technology, but only when a short-term ROI can be clearly demonstrated and quickly realised to mitigate the cost.
More frequently, it is about realising efficiency and savings from existing IT infrastructure. This may include identifying cost-saving areas that have not been considered prior to this economic situation; an example of power and space factors versus bandwidth considerations was discussed.
Another change is the reduced emphasis on the future flexibility of IT systems. It is now more about identifying the optimal off-the-shelf package rather than commissioning a fully customised solution. There are cost reductions in the immediate purchasing budget, the time and resources required for implementation, and the cost of future changes.
However, it was recognised that this may be a permanent change, driven by the cost of re-engineering such bespoke systems, which has been accelerated by the current economic climate.
Question: Do legacy systems present a specific challenge in the current climate?
The challenge of managing and financially exploiting legacy systems was seen as a significant issue around the table. In particular, there were increased demands for:
- Full connection between multiple legacy systems, frequently across countries.
- Integrating legacy systems from multiple acquisitions/mergers.
- Providing business users with immediate, real-time and consolidated data and information, often with a global view.
- Providing multiple areas of the business with a variety of business intelligence for a range of purposes (e.g. sales, marketing, HR).
- These demands often result in the rushed implementation of multiple linking/integration systems that are often costly and of limited success.
- Hence, business users often resort to their old legacy systems and ways of doing things, which can unfortunately result in multiple ‘views of reality’. As a result, out-of-date and inaccurate data sources then become maintained as the input data because it is easier for the end user.
- These challenges have resulted in a new set of requirements for CFOs with regard to their supplier relationships and engagements. For example:
- Partnering relationships that enable learning and developing together to reach an optimal and cost-effective solution.
- Flexible and innovative pricing models.
- The ability to ramp supplier resources up and down as required.
Question: What are the talent pool considerations for the CFOs in the current climate?
One of the challenges discussed is avoiding dependency on the knowledge and skills of a few people in an organisation – i.e. eliminating the monopoly of knowledge power of specific individuals. However, this was less of an issue for larger organisations who have a greater number of employees and, hence, a diffusion of knowledge and technical expertise.
Another talent pool issue is the difficulty of providing the interface between IT and business users. This role requires individuals who are able to translate business requirements into IT delivery – including the in-depth analysis and interpretation of complex business processes, especially when the business user may not be able to articulate these requirements fully.
It was recognised that these individuals are difficult to recruit and retain because they tend not to reside in either IT or the business.
It was also acknowledged that IT functions need to consider and flex their role from one of technology specialist and provider to one of business enabler.
One positive point was the recognition that the preparation for outsourcing elements of the talent pool frequently involves a detailed analysis of the business processes and systems required in that role/function. This may actually result in the decision not to outsource if, for example, the processes are no longer needed/relevant, or can be rationalised, thereby reducing costs.
In summary, the consensus was that the current economic climate has not changed the role of the CFO but has shifted the emphasis, influence and pressure of the role.
There is a greater need for the management of risk and compliance, and the provision of holistic, accurate and current business information. The questions posed were resonant around the table, and the evening’s debate helped to bring further insight to these issues from the CFOs’ perspective.
To discuss in further detail, please contact Tristram Bardrick. Tel: +44 (0)161 242 2121. Email: email@example.com.
(ITadviser, Issue 61, Spring 2010)