The view of IT as ‘just another expense’ that seems to be widely held among chief financial officers is changing, according to Gartner. The research firm found that CFOs are now starting to understand that IT can help the wider business and are investing in technology.
Speaking at the firm’s recent Symposium/ITxpo on the Gold Coast, Gartner US senior vice president Tina Nunno cited a recent Gartner survey called CFOs’ Demand For IT, which found that a majority of the 255 US-based CFOs surveyed indicated they were focused on business analytics and applications. CFOs were asked what areas of technology they would like to apply more money in.
The CFO’s first priority was in information and financial analysis," she said. "This would help them run the business to make more dynamic decisions about sales and effectiveness in the organisation." The second priority was information management and knowledge sharing, while cost management was closer to the bottom of priorities.
According to Nunno, the low priority assigned to cost management was a "positive shift" in attitude as it meant CFOs were starting to understand that IT could be used for business advantage. However, she added that CIOs and IT executives still need to make CFOs understand the total cost of IT.
"For the average enterprise, the percentage of spend which is IT is 1-4% of overall operating expenditure [OPEX]."
"When many CIOs communicate IT value to the CFO, they will say that they saved 2% on the IT budget rather than sharing what they helped save on the other 98% of the company’s total budget," she said.
Communication with the CFO
According to Nunno, CIOs needed to communicate how IT helps productivity and growth, rather than talking about solutions such as cloud computing.
"The more CIOs can communicate growth, the more CFOs will view IT as a potential investment rather than a cost to be managed."
However, despite the changing perceptions of CFOs, the survey also found that only 5% of those surveyed viewed IT as providing competitive advantage.
"This is a rather unfortunate perspective that many CFOs have so one of the things we encourage CIOs to do is work with the CFO and come to a shared understanding of how the company views competitive advantage," Nunno said.
"For example, if you are the Wal Mart or low cost provider of your industry, often times you want to invest in things which make the company less expensive such as supply chain."
CFOs involvement with IT
According to the survey results, 45% of CIOs and IT executives report to the CFO more than any other executive, an increase of 3% on the 2011 survey results. Nunno said that the increasing CFO involvement with the IT department was happening for a variety of reasons.
"Many of them are beginning to understand the potential of IT and want to leverage it within finance as well as in business intelligence for the rest of the company," she said.
In addition, CFOs were looking to services such as cloud computing to potentially reduce costs. Unfortunately, Nunno said this could lead to CIOs receiving more IT budget cuts. However, she added that CIOs do not expect to reduce their IT budgets over the next five years.
"While certain forces such as cloud computing will drive costs down, human behaviour shows that the cheaper we make something, the more people will buy of it," she said. "So the less expensive it is, the more likely CIOs will buy it in mass quantities."
While the unit cost of IT may go down in the future, Nunno pointed out that demand for IT is increasing as senior executives want to utilise services such as Big Data.
"What CFOs need to understand is that there are very few organisations where the cost of IT will go down unless they are decentralised," she said.
IT budgets
According to the survey, ICT spending is still broken down into a variety of different categories.
"When we look at the mix of spending we find that the vast majority of IT shops are spending over 80% on running the business or keeping the lights on," Nunno said. "A small percentage is being spent on transformation and strategic change in the organisation. When many CFOs see this data, they ask why they can’t shift IT spending to 50% or more on transformation projects."
However, CFOs needed to understand that when CIOs undertake transformational IT programmes, many of the investments require an operational budget.
"For any particular investment, it’s important that the CFO knows that even if it is transformational today, sooner or later that budget will shift into maintenance," she said.
"This means that over time, the IT operations budget will significantly increase."
IDG News Service
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