Is the CFO the key to digital transformation?

Talking with an analyst recently, the subject of budget came up in relation to bi-modal application development. Our mutual understanding was that the restructuring of funds allocation for development is often overlooked when IT and business units try to implement practices that lead to successful digital transformation.

This oversight leads to failure of many transformation efforts before they even begin. Indeed, without a new understanding and evidence of the value, ROI and speed that innovation projects can deliver, CFOs are rightly reluctant to change the ways they fund development efforts.

It is up to us, the technologists, to not only ensure that finance and other leaders understand this new way, but to provide evidence upfront of likely success and to establish empirical outcomes to which we will be held accountable. Otherwise, those who hold the purse strings will always be an impediment to digital transformation.

Reluctant to change

It is not surprising that CFOs are reluctant to change how they budget for application development. Budgets are still most often waterfall driven, even in enterprises that are in some stage of a digital transformation. A committee approves a yearly budget with projects or products priorities. There is an understood cost, an expected ROI and a theoretically set delivery date. It has worked for so long that, unless the pain is unbearable, this method is not likely to change.

And why should it? You would not budget in an “agile” way for other things in your life. Would you trust a housing contractor to tell you, “Well, I’ll have a livable shelter for you in a month, but then we’ll have to re-assess the backlog of features and see what the cost for the next iteration will be?” No. You would want a total estimate upfront with costs and final deliverables.

So, knowing that you will encounter understandable skepticism about changing the funding structure, but also knowing that this transformation is necessary for the success and competiveness of the company, how do you change the CFO’s mind?

Making the transformation

You need to create an innovation “Skunk Works” project out of existing budget to show that a new funding structure could work. This work should tackle a critical business challenge, one that you would like to tackle under the new funding structure.

Create an MVP (or more robust effort if you have the bandwidth) and present it to CFO. Highlight how fast you can accomplish this type of critical digital work, how it satisfies user demands quicker than waiting for a complete product launch, how it saves money by rapidly adjusting to changing circumstances and how it helps the company see a quicker return on investment.

Any sane CFO will be happy to see faster returns with the ability to adjust course before massive budget overruns occur. Use this leverage to have them set aside budget for one or two more test programs. As with the first, have these be business-critical digital initiatives so you can show the full value of the proposed changes.

Persistence and patience

Do not expect everything to change overnight. This process will be incremental and might not include all parts of the overall IT budget. Back-office work might still be best handled in a traditional budgeting fashion.

The CFO is a powerful ally to have on your side during a digital transformation. You know that changes to funds allocation is in the best interest of the company and its competitive advantage in a digital world. Now prove it.