by Thomas Wailgum

Why Is the CFO Still Boss of IT?

Apr 21, 2010
Business IT AlignmentCareersEnterprise Applications

It's a battle IT leaders have been waging for years: At some companies, CEOs still think IT should report to the head bean counter. A debate among CIOs on this topic has created some valuable food for thought.

Just about five months ago, management consultant Don Rekko posed this question to CIO Forum members on the social-networking site LinkedIn: “What makes a CFO uniquely qualified to be heading up IT?”

At first glance, the question might sound rather generic, seemingly trodding upon an age-old topic unlikely to unleash a furious debate among the various CIOs, IT professional and other forum members. It’s kind of like asking: Why are there so many potholes on the streets of Massachusetts in February? The answer is that it just kinda happens, you can’t really do much about it, and that’s the way it’ll always be in Massachusetts, though it’s not necessarily that way in other states. (Insert shrug of shoulders.)

Rekko is managing director of METRI, a boutique management consulting firm that works with large European user organizations and system integrators. He’s seen lots of “strong CIOs” and plenty of “weak CIOs” over the years, and this question has proved eternally interesting to him. Which is why he asked it.

“What I can’t fathom is why, particularly in the ‘weak CIO’ scenario, the person ends up reporting to the CFO,” Rekko says via e-mail, in early April. “After all, a COO would be a more logical choice: Running a data-center has more in common with, say, running a plant or other shared services operations, than with finance, accounting and controlling.” He also posed the question because he was curious how a global audience—the CIO Forum members—would react.

In response, a few of the early commenters harangued him about the relevance of this “tired” discussion: Why dredge the topic up again? The virtual conversation could have died there.

But this one had some legs. Several months and more than 200 comments later, the question and answers have proved to be a revealing, protracted and insightful debate about the modern-day CIO reporting structure. Impassioned yet reasonable give-and-take played out, even surprising Rekko a bit.

“I know from my daily practice that the subject is a great conversation starter with CIOs, and so I wasn’t surprised by the quantity of responses, especially because I formulated the question in a provocative way,” Rekko says. “What surprised me was the high quality and polite tone of the conversation: This has not devolved in a shouting match. And over 80 percent of the responses were very insightful, written with craft and well though-out by LinkedIn members with very impressive backgrounds.”

But for all of the discerning discussion and online back-and-forth, one simple, broadly applicable answer was not to be found.

Why the CFO?

The generally accepted account of why CFOs have been installed as IT’s de facto boss is this: IT was forged in finance departments to help with the digitization of accounting functions; thus the majority of “IT spend” in the early days was on financial computing initiatives. It was only logical that that’s where IT was placed on the org chart.

And that’s where IT and its de facto chiefs stayed for decades.

There was also, perhaps not coincidentally, always a little breathing room between CEOs and the expanding and bewildering IT departments. IT executive Scott Brower, commenting in the forum, offered this rationale: “As a support organization, [IT] was not something that the CEO felt the need to keep close so it made it sense to have real financial stewardship controlling it,” Brewer wrote. “This also created a buffer where the CFO, knowing business, could deliver the necessary message to the CEO rather than some techies speaking in 1’s and 0’s.”

Of course, the CFOs spoke in 1’s and 0’s too—but the gulf between the two departments always seemed vast: balance sheet 1’s and 0’s versus programming code 1’s and 0’s don’t fit together well. But over the years, CEOs wanted constant control over ballooning IT spend. And who better to do that than the Chief Bean Counter?

Several commenters in CIO Forum discussion pointed out this salient fact, however: IT is where it is (still under the CFO at many companies) because that’s where the CEO wants it to be. In other words, don’t blame the “clueless” bean-counter for the reporting assignment, who may not even want the responsibility in the first place. Talk to the head honcho.

Ennis Alvarez, EVP and COO at IT consultancy Brivea, sensibly wrote on the forum that “when the executive team makes the decision to have IT report to the CFO, it is mainly because we (the IT management team) have failed to ‘earn the seat’ at the top by not clarifying the value that IT is contributing to the organization, nor being clear about where the IT budget is being spent and why that is the best return on that investment.”

A C-Level Exec with No Cache

Since the forum consisted of self-selected IT types, the tenor of the responses to the question—What makes a CFO uniquely qualified to be heading up IT?—can best be summed up this way: absolutely nothing. Other snarky responses included: Why doesn’t the COO or CMO report into the CFO? And then there was a clever flip of the initial query: What makes the CIO uniquely qualified to be heading up finance? (Take that!)

The more practical responses centered around an “it depends” line of thinking: In some organizations, the CIO-to-CFO reporting relationship actually makes sense; in most others, it just doesn’t and never should have. No big surprises there.

But the nagging question that won’t go away any time soon is this: If you are a C-level businessperson in charge of a critical function—you are the Chief Information Officer and have that same “C” title as every other top exec—then why would the CEO not want to mirror the same reporting structure as every other C-level exec?

A few weeks back I interviewed Rudy Puryear, a partner at consultancy Bain and leader of its global IT practice, for a article titled: From the CEO: 5 Questions CIOs Need to Answer. The answers to the questions aren’t easy for IT, but critical during the economic recovery.

Puryear was, on the topic of CIO reporting relationships, adamant that CIOs should report to CEOs. “I’m still amazed at the number of organizations where they want to stick the CIO under the CFO because they don’t think it’s the same caliber of business professional that can work with the executive team,” Puryear says. “The CIO ought to be a part of the executive team given the incredible impact IT can and does have, and how intertwined IT and business are today.”

When he consults with executives that are looking to hire a CIO and are planning to have the CIO report to the CFO, Puryear will often ask them: “What major action can you take in this business that doesn’t have IT implications in one form or fashion?”

To Whom Do CIOs Actually Report?

It’s about time we bring in some data to this discussion. So just who are CIOs reporting to today? According to “2010 State of the CIO” survey data, 43 percent of CIOs report to the CEO, and just 19 percent report to the CFO. In addition, 70 percent of the surveyed IT execs claim to have a seat on the business executive management committee.

Looking back over the past five years of “State of the CIO” reporting data, the numbers have been consistent. While CIOs report to CEOs more than any other executive, CIOs have never been able to crack the 50 percent mark.

To Whom Do CIOs Report?

A look at CIOs’ reporting relationships since 2005

EXECUTIVE 2005 2006 2007 2008 2009 2010
CEO 40% 42% 41% 41% 47% 43%
CFO 30% 23% 24% 23% 16% 19%
COO 13% 14% 14% 16% 16% 13%

SOURCE: “State of the CIO” data

The dip from 2009 to 2010 is evidence of the downstream effect of the global meltdown and the New Normal in IT: CEOs clamped down on spending and, in some instances, shifted CIO reporting relations to CFOs. Get a grip on that IT budget!

Right now, however, would be as good a time as any for CIOs to shine. Change won’t come easy for those CIOs still pining to report to CEOs, to get the proverbial seat at the table by demonstrating IT value again and again.

But one sees glimpses of CIOs doing it here and there, and also can tap into sound strategies of how to change the conversation from “cost control” to “IT innovation.”

You see it in business-first CIOs such as Stuart McGuigan at CVS Caremark or in next-gen CIOs like Stephen Gillett at Starbucks. You see it in CIOs who are answering the tough questions from CEOs, who are quantifying IT investment risk, who are removing antiquated IT barriers to enable business innovation and success.

In the end, there’s no one-size-fits-all answer to Don Rekko’s question. But the comments made in the CIO Forum demonstrate that CIOs feel they deserve to report to the CEO—and not the CFO anymore.

When asked if he thinks the CIO should report to the CFO or CEO, Rekko says: “A CIO is like a drummer in a rock band: He’s seldom in the limelight, and the fans mostly notice him when he misses a beat. Nevertheless, he should be on stage. I personally believe the CIO needs to earn a seat at the table and should not report to the CFO. The best way of earning this status is practicing what you preach and being proactive.”

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