Innovative Insights: Battling with the IT Budget
CFOs and business unit managers are angling to seize purchasing power from IT, but there are ways to fight back.
By Charles Spinosa
The following article appeared in Network World in February 2005. Spinosa’s in-depth understanding of this topic came partly from experience gained working with one of VISION’s financial service clients in early 2005.
There is a group of individuals who are starting to gain significant influence over your future at your company, and it’s not your direct bosses. CFOs might wish to closely control technology decisions, and CEOs have handed profit and loss responsibility to business division managers, who look to IT as an area to reduce spending and grow the business. But there are ways for IT leaders in these positions to regain the trust and support of their C-level and business unit colleagues.
“Business unit managers can make or break an IT exec’s career,” says Charles Spinosa, group director of New York consulting firm VISION. “CEOs increasingly see business units as where they can get the competitive advantage that they’re not getting, by and large, from IT. Business managers have become more savvy about technology and often recommend purchases.”
Umesh Ramakrishnan, vice chairman at executive search firm Christian & Timbers, agrees, and adds that some IT professionals have lost some control of IT to business units over the past four years. “Profit and loss responsibility sat with business unit heads, and then the [Internet] bubble burst. Business managers went to CEOs and said, ‘Don’t hold it my responsibility for going over budget; the CIO lost control and put in ERP software and multiple server farms. From now on, I will tell you what we need.’ The CIO is having to find ways to keep the CIO office intact”, Ramakrishnan says.
Establishing a good working relationship with business units is key, particularly if they are free to run their own IT operations day-to-day and you want to retain control of purchases to prevent unnecessary duplication and expense.
Paul Lanham is senior vice president and CTO at Jones Apparel Group, which owns brands including Nine West, Jones New York and Easy Spirit. Each business unit runs its own IT operations and sets its IT budget. Each unit has a vice president of MIS who reports to the corporate vice president of MIS, who in turn reports to Lanham.
“The reason for the central team is compliance”, Lanham says. “We provide leadership on pieces of the corporate strategy, and we help the businesses maximize spend and reduce cost by not having three or five different maintenance agreements.” The company sets standards for hardware and software so it doesn’t end up with different ERP or e-mail systems, but business units can enhance applications that are specific to their work, such as CAD/CAM software for a particular design function.
Ramakrishnan says in companies in which business units play a large role in IT, now IT executives employ more non-technical skills in their jobs as theydeal with many different business managers. Being skilled with managing relationships with different business units will help IT executives increase their profile among C-level types who might see a COO in the making.
“CIOs are becoming people who play a role in politics. They have multiple constituents to keep happy, and a large proportion of their time is dealing with people issues and egos,” Ramakrishnan says.
One CIO described his role to VISION’s Spinosa as being a dealmaker who manages a balancing act. Some IT executives have to be adept at dealing with disagreements between the CEO and business managers, Spinosa says. For example, at worldwide consumer goods manufacturers, CEOs are likely to want to Webify everything to make it easier and less expensive for customers to buy online. But country managers want to localize products and force consumers to buy from certain channels. “IT is the place where this conflict is fought out. In these cases, the CIO does the CEO’s bidding because [to Webify] is the CEO’s decision”, Spinosa says.
When Jan Sibley, vice president at Chicago systems integrator ThoughtWorks, served as CIO in the finance sector for 11 years, she would constantly face challenges of dealing with “rogue business units that do stuff their own way.” She recommends addressing the problem in a number of ways including “leading with fear factor and playing the scale card.” These efforts would educate business units and CEOs on the security and cost benefits of IT retaining control of the infrastructure, while giving business units more flexibility in the selection of business applications.
“You’ve got to have a clear value proposition that size matters and that scale reduces business unit costs. If a CIO can’t prove that statement, they’re not in the right line of work”, says Sibley, who, up until a year ago, served as CIO at Washington Mutual Home Loans.
Being transparent with the cost of managing IT centrally vs. individual business units also would help your cause, Sibley says. “Benchmark and measure everything, and show these figures to the business unit. Make sure you’re open and willing to compare cost against external factors”, she says. She recommends establishing a baseline, measuring each year and ensuring that infrastructure cost is reduced. “When I was CIO, I made sure we reduced cost by 6% year over year”, she says.
Providing cost transparency also will keep you friends with the CFO. “CFOs are driven by numbers. They love metrics and comparisons”, Sibley says. As CIO, she would always ask the CFO to install one of his staff inside the IT department to manage IT finances. “This person would report to the CFO with a dotted line to me. It’s a great way for the CFO to build confidence in you”, she adds.
Jones Apparel’s Lanham concurs: “You’ve got to earn trust.” That means understanding what the business managers are trying to achieve and finding ways to help them reach those goals.” For Lanham, he ensures that his staff, which is embedded with the business units, has experience specific to that business. “You’ve got to be able to talk credibly,” he says.