Mike Scardina has been the chief financial officer for IT at Allstate Insurance for nearly 10 years. But it's only in the past few years that the spotlight on his role has intensified. Allstate's annual technology spending has swelled to more than US$1 billion a year, and Scardina has come under enormous pressure from senior management to help cost-justify the Northbrook, Ill.-based insurer's technology investments.
"It's not enough to say we're going to spend US$150 million on a data center. People will ask, 'Well, yeah, but why US$150 million and not US$75 million?' " he says.
As IT spending has soared to half of all capital expenditures at many companies, so-called CFOs of IT are being required by top brass to provide greater clarity and transparency around those investments.
"I define my role this way: to determine and explain to senior management what AIG is spending on IT and to provide reasonable assurance that expectations are being met," says Joseph Barkley, CFO at AIG Technology Management Services, the IT services arm of New York-based insurance giant American International Group.
Indeed, the roles for CFOs of IT have changed. "The scope of my role has expanded well beyond managing and controlling IT budgets since 2002," says Grant Zaichick, head of IS controlling for the Americas at DHL Information Services (Americas), the IT services arm of transportation and logistics provider DHL International. In addition to overseeing IT accounting and budgeting, Zaichick has recently taken on responsibility for global IT reporting and IT contracts and asset management for the Americas region.
The IT CFO's position "is changing from a custodial/tactical role to more of a strategic role," says Howard Rubin, executive vice president at Meta Group. "They're in the nexus of negotiations."
Simply put, being a CFO of IT "is a real tough job," says Bill Johnston, president of Alinean, a consulting firm in Orlando. There are several reasons for this.
For starters, it's still a universal challenge -- even for financial wizards -- to effectively measure and quantify the impact that technology investments are having on profits or operational efficiency. Add to that the dearth of tools available to attempt those measurements. Finally, throw in the complexities of developing a standardized approach to valuing IT investments across multiple business divisions or regions, and it's a wonder that IT controllers can do their jobs at all.
Measuring the quantifiable impact of IT investments is a big challenge for all types of companies, even those with world-class IT practices such as Intel. Showing the link between IT spending and the benefits accrued is the "key issue that nearly every IT organization faces," says Intel CIO Doug Busch.
Sure, Intel has continually refined its IT funding model. And it's had a finance manager in at least one of its IT organizations since 1994, including Theresa Kelly, who took over as CFO for the company's newly consolidated IT department a few months ago, says Busch. Intel has also taken advantage of IT portfolio management and other measurement techniques to help its IT organization identify the link between IT and more than US$1 billion in bottom-line improvements to the company between 2000 and early 2004, says Busch.
But he'll also tell you that Intel is having as much trouble as any company getting its accounting systems to assimilate IT-related finances into its core accounting practices.
Allstate's Scardina understands. "Legacy finance systems aren't well suited to keeping track of IT investments, particularly at the kind of granular level that we feel we need in order to provide the clarity of spend," he says. For instance, standard accounting systems don't provide Allstate's IT finance professionals with the ability to track the number of desktops in use across the organization or processor power in use per IT dollar spent, notes Scardina.
Allstate does use IT asset management software to help it track hardware and software systems. But the insurer's accounting software goes only so far in providing Scardina and his staff with the kind of financial information on IT investments that they need.
"From a corporate standpoint, you want to have one set of financial records to report on," Scardina says. "But from an IT standpoint, (accounting systems) don't have all the data you need."
To help resolve those kinds of issues, AIG has developed common financial reporting processes and software templates to collect IT-related financial data across its worldwide operations and feed it into the company's Hyperion Solutions Corp. accounting system, says Barkley.
But the accounting system problems are further exacerbated at global companies such as Chicago-based Aon Corp., which has business divisions in 120 countries. "IT is a function that runs across all parts of the organization, and it's very difficult to extract the functional costs from the (profit and loss statements) of various reporting systems," says David Barker, vice president of global IT finance for the provider of risk management, reinsurance and human capital consulting services.
The bottom line is that many CFOs of IT are having a hard time translating to senior management the effect that IT investments are having on, well, the bottom line.
Besides the difficulties inherent in measuring intangibles across multiple divisions with inadequate tools, there are other problems. CFOs of IT "don't have good data or good information, and that makes it tough for them to figure out how much it costs them to run a data center and whether it makes sense to outsource it," says Barbara Gomolski, an analyst at Gartner Inc. and a Computerworld columnist.
Another factor that makes it tough for CFOs of IT to do their jobs effectively is the lack of financial know-how among IT staffers and midlevel IT managers. "It's usually a relatively small number of people at the top of the IT (organizational) chart who are 'with it' financially," says Gomolski.
Some IT controllers are attacking the problem by having their finance staffers educate IT workers on financialese. At Allstate, everyone who's involved in IT decision-making has received training in the company's financial allocation process, says Scardina.
At DHL, Zaichick and his staff have worked closely with the company's program management office and technical staff over the past few years to ensure that front-line technology staffers understand the financial requirements necessary to develop a business case for a project.
Other companies have taken more formal approaches to educating IT workers on finances. At Intel, all employees are able to take a "business acumen class," which educates workers on the basic business parameters for the company (i.e., assessing Intel's progress against the competition), says Busch. In addition, IT project managers are taught to help the IT finance team evaluate financial alternatives as part of their skills training, he says.
To help both IT and finance executives get a better handle on these issues, the Society for Information Management formed an alliance with the Financial Executives Institute a few years ago, says Aon CIO June Drewry, who was SIM's international president until 2000. The two groups meet and share strategies.
Despite the problems inherent in their traditional jobs, CFOs of IT are undeterred. In fact, a growing number of them, like DHL's Zaichick, are taking on expanded IT management roles, including participation in IT benchmarking, contract negotiations and software licensing. Meta's Rubin describes the new role this way: "You're not the teller in the bank counting the dollars; you've become a financial counselor to the business."
Who Are These Guys?
CFOs of IT are the finance people who oversee the business of running an IT department or services unit at a company. Although their responsibilities vary from company to company, their duties include oversight of IT budgets, IT procurement, asset management, cost analysis and benchmarking IT competencies against those of competitors and other companies. Most CFOs of IT report to the CIO, but some have dotted-line reporting to the corporate CFO.
Although some organizations have had people in these roles for more than 20 years, the position has become increasingly popular since the economy started to soften in mid-2000 and senior management began to severely scrutinize IT spending. Still, less than 10 percent of U.S. companies have someone who's formally in an IT finance role, says Bill Johnston, president of consulting firm Alinean.