These are extraordinary times given what businesses have dealt with the last couple of years and most CFOs still wear a look of anxiety on their faces. The good news is about two-thirds of the CFOs I talk to believe business prospects are better now than last quarter.
To be effective in 2010, CIOs should recognize top-of-mind issues for CFOs sitting across the hall. From my own experience, and drawing on conversations I’ve had with many others, the three most common questions CFOs are asking today about new IT projects are:
The immediate impact on cash flow; The level of fixed cost being added; and How convincingly it will help grow sales.
Let’s take them one at a time ...
Cash Flow
The reason companies stop growing is not because they are unprofitable, it’s because they run out of cash. One of the CFO’s most fundamental jobs is to prevent cash flow issues from impeding the business and slowing it down. Even though the credit crisis has settled down, it’s still really hard to borrow money so CFOs are keeping their arms out and protecting bank lines. CFOs get paid to worry about unhealthy cash positions that can choke your growth options. This is precisely why many CFOs keep poking in to approve ever smaller investments and asking about their cash flow implications.
Generally speaking, you should expect CFOs to remain cautious with cash outlays in 2010. Before signing off on the next project, anticipate them asking to see leasing or outsourcing options. This shifts up-front cash outlays to a service provider and protects cash needed to grow on the road ahead.
Cash Flow Tip for CIOs: Demonstrate how technology projects impact cash flow for the next 24 months. Explore and include financing options that avoid a “big hit” and use smaller monthly payments instead.
Fixed Costs
By now, most businesses have reduced headcount and trimmed discretionary spend like travel and training. These reductions typically came with great pain and sacrifice, so the last thing a CFO will endorse is costs they don’t really truly understand creeping back into the business. This is especially true as the board-level pressure to perform gets dialed even higher in 2010.
CFOs, as a result, will keep on dissecting new staffing and project requests this year and challenging thoughts on how fast they’ll pay back. IT leaders should expect a continuation of long lead times and extra approval layers before getting CFO sign-off. The simple reason driving this is all the cost-cutting pain of the past two years was endured on a promise of better profit margins when sales finally recovered. So, in the CFO’s mind, keeping your fixed costs low means a correspondingly lower monthly sales target to reach break-even. Once that key hurdle is cleared, every extra sales dollar drops profit exponentially since all the fixed expenses are covered.
From an IT perspective, this means any investment layering on new recurring expenses like software licenses or maintenance fees gets less favorable odds for approval. A green light depends on the CFO either seeing a very short payback (typically in the current year’s operating cycle) or feeling convinced new staffing or recurring expense can’t be off-loaded to a vendor. Whenever possible, CFOs want things converted to variable expenses that flex with sales volume or level of services consumed. Good ways to “pay as you go” include remote IT asset management services or procuring new servers and storage from a vendor as Infrastructure as a Service (IaaS).
Fixed Cost Tip for CIOs: Socialize your investment plans earlier in the planning cycle and take a hard gut-check on any new staffing requests. Ask your vendor base for variable priced options to augment staffing and equipment needs based on actual usage in a monthly fee.
Growing Sales
Given the unpredictable ride we’ve all taken over the past couple of years, CFOs crave better sales data and business intelligence to funnel investment dollars toward sales improvement efforts. CFOs are demanding to know what products are moving and which customers are most profitable as they decide where to invest. You’ll see the CFO walking over to the CIO’s office much more this year to discuss how IT can increase its customer-centric focus.
As we gear up for growth in 2010, many businesses are not expecting double-digit sales gains, but everyone is aiming to outperform competitors and grow market share. Taking market share means customer-facing IT investments—projects like CRM or portal applications that directly tie into sales—are going to top a CFO’s priority list today while other “business efficiency” projects stay parked in neutral as good ideas for the future.
Sales Impact Tip for CIOs: Map for your CFO how a technology investment can directly or indirectly serve your customers better. Prioritize projects that touch customers and put your best staff on them while outsourcing other work to vendors you judge as reputable and financially sound.
Doing business as usual went out the window—or should have—last year. My advice to any CIO in 2010 is to step beyond traditional thinking and embrace new ways of delivering core support to the organization. Your strategy should aim for a “triple crown” of minimizing cash outlay, reducing fixed costs and refocusing overworked IT staff on sales growth. You’ll not only get their attention, but also their checkbook.
CIO Update
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