Only 30% of CFO relationships and CIOs are characterized by a strong collegial spirit and business orientation. These two key characteristics define a strong digital partnership. In their absence, organizations struggle, among other things, to find funding for digital initiatives, align digital spending with budget plan, and achieve targeted digital business outcomes.
This is according to a survey conducted by market researcher Gartner in December 2021 of 183 CEOs (CFOs and CEOs). The research shows a strong partnership between CFO and CIO that has led to the best digital investment outcomes, defined as business-oriented (as opposed to job-oriented) and group-oriented (as opposed to hostile).
Margin Erosion Compensation
“Inflation headwinds are increasing CFOs’ commitment to ensuring that digital investments deliver productivity improvements and business outcomes that can offset margin erosion,” said Randeep Ratheendran, Vice President of Research at Gartner Finance Practice. “The right relationship with the CIO is an important part of delivering this value.”
Strong CFO relationships are 51% more likely to easily find funding for digital initiatives, 39% more likely to keep digital spending in line with budget plan, and 18% more likely to achieve targeted business results. “CFOs should view their CIO as a business strategist, not just a budget owner,” says Rathindran. “Better collaboration here will help ensure that executive leadership is aligned with the role of discretionary spending on technology across the organization and what it can offer.”
Organizations with strong CFO partnerships outperform their peers in a variety of financial management practices unique to the digital realm that are enabled by the business-oriented relationships between finance and information technology (see Figure 1).
Figure 1: The behavior of financial management of digital investments
Source: Gartner (April 2022)
Five key CFO-CIO actions that enable digital success
Gartner experts identify five CFO-CIO actions that enable digital success. These practices are unique to digital and are enabled by the collective and business-oriented relationships between finance and information technology. The five actions include:
1) Use product line financing models to increase convenience with digital spending of OPEX.
Progressive CFOs are shifting the discussion of “digital capital expenditures versus OPEX” from short-term profitability to long-term value creation. They work with their executives to highlight the operational and strategic benefits of OPEX-funded digital investments. For example, rather than focusing solely on EBITDA, they track how digital investments affect metrics related to, among other things, workforce productivity, operating margins, and revenue-generating operatives.
2) Use a comprehensive set of metrics and review expectations for the success of digital investments.
CFOs need to expand the way they measure digital success using technology and operational metrics that CIOs emphasize. For example, metrics related to user engagement and engagement (such as the number of users or the percentage of digital interactions) often fit digital investments better than traditional financial metrics.
3) Use a general performance management framework to understand how digital investments affect business KPIs.
CFOs need to convince their teams to work with IT to build an updated series of metrics using more relevant and granular KPIs as a common framework for evaluating digital investment performance. Finance and IT can use this framework to better understand how digital initiatives impact KPIs by linking technology KPIs (eg, user engagement), interim results (eg higher sales volume), and financial results (eg, higher sales volume). For example, increasing revenue).
4) Prioritize participation in the IT roadmap.
CFOs should use early roadmap conversations with information technology as an opportunity to share expectations about how technology will be used to advance the company’s overall strategy, and how digital investments affect the company’s finances. Finance can do this by performing financial analysis and providing early input on the financial viability of technology plans.
5) Equipping IT with tools that enhance the transparency of the digital cost structure.
Finance must work with IT to communicate the value of digital costs so that performance improvement can be measured. This contributes to the IT business objective of maximizing the value of the organization. Less detailed service-based cost models that focus on “outputs” that create costs are expected to provide the transparency that CFOs need.
Gartner clients can read more in “How a Strong CFO-CIO Partnership Can Make Digital Investing Successful.” CFOs and finance leaders can also participate in Gartner research and gain additional access by joining the Gartner Research Circle.