This column is co-written by Sebastiaan Laurijsse, Senior Director IT & Digital Transformation Manager at NXP and Ilse Kerling, Founder of Global Business Academy.
Missed Part 1 of the series? Read it here.
In the last article we examined that 70% of all global transformations miss their goals, and its impact on shareholder value. In this article, we look at the crucial role of the CFO to increase success.
From cost to value
IT is often positioned within a shared service center to which you allocate costs; often a percentage of the turnover. Because of all the new technologies, this role is shifting. IT has become a facilitator of future revenue. That requires different knowledge and insights to determine value and budgets. Forbes investigated that the present board of directors and management teams often lack IT knowledge. In 10 years’ time, they expect 75% of future CEOs to be more technology-driven.
6 years in 1 year
Sometimes when something drastic happens, things can move very fast. How can a company in Asia Pacific close in on our technical advantage in just one year, whilst it took us 6 – 7 years? To protect your future revenue, the Cyber Security Officer (CSO) must have a big say. Often, the CSO is in direct contact with the CEO and the Board and may have more influence than the CIO because the impact is more critical.
Old vs new-style budgeting
When setting IT budgets, often the old measurement is used: a percentage of the revenue. That leads to these type of situations: “The future revenue is somewhat unpredictable so please save $2 million on our computer environment”. I then say “I don’t do that” because that’s the capacity to validate and test products. The new products that we must support are becoming increasingly complex. We need more capacity to keep the development costs and time as low as possible.
$2 million for $1.5 billion
With the old measurement, you reduce $2 million, but it has an impact on future revenue of $1,5 billion. Of course it’s not so simple: will the product be successful? There are many sales and marketing factors. The challenge for IT is that the value can be hard to understand. The crucial element is that the president R&D and the CFO understand that it is a value chain. That IT is not only a cost, but also a strategic enabler.
The crucial role of Finance
The finance division within my IT organisation helps me to get the financial resources to execute my strategy – to ensure that the lights stay on in my organisation. It is essential, however, that they understand the value of what I do. That means not only C-level, but every layer of the organisation, needs to possess a tech savviness and an understanding of the value chain.
The crucial role of the CFO
The CFO has a key role in the success of the transformations. Firstly, by creating a partnership between the CIO and the CFO to identify which areas will help us stay relevant for shareholders. Secondly, by quantifying the true benefits that the transformation should deliver. These can be profit, costs, or risks. And thirdly, by being a sponsor of the project. The CFO is also the beneficiary. The more vocal the support and the internal communication, the faster the transformation.
Why this last point is so important is the topic we will uncover in the next article. The key to success is in people and their ability to adapt. To understand the internal complexities, we will take a look inside Sebastiaan’s IT organisation.
Read Part 3 of the Transformation series here!