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What is the Proper Relationship for the CIO, CEO, and CFO?

February 8th, 2010 by
Global Competition Changes Everything

CIO, CEO, & CFO Roles

The CIO role in business has been changing almost as fast as technology itself for the last decade.  In the past it was enough to focus on business processes and automation.  It was enough to satisfy the business needs for operational excellence.  By doing this successfully the CIO was given carte blanche, often times large budgets and significant latitude in how best to apply technology budgets.  Those days are quickly fading and today many IT departments and IT organizations are becoming internal vendors to internal customers with “charge backs” to the internal organizations.  They are becoming little more than an internal cost center and “overhead” to the rest of the business.  And this re-alignment of the technology organization is creating significant budget pressures leading to staffing gaps.

Global Markets Are Being Dynamically Shaped and Altered

Modern technology has lowered the barrier to entry for new competitors by allowing international outsourcing, greater agility, quicker product design to market, and specialized focus on niche markets causing more market fragmentation and specialization. Customers have a wide variety of information from sellers and the Internet about products, design, services, options, pricing, and availability.  Things are more dynamic than ever.

Because of the pace of change, focusing on “best practices” and internal process improvement, or even extending processes is no longer enough. Business can rarely (if ever today) integrate, automate, and streamline to achieve marketplace success –, to one degree or another nearly every competitor is doing this or is quickly headed in that direction.

Business complexity and the breakneck pace of change turns yesterday’s breakthrough technology into today’s commodity; vendors are modestly integrated into the extended supply chain, all the way from raw materials to end customer delivery; customers are more sophisticated and have more options than ever through the Internet; competitors have worked to incorporate similar technology throughout their entire process chains by integrating, automating, and accelerating their processes.  As a result, business demand on technology simultaneously creates new opportunities and new struggles.

Today’s CIO is Being Asked to Deliver More With Less

While many technology projects still address business process improvement, cost reductions, and efficiencies, there is pressure to integrate the sales side of the business as well. More than ever there is pressure for all levels of IT decision makers to deliver business results focused on customer acquisition, customer retention, revenue growth, and innovation.  What this means is that the CIO or key IT decision maker must focus on being a bridge to the different sides of the business like never before.  The CIO who is able to properly partner with, and integrate into the business as a whole will rise above their peers and be successful.  Those who cannot will find budgeting and staffing more and more difficult. Today’s CIO has a big job, as this Booz Allen insight article from 2002 [FN1] noted, to succeed they must:

  • participate in corporate planning and strategy sessions,
  • align and integrate technology initiatives in terms the business understands — speeding products to market, enabling growth, and reading costs and risks, etc.,
  • make the case for technology spend and budgets, in business terms, with competing C-level executives,
  • develop internal knowledge and collaboration networks.

To make this transition the successful CIO must chart a course between the two sides of the business which are represented by the CFO (or COO) and the CEO (or President).  These two executive roles are a counterbalance and the successful CIO must learn to be the fulcrum in between them.  Without that integration of the CIO role into both sides of the business the IT area and IT functions are quickly seen as very expensive cost centers to be cut.

The CFO (and COO) Focuses on Business Processes and Financial Performance

The CFO role is focused on company finances and company health.  This would be a company’s lagging indicators in terms of business metrics where both operations and finance intersect.  If the company is doing well then these financial or operational lagging indicators will show this after the entire process is complete.  These results show up after customer cash is collected and vendor bills are paid together with employee salaries, fixed expenses, variable expenses, etc., etc., etc.  These lagging indicators show whether a business is healthy and headed in the right direction. The danger with a pure focus on operations, processes, and financial metrics is you must wait until you have already arrived at your destination to figure out if you took the right path.  In today’s global economy any mistakes could be disastrous.

To survive in today’s global economy a business must know early on where to make course corrections to stay on track.  Business no longer has the luxury of waiting until the financial results are in to figure out if things are headed in the right direction.

For most CIOs and IT managers they have almost exclusively focused on this entire domain.  Nearly all technology activities and certainly most SAP implementations focus on these areas exclusively.

The CEO Focuses on Strategy, Business Growth, Sales, and Marketing

The CEO role is about future strategy, sales, marketing, and business growth.  This would represent a company’s leading indicators in terms of business metrics.  If the company has:

  • new customer prospects in a healthy sales pipeline
  • a steady stream of customers being converted from the pipeline into orders
  • a growing order backlog while the fulfillment process performance is static or improving
  • existing customers buying more or higher margin products and services
  • a low percentage of customer churn

then these leading indicators of future growth and prosperity look good.  These kinds of leading indicators demonstrate future company performance and have been largely lacking from the technology equation.

The CEO, often through the interaction between the sales, marketing, engineering / product development areas also bears the responsibility for new products or services.

Today the extent of nearly all “leading indicator” initiatives is around CRM applications.  And unfortunately CRM applications are little more than gigantic contact management systems with some built-in analytics.  SAP’s CRM application, as well as other top-tier vendors does offer a measure of sales accountability and sales process discipline that has been lacking.  However few if any of the CRM applications actually provide real technology benefits to improve the sales process, or promote customer retention.  They may modestly improve customer acquisition because of the amount of data and customer-centered intelligence they can provide but this is proving to be marginal.

Where does the CIO Role Fit in Today’s Global Economy?

CIO’s have traditionally focused on process improvement, automation, and those items related to a company’s fiscal health and performance.  Few technology leaders or technology projects have addressed the leading indicator side of the business equation beyond installing CRM applications.  But today’s CIO will have to change that.  More than ever the CIO must focus on the integration of the leading indicator side of the business with the lagging indicators.

The successful CIO will become the “integration glue” between the CFO and the CEO.

In a nutshell, the CIO role, and the IT staff in a properly aligned organization must be business-centric first and they must address business events from both a lagging AND leading indicator perspective.  The most successful CIO will become the bridge between the CEO and the CFO, and thereby integrate business leading and lagging functions with technology.  In other words the successful CIO must find ways to integrate operations, finance, and sales.  And not just integrate them, but do so in such a way that technology investment and technology spend becomes focused more aggressively on the “demand” side (customer sales and innovation) rather than on the “supply” side (operations, processes, and automation) of the business equation.

CEO CIO CFO Alignment

This graphic shows not only the proper CFO/COO, CIO, and CEO level alignment, it also illustrates the burden that the most successful CIO and IT decision maker will carry.  Future CIO success with technology in the business will require a more holistic or complete focus on business demand.  The CIO role is becoming larger, and yet more difficult at the same time that the IT organization is under more and more financial and budget scrutiny.  What this means for the CIO, IT Director, or other IT decision makers is that if they do not have an MBA or other formal business training themselves they may wish to look at enhancing their IT departments and IT organizations with true business analysts who also know technology (or can learn technology).

IT organizations and technology budgets that fail to address both sides of the business equation (lagging AND leading indicators) experience:

  • significant budget cuts,
  • a move into “maintenance mode,”
  • their organization support model converted to an internal vendor to internal customers with “charge-backs” for services provided to the organization,
  • being closed out of partnership with the business.

As the business as a whole pushes back on what they see as a very expensive IT department they will find their own internal ways around the budget hits from IT.  Internal company departments will avoid budget hits from these “charge-backs” by doing things themselves whether that means manual processes or developing some measure of internal IT autonomy in some of their tech savvy departmental employees.

What Can IT Decision Makers Do to More Aggressively Address Business Needs?

There are a number of approaches that can be taken and a number of requirements that will be needed for a changing job role.

  1. Engage the CFO / COO and the CEO in discussions about supporting their business needs.
  2. Find ways to actively and directly integrate part of the IT staff into key business departments.  For example, should the Finance, Operations, and Sales departments each have their own dedicated IT staff members?  Or how do you take a limited staff and create a responsibility matrix to maximize business attention on these key departments?
  3. Invest in business analysts, those with business degrees or a business focus, who know or can learn the key technologies to support the business.
  4. Define and develop a technology strategy execution team consisting of at least one senior level VP or Director from Finance and Operations (appointed by the CFO / COO), Sales, Marketing, and Engineering (appointed by the CEO), and Technology (appointed by the CIO).
  5. Have the strategy execution team work together with any of their own key resources to define top level KPIs for IT to business integration.
  6. Revisit current KPIs, departmental goals, and metrics to ensure that technology and IT are aligned to these important business measurements.
  7. Use the underlying metrics and business goals for the KPIs as the source for both reporting and technology initiatives.

[FN1] Boochever, J., Park, T., Weinberg, J., CEO vs. CIO: Can This Marriage Be Saved? Booz Allen Hamilton, Strategy Business Online, July 17, 2002, retrieved online February 6, 2010 at http://www.strategy-business.com/article/20571

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Part 1:  What is the Proper Relationship for the CIO, CEO, and CFO?

In the first part of this series we looked at the changing business landscape and what it means to the CIO, IT Director, IT Manager, or other key technology decision makers.  From a high level the current global business competition, as well as economic issues are directly affecting the C-level executive requirements and the CIO – CFO – CEO dynamic.  This article reviewed how and where the CIO role is coming under tremendous pressure and how to change the current dynamic by more appropriately partnering with the CFO and the CEO.  This partnership is a critical business bridge between lagging business indicators of business financial and process health on the CFO – COO side of the business house and the leading indicators of sales and product or service pipelines on the CEO side of the business house.

Part 2:  CIO, CFO, and CEO Alignment – Why ROI is Lacking from Today’s System Landscape

The second part was an overview of the current system landscape and its focus on business processes and the emerging trend of trying to focus on the customer.  This piece also looked at the future business landscape and how the technology focus and direction will be permanently changed no matter what happens with the economy and global competition.  Because the technology marketplace (business consumer) is becoming more sophisticated and more attuned to business / technology alignment, the IT dynamic is going through a structural change.  The whole technology sector is slowly moving away from the “operational excellence” value proposition to the “customer focus” and “innovation” areas of the business.  Very few of the consulting companies and few of the application vendors see this sea change and are doing little to address it.  This is the area of technology market winners and losers of the next 20 years.

Part 3:  Changing the Direction of SAP, ERP, and IT Applications to Focus on the Customer and Innovation

The third part in the series looked at current technology landscapes and how they are aligned and then looked at future technology landscapes.  A brief review of the supply side and the demand side of business shows that unless you have lots of customers (demand) to fill a bigger and bigger pipeline (supply) then your business model collapses.  While it is hidden during good economic climates, any disruption in those economic conditions which fails to fill the capacity pipeline points out the glaring insufficiency of the “operational focus” to technology.  During any economic disruption, or any reduction in demand from customers for your products or services the current technology model falls apart.

Part 4:  Future Technology Landscape Alignment for the CIO, IT Director, or Key IT Decision Maker

The final part of the series looks at the emerging technology landscape and what the future holds.  It lays out an emerging technology landscape model which has some re-alignment and some components already in use by some of the world’s most successful companies.  A new alignment of technology with the customer facing processes, and the use of social or collaboration tools across the enterprise with a clear business objective is explored.  The driver for the future change will be because the business does not see the revenue generation prospects of technology–, they fail to see the possibilities of promoting customer retention, customer acquisition, innovation, and marketplace analytics.  The new technology model looks to change that dynamic.




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Business and IT Alignment – Integrating Technology and IT Spend with Business

February 5th, 2010 by

Cloud Computing

Aligning technology to business requirements is  based on a few underlying assumptions that are often lacking from SAP projects.  Those assumptions are that the: 1) business actually knows what their requirements are; 2) the project scope includes those requirements; 3) the right management and internal employees are committed and engaged; 4) the system integrator you select has consultants with the required experience.

After all of that the one thing that I often see lacking is the failure to look beyond “operational excellence” areas of the business and into what SAP or any other ERP application can do for innovation or customer focus.  Recently I was reading an article on CIO.com (where I also contribute).  The basic premise of the author was that IT is already integrated with business and all of the hype about business to IT alignment is overblown.  This is not entirely true.  As I commented:

Traditional business schools teach two key concepts around business (once you have settled on a product or service) and those are value propositions and competitive pressures.

IT (Information Technology) has NOT integrated with business well EXCEPT in the commodity markets. The universally zealous focus on process improvements, process automation, and business process management only addresses ONE of the three value propositions. And that type of a focus ends up creating commodities of the product or service (if it is not already a commodity).

IT has only aggressively addressed the “operational excellence” pillar of business. They are only now BEGINNING to seriously look at customer focus and innovation is just barely a blip on the radar screen.

None of this even addresses the competitive pressure landscape either. So when you say that IT is already integrated with business you are looking at just one dimension of a 3 dimensional picture. IT has focused on OPERATIONS and NOT on business (unless your products or services are commodities, or you want your marketplace to become a commodity!).

I’ve written LOTS of material on this subject to help IT professionals and IT decision makers make the distinction. Once they “get it” and change how they look at their role, then they avoid being reduced to little more than a cost based charge-back center of their business.

The reality is that until IT starts to more aggressively focus on the business side of the equation (like revenue, profitability, customer retention, customer acquisition, product development and engineering, etc.) then IT is little more than a “process PLC” (Programmable Logic Controller).  These are useful devices that help to auto-mechanically, or electronically, trigger some follow up event for equipment, machinery, or other electronic devices.  These PLCs coordinate mechanical or electronic processes, generally related to process control.

The zealous fixation by IT on business processes and automation is needed, just as PLCs are used and needed in industry.  However I am not aware of any PLC that retains or acquires customers or generates revenue by innovating new products or services.

Today’s technology to business alignment is very one-dimensional in relation to value propositions–, they focus almost exclusively on the “operational excellence” proposition which is a perfect fit for commodities.

And in case this doesn’t all make sense to the technically oriented, let me put it another way.  Business without customers is bankrupt or non-existent.  Business without profit is headed for bankruptcy and for non-existence.  Business without new, or innovative products or services will become little more than a commodity (if it is not already).  The three value proposition areas are:

  1. Operational excellence (focus on processes, automation, and quality control with lagging financial controls).
  2. Customer focus (customer retention and customer acquisition with lagging financial controls and leading strategy integration).
  3. Innovation (new or improved products and services – lagging financial indicators and leading strategy integration).

As you can see from the three generalized value proposition areas technology integration is fairly one-dimensional, focusing almost exclusively on the “operational excellence” value proposition.  Even for those companies who pursue CRM (Customer Relationship Management) initiatives, the big, fancy, expensive, and complex CRM systems are usually little more than giant contact capture systems with some additional reporting capabilities from the backend ERP application.  As a result, many of today’s CRM initiatives are little more than glorified “operational excellence” applications of technology that masquerade as being “customer focused.”  Unless there is a clear connection to customer acquisition, customer retention, upselling within various channels, and improving business revenue and sales through the use of the CRM application in my opinion it does not qualify for the second value proposition of “customer focus.”

So, the next time someone tries to convince you that IT is already focused on business maybe you should step back and ask yourself “what is business” and what are the goals of business? 

Additional Reading on Business and Technology or IT Alignment and IT to Business Integration:

Using SAP to Improve Revenue and Profitability
http://www.r3now.com/using-sap-to-improve-revenue-and-profitability

Tactics, Strategy, ROI, TCO and Realizing Business Benefit from SAP
http://www.r3now.com/tactics-strategy-roi-tco-and-realizing-business-benefit-from-sap

CRM, ERP, BI, and IT Investment — Where Do You Find the Business Benefit?
http://www.r3now.com/crm-erp-bi-and-it-investment-where-do-you-find-the-business-benefit

Competitive Pressures and Value Propositions, Is Lean the Answer?
http://www.r3now.com/competitive-pressures-and-value-propositions-is-lean-the-answer

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Using KPIs to Align Your SAP Business Case to Strategic Business Direction

December 18th, 2009 by

SAP KPI Success

SAP KPI Success

Few companies see dramatic transformations on their first attempt with Key Performance Indicators.  Many businesses or organizations eventually abandon the efforts because they start out with poor alignment between what they are measuring and the business value proposition or their underlying competitive pressures.  Some companies eventually develop some great reports and a “dashboard” for their executives or senior managers.  But few companies make it to the area where they are effectively using a Key Performance Indicator to implement SAP in a way that strategically steers their business into the future.

Key Performance indicators should be developed to refine the metrics or goals which support processes for your business to compete in the marketplace.  Okay, that was a mouthful.  How about if we put it this way, you need good measures for good business results.  These processes, the goals, the metrics, the KPIs, and all of the effort you have put into this then becomes the foundation of a solid business case for your SAP solution.  It doesn’t really matter what solution, whether it is ERP, CRM, APO, BI, or other system implementation efforts, it is still important to decide what is important and how you will measure it.  Armed with these goals and the business case you can then guage the SAP implementation or upgrade project success.  This is the SAP value driven methodology.  Here are some steps to get you started on your journey:

  1. Carefully evaluate your business value proposition.  In other words, why do customers buy your products or services?
  2. Look at the industry as a whole, where are the “points of frustration,” where are customers frustrated or disappointed with the industry as a whole?
  3. Consider what competitive pressures affect your value proposition and the customer “points of frustration” and determine what organization(s) are impacted by those competitive pressures.
  4. Focus on developing a set of goals, metrics, and objectives that address those competitive pressures so that you can then “operationalize” the strategies to address those pressures.
  5. Use the right people, processes, and SAP technology tools to address those new “operationalized” strategies. Implement the systems and technology to support the new strategies and measures.
  6. Develop a weighted index of those goals or metrics that appropriately considers your competitive pressures and your value proposition as your first KPI.
  7. Execute an organization-wide communication program about the new metrics, and the new index, and its meaning to the company in the marketplace.
  8. Provide an incentive, generally provided quarterly, for meeting certain KPI related index targets rather than individual goals or metrics.  Cause the company to pull together in the same direction regardless of some of the competing demands that individual goals might create.
  9. Communicate to the organization that an annual adjustment of goals, or of their weights will be performed and the KPI index measure will be reset each year and that any incentives will be based on the new “norm.”

An Example of the Correct Use of a KPI as a Useful Business Measure

Probably the biggest problem I see with what many practitioners call KPI is that they measure activity and not results.  Just as an illustration consider the call center below.

You need good measures for good business results

If you operate a call center and have defined a “key performance indicator” as the number of calls per hour per phone operator you may not be measuring the right thing.  So what is a proper KPI?

In the brief example of the call center, the company KPI (i.e. the Business RESULT) might be customer satisfaction, customer retention, or customer acquisition.  Those would be proper Key Performance Indicators that would filter down to the individual organizational measurements to show how a crucial business issue is being measured.  In other words, measuring calls per hour might be a cost based performance indicator (measuring activity), but is that really what is important to the business?  Did you take the time to build customer loyalty (i.e. customer retention), was this a prior customer calling about some issue and did you take the time to try to work with them to regain their business?  Was this a brand new customer?  In other words, what business issue are you trying to address with the activity you are performing and want to measure?




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