The CFO is the true Chief Information Officer

We are so used to calling the Head of IT the CIO of the company. I just feel like it is time to challenge what we really mean by that. (CIO as in Chief Information Officer, not CIO as in Chief Investment Officer - all this alphabet soup gets so confusing.)

Textbooks tell us that there is a difference between data and information. Data is raw, whereas information is processed data that is usable for decision-making. Data, for instance, includes the individual pieces of data in a particular customer record that have been input into the CRM system: their address, occupation, income, timestamps when they visited our such-and-such branch and how they paid for x units of such-and-such SKU. Information, on the other hand, is that 90% of our top-income customers will upgrade in each cycle and so we should focus our upsell on that sector just before the upgrade. Information is like that useful house we live in, built out of data-like bricks, which individually are useless until processed with other bricks and other materials.

Role of Head of IT

Without in any way demoting what an IT Head does, let us be clear that the primary responsibilities of the IT department in a typical company centre around data, not information. They receive data, create & maintain the receptacle that holds the data, ensure that the data remains secure, accurate, available and essentially the same as the day it was entered. They run complex organisations comprising their team and outside contractors. They coordinate with almost every other department in the organisation to ensure that you can trust the data you use, delivering it whenever, wherever and in the format/content/precision/etc that you want it. They may maintain the tools you use to convert that data into useful information or even play a key role in bringing it into reality, but they typically have no say in what, how, when, or why you may want the data processed other than to say whether what you conceive is plausible or not.

So, while the IT Head is obviously a very important person insofar as data is concerned, they do not own the information that is processed for decision-making. Thus, it is probably more appropriate to call the IT Head as the Chief Data Officer rather than the Chief Information Officer.

What does a Finance Head do

Let's just call the role the CFO but it can really be called anything. By the same token, many Finance Heads are not playing the role of the CFO as outlined here but are just over-glorified chief accountants. But anyway, we have to call the role something and CFO is as good a title as any.

The expectations of the CFO are not as clear-cut as the IT head's. It really depends on the aptitude of the person, driven by the expectations of the CEO and with the size, structure and competence of the organisation being limiting factors. Many CFOs see their role primarily as the accountant of the organisation and I find that so misplaced. Strange thing to say because most CFOs are trained as accountants or in finance, with some accounting knowledge. But while this is true, the role encompasses so much more than the accounting function or even the finance function.

Most large or mid-sized finance departments are split up into at least two sections: (i) an accounting unit that takes care of the accounting records and generates the monthly, quarterly & annual accounts and (ii) a separate finance unit which deals with raising of finance with banks etc. Sometimes, there is also a credit unit responsible for AR collections, credit evaluation and so on. So, the responsibilities of the head of finance extend well beyond the pure accounting role.

Unfortunately, the accountant's reputation for being boring kicks in here. Most accountants are pretty risk-averse and don't like creativity - I mean, the term creative accounting normally comes with a hint of naughtiness. Thus, no surprise that many CFOs tend to stick to accounting, as that is how they are trained.

The traditional accountant's role is set to be greatly diminished by AI. The accountant's job is to bring the data on source documents into the final accounting statements. It is a complicated process, with plenty of branching scenarios which require careful evaluation, but it is a process nevertheless. And as long as it is a process, it can eventually be done by an AI.

Many CFOs also do themselves a disservice by interpreting their role as the risk manager of the organisation. They raise risk issues from their very risk-averse background, so that it is on record that they have raised them, often to balance off the overly optimistic business owners behind proposals. Swinging to the other extreme as a balance, however, means that it is understood that what was raised is not intended to be adopted, but merely to be considered. "Thank you, CFO, for your input but we will now make a business decision in the real world that will pay our salaries." The CFO becomes just another source of consideration for decision-making and not central to it. Such a CFO thus has no credibility in decision-making.

Proper role of CFO

But where the CFO expands beyond the pure accounting functions, the sky is the limit. Unlike other departmental heads, the remits of the CFO and the Head of HR take them into all departments of the company. Together with the CEO, these three can form a triumvirate that oversees every nook & cranny of the organisation. The Head of HR, if they are blessed with the appropriate team that makes friends everywhere in the organisation, would have a network that can tell the intra & inter-department dynamics, as well as the general pulse of the workforce. But that will be another article.

The CFO uses this information as well as any other scrap of information gleaned internally and externally, including (but certainly not limited to) revenue & spending patterns, progress of IT projects, operations benchmarks, contractors' feedback, market research publications and general news updates etc to build up a comprehensive and coherent picture of what is and will be happening to the organisation.

Yes, I did say 'what will be happening' - CFOs should be in the business of fortune telling, not just talking about historical accounting profits. Really, how many people want to know how much profit the company made according to Generally Accepted Accounting Principles two years ago or how much was the budget overshoot in the marketing budget in Q3 of last year? Well, some but assuredly not many. People are more interested in being told, "If you continue on this strategy, this is how much surplus cash you will have in 3 years to pay bonuses". I am not, of course, saying historical accounts have no value - they do for regulatory & control reasons and as a source of information - but it should not be the reason the accountant exists.

CFO and the CEO

Integral to successful CFOship and CEOship is the relationship between the two. The CEO is the decision maker and the CFO is the decision support system. Basically, the CFO reduces the broad decision that the CEO makes into a single, clear, close-ended decision of the subjective type of judgement choice between two options. This decision could be a single decision or the culmination of a series of decisions. All quantifiable factors have been considered and reduced to a single number where possible, with the appropriate indicators of hardness/softness of estimates. All qualitative factors the CEO finds significant are also brought into the picture at the right juncture.

Example, with some instructional rubrics: Should we embark on this sales & marketing strategy for $x (included in x are also the impact on other contracts, lifetime operation, potential litigation provisions, etc)? That decision depends on whether you think [consumer trend] will mature. Current estimates range from a% to b% with c% as the most likely estimate {give basis so CEO can assess the softness of the numbers} (Oh, btw, this other campaign can improve d% to e% at a cost of $y if you think that little bit of insurance is worth it.). This strategy will also position us for follow-on action of .... {list other benefits} but it could trigger ...... regulatory action {list other risks}. Other impact of the strategy and potential implementation pitfalls & side benefits are ... {introduce them in logical, related sequence with explanations of how they will impact the decision, not the strategy itself}

Basically, for the CFO to gather the information above to make the decision means the CEO need not interview every relevant person for themselves. And as those who design tender processes can attest, separating the functions of decision-making and information-gathering helps reduce (even if it can never be eliminated) the decision biases that often creep in if the same person does both. The CFO, thus, rationalises all relevant information into a single coherent picture for the CEO to make a decision.

You can also see that the decision involves a lot of subjectivity. I often find many management decisions, especially at the enterprise level, are presented as very discrete options based on firm and precise numbers (how often have we seen business cases or project budget requests denominated down to the cents?), giving the illusion of certainty in decision-making, but that is another article. Let's face it: management decisions are subjective (and it should not make us uncomfortable to be subjective) and as such, they very much depend on the personal preferences of the decision maker. Here, preferences mean the risk assessments as well as the priorities of the CEO. As they differ with each individual, the CFO will be presenting different factors in different ways in different sequences to different CEOs.

And as no CFO is going to be fully competent in all fields touched by the decision, the scope of supporting information is dependent on the skills and exposure of the CFO. This is unavoidable and the CEO needs to consider these black holes (or the softness of estimates) in the information presented in making the decision. From this, one can see that the way the information is presented for decision-making differs with different CEOs and CFOs. So, the personal chemistry and personal relationship (not just the professional relationship) between the CEO and CFO is integral to the success of this partnership.

Conclusion

I often introduce myself as an accountant who does not believe in accounts anymore. Accountancy has laid the foundation of my professional education and led me to where I am today but I am no longer constrained by accountancy. Sorry, accountants, but happy to engage if anyone wants a technical discussion on the relevance of historical financial accounts.

So, calling the IT head the Chief Information Officer confuses infrastructure with insight. Data is stored; information is intuited. And the person responsible for intuiting it for executive decisions is the CFO. Organisations that fail to recognise this will continue producing immaculate reports while making mediocre decisions.