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 these alphabet soup gets so confusing.)
Going back to our textbooks, they (the 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 is like what has been input into the CRM system, comprising individual pieces of data that inhabit the record of that customer - their address, occupation, income and time/date of when they visited our such-and-such branch and how they paid for x units of such-and-such SKU . Information 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 to us until processed with other bricks and other material.
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 centres around data. 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 as it was entered. They run complex organisations comprising their team and outside contractors, coordinating with almost every other department in the organisation to ensure that you can trust the data you use and that it is there whenever and wherever you want it, 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 have no say in what, how, when, and why you may want the data manipulated 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 a Finance Head do
Let's just call the role the CFO but it can really be called anything, of higher status as well as lower. By the same token, many Finance Heads are not playing the role of the CFO as outlined here but are just over glorified accounting managers. But anyway, we have to call the role something and CFO is as good a title as any.
The expectations of the CFO is not as clearcut as the IT head. 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 all CFOs by definition need to be trained as accountants. But while this is true, the role of encompass so much more than the accounting function.
Most large or mid-sized finance departments are split up into at least two sections - an accounting unit that takes care of the accounting records and generates the monthly, quarterly & annual accounts while 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 extends 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.
Many CFOs also do themselves a disservice by interpreting their role as the risk manager of the organisation, raising risk issues from their very risk-adverse background so that it is on record that they have raised it up, 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 takes them into all departments of the company. Together with the CEO, these three can form a triumvirate that oversee every nook & cranny of the organisation. The Head of HR, if they are blessed with the appropriate team who 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 wants 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 to be told, "If you continue on 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 exist.
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 most likely estimates {give basis so CEO can assess the softness of the numbers} (Oh, btw, this other campaign can improve a% to d% 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 abovemeans the CEO does not need to interview every relevant person for themselves to obtain the information to make the decision. And as those involved in designing tender process can attest, separating the functions of decision-making and information-gathering helps reduces (even if it can never be eliminated) the decision biases that often creeps in if the same person does both. Basically, the CFO rationalise all information in the organisation 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 discreet 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 illusions 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, is very much depends on 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 which is sometimes a function of inexperience) in the information presented in making the decision. From this, one can see that the way the information presented for decision 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.
You can see why 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.
I hope this all makes it more exciting to be a CFO as the true CIO and I look forward to more CFOs moving beyond the stereotypes of bean counters.
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