The modern CFO is responsible for driving performance and profitable growth for an organization, but no one would have predicted the economic uncertainty we would face in 2020. With Covid-19 giving rise to a new set of challenges, the UK is now seeing a recession rear its head for the first time in 11 years. Under pressure to make fast, yet informed decisions on optimizing spend, reforecasting and re-planning, CFOs need to find their key ally – the CIO.
Data and technology should be a key part of the recovery plan, as it will help to give CFOs the information and confidence to make tough but critical decisions during these challenging times. CFOs need to work closely with the CIO to identify the right tools to support them in managing the crisis by using financial data to drive decision making. Moreover, because technology now makes up a sizeable part of average business spend, the CFO and CIO need to work together to discern where technology spend can be optimized.
Companies that use technology to their competitive advantage will win in today’s business environment. For CFOs, this means ensuring that the business has the agility to better manage spending in a constantly changing financial environment. Here, we’ll take a deep dive into some of the top ways CFOs can do this, starting with the importance of coherent conversations with CIOs and the wider business, before looking at how technology can empower data-driven decisions and why businesses should say goodbye to labor-intensive manual spreadsheets.
Empower useful conversations within the business
The businesses that are able to adapt quickly to change are the ones that will be able to weather the storm successfully, and one of the key components of this is effective communication. Technology is becoming integral to the way businesses operate, and with this comes the increasing need for CFOs and CIOs to work effectively together. The push and pull between limited budgets and IT innovation is still there, but the relationship between CFOs and CIOs must adapt with the times to become a more collaborative mindset, as their focuses become more closely aligned.
Successful businesses are able to make decisions quickly because tech-savvy CFOs are in a better position to collaborate with CIOs and have the financial agility to stay competitive and remain aligned with business priorities. Both leaders need to be talking in a shared syntax linking costs to value, which allows IT and finance teams to work better together. They also need to use this to empower other business units to understand the complexities of technology spend.
Both sides must recognize the need to be able to communicate efficiently to ensure that the business is getting the return on investment for IT. There is no doubt that we’re about to enter challenging times as the UK recession looms, and that calls for an upheaval and realignment of processes.
Importance of data-driven decisions
To improve resiliency and empower better conversations with the wider business, CFOs should look to organize their data to get a clear view of overall technology spend. However, this can be a challenge without adopting the right tools to do so. Tech spend and usage continues to bloat while budgets shrink – but there is an opportunity for CFOs to leverage data-driven insights to free up capital and make strategic decisions. As stewards of capital, they need to know if the business’ investments in technology are contributing to the overall strategy of their organization, and whether business units are being efficient in their usage of these tools. By using technology solutions to produce data that ties spend with value, they are better able to make these important decisions.
Based on an Apptio survey, on average, companies have 9 percent of their IT budget tied up in inefficient or conservative budgets. A purpose-built IT financial management solution frees up this “pad” for additional investments, and a reliable and accurate planning process designed specifically for IT will give cost center owners the information they need to budget accurately. It will also give businesses the ability to forecast and plan technology spend at a granular level as well as run instant planning and what-if scenarios.
Right now, being able to adapt quickly is imperative to business survival. CFOs need technology that will give them the data insights and financial agility to ensure their scenario planning can provide answers in minutes vs. weeks or months.
Now is the time to ditch manual spreadsheets
Many organizations still track IT costs in spreadsheets. This is not only a labor-intensive and error-prone method, but it also lacks efficacy in translating IT cost data into insights. These manual processes are not agile enough to tie IT investments to business outcomes, when elements of the technology estate are always changing, and means it can take a long time to answer simple questions and run scenario analysis.
With economic uncertainty sitting on top of broader organizational shifts such as the move to the cloud, globalization of labor and demand for new digital investments, the IT operating model has changed and will require a new approach for CFOs to navigate this. Research shows that companies that were able to withstand previous economic downturns increased their EBITDA – earnings before interest, taxes, depreciation, and amortization – by 10 percent on average, while their industry peers had lost nearly 15 percent. Companies are increasingly turning to technology for the competitive edge to help make this happen, and in a rapidly digitizing world, being able to keep track of IT spend is a key component of this.
There are existing systems that can handle data analysis with ease but might lack the flexibility to calculate the holistic costs of the delivery of IT products or services. In order to complement a company’s financial needs, businesses need to look at a purpose-built system that will allow them to integrate data from their general ledger and budgeting systems and combine with vendor invoices and IT systems data. The right tools will mean that businesses can transform data into a standard cost model that can be benchmarked against the industry.
Many businesses are facing the same challenges and are likely unsure of how best to adapt their cost management processes to be the most efficient. But by being smart in their application of technology, CFOs can improve resiliency and adapt quickly to the ever-changing circumstances that they are likely to face in business. There will always be changing scenarios and what-if situations, but CFOs just need to harness the right tech to help give them the upper hand.
Henrik Nilsson, Vice President, EMEA, Apptio