CFOs frequently face a dilemma when it comes to technology investments: they confront them as cost centers yet often struggle to identify the business value delivered. Unlike other business processes with established measurement frameworks (like supply chains or HR), technology investments can be opaque. Improperly evaluated, their benefits can feel intangible, and the language used to justify them bewildering.
For the CFO, technology spend can easily seem like a sinkhole: You don't know where the spend is allocated, you don't know how spend is categorized, and you definitely don't know what its tangible business outcomes are.
But there are clear ways for CFOs and CIOs to come together to better understand their technology investments—and reap more value from them. The challenge isn't doing a proper accounting but rather making that accounting meaningful. That starts with language. CIOs often devolve into "dolphin speak," chirping about application versions, middleware solutions, and hardware standards rather than being clear about the business impacts of the tools they are providing. The CFO has a legitimate need to know what and why the CIO is asking for money—in terms everyone in the c-suite can understand. CIOs have a duty to be clear. Technology investments need to be well-articulated in a language that corresponds to business operations.
Categorization comes next. Too often, an organization's entire IT spend is set into a single bucket. Divvy it up. Allocate it out. The first distinction will be between "Run" and "Build." Run costs are a combination of underlying infrastructure, software, licensing, and labor—everything required to keep existing services online and fix issues as they occur. Build costs imply change—and innovation can admittedly be harder to define.
In either case, it's crucial that IT investment is allocated to business value chains—rather than business departments, or even individual technology applications. Most large organizations have a whole slew of tools, none of which are mapped to anything. What each is actually doing—the business value it is driving—remains obscured. Undertaking this mapping process forces alignment between technology investments and business priorities. We want to be able to look at the investment dollars we have and confirm that we can categorize them cleanly across value chains. These categories are relatively consistent among businesses:
- "Keep the lights on" investments sustain essential business operations.
- Regulatory compliance spend is non-negotiable. It is necessary to avoid fines and/ or increased scrutiny (whether GDPR in Europe, CCPA in California, or HIPAA in health care).
- Business "drivers" increase revenue or profitability. [See William on R&D]
- Business "preservers" defend market position against disruption. This is fundamentally a protectionist approach, but it might require upgrades to improve functionality and protect revenue. [See Les on legacy systems]
As a taxonomy, it eliminates the ambiguity that typically surrounds technology investments. The key here is that everyone can look at the investment initiatives, and the dollars behind those, and clearly understand the value they're bringing to the organization.
Metrics are key. Every technology investment must have a defined and tangible outcome. You can't justify value without defining success. Some evaluations will be binary: with compliance, for example, you either are or are not compliant. Other metrics allow headroom to tick up—like the implementation of a new tool that drives sales or increases customer registrations. The key is having a mechanism in place to understand whether the initiative was a success or a failure, based on its stated goals. And if it was a success, do we have a way of tracking whether business value was created? Everything should be measurable, achievable, and within technology's ability to influence.
I recently worked on a project where we faced this exact issue. The CFO told me he did not know what IT was working on. The CIO produced a spreadsheet, divided into tech-speak categories like "middleware," "data consolidation," and upgrading the telephony system. Sure, I understood these and what they meant, but I have two decades of immersion in the CIO's world—and a clear sense of when business needs aren't being communicated. Applying a basic taxonomy, we easily reclassified the CIO's list into terms the CFO needed to make decisions. The middleware replacement avoided imminent cost increases; the telephony upgrade brought the customer payment system back into compliance; the data consolidation readied the foundations for AI-based marketing efforts, to address falling revenues. Translating these initiatives out of the CIO's "dolphin speak" and into the CFO's business tongue gave the two a common language to develop trust, and alignment.
All of this, when properly implemented, gets us to a point where everyone can have a solid opinion on whether they are spending money in the right places, and whether their money is delivering the value they need. When everyone is done, they know where the spend and investments are going and whether they are paying off.
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