Case Studies

Team of Rivals

Can IT and Finance work together to preserve business in tough times?

By Minda Zetlin

May 2009

Dorian Cougias, longtime CIO and founder of Network Frontiers in Oakland, California, understands that IT leaders sometimes have difficulty working with their counterparts in Finance. He remembers the normal business conversations he had with the CEO, the COO, and the heads of various divisions when he was a member of the executive management team of the world’s largest ad agency. “But when I tried to have a conversation with the CFO, he seemed afraid to talk to me,” Cougias reflects. “When I first asked him to lunch, his response was, ‘I don’t speak IT.’”

Why do IT and finance leaders have trouble communicating and working together? Although the two disciplines have many intersections, IT tends to be about creative leaps and trying new ideas and technologies. Finance requires precision and accountability, a constant measuring of risk versus reward. “IT is from Mars, and Finance is from Wharton,” Cougias suggests.

In good times, it’s a priority for these functions to work together effectively, but today it’s critical. In response to the current economic turmoil, governments are demanding maximum transparency and ever-more-detailed reporting (see sidebar). Meanwhile lenders are withholding funds from even the largest companies and demanding better accounting and more-accurate forecasting. Cooperation between Finance and IT is now a matter of survival.

The Regulations Are Coming!
It’s a new era for finance professionals, and that new era brings new rules. Increased reporting and transparency requirements are an inevitable result of the financial chaos that has struck large and small companies. Here are just a few of the new regulations to watch out for:
Mandated filing in XBRL. On February 10, the U.S. Securities and Exchange Commission (SEC) announced that it would mandate that the 500 largest U.S. companies file quarterly reports with data tagging in Extensible Business Reporting Language (XBRL), beginning on June 15, 2009. All public companies will be required to file with XBRL tagging by 2011.
The 21st Century Disclosure Initiative. The SEC has announced its 21st Century Disclosure Initiative, a complete rethinking of both what public companies report to the SEC and how they report it. The precise regulatory changes that will eventually result from this effort are not yet known. But they will likely require more in the way of accurate analysis and forecasting, with companies required to report not only financial metrics but operational metrics as well, says John E. Van Decker, vice president of research at Gartner.
FACTA Red Flags Rule. The Fair and Accurate Credit Transactions Act (FACTA) requires financial institutions and other firms to develop and implement identity theft prevention programs. The original plan required these institutions to comply with the Red Flags Rule by November 2008, but the U.S. Federal Trade Commission extended the deadline to May 2009 to give firms a chance to achieve compliance.

“These are unprecedented times,” says Dennis Risinger, CIO of FCS Financial, a farm credit association headquartered in Jefferson City, Missouri. “It’s easy for finance people to say that we need more liquidity in times like these, but it’s also essential to get as much transparency as possible. We see the opportunity to create key measures of risk that can serve as an early-warning system and help our company get through the storm.”

Why Finance Doesn’t Trust IT

Oddly enough, Finance was where enterprise technology systems got their first foothold—and at one point, corporate IT pros reported to finance managers. But this history does not necessarily make for good relations, for reasons that may seem intractable and are built into the very nature of the relationship between the two divisions.

When IT execs say they need new systems to support new operations and processes, Finance is footing the bill. And it doesn’t help that most IT departments have a mixed track record when it comes to estimating the cost of new projects. “The better information and projections IT can give on project costs, the likelier Finance is to accept a project,” says Steve Harrington, CFO at FCS Financial. At some companies, he says, IT people overpromise when it comes to predicting the cost and timeline of a project. “They present the project with a cost of $500,000, and then suddenly it’s $1 million and behind schedule.”

Other problems arise as a difference in the culture and vernacular of these two highly specialized functions. Business leaders, including finance executives, routinely complain that IT people use terms they don’t recognize and talk about features they don’t understand. But if many finance people don’t know much about technology, most technology people know even less about finance. This can lead to frustration.

“I’ve asked IT people to create applications that will solve technical accounting problems,” notes Michael Ware, finance director at Rugby House, a London, England-based charitable organization that offers counseling, rehabilitation, and housing for people with drug and alcohol abuse problems. “They’ll say, ‘That’s beyond me.’ I wind up asking, ‘How’s your math? You take this number and divide it into that and get a ratio.’ I have to find another way of explaining it.”

And finance people may be skeptical when IT people make pitches for new technology spending based on financial arguments they don’t fully understand. “I cringe when I hear someone from IT say that regulatory compliance is a business driver,” Cougias says. “It isn’t! Compliance doesn’t drive the business forward—you need it because of the risk of repercussions if you aren’t compliant, which is not the same thing. Finance people will ask, ‘What’s the return on invested capital [ROIC]?’—and IT people won’t know. They have no idea how to calculate true ROIC. Sometimes they wind up making things up.”

Photography by Shutterstock