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Turf Shifts

A little more than two decades ago when businesses first began seriously investing in Information Technology, the IT function was typically a part of the CFOs domain. This seemed logical as Finance frequently took the lead in business automation. Book-keeping migrated from manual accounts to digital computer records; cheques were churned out by a software programme that integrated with the purchase ledger; invoices linked in with the sales-book and bank reconciliations; the trial balance and the P&L statement were all produced with the press of a button. The use of technology changed completely the CFO’s job description as computers made tremendously time consuming and detailed work such as the settlement of branch accounts so much easier. Increasingly more time was available to lend to the business’s strategic imperatives and CFOs moved up the pecking order, into a role that facilitated decision making. Technology provided the basic support systems that enabled this to happen.

However, as technology became more sophisticated, companies went further in its adoption. They implemented enterprise resource planning processes that linked and integrated various functions such as Marketing, Sales, Production, Logistics and Human Resource. It became possible to combine every aspect of a company’s supply chain from order receipt to delivery using IT. Suppliers and other service providers were linked in through computers that could communicate with each other, using the internet. All of this had a dramatic impact on increasing human productivity.

Businesses were able to implement a fundamental transformation in the manner in which they offered their products to their customers. For instance, banks offered ATMs as an option for their clients to withdraw cash; banks statements were generated automatically and uploaded on a website; payments became web enabled etc. In fact, every aspect of a bank’s operation both at the front and back ends are now supported on an integrated technology platform. Telecom companies too were quick to adopt IT which enabled them to ramp up their offerings. With subscriber bases exceeding millions it would be logistically difficult to churn out monthly statements and quite impossible to provide the range of value added services that they currently do. Manufacturing businesses, shipping lines; hotels and construction companies now use IT in every aspect of their operations.

Resultantly, IT expenditure over the years has continued to increase. Banking corporations spend about 5-6% of their revenues each year on upgrading technology and manufacturing companies an average of 1-2%. As a result, IT has evolved from being a support platform into an independent business function with the responsibility of integrating other functions. This raises the question of the organisation’s structure and reporting lines. The IT head no longer occupies the server room but in many instances, the corner office. Reporting lines too have changed. Increasingly, IT reports directly to the CEO.

This issue of CFO Connect has published the findings of a survey undertaken by IMA which suggests that in 39% of the companies that responded, the IT head continues to report to the CFO. In 34%, however, IT reported directly to the CEO. This is a remarkable discovery as it demonstrates a changing trend. A few years ago, IT was clearly a part of the larger Finance function. A closer examination of these findings would indicate that amongst new age businesses, specifically telecom; insurance; banking; logistics etc which are driven fundamentally on IT platforms, the role of the CIO/CTO has evolved radically into a top management position. What has perhaps motivated this contemporary thinking has been the availability of a new breed of professional technologists, qualified with business experience, who have the aptitude to add value to a company’s strategic imperatives. In these companies, the IT head is no longer an EDP supervisor. In more traditionally manufacturing companies, however, IT remains under the purview of Finance although this too is likely to change over the years.

The evolution of technology has altered the very manner in which companies do business. It stands to reason therefore, that organisational structures too need to adapt. Whilst this may rearrange the CFO’s turf, it does not in ant way undermine it it. Indeed, the CFO’s role is already changing as governance and accountability gain prominence within the investor community, and he is expected to ensure high standards in these areas. For above everything else, he will remain the keeper of an organisation’s assets both tangible and otherwise - and the defender of its conscience.

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