Content thumbnail Partnering for Performance Part 3

Partnering for Performance Part 3

Partnering for performance Part 3: the CFO and the CIO

The CFO’s role The CFO’s role has undergone a transformation. We believe that the six segments on the right represent the breadth of the CFO’s remit today. l a n r T e r t u x s T e t The leading CFOs we work with typically have some involvement in each i e n h g t t E N o h t e e c of these segments — either directly or through their team. While the g a n n l u X E i p m t t a e b c k e weighting of that involvement will depend on the maturity and ambition i r r E M n a s u m of the individual, on the sector and scale of the finance function, and on P m C m Representing Ensuring business o economic stability, each segment is critical to effective leadership. O C the organization’s decisions are U L progress on grounded in T strategic goals sound financial I E to external criteria V y stakeholders O g e N t E a 6 1 r P t s r o D s v s Developing Providing insight i We are grateful to all the participants in this study. In particular, we would like e The d n and defining and analysis to in i to thank the following CFOs and CIOs who readily shared their insights in a s u b the overall strategy 5 CFO’s 2 support the CEO n i g g for your organization role and other senior s series of interviews: n i p managers h g i Nikolay Andreev Gary Lennon o l e v 4 3 t CFO, Head of Administration Executive General Manager, e D and Technical, Finance, National Australia Bank Funding, enabling Leading key Nova Broadcasting Group Venkat Padmanabhan and executing initiatives in finance strategy set that support overall Helen Arnold President and Global Head of F by the CEO strategic goals u n d i CIO, SAP Finance — Products, n r g e d o r r o Olam International g a n n i Christine Ashton i z e a s t u i o o h n Senior Vice President for Technology, Stephen Pearce a r l u o s y t r a g t n e i g t y t e Thomson Reuters CFO, Fortescue Metals Group E G Mark Boxer Matthias Waehren NABLEMENT CIO, Cigna CFO, Givaudan Christian Gosch David Whiteing CIO, Erste Group Bank CIO, Commonwealth Bank of Australia Partnering for performance Part 3: the CFO and the CIO 2

Partnering for performance The Partnering for performance series explores ways in which CFOs can grow, protect and transform their organization by partnering with the leaders of different functions. In this — the third part of the series — we explore the relationship between the CFO and the CIO. In particular, we focus on the contribution that CFOs are making to four vital IT-related activities: • Managing cybersecurity • Creating an analytics-driven organization • Establishing information strategy, architecture and processes • Transitioning to a digital IT function Our findings are based on a global survey of 652 CFOs, conducted by Longitude Research on behalf of EY, and a series of in-depth interviews In this report with CFOs, CIOs and EY professionals. The CFO and CIO: a vital partnership for success 4 For more insights for CFOs and future finance Managing cybersecurity 10 leaders, visit ey.com/cfo. Creating an analytics-driven organization 16 Establishing information strategy, architecture and processes 22 Transitioning to a digital IT function 28 Five success factors for a successful collaboration 33 Survey respondent demographics 34 Other publications in this series 36 Contacts 37 Partnering for performance Part 3: the CFO and the CIO 3

The CFO and CIO: a vital partnership for success The CFO-CIO relationship is becoming closer and more collaborative. But there are two threats to this critical union. Cost discipline, rather than strategic value, still defines the IT investment mindset, and lack of mutual understanding between CFOs and CIOs is an all-too-common problem. Key findings about the CIO-CFO relationship: Sixty-one percent of CFOs report increased collaboration in the last three years. Seventy-one percent have increased involvement in the IT agenda in the last three years. CFOs say they add most value by managing costs and profitability. CFOs’ insufficient understanding of IT issues is the number one barrier in their relationship with CIOs. Five CFO-CIO relationship success factors: 1 Take joint responsibility for driving innovation through digital IT 2 Shift the IT operating model emphasis from Capex to Opex 3 Manage risk exposures of new digital technologies 4 Work as peers 5 Build finance executives’ understanding of IT issues 1 Partnering for performance Part 3: the CFO and the CIO 4

The CFO and CIO: a vital partnership for success In today’s digital economy, the financial well-being of the enterprise is Key findings about the CFO-CIO relationship dependent on the health of the CFO-CIO relationship. Technology innovations, According to our survey, CFOs and CIOs are becoming increasingly connected. from the cloud to mobility, offer the potential to transform organizations’ Sixty-one percent of CFOs say that their collaboration with the CIO has operations, customer experience and business model. increased over the past three years (see Chart 1). Organizations are driving performance improvement and creating new Chart 1: Over the past three years, what change has there been to the extent that competitive advantage through a range of digital initiatives, from harnessing you collaborate with the CIO? the power of big data and analytics to transform decision-making, to meeting the demands of the ultra-connected customer. To a much greater extent 23 To succeed, organizations must make bold technology investment decisions that are driven by corporate strategy, while managing a range of severe risks, To a slightly greater extent 38 such as cybersecurity and data privacy concerns. No change 32 This mission-critical convergence of technology, investment strategy and risk has elevated the CFO-CIO relationship to new levels of importance. Any To a slightly lesser extent 7 disconnect between the CFO and CIO will have profound consequences for the organization. To a much lesser extent 1 % A growing relationship 0 10 20 30 40 CFOs say they are getting closer to the CIO and IT agenda. Similarly, 71% of CFOs say that there has been an increase in their involvement In the last three years: 71% in IT over the past three years (see Chart 2). Chart 2: Over the past three years, how has your involvement in the say they have increased their IT function changed? involvement in the IT agenda. Significant increase 35 Slight increase 36 report greater 35% 61% collaboration No change 20 with the CIO. report a significant increase in their involvement with the Slight decrease 4 IT agenda. Significant decrease 1 % 0 10 20 30 40 Partnering for performance Part 3: the CFO and the CIO 5

The CFO and CIO: a vital partnership for success Two main barriers to an effective CFO-CIO collaboration Barriers to a closer collaboration Although the relationship has grown closer, there are two threats to this Two key barriers to a more productive relationship. critical union. First, CFOs continue to struggle with balancing their responsibility to maintain 1 CFOs say 2 cost discipline with more strategic ambitions, such as setting the agenda for change (see Chart 3). Chart 3: In which of the following areas do you consider your contribution to IT to be most valuable? (Please select up to three) Their main contribution Their lack of Managing costs/profitability 35% to IT is ensuring cost understanding of discipline, rather than IT issues is the Setting budgets/costs 33% more strategic activities. principal barrier. Building the business case for 28% new initiatives Second, effective communication and understanding between these two Financing 26% C-suite peers is an all-too-common problem. CFOs point to insufficient understanding of IT issues among finance executives as the main relationship Measuring performance 26% barrier (see Chart 4). Ensuring value realization 24% Chart 4: What do you consider to be the main barriers preventing a closer relationship with the CIO? (Please select up to three) Determining the level of ambition 22% Insufficient understanding of IT issues 44% and risk appetite for new initiatives among finance executives The absence of a clear set of key Resourcing and human capital 20% performance indicators (KPIs) that link 42% financial performance and the IT agenda Change management 19% Processes and tools are incompatible 36% across the two functions Setting the agenda for change 19% Lack of finance resources to dedicate 34% to the IT agenda Our organizational structure prevents 31% this kind of collaboration I do not perceive any barriers 11% Partnering for performance Part 3: the CFO and the CIO 6

The CFO and CIO: a vital partnership for success From cost management to strategic IT investment Five CFO-CIO relationship success factors The relationship between the CFO and the CIO has always had a strong cost For those looking to ensure a healthy future for this finance-IT union, there dynamic. Investments have typically involved large-scale purchases of data are five key success factors: storage, enterprise applications and PCs. IT spending as a percentage of revenue, as high as 6% in some industries, 1. Take joint responsibility for driving innovation through digital IT used to be a crucial metric. The goal was to bring this figure down, and CFOs Many sectors are undergoing digital disruption. Innovators and new entrants played a critical role in managing IT project overruns and keeping a watchful are devising new and better processes, products and business models that eye on hidden costs. This is why many CIOs reported to the CFO. force their competitors to keep up or fail. Today, however, technologies are crucial to both operational excellence and Entire business models are at risk. To avoid being overtaken by nimble profitable growth. Tony Klimas, Global Finance Performance Improvement technology companies, businesses must carefully consider two questions: Advisory Leader, EY, believes that CFOs are recognizing the growing strategic • How can IT add value to the organization? importance of IT. • Where should IT resources be allocated? “CFOs are becoming much more aware of the strategic value of IT and what it has to offer,” he says. “There is a growing focus not only on what IT costs, but “Digitization brings finance and IT together,” says Arnold. “IT is now much also on the value it brings to the organization.” more of an innovation driver, enabling new business models. Partnering with the CFO in this context is essential. There should be joint accountability for Helen Arnold, CIO of SAP, agrees that IT should not be seen primarily as a driving projects to the desired result.” cost, but rather as a tool for broader efficiency goals. Christian Gosch, CIO at Erste Group Bank, believes that organizations need to “To achieve greater efficiency and bring down cost, a validation and redesign have a separate, venture-style investment approach to nurture tomorrow’s of business processes is often paramount,” she says. “Typically, it’s a technology innovations. “Some investments don’t bring immediate yield new technology that will enable these benefits to materialize so that the in terms of global revenue. We reserve a portion of global IT spend that is organization achieves higher business value.” focused on the innovation topic. The investment approach is of an investor Venkat Padmanabhan, President and Global Head of Finance — Products, who is ready to take risks. It’s a small group of people who decide what Olam International, believes greater CFO involvement is a key to driving value. initiatives should be given a chance to be developed to a level where we can see the results. We use this ‘green-housing’ approach to ensure that small but “IT is very powerful, and finance should have more ownership,” Padmanabhan innovative ideas are developed to a level where they have a chance. We work says. “What I often see in the outside world is that IT operates in isolation and with the CFO to provide some shelter for these small plants,” says Gosch. has its own priorities. When finance is the core owner of IT, it makes a huge difference when it comes to extracting the full value of IT investments.” As organizations look to drive innovation through technology, this critical CFO- CIO relationship requires a different mindset and better mutual understanding. Partnering for performance Part 3: the CFO and the CIO 7

The CFO and CIO: a vital partnership for success 2. Shift the IT operating model emphasis from Capex to Opex 4. Work as peers Until recently, IT expenditure involved large capital outlays for data storage, “Good CIOs are starting to move out from underneath the CFO,” says infrastructure and enterprise applications. This has changed with the transition Ryerkerk. “It becomes a more collaborative peer relationship, as opposed to a to the cloud, software as a service (SaaS), and more flexible IT architecture. reporting one. That’s because firms are starting to see IT as a driver of growth The result is a shift in the IT operating model from Capex to Opex. CFOs must as opposed to a cost center.” work with CIOs to evaluate the economics of each model and determine the More often than not, however, CIOs still report to the CFO. Among our global blend of “rent versus buy” that is appropriate. sample, 72% say that the CIO reports through finance. According to our Adopting these new technologies fundamentally alters the role of IT. survey, this model is most dominant in China, India and Australia. This development, explored in EY’s Born to be digital, changes the “The CIO has to be capable and willing to take over business-related CIO-CFO relationship. initiatives,” says Matthias Waehren, CFO of Givaudan. “Being an equal “The way it used to work was that firms would agree upon the high-level goals colleague on the executive committee is therefore important.” of the organization, lay out an operating model, and throw it over the fence Percentage of CIOs that report through finance: for IT to implement,” says Dave Ryerkerk, Global IT Advisory Leader, EY. “With digital technology, the big difference is that CIOs get much more involved with CFOs in designing the firm’s operating model.” 91% 87% 77% 3. Manage risk exposures of new digital technologies The rise of digital technologies has been a key driver of closer collaboration China India Australia between CFOs and CIOs. There are two main aspects to this: • First, the need to transform business models and customer-facing aspects For some executives, this reporting line is no longer fit for purpose. of the company through digital tools and channels. This includes leveraging new data created by digital technology. “It’s inherently flawed,” says David Whiteing, CIO of Commonwealth Bank of • Second, the need to reinvent the IT function and business operations Australia. “If you look at the pace of change in technology, and the problems through the adoption of new technologies, such as big data and cloud, that businesses will face in the future, they require a cost-effective, quality taking into account concerns about cybersecurity and data privacy. resolution. And that invariably involves technology. If a key person is one layer away from the C-suite then, in my view, you’re missing something.” Across both these dimensions, there is an urgent need to manage emerging risk, while continuing to maximize the return on IT investment and keep costs within budget. Partnering for performance Part 3: the CFO and the CIO 8

The CFO and CIO: a vital partnership for success 5. Build finance leaders’ understanding of IT issues Key activities for CFO-CIO collaboration As Chart 4 on page 6 shows, CFOs point to insufficient understanding of IT The strategic value of IT is now being recognized, and a closer CFO-CIO issues as the number one obstacle in the CIO relationship. relationship is developing as a result. In the rest of this series, we explore how “As the owners of the key information systems, it is very important that CFOs and CIOs are collaborating across four key activities: CFOs have general IT knowledge,” says Nikolay Andreev, CFO, Head of 1 Managing cybersecurity Administration and Technical, Nova Broadcasting Group. “This ensures that they get the best result from how systems are designed, 2 Creating an analytics-driven organization what systems are used in the organization and how they’re supported and developed.” 3 Establishing information strategy, architecture and processes Aligning finance and IT around the right metrics is another key challenge. 4 Transitioning to a digital IT function Often, the benefits of technology enhancements are not readily apparent or easily quantified. “The benefits can be difficult to identify because they are part of broader organizational objectives. And they tend to show up in broader productivity improvements, rather than within the IT function itself,” says Stephen Pearce, CFO, Fortescue Metals Group. “ There are not enough people at a very senior level in finance who really understand the implications of digital technology for the company. Many CFOs are scratching their heads trying to figure out how they can build the skills within the finance function and the organization as a whole.” Tony Klimas, Global Finance Performance Improvement Advisory Leader, EY Partnering for performance Part 3: the CFO and the CIO 9

Managing cybersecurity As cyber risks mount, CFOs must look to protect shareholder value Key findings about the CFO’s role in managing cybersecurity: Threats are increasing in sophistication, and breaches can have multimillion dollar implications and cause severe reputational damage. Cyber attacks are highly strategic, and increasingly target manipulating shareholder value. Sixty-six percent of CFOs make cybersecurity a high or very high priority. Thirty-five percent of CFOs who say that cybersecurity is a very high priority report much greater collaboration with the CIO (18% for the rest). Four cybersecurity priorities for the CFO and CIO: 1 Treat cyber risk as part of enterprise risk management 2 Prioritize the assets that need protection 3 Match your cybersecurity to your strategy 4 Discuss cyber risks in the language of business, not IT 2 Partnering for performance Part 3: the CFO and the CIO 10

Managing cybersecurity Cybersecurity has leapt up the C-suite agenda. Cyber criminals today are no Key findings about the CFO’s role in managing longer lone hackers — they are syndicated criminal networks, in some case cybersecurity sponsored by nation states, with clear objectives and long-term strategies. Major breaches are increasing in frequency in all sectors. When they occur, the financial, reputational and operational costs often become headline news. 66%of CFOs make cybersecurity a high or very high priority. Most CFOs now recognize that robust cybersecurity is fundamental to protecting shareholder value. But our survey shows that a lack of understanding of IT issues can prevent CFOs from recognizing what a mature cybersecurity CFOs whose collaboration with the CIO and other C-suite capability looks like and where they need to invest. executives is increasing recognize more fully the scale of cyber risk “ The more sophisticated attackers are looking at The majority (66%) of the 652 organizations we surveyed make cybersecurity a priority. Those who make it a very high priority are also those who tend to economic manipulation as an objective. This might collaborate more with their CIO and other C-suite peers (see Chart 5). involve trying to manipulate the share price. Their Chart 5: Increased collaboration with CIO and C-suite peers in the last three years aim may include attempts to change the value of an 35% organization through sustained attacks over a long Much greater collaboration with CIO 18% period and then capitalize on that change in value. 35% The threats are becoming incredibly sophisticated.” Much greater collaboration with CEO 14% Ken Allan, Global Cybersecurity Leader, EY 23% Much greater collaboration with CMO 11% CFOs who make cybersecurity a very high priority in the last three years Others Partnering for performance Part 3: the CFO and the CIO 11

Managing cybersecurity Greater cross-functional involvement may be increasing CFOs’ understanding of cyber risk. Alternatively, closer collaboration may be part of how they are Seniority drives threat awareness addressing it. In our survey, 27% of CFOs overall say that cyber is a very high priority But our experience with organizations at different levels of cybersecurity for their organization. Within that group, there is a clear bias toward maturity indicates that a cross-functional approach with board-level support group-level CFOs and finance directors (see Chart 6): is critical. • 57% are group CFOs “Cybersecurity breaches used to be ‘somebody has hacked us or defaced • 24% are regional CFOs our website,’” says Siobhan MacDermott, Prinicpal, Cybersecurity at Ernst & Young LLP. “Today, it’s risk management in the broader sense. • 19% are divisional CFOs It needs to be the C-suite, along with the board, that is responsible This shows how this topic has become a major concern at the senior for cybersecurity.” enterprise level. However, it also raises concerns that, at the lower “We’re increasingly seeing boards getting involved in this topic.” levels of some multinationals, there are gaps in protection that could be exploited. Ruby Sharma, Principal, Center for Board Matters at Ernst & Young LLP, agrees. Chart 6: Profile of respondents who say that cybersecurity is a “Even the best-run companies will face a crisis. And in today’s technology-driven very high priority environment, that crisis will likely be a cyber-attack,” she says. “Whether the situation has a severe impact on a company often depends 19% on the board’s preparedness. Smart boards know that the best offense is a strong defense. An organization’s value and reputation can hinge on how well it responds to an unforeseen event.” The CFO and the board should request a report from the CIO that covers 57% the following: 24% Group CFOs or finance director • Identification. Which are the top three to five threats that are most relevant Regional CFOs or finance director to the organization? Divisional CFOs or finance director • Protection. Which actions have been taken to mitigate these threats? • Detection. What mechanisms are being used to detect incidents? What activity has been seen since the last report? 1 • Response and recovery. How did the company respond to each incident? 1. “Taking charge: How boards can activate, adapt and anticipate to get ahead of cybersecurity risk,” EY, 2015. Partnering for performance Part 3: the CFO and the CIO 12

Managing cybersecurity Four cybersecurity priorities for the CFO and CIO 1. Treat cyber risk as part of enterprise risk management “ Cybersecurity has to be put in its position as part The first step to effective collaboration on cybersecurity between the CFO and of the broader risk management framework of the CIO is to treat cyber risk as an enterprise risk management issue, rather an organization.” than as an IT problem. Stephen Pearce, CFO, Fortescue Metals Group Cyber criminals are becoming increasingly organized and sophisticated. Organizations need to accept that they have already been breached and will be again. An effective cybersecurity capability focuses not only on preventing Cyber risk management needs to form part of the broader culture of the attacks, but on detecting, containing and responding to them. All organizations business. It should be integrated into the broad set of enterprise-governance should have a fully tested response plan in place, that articulates specific functions, such as HR, vendor management, and regulatory compliance. responsibilities. In the event of an breach, such a plan can prevent further damage resulting from unnecessary delays, and can also help reduce For multinational companies that empower local decision-making, this reputational damage in the media and the markets. integration is particularly important. Questions CFOs and CIOs should be able to answer about “We want data and information to be available to managers locally so they can cybersecurity: make decisions, but we also need to make sure that data is protected,” says Padmanabhan. “We are very mindful of ensuring that no information gets out 1. What is our overall risk tolerance? What level of damage are we without approval.” willing to incur? For Pearce, CFO at Fortescue Metals Group, leadership accountability is crucial 2. What is our organization’s current exposure to cyber risk? to this approach. 3. Is our cyber risk exposure consistent with our risk tolerance? “Cybersecurity has to be put in its position as part of the broader risk 4. How does our preparedness compare with that of our competitors? management framework of an organization,” he says. “Ultimately, that sits not just with the CFO, but with the CEO and the executive team. They have to 5. What assets should be prioritized for protection? Do you have own those corporate-wide risks, of which cybersecurity is one.” agreement across the businesses? 6. Are there adequate processes in place to prevent, detect, contain and respond to a cyber attack? 7. Do we have a fully tested cyber attack response plan that can be implemented without delay? Partnering for performance Part 3: the CFO and the CIO 13

Managing cybersecurity 2. Prioritize the assets that need protection 3. Match your cybersecurity to your strategy CFOs’ access to all financial data means they are often best-placed to identify CFOs and CIOs should view cybersecurity as a series of rolling processes to signs of a cyber breach. Their oversight can also sometimes help them be reviewed and revised as the organization changes. Every new product or identify the assets the attackers are likely to try to obtain, such as intellectual service, geographical expansion or M&A transaction creates new cyber risk property (IP), financial data or other information about the company that exposures that must be managed. could be used to damage it. To avoid pockets of vulnerability emerging over time requires a tight The CFO should lead the board-level conversations to identify which of the partnership between the CFO, who knows the strategy intimately, and the CIO, organization’s assets need protection. Often, there will be disagreement who is best placed to identify vulnerabilities. among different members of the C-suite, so the CFO’s perspective across “What the business is trying to protect varies over time,” says Allan. “Creating the whole organization and its data is crucial. a mature cybersecurity capability is about moving to a state where these The board should help prioritize these assets. And it needs to understand threats can be anticipated.” the impact of them being breached, compromised or made unavailable. Similarly, as we move further into an ecosystem of digitally connected Ken Allan, Global Cybersecurity Leader, EY, argues that while the CFO and CIO entities, people and data, cyber risk increases and cybersecurity must adapt. need to collaborate closely on cybersecurity, they need to approach it from Innovative digital business models and customer-facing channels create new different angles. opportunities that also bring new risks. He says: “CFOs should care about different questions. What are they trying to “Historically, IT and cybersecurity were structured around protecting the protect? What are the impacts of a breach?” data center from outside intrusions,” says Ryerkerk. “If you move forward to today, solutions are very likely to be provided by the cloud.” “ Cybersecurity preparation is all about understanding what the business is trying to “ The traditional solutions don’t work anymore. The protect. Some CFOs are trying to understand the whole landscape is changing very dramatically.” technical detail when they shouldn’t be. That’s for the IT people to deal with.” Dave Ryerkerk, Global IT Advisory Leader, EY Ken Allan, Global Cybersecurity Leader, EY Partnering for performance Part 3: the CFO and the CIO 14

Managing cybersecurity As less data is held on company servers that can be protected by the “On the one hand, we need to focus on how we educate CFOs about cyber company’s firewalls and cybersecurity infrastructure, a whole new set of risk. But at least a proportion of our attention should be focused on educating challenges is emerging. our technologists in how to speak to board members in a way that makes it a “The traditional solutions for addressing this don’t work anymore. The whole conversation in which they can participate.” landscape is changing very dramatically,” says Ryerkerk. Similarly, the CIO needs help from the CFO and the board to prioritize the assets that must be protected. And they need early involvement in board- 4. Discuss cyber risks in the language of business, not IT level discussions about changes in business strategy that could have One of the common obstacles to effective cybersecurity is simply a language security implications. issue. CIOs that outline cybersecurity issues to their CFO in technical language Effective collaboration between the CIO and the CFO on cybersecurity hinges can create a block on quick and effective action. on clear and open communication in business terms. Many CFOs that are aware of the scale of cyber risk are slowed down in working out how much to invest and what initiatives to prioritize because of this communication breakdown. “ Many CFOs know that they need to spend more on cyber risk management. But they don’t know where to focus their efforts, because the technologists trying to tell them are blinding them with science.” Ken Allan, Global Cybersecurity Leader, EY Partnering for performance Part 3: the CFO and the CIO 15

Creating an analytics-driven organization Key findings about the use of analytics: The need to improve analytics capabilities and data management is the top driver of collaboration between CFOs and CIOs. But only 53% of CFOs say that they make a significant contribution to determining where analytics can add most value to the organization. Five success factors for CFO-CIO collaboration on analytics: 1 Take a business-led approach, not a technology-led one 2 Make data a fourth pillar of the business, and leverage it as an asset 3 Do not forget the human element of analytics 4 Build the right organizational structure and governance framework 5 Consider legal, regulatory and trust issues throughout the journey 3 Partnering for performance Part 3: the CFO and the CIO 16

Creating an analytics-driven organization CFOs need to work with CIOs to convert analytics into an Key findings about the use of analytics enterprise-wide capability The seeds of data analytics were sown in the IT function. But to realize its Chart 7: How has your company's EBITDA changed over the past three years? potential as a tool for delivering better decision-making, analytics needs to be Over 10% increase 48% seen as a business issue, not a technology one. 35% 1% to 10% increase 44% “ Companies don’t have analytics challenges or 44% opportunities. They have business challenges 1% to 10% decrease 4% and opportunities, which analytics can play a role 9% in tackling.” No change 3% 8% Chris Mazzei, Global Chief Analytics Officer, EY Over 10% decrease 1% 2% Those who gave analytics a very high priority Our survey of 652 CFOs from across the world globe finds an association Others between CFOs making analytics a top priority and organizational value: 48% Analytics an increasing driver of CFO and CIO collaboration who say that analytics is a very high priority had EBITDA growth of greater CFOs point to the need to improve analytics capabilities and the need for than 10% over the past three years. Among the rest of the sample, just 35% better data as the top two drivers of greater collaboration between CFOs and grew at this rate. CIOs (see Chart 8, page 18). “ Analytics is the foundation for the CFO to get greater transparency and insight, and to steer the business.” Helen Arnold, CIO, SAP Partnering for performance Part 3: the CFO and the CIO 17

Creating an analytics-driven organization Chart 8: What are the main reasons why you are collaborating more closely with the CIO? (Please select up to three) Adding “value” to “volume”: how analytics can Need for more accurate, available 32% transform financial forecasting and accessible data Need to improve business intelligence/ Big data is often defined by the ”V” of volume, but the V of value is analytics capabilities 31% equally important. For the CFO, data analytics can offer significant value across a variety of financial and non-financial activities. Take just one lidation of IT systems/ Need for conso 28% key finance activity: forecasting. Organizations can now use data from a infrastructure range of sources, from embedded sensors to social media feeds, to inform Need for better understanding of the 25% forecasting. The finance function can use unstructured data from social business value of IT media feeds to understand market signals, such as emerging customer Shift to digital within the business 24% sentiment about a newly launched product or campaign. Incorporating real-time market signals, and analyzing their impact on revenue, creates a Need for better management of new level of forecasting accuracy with real-time availability. IT risks (e.g., cyber risks) 24% However, organizations should not try to do too much too quickly. Shift to new IT model (e.g., cloud, 24% The key to effective use of analytics is defining the business issue you software as a service) want to address. Changes in operating model 23% (e.g., shift to shared service center) Change in reporting lines “CFOs have a tremendous opportunity to champion the analytics agenda not (i.e., CIO reporting to CFO) 18% only within finance, but also to advance the embedding of analytics across the Need to address IT issues associated enterprise, given their influence throughout the organization,” says Mazzei. with acquisition/carve-out 17% Chart 9: How much of a contribution do you make to determining where analytics Change in CIO 15% can add most value? Very significant contribution 19 Finance leaders are clear beneficiaries of the growth in analytics. Analytics tools can give them greater insight into, to name just a few, customers, Significant contribution 34 competitors, profitability and processes. Analytics can strengthen CFOs’ ability to drive strategic decision-making and investment planning. Average contribution 31 The potential of analytics is so great, however, that knowing where to Small contribution 12 start can be very difficult to identify. For now, the role that CFOs play is relatively limited. Only 53% of CFOs say that they make a significant No contribution at all 4 contribution to determining where analytics can add most value to the organization (see Chart 9). % 0 10 20 30 40 Partnering for performance Part 3: the CFO and the CIO 18

Creating an analytics-driven organization Five success factors for CFO-CIO collaboration 2. Make data a fourth pillar of the business, and leverage it on analytics as an asset 1. Take a business-led approach, not a technology-led one Standing alongside people, process and technology, data is now becoming Organizations need to have a strategy and vision for how data will deliver a fourth pillar of the business. Businesses see data insights as potentially competitive advantage and create value. World-class, data-driven organizations transformative and as a crucial source of competitive edge over their industry rivals. In a recent EY study of data’s impact on the financial services industry, need to embed analytics in most, if not all, decisions and processes. 2 83% of firms surveyed agreed that data is their most valuable strategic asset. A technology-led approach will not deliver this transformation. For example, For example, analytics provides CFOs with powerful information to drive success will rest, in part, on individual business units sharing information and investment decision-making. Gary Lennon, Executive General Manager, data, bringing their perspectives to the bigger picture. Broad alignment of the Finance at National Australia Bank, has used analytics to assess the organization behind a strategic vision will therefore be crucial. profitability of customer transactions across different channels, which has enabled the bank to adjust their pricing strategy. “We can now assess and make decisions based on the richness of information “ Too often, businesses have a discussion around we have,” says Lennon. “Because we know exactly the cost of selling technology, when actually the conversation should through a digital channel versus the cost of selling through a broker or retail be about the outcome they’re trying to achieve.” network, we can make different pricing decisions. That sort of insight has incredible possibilities.” David Whiteing, CIO, Commonwealth Bank of Australia According to Felice Persico, EY Global Assurance Leader, the use of analytics is transforming the audit in a way never seen before. New capabilities in technology and data analytic techniques can help contribute to higher-quality audits, providing greater confidence in the capital markets, as well as enabling “It works well when teams are formed to focus on a particular business issue,” businesses to respond more quickly to market trends, opportunities and risks. says Mazzei. “Not just broad, vague questions about, ‘How do we leverage “By embedding analytics into the audit approach we are able to look across analytics across the enterprise?’ It’s about, ‘How do we improve working much larger sets of financial data in order to identify key risk areas and analyze capital?’ and ‘What are the financial implications of different choices across trends and patterns more quickly. This provides businesses and the capital channels and marketing platforms?’” markets with increased confidence in financial reporting, greater transparency in the audit approach as well as the provision of relevant insights for a more To reinforce this business-driven approach, Mazzei argues that analytics forward looking perspective of a business. Ultimately, analytics will help to efforts should be focused on solving specific issues with a tangible return. deliver higher-quality audits.” 2. “The science of winning in financial services — Competing on analytics: Opportunities to unlock the power of data,” EY, 2014. Partnering for performance Part 3: the CFO and the CIO 19

Creating an analytics-driven organization 3. Do not forget the human element of analytics “Organizations are starting to think about how they can embed analytics as Analytics involves much more than the right technology or insights from the a broader enterprise capability,” says Mazzei. “As the strategic partner for the smartest data scientists. Although these are important factors, analytics will CEO on business decisions being made, the CFO is a key stakeholder in that.” ultimately fail unless it impacts the decisions of end-users. Historically, governance of data was spread across a range of functions, from At heart, most analytics programs still involve human beings making HR to IT, each with its own policies and standards. Data fragmentation was decisions. For large organizations, this raises the need for sophisticated often the result. This is why some organizations are introducing chief data change management for its people, including training. At a broader officers or chief analytics officers, who are charged with driving a coherent organizational level, it is a question of how the company can embed analytics approach to enterprise-wide data governance and management. into its day-to-day business processes at scale. Incentives and metrics will Companies must balance the need for centralized governance with local need to be adjusted so that they encourage the right behaviors and mindset. requirements, ensuring that the insight generated centrally is made available When discussing how the human dimension played a key role in embedding and gets used by decision-makers across the business. SAP manages this analytics across its organization, Arnold said: “Technology played a major by using centers of excellence in its enterprise analytics organization. As role but the second element was gaining trust and confidence. When you are Arnold explains: an executive and you have your reporting team sitting right next to you, then “We use very business-driven people who work in partnership with the you tend to get whatever you need. So, we sat down with our executives to respective business units, and have a deep understanding of business understand what is essential in an analytics partnership. We now have a model processes, how the area functions, what KPIs are important, and what in place where we have an analytics business partner for board members and risks they face.” key executives. That business partner leverages the enterprise analytics team to meet those reporting requirements.” 29% of respondents from the 4. Build the right organizational structure and governance insurance industry say that framework analytics is a very high priority for them — the highest share for any sector in the survey. Building a coherent and integrated organizational structure and governance CFOs from this sector are also the most framework is essential to support value-driven decision-making. A fragmented likely to say that they make a very approach can cause a range of problems, from high costs to a lack of significant contribution to data analytics. standardization on KPIs. It is an ongoing issue across industries, and more and more are trying to address this problem. Partnering for performance Part 3: the CFO and the CIO 20

Creating an analytics-driven organization 5. Consider legal, regulatory and trust issues throughout While responses will vary by geography and sector, we have identified a the journey number of priorities in addressing the legal and regulatory questions relating The legal and regulatory questions that surround the use of data represent to data usage. a significant barrier. Concerns such as privacy, data protection, competition law and intellectual property rights remain hugely sensitive. The potential CFO priorities for managing the legal and regulatory penalties for the misuse or loss of data are rising. For example, the European issues relating to data: Parliament Committee on Civil Liberties recently voted up to 5% of annual worldwide turnover, or €100m for data privacy breaches. • Confront the legal issues on an enterprise-wide basis, rather than through silos In recent EY research, 70% of consumers said that they are “never happy” for companies to share personal information. And 49% say that they will be less • Put in place information management processes that minimize willing to share personal information over the next five years.3 the likelihood of the business unwittingly holding legally questionable data • Build a new structure for handling the legal issues, and consider Questions CFOs and CIOs should be able to answer about the establishing roles such as chief privacy officer organization’s legal approach to data: • In legal decisions, consider the customer and not just the needs of 1. Do we regularly review our practices for the management of legal the business issues around data processing? 2. What binding corporate rules or global operating procedures do we have in place for data privacy? How much is an organization worth? 3. Are the databases we have developed as a company protected as a To identify new sources of value that exist in an organization, and to cultivate strategic asset, with the use of copyright and other relevant IP? future opportunities for value creation and protection, many CFOs are turning 4. Do we have an in-house contact or privacy officer who is designated to big data and analytics. Analytics is becoming a crucial pillar, enabling to deal with data privacy-related questions? organizations to protect existing value and drive further growth. 5. Do we regularly audit our IT security to check compliance with data protection rules? 6. Do we have an established committee that is close to the board and which defines and manages data strategy? 3. The Big Data Backlash, EY, 2013. Partnering for performance Part 3: the CFO and the CIO 21

Establishing information strategy, architecture and processes Key findings about information management strategy: The need for more accurate, available and accessible data is the number one driver of closer collaboration between CFOs and CIOs. Less than half (49%) of CFOs say that they make a significant contribution to information strategy, architecture and processes. But this is the IT-related activity in which they say they most need to make a bigger contribution. Only 55% of CFOs say that there is significant or complete alignment between the finance and IT agendas on data. Four success factors for CFO-CIO collaboration on information management strategy: 1 Swap seats 2 Commit to creating a single version of the truth 3 Be clear about accountability for data 4 Adopt a business-led approach 4 Partnering for performance Part 3: the CFO and the CIO 22

Establishing information strategy, architecture and processes Obtaining and managing accurate, available and accessible data is a challenge for CFOs and CIOs “ Information management should follow a The three V’s of data — velocity, variety and volume — have never been multidisciplinary approach.” greater. For finance leaders, this is both a blessing and a curse. The possibilities to derive insight from data that can enhance decision-making and Stephen Pearce, CFO, Fortescue Metals Group strengthen performance management are unprecedented. Yet, at the same time, managing this vital asset is increasingly complex. Key findings about information management strategy The need for more accurate, available and accessible data to drive financial ‘Business intelligence’: the critical role of information and strategic decision-making is now a top priority. It is also the number one strategy, architecture and processes reason driving closer collaboration between the CFO and the CIO (see Chart 8, Most organizations are awash with data and information. Equally, page 18). though, many organizations struggle to put meaningful data into the No individual functional leader can solve this challenge alone. “Information hands of decision-makers. Often, the data that a decision-maker wants management should follow a multidisciplinary approach,” says Pearce. “It cuts is spread across different legacy platforms. Alternatively, because there across a lot of areas, including finance, operations and marketing. It’s got to are no defined standards for collecting data, various departments may be both broad enough and specific enough to cut across each of those areas be collecting the same data but in different ways, creating multiple in a way that fits the strategy and allows people to get on with delivery.” versions of the “truth.” This is why organizations need: • A strategy, which outlines the organization’s data priorities and where to focus effort and investment The need for more • A coherent architecture to reorganize the tangled web of legacy accurate, available 41% systems to enable data to flow more freely across the organization and accessible data compared to is an especially only 25% in • Defined processes, covering activities from ensuring data accuracy strong driver of closer the Americas to establishing its ownership CFO-CIO collaboration for respondents in These three elements are critical to turning information into business Asia-Pacific intelligence that decision-makers can then use. Partnering for performance Part 3: the CFO and the CIO 23

Establishing information strategy, architecture and processes Greater CFO contribution can improve organizational Chart 11: In which of the following areas do you think you need to make a bigger decision-making contribution? (Chart shows average ranking — a lower number means it was ranked more highly.) For CFOs and their teams, information is not only vital to internal and external Putting in place a more robust reporting, but also to their role as business partner and strategic advisor. information management strategy, 2.4 CFOs now play a key role in providing insight through analytics to drive architecture and processes decision-making. It is critical that the insights they provide are based on Determining where analytics can 2.5 accurate, timely data. add most value to the organization Despite being among the most important consumers of data and information, Cybersecurity management 2.5 only a minority of CFOs say that they make a significant or very significant Transitioning the IT function contribution to information strategy, architecture and processes (see Chart 10). into a digital world 2.6 Chart 10: How much of a contribution do you make to putting in place a more Closer alignment between the finance and IT strategies is sorely needed. robust information strategy, architecture and processes? Among the 652 CFOs we surveyed, 55% say that the finance and IT agendas Very significant contribution 16 are either significantly or completely aligned when it comes to data. But this leaves a sizable proportion for whom alignment is more limited (see Chart 12). Significant contribution 33 Chart 12: How would you rate the degree of alignment between the finance agenda and the business’s broader IT agenda on data? Average contribution 31 Completely aligned 17 Small contribution 16 Significantly aligned 38 No contribution at all 4 % Slightly aligned 32 0 10 20 30 40 CFOs recognize that they need to do more. Asked about where they think they Not very aligned 11 most need to make a bigger contribution, respondents point to information Not at all aligned 2 strategy as their number one priority (see Chart 11). % 0 10 20 30 40 Partnering for performance Part 3: the CFO and the CIO 24

Establishing information strategy, architecture and processes Four success factors for CFO-CIO collaboration on “In a business with lots of business units (BUs), a lack of alignment on shared information strategy, architecture and processes priorities results in a focus on differing BU-driven agendas and it quickly becomes inefficient and expensive,” says Ashton. “Having the CFO’s help to 1. Swap seats support how the BUs think about IT investment is important. It means the CIO Christine Ashton, Senior Vice President for Technology at Thomson Reuters, is not the only person challenging the businesses to simplify or standardize, argues that CFOs and CIOs have very different perspectives on information for example. You’re drawing on the strengths of the CFO network to strike a strategy. She believes that they need to understand each other’s view as the better balance between what’s best for the health of the corporation overall first step toward alignment. and the operational efficiency of the BUs.” “There’s a dichotomy between what CFOs want and the on-the-ground 2. Commit to creating a single version of the truth complexity,” says Ashton. “In any large business, there are many, many What does good alignment look like? In most cases, organizations should be thousands of transactions. From all of that data, the CFO wants to see the moving toward a common source of data for both reporting and analytics. numbers at the top of the pyramid, the ones they need to worry about over, Doing this provides organizations with the opportunity to move from a say, the next three years and to know that everything is in compliance. If reporting-centric approach to an analytics-centric one. you’re a CIO, that’s not what you’re dealing with: the situation isn’t that black Ryerkerk believes that the benefits of this approach are significant. and white. We have to build a better bridge from one world to the other.” However, the value of the relationship also stems from this diversity. Ashton “When you move towards in-memory processing like SAP HANA, in theory argues that the CFO should use their position and objective view across the you could build a single database for your entire enterprise where all data business to help the organization determine its IT priorities. only exists at one time in one place,” says Ryerkerk. “While this level of consolidation is unlikely, the ability to simplify, take advantage of new tools, and move towards real time analytics is still very significant.” “ There’s a dichotomy between what CFOs want and Christian Mertin, EY’s Finance Performance Improvement Advisory Leader for the on-the-ground complexity.” EMEIA, also believes that such innovative new technologies can play a key role in transforming the finance function. Christine Ashton, Senior Vice President for Technology, “In the future, new technologies, such as in-memory computing, will Thomson Reuters dramatically change the processes and role of the finance function,” says Mertin. “A single, central data architecture will enable better end-to-end decision-making, will drastically lower cost of ownership and will increase data accuracy. It’s vital that CFOs gain an understanding of these technologies and work closely with CIOs to assess their implications.” Partnering for performance Part 3: the CFO and the CIO 25

Establishing information strategy, architecture and processes Despite the benefits of a single-version-of-truth approach to data, CFOs and Different definitions for data are often applied and insufficient governance CIOs need to think carefully about the rules governing that data. There needs is established around how data is entered and stored. When data resides to be clarity around which datasets are reconciled and suitable for reporting across multiple regions and business units, it also makes it difficult to form purposes, and which might be more unstructured and directional. a “customer-centric” view. “What finance, risk and treasury need is a single source of truth and platinum standards around data,” explains Lennon. “But if the marketing director wants Questions CFOs and CIOs should be able to answer about data customer information or insights on behavioral analysis, that data just has governance policies: to be directionally right. There aren’t the same challenges around integrity 1. What is our policy for the use of social media within the organization? or accuracy.” 2. What are our data access policies, and are there any safeguards limiting what data can be accessed by whom? 24%of CFOs from technology firms 3. What is our policy for the use of devices by employees? say they make a very significant contribution to the information 4. What is our approach to data inventory? strategy, compared with a sector 5. What is our policy for limiting the risks of cyber threats when average of 16%. employees travel abroad? 3. Be clear about data accountability 6. Do we have a policy for the collection, maintenance, use and archiving of data? Many organizations suffer from siloed data structures — structures in which there are multiple pockets of data across the organization and no single Over the years, this situation has been made worse because when there is a version of the truth. This has the result that the critical information and new reporting or regulatory requirement, the company puts in place a point data required to drive more effective decision-making reside in multiple solution to deal with the problem. Gaining visibility across these datasets and spreadsheets, databases and other sources. extracting meaningful information that is consistently defined has become a major problem, and requires the CFO and CIO to work together to formulate a resolution. “I see plenty of organizations were different functions think they own different parts of the data,” says Mazzei. “Analytics is transformational in forcing organizations to share and govern data differently to collect it from across the business and convert it into valuable business insight. The CFO can add a holistic business perspective to overcome the functional barriers.” Partnering for performance Part 3: the CFO and the CIO 26

Establishing information strategy, architecture and processes 4. Adopt a business-led approach From mismanagement to management Because implementing a robust, scalable information strategy is such a huge Information is available today in such quantities and in so many task, many companies that try to tackle it as a whole do not know where to dimensions that it presents a major opportunity to drive improvements start. Others adopt a technology-led approach and focus on fixing problems in organization performance. within the legacy framework. Mazzei argues that both of these approaches are misguided. However, many companies do not manage their information — they mismanage it. Data can be trapped in legacy IT, or there can be multiple versions of the truth. To realize the potential of information management, CFOs and CIOs need to collaborate to develop a strategic approach to solving “ It’s amazing how many organizations have business challenges through data. poured tens of millions of dollars into technology information management and data management capabilities, without nearly enough clarity on the business issue they’re trying to solve or how it will create value.” Chris Mazzei, Global Chief Analytics Officer, EY Instead, he argues that companies should seek to address small, manageable problems first. Over time, these projects will start to converge into an enterprise-wide initiative. “There will come a point where you can go from doing a small number of discrete projects to a much larger portfolio of initiatives across the organization,” says Mazzei. “That’s when you can take the leap to put in place enterprise-level teaming, infrastructure and technology.” Partnering for performance Part 3: the CFO and the CIO 27

Transitioning to a digital IT function Key findings about transitioning to a digital IT function: New digital technologies, such as cloud, increase the bottom line and offer top-line growth opportunities. Transitioning the IT function to a digital world is a key focus for CFOs worldwide. Fifty percent of those who make it a very high priority report EBITDA growth of 10% or greater. Among the rest of the sample, just 34% grew at this rate. Fifty-eight percent of CFOs make it a high or very high priority. Five CFO priorities for leading the transition to a digital IT function with their CIO: 1 Ensure strategy drives IT and not the other way around 2 Plot a way out of the legacy trap 3 Shift the digital IT investment mindset from Capex to Opex 4 Manage digital IT risk exposures as part of the enterprise risk management framework 5 Unite against digital IT fragmentation 5 Partnering for performance Part 3: the CFO and the CIO 28

Transitioning to a digital IT function New digital technologies are transforming companies in all sectors. “By taking Key findings about transitioning to a digital IT function a holistic approach to digital and developing an agile business strategy that Among the 652 CFOs surveyed, 50% of those who have made transitioning enables organizations to flex and adapt to a constantly changing digital the IT function to a digital world a very high priority report EBITDA growth of environment, organizations can seize opportunities and manage risks at every 10% or greater over the past three years. Among the rest of the sample, the stage of their value chain,” says David Jensen, Global Digital Leader at EY. proportion achieving the same growth rate is just 34%. This transformation demands changes to how the IT function operates. Chart 13: How has your company’s EBITDA changed over the past three years? For example, as companies embrace cloud, SaaS and other flexible IT models, they are shifting to a more agile infrastructure. For the CFO, this Organizations that make transitioning 29% transition from Capex to Opex reduces total cost of ownership and increases to a digital IT function a very high priority 21% the bottom line. For the CFO, this transition from Capex to Opex reduces total cost of Others 23% ownership and increases the bottom line. 11% Secondly, these technologies also provide greater flexibility and scalability, 10% or greater EBITDA growth Over 20% EBITDA growth allowing companies to expand and contract more easily with changing demand. This provides a platform for growth. Five CFO priorities for leading the transition to a digital “With IT, we’ve got to shorten the cycle times around development and get IT function with their CIO things to the market more quickly, because consumers are not going to wait for us,” says Mark Boxer, CIO of Cigna. “We operate by the same rules of the 1. Ensure strategy drives IT and not the other way round market as everybody else. That means we’ve got to be faster, smarter and more agile than our competition.” New technologies, from machine-to-machine communication to mobility, are changing the way businesses compete. It is important, however, that the IT function does not drive the enterprise’s strategic response. That would result “ I think what most firms are still lacking is a good in too narrow a focus, when what is needed is a big-picture approach. digital strategy. The firms that are struggling with this The transition to digital must begin with an overarching strategy that articulates: most are the ones where it’s still seen predominantly • How the organization will use digital IT across its value chain as an IT issue, as opposed to a business one.” • Whether to improve processes or fundamentally disrupt the whole way the organization operates Dave Ryerkerk, Global IT Advisory Leader, EY • What changes are needed to the business model and value chain Partnering for performance Part 3: the CFO and the CIO 29

Transitioning to a digital IT function A strong relationship between finance and IT is critical. CFOs must ensure digital IT is focused on profitable growth and shareholder value. And CIOs Digital America must bring the understanding of what new technologies can do. “At Cigna, the In the US, 39% of CFOs make digital IT a very high priority, significantly IT function has been a catalyst and instigator for change, as opposed to just exceeding other countries. This reflects the US’s role in driving digital reacting to needs and being an order-taker,” says Boxer. “However we also innovation, particularly from Silicon Valley. The success of US tech giants, recognize that not every good idea is going to come organically from inside such as Amazon and Facebook, has created a strong digital ecosystem. our own IT shop. Delivering digital capabilities in a repeatable fashion requires Since the beginning of 2009, venture capital firms have deployed more creative partnerships and new delivery models.” than US$31b in more than 3,300 deals in tech startups based in the 4 Whiteing emphasizes the essential role the CIO can play: “If you look at the Silicon Valley (CrunchBase research). problems that businesses will face in the future, requiring a cost-effective, Chart 14: Regions where CFOs cite “Transitioning the IT function into high-quality resolution, the majority of solutions will invariably involve a digital world” as a very high priority. technology,” he says. Americas 28% “When you look at executives on boards, their apprenticeships were in anything but technology. But an ability to understand the technology, Asia-Pacific 21% implement it, and extract value out of it is crucial.” Europe, Middle East, 18% 2. Plot a way out of the legacy trap India and Africa Most major organizations are not embarking on digital with a blank sheet of Chart 15: Countries where CFOs cite “Transitioning the IT function into paper. They have legacy systems that are embedded in the business. Legacy a digital world” as a very high priority. IT and the “technical debt” of unproductive and inefficient technology can be US 39% a significant barrier. For example, it can prevent the organization from gaining a single view of Brazil 29% the customer, because data is locked into various systems spread across organization silos. India 27% Companies will still need to work with some legacy systems over the coming Mexico 26% years, so they will need to balance the hybrid environment of old and new, while gradually retiring legacy systems. China 26% UK 18% Australia 17% 4. “America leads the way in technological innovation,” Raconteur website, raconteur.net, 9 October 2014. Partnering for performance Part 3: the CFO and the CIO 30

Transitioning to a digital IT function Any decisions about what to retire need to be based on business value and Instead, Opex has advantages. Organizations only need to pay for immediate must consider these questions: capacity needs and can scale up or down. And, as new technologies rapidly • What are the operational inefficiencies and costs of continuing with a evolve, organizations do not get stuck with outdated technology. cumbersome legacy system? of CFOs from technology firms Rise of the cloud5 • Can we deliver a better customer experience by retiring the platform and moving to a new solution? say they make a “very significant” contribution to the information Software as a service: management strategy, compared The CFO and the CIO need to work closely together to establish the business US$127b the most popular service, with a sector average of 16%. case and the value that will result from a refresh or replacement. This is accounting for 70% of particularly important given the emergence of agile new digital disruptors. the projected 2014 cloud spend “Digital is fundamentally changing business models,” explains business spending Laurence Buchanan, EMEIA Digital Advisory Leader at EY. “You have on public cloud Infrastructure as a service: young, disruptive startups that have zero legacy. They don’t have the environments in 2018 the second most popular service headache of 20 years of IT investment. They can jump straight to the cloud and mobile, creating new business models and distribution models and 5. “IDC Forecasts Public IT Cloud Services Spending Will Reach $127b in 2018 as the Market Enters a rewriting the value chain.” Critical Innovation Stage,”IDC website, idc.com, 3 November 2014. 3. Shift the digital IT investment mindset from Capex to Opex The CFO and the CIO will still need to reach an agreement on the technology An organization’s options for how IT is delivered have fundamentally changed. that is required and how it will be funded and allocated. For the CFO, though, Traditional IT is cost intensive, in terms of up-front investment, people and this will be a different world, in part because the organization’s balance sheet even dedicated premises. Now, organizations can access the best new will fundamentally change. technologies via the cloud as a service. However, all cloud is not equal. There are two main implications of the shift to Opex: “With the cloud, we are a conservative adopter of public cloud, we’re an • It will require a portfolio approach. Instead of large, up-front capital aggressive adopter of private cloud and we’re a smart adopter of hybrid cloud. expenditures, the organization will be making multiple investments across So, it’s difficult to talk about cloud in just one context,” says Boxer. “We want the business. to be very focused and intelligent about what cloud we do use and how we use • It will require procurement agility. The cloud presents an opportunity it, and we are probably in fact one of the earliest adopters of virtualization and to drive top-line growth by adopting new technologies quickly. With Capex private cloud that’s out there.” investments, there was time for the business case to be researched and In this environment, the traditional argument for preferring Capex (which debated. In an Opex world, business unit leaders need to respond quickly enables companies to take advantage of amortization and depreciation of IT to market opportunities. This requires accelerated technology procurement. investments) is less compelling. Partnering for performance Part 3: the CFO and the CIO 31

Transitioning to a digital IT function 4. Manage digital IT risk exposures as part of the enterprise For example, as marketing responds to ever-changing customer needs, risk management framework research has shown that CMOs now spend approximately 15% to 20% of their 6 If the associated risks are not managed, the value that digital technology budget on technology. brings can be undermined. The result may be greater speed to market, but the danger is that systems and infrastructure become increasingly fragmented. Questions CFOs and CIOs should be able to answer about cloud risk: And because this spending happens in silos, many CFOs do not know exactly 1. Does our cloud environment have the appropriate controls to protect what has been spent, whether it is aligned with strategy or whether there are the confidentiality, availability and integrity of systems and data in any potential associated threats. This creates potential for wasted investment the cloud? and unmanaged risks. 2. Are there appropriate procedures in place to protect data at rest, in transit and in use? “ Spend on technology is moving outside of the 3. Can we trust our cloud environment to be resilient to adverse events? control of the CIO. The CFO and the CIO have a 4. Have we stress-tested our cloud environment? mutual interest in bringing this technology under 5. Is our environment audit-ready and certified to meet specific closer control.” legislation and regulation in our industry? 6. Do we have documented evidence about the protections in place that Laurence Buchanan, EMEIA Digital Advisory Leader, EY we can use for compliance purposes? The CFO has an essential role to play in ensuring that exposures from digital Rebooting the IT function is crucial to value creation IT are addressed as part of the wider enterprise risk approach. The risk tolerance needs to be agreed upon, vulnerabilities assessed against it and a Digitalization offers organizations opportunities to rethink the customer transformational road map developed to bring security to the appropriate level. experience, and reassess their ways of working and their business model. Senior teams need to review digital IT risks on a regular basis, as changes in This puts the IT function under growing pressure to deliver the required new business strategy, or to the regulatory and competitive environments, create enabling technologies and to do so at speed. CFOs are becoming increasingly new vulnerabilities. engaged in the IT function. They will need to go further in helping to reinvent this function, as its key role as a driver of organizational value becomes 5. Unite against digital IT fragmentation increasingly recognized. In a digital environment, strategic spend control has been loosened as different parts of the business respond to fast-moving threats and opportunities. 6. Laura McLellan, High-Tech Tuesday Webinar: Profile of Marketing as a Technology Buyer, Gartner Research, 25 October 2012, © 2012 Gartner, Inc., http://www.gartner.com/id=2213817. Partnering for performance Part 3: the CFO and the CIO 32

Five success factors for a successful collaboration Making the relationship stronger To perform effectively and drive profitable growth in the age of the smart machine, close collaboration between finance and IT is mission-critical. We believe this collaboration hinges on the following five success factors. 1 Innovation Drive innovation through new digital technologies 2 Resourcing Shift the IT operating model emphasis from Capex to Opex 3 Risk management Manage risk exposures of new digital IT 4 Collaboration Work as peers regardless of reporting line 5 Knowledge Build the tech-savvy 6 finance function PParartnering ftnering for perfor performancormance e PParart 3: the CFO and the CIOt 3: the CFO and the CIO 3333

Survey respondent demographics Industry Consumer products 67 Banking and capital markets 58 Technology 57 Life sciences 56 Insurance 56 Oil and gas 55 Power and utilities 53 Diversified industrial products (including 32 aerospace and defense and chemicals) Mining and metals 31 Automotive and transportation 28 Cleantech (including energy, water, 27 transportation, agriculture and manufacturing) Asset management 26 Real estate 25 Telecommunications 23 Media and entertainment 15 Private equity 12 Construction 7 Import/export/wholesaling 7 Professional services 6 Other 5 Transportation 4 Health care 2 7 Partnering for performance Part 3: the CFO and the CIO 34

Survey respondent demographics Country US 80 Finance roles China 80 Brazil 42 Group CFO or finance director 329 United Kingdom 40 Divisional CFO or finance director 159 Mexico 31 Regional CFO or finance director 164 India 30 Canada 30 Australia 30 Germany 29 Annual revenue in US$ Singapore 28 Greater than $20b 28 Russia 25 Between $10b and $20b 45 France 24 Between $5b and $10b 91 Hong Kong, China 21 Between $1b and $5b 158 Argentina 20 Between $500m and $1b 120 South Africa 20 Between $250m and $500m 89 Indonesia 20 Between $100m and $250m 121 Philippines 15 Colombia 11 United Arab Emirates 10 Turkey 10 Spain 10 South Korea 10 Saudi Arabia 10 Italy 10 Nigeria 5 Sweden 3 Netherlands 3 Norway 2 Belgium 2 Portugal 1 Partnering for performance Part 3: the CFO and the CIO 35

Other publications in this series EY’s CFO agenda offers insights to help CFOs grow, protect and transform their organization. Previous studies in the Partnering for performance series are: EY is the exclusive sponsor of the CNBC Global CFO Council. Partnering for performance Partnering for performance Part 1: the CFO and the supply chain Part 2: the CFO and HR Coming soon Partnering for performance Partnering for performance Part 4: the CFO and the CMO Part 5: the CFO and the CEO For more insights for CFOs, visit ey.com/cfo. Partnering for performance Part 3: the CFO and the CIO 36

Contacts For further information, please contact: CFO Agenda Finance performance improvement advisory Robert Brand Tony Klimas Global CFO Agenda Leader Global Finance Performance Tel: +1 201 872 5692 Improvement Advisory Leader Email: [email protected] Tel: +1 212 773 5949 Email: [email protected] Cybersecurity Ken Allan IT Advisory Global Cybersecurity Leader Dave Ryerkerk Tel: +44 20 795 15769 Global IT Advisory Leader Email: [email protected] Tel: +1 407 872 6640 Email: [email protected] Digital David Jensen Data analytics Global Digital Leader Chris Mazzei Tel: +1 213 977 3691 Global Chief Analytics Officer Email: [email protected] Tel: +1 212 773 3671 Email: [email protected] Assurance Felice Persico Global Assurance Leader Tel: +39 02 722 12513 Email: [email protected] Partnering for performance Part 3: the CFO and the CIO 37

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