Cost pressure is nothing new for IT. In this economic climate you are getting even more pressure than usual, so why not make the CFO your best friend. If the thought of this seems odd or impossible, take a minute to step back and consider the benefits: less angst and more money. It’s not impossible. But you have to invest time and energy to make it happen. Here’s a few ideas to get you started:
1. Know How the Company Makes Money
One of the most important things you can do in leading your IT organization is to make sure everyone understands how the company makes money. You should be able to explain the P&Ls for the main revenue and profit generating segments of the business, and so should your team.
Explain which business spending fits into COGS (cost of goods sold); which product lines have the highest and lowest gross margins; and how things drive gross margin. Explain how the various fixed expenses like product development, marketing, and IT need to fit within the gross margin to leave room for a profit. You may not be able to share your company’s actual numbers with everyone, but you can present a realistic example that has the right scale. It is my experience that technical people are vitally interested in this information. Yet, in most cases, no one ever explains it to them.
This knowledge is the best way to motivate the right behaviors and the right kinds of innovations in IT. Projects that just spend money to do something more elegantly are then understood at a grass-roots level to be less important than projects which drive revenue on high margin areas of the business. There is also more personal motivation to be on the lookout for reducing cost in general.
Once your organization has some rules of thumb on financial management you will get lots of ideas to change and improve your conversation with the CFO. Then instead of only having the one thing to talk about: how much money IT spends or gets to spend, you can share ideas about how IT can help improve the profit of the company.
2. Be the Cost Cutter―Before the CFO Brings it Up
Let me go out on a limb here and say that when it comes to IT, you can accurately describe most CFOs as “cost cutters” and not so much as “strategic investors”. Just accept that and start helping.
For starters, remember that most of what IT does is about creating efficiency for the company. Talk about how your work is saving the company money. If you have a cost cutter CFO on your hands, make all of your conversations about efficiency, and cost cutting, even if you are talking about strategic initiatives.
If you are developing a highly strategic new architecture that is vitally important to enable your business to scale in the future, don’t talk about that with your CFO. Talk about how you will be taking cost out of supply chain management, or increasing efficiency of store operations over time. Remember “cutting costs” first, “reducing risk” second, “interesting infrastructure investments” … never.
And, actually cut costs. If you normally spend $100, do it with $95, and show how you’ve taken cost out of the system. Develop a reputation as being aggressive on costs. This will build addition trust with your CFO.
3. Change Your Vocabulary
I have talked about this in many past articles, but this list would be incomplete without it. The CFO does not get IT vocabulary. When you discuss your initiatives or your budget, you will only annoy your CFO with technology talk. Don’t try to educate the CFO on IT. It won’t work, and you will not gain any advantage.
Put your CFO-translator hat on and always use the CFO’s vocabulary. Hint: when talking to the CFO, do not use the words, data center, service oriented architecture, LDAP, or diverse routing.
Here’s an example for how to translate to CFO vocabulary. SAP Financials is a business deliverable. It may consume 30% of your data center costs, 20% of your desktop support costs, and 5% of your network costs. Totaling these to a single cost for SAP Financials is using a term the CFO knows and values, and puts you in a much better place than using the internal IT infrastructure labels. (By the way, if you can measure and track IT spend in this way too, you will be way ahead of the game, but that is a big topic for another day.)