Protect Your Hard-Earned Savings

In many cases, however, the CIO-CFO relationship isn't so harmonious. Funds that IT has worked hard to free up can be low-hanging fruit for a hungry CFO. CIOs have to make a case for retaining some of those savings to meet business demand for innovative investments - or just to set aside for a rainy day fund. Dennis Klinger, vice president and CIO at utility company Florida Power & Light, employed a marketing approach to redirect a large portion of fixed costs to a new project, despite operating in an industry known for its lack of budget flexibility.

First, he lowered fixed costs to about 50 percent of the utility's $US150 million in IT spending from the previous 60 to 70 percent by cutting software and hardware maintenance and support costs, consolidating server and storage facilities, and reducing communications costs. Then he convinced business executives to move ahead with a five-year, $US100 million project dubbed Tech 21 that will transform the way the company manages the business of distributing electricity. The project, which is in its final stages, includes multiple systems initiatives that have revamped software, introduced wireless and mobile computing, and resulted in widespread changes in business and IT processes. Klinger won support for Tech 21 from business units - and approval for more discretionary spending - by selling them on the project's business value and giving regular progress reports. "We showed them we were cutting IT costs in other areas," he says. "We presented it like a business option."

Allstate's Brune stays on the CFO's good side by keeping close to the business side. She attends strategy sessions with business unit presidents and works with an IT sponsor group made up of CIOs of individual business units. "You have to be Siamese twins with business partners," she says. "The CFO is not the issue" - business unit presidents are the ones who can make or break plans for a strategic IT investment. At a recent lunch with the head of Allstate's distribution division, Brune received validation of her alignment efforts. "A few years ago he was critical. His unit didn't have trust or respect for us," she says. "He looked at me across the table and said: 'For the first time, I don't have anyone working for me right now who says they can't get something done because of technology.'"

In fact, when it comes to fixed versus flexible costs, alignment is the issue, says Cutter's Andriole. If business leaders see IT as primarily a cost centre, "IT spending will be 95 to 100 percent fixed," he says. Even in companies where the CIO and CFO get along, however, they won't always see eye to eye. "It happens all the time that money is taken away from the CIO," says Meyer of iJet Travel Risk Management. Meyer, who considers his CFO a friend, says he was heartbroken when that CFO recently shut down his million-dollar plan to extend the company's emerging technologies group. "I wanted to make that investment so badly I could taste it," Meyer says. In the end, though, he came to terms with the CFO's rationale, which was based on a two-to-three-year plan as opposed to his own five-to-10-year outlook. "I've known a lot of CFOs, and some of them are jerks," Meyer says. "But as CIO or CTO, we have to understand that most of them are concerned about the overall health of the company."

No Use Trying to Hide

It might be tempting to try to hide discretionary funds in budget footnotes, but CIOs seeking cost flexibility need to be up front with business-side colleagues about their choices. One of the keys to gaining support for his new initiatives at Florida Power & Light, Klinger says, was transparency in the IT budget, with clear outlines of what is fixed and where choices can be made. "You have to be prepared to talk about the business value of your investment. You have to be ready to talk about the trade-offs," he says. It can be a difficult conversation, "but the reward is greater credibility".

Meyer of iJet Travel Risk Management agrees that IT leaders need to clearly break down their costs for business leaders - especially when they are faced with volatility. Because iJet provides intelligence and help for companies with employees in far-flung and sometimes dangerous locales, the business needs can change rapidly. With 60 percent flexible IT costs, Meyer is poised to respond.

But with flexibility comes a trade-off in planning. "The more variable my spending streams are, the harder it is for me to articulate a long-term vision," Meyer says. For example, two years ago he came up with a plan to invest in software that would create itineraries for business travellers in Europe. Soon after, however, clients began focusing on rebuilding projects in Iraq. So Meyer shifted some of the money planned for the software investment to GPS and other technologies that help companies track employees in hazardous and hard-to-reach areas. By carefully presenting to his board the logic behind the shifts in strategy and spending, Meyer deflected criticism that he hadn't followed through on long-term plans. "What you lose in long-term vision, you gain in flexibility," he says.

To maintain cost flexibility over the long run, CIOs have to constantly re-evaluate their spending strategies, says Allstate's Brune. She recommends setting up a series of checkpoints to make sure that projects are providing value and to re-evaluate projects that aren't successful from the get-go. It's a time-consuming process, but without it CIOs are vulnerable to change. "You have to be willing to ask if the strategy you had 12 months ago is the same one you need going forward," Brune says. "You have to be expense-conscious and flexible, and you have to stay balanced at all times."