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The Real Dynamic Duo

September 1, 2008
by Daphne Lawrence
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CIOs are learning that a close relationship with their CFOs is a critical element of success

Russ rudish

Russ Rudish

As the IT department has evolved into an enterprise strategic position, the CIO/CFO relationship has evolved along with it. But although the two positions share C-suite designation, that doesn't automatically guarantee a great working relationship. There are pros and cons to different reporting structures, and what works best for one CIO/CFO duo may not work for all. As such, CIOs have been finding many solutions to improve their CFO relationships, with methods going beyond the customary round of golf.

The case for the CIO as a deserving member of the C-suite is compelling. As IT expenditures have grown and often involve the entire enterprise, many say it makes sense for the CIO to be involved in strategizing at the highest level. And the increased stature is a trend, according to Russ Rudish, health care providers sector leader at Deloitte (New York), who now sees more CIOs reporting to CEOs.

But not always. Rudish says he recently saw a large hospital system that had reorganized and put its entire operation under just two execs — the CFO and the COO, with the CIO reporting to the CFO. “The CEO basically decided ‘I'm going to have two lieutenants,’” he says. “There was a pragmatic reason for this. In this case, it was such a big organization and he needed to focus on other things.” Rudish says that once CIOs accept what could be interpreted as a shot to the ego, the arrangement can work. “I know a lot of CEOs who are very savvy about finance. I know much fewer that are smart about IT. There is a lot to learn by both parties.”

Rudish also believes that when IT is struggling, having the CIO report to the CFO can be a liberating experience. And St. Vincent Catholic Medical Centers in New York City (St. Vincent's) is one of those examples. “When I was recruiting for a CIO, I pushed hard to get the CIO to report to me,” says Domenic Segalla, CFO at St. Vincents. “The biggest reason is that we had an infrastructure and an IT strategic direction that was almost null and void. We were also in bankruptcy, and really starting out with a blank canvas.”

His strategy was to run interference for his new CIO, John McDaniel, in the politically charged world of a New York hospital. “I told John, ‘I need you to focus on the strategic direction, on building the right organizational structure underneath you, on starting to look at the right applications. Let me go out and run cover for you.’” For Segalla, that meant dealing with political issues, the finance committee, and the board. “If John was a direct report to the CEO,” says Segalla, “probably 30 percent of his time wouldn't be as productive. His meetings right now are all focused around strategic direction.”

This relationship structure works well, says McDaniel. “The CFO understands the importance of technology and has been unbelievably supportive in enabling my strategies to evolve.” For McDaniel, a long-time CIO, this is his first time reporting to the CFO. What's the difference? Partly, it's personality. “If I take Dominic out of the equation, I would have concerns,” he says. “My CFO allows me to focus on what my real job is, which is setting the strategic plan and marching down that path.”

It also gives him a leg up when it comes to budget, says McDaniel. “One of the advantages of reporting to the CFO,” he adds, “is that he clearly understands what I am trying to do,” which McDaniel says helps when competing for scarce resources. “Having a direct line to the CFO, he can fight that fight for me.”

John mcdaniel

John McDaniel

But that relationship had better be a strong one, built on trust. As Rudish says, “If I was the CFO, I would feel a little uncomfortable being in the board room to have a $100 million expenditure approved by the board, and not deeply owning it.”

Ken Lawonn, CIO of Omaha, Neb.-based Alegent Health, a nine-hospital system, reports to his CEO, but prior to Alegent, he reported to a CFO. “When I reported to the CFO, the reporting relationship was great,” he says. “Today's CFOs are much more operationally inclined, and less about controlling everything, so I think it's a little easier.”

But at Alegent, Lawonn's role is strategic even beyond IT. “In this organization, the CIO has a broader plate of responsibilities,” says Alegent's CFO Scott Wooten. “Ken has more than information systems. He is responsible for a $400 million construction project, and has other planning responsibilities in our organization. Our CIO isn't the run of the mill.”

Scott wooten

Scott Wooten

While there are obvious positives, what's the downside of a CIO that reports to the CFO — what message does that send to the organization? Is IT viewed as an afterthought?

“(That) was a concern I had,” says St. Vincent's Segalla. “My initial fear was, ‘How do we get a strong message across the institution about how critical the IT strategic direction and vision is?’” As CFO, he says that money talks — and within three months of McDaniel's arrival as CIO, Segalla committed $4 million in IT infrastructure improvements. A strong message indeed.