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.”
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.”
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.
Segalla and McDaniel used another strategy to raise perception of the CIO role in the organization — they took the CIO position out of the weeds. McDaniel created two roles, a vice president of IT charged with the day in, day out nuts and bolts of the network and data center, and a vice president of applications. “It allows me to get out of the trenches and really focus on strategy,” says McDaniel. “That's a critical message because I think the reason a lot of CIOs fail, irrespective of where they report, is because they get into the trenches, and their peers see them as a tactical as opposed to a strategic person.”
At St. Vincent's, the CFO and the CIO used another strategy to establish CIO credibility — exposure. “Something that Dominic supports vehemently is me getting out there,” says McDaniel. “He actually gave me budget dollars to entertain physicians. He just knew that it was critical to my success.”
So, if either reporting structure can be successful, what are the core best practices overall? Most say that, as with much in life, relationship is everything.
“We really complement each other,” says Lawonn, “and we don't say, ‘This is your responsibility; Ken you worry about integration, Scott you worry about finance.’” Although, he says that each has a certain area of expertise that they are accountable for. “Scott's not going to know exactly how the integrations work, and he trusts me to make that assessment.”
His CFO, Wooten, agrees that trust and confidence plays a role. “For the CIO, it's the ability to instill confidence and trust, to deliver, to be open and transparent when things aren't going well,” he says. “He has my immediate respect. Everyone knows Ken is the smartest guy in our organization.”
And his CIO Lawonn feels the same. “If there was an IT decision that needed to be made, I wouldn't have any problems with Scott making it if I weren't here,” says Lawonn. “If he thought there was any concern he would wait and talk to me. We just kind of have that trust where we know the other will do the right thing.”
Being on the same page in this relationship is everything. Segalla says sometimes two people will just click. “You think the same, you strategize the same, and that's really what's happened with us,” he says. “It's scary when I say that probably 90 percent of the time when John is going to say something in a meeting, I know exactly what he's going to say. And he'll say the same thing about me. It's good to have the same thought process, and the same mind, and the same thinking.”
Most agree that in addition to trust, if both the CFO and the CIO have a greater than usual grasp of the other's jobs, it will make the relationship more productive. “There has to be a mutual respect for one another,” says Rudish, “and the knowledge that you're not only helping your institution, but also helping yourselves discharge your job. How a CFO can make decisions without a pretty solid knowledge of what is going down in the IT shop beats me,” scoffs Rudish.
Segalla says one of his key attributes as a CFO is that he truly believes IT is the key for St. Vincent's to successfully transition from bankruptcy to a hospital of choice for both patients and voluntaries. “I think I'm a little different from many CFOs in that I am more focused on the clinical and financial outcomes of data.” He says McDaniel has gotten him very involved on the application and software side to better understand what solutions are out there.
Finance-IT understanding goes both ways. McDaniel, who has an undergraduate degree in accounting and economics, says, “When Dominic tells me to do a sources and uses statement, I know exactly what he's talking about. We talk accounting a lot, and systems a lot.”
For two positions so inextricably joined at the hip, the days of the once-a-week sit down are long gone. “Our offices are next to each other; our front doors are glass,” says Alegent's Wooten. “We don't schedule meetings, we just walk across and cover an issue, and get things solved then and there. If we have a problem we talk about it, if we need to think about the future we grab a cup of coffee. It's not meeting intensive, it's relationship intensive,” explains Wooten.
McDaniel and Segalla have offices in different buildings but hold similar beliefs to the Alegent team. “Communication, communication, communication,” says Segalla. “John and I are probably together four or five times a week. We are together eight to ten hours a week, and I think that's critical.”
At the end of the day, time out of the office adds another level to the relationship. “Mutual respect and understanding will bring better decision making to the board room, and if you are friends on top of it, that's great,” says Rudish.
And friends they are. “Get to know each other on a personal level; it's not all about business.” says Lawonn. “If you can find some other way to connect, I think it builds a stronger relationship overall.”
Lawonn and Wooten enjoy time off together, playing golf on Friday evenings. “We know about each other's kids, and get together as families from time to time,” says Wooten. “Often a large group of us will go out and go dancing.”
McDaniel and Segalla socialize out of the office too, making time for dinner at least every two weeks. “Social time is very important to discuss things over a drink or two,” says Segalla. “We think that's absolutely critical: when you get to know somebody a little more outside the office, I think it builds a stronger work relationship.”
In the end, says McDaniel, the key to building that good relationship is making it a two-way street.
“In order to build a relationship you need to be as interested in their success as they are in yours,” he says. “If you invest in understanding and supporting that person's key issues then they will turn around and help you with yours. Try to understand each other's world.”