Innovation and IT – Paths to Success

Getting the most value from your information technology investments today is more challenging than ever given the break-neck pace of evolution in product and service choices. Keeping ahead of developments in infrastructure, software, data systems and Internet applications absorbs increasing amounts of time and energy. Not only can missed opportunities cost businesses dearly in forgone revenues and customers, but inadequately assessed security and privacy-related risks can consume significant amounts of management resources when troubles crop up.

Knowledge@Wharton takes a look at some of the key opportunities and threats in these areas, including cloud computing, data storage, social networks and Internet marketing.

This downloadable PDF contains articles with insights from Wharton faculty on the following topics:

• No Man Is an Island: The Promise of Cloud Computing
• Time for a Data Diet? Deciding What Customer Information to Keep — And What to Toss
• Leaving ‘Friendprints’: How Online Social Networks Are Redefining Privacy and Personal Security
• Privacy on the Web: Is it a Losing Battle?
• Betting on Betas: How Internet Entrepreneurs Are Creating New Paths to Online Revenue

Download article packet from Knowledge@Wharton

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CIOs and CFOs: The Need to Communicate Is Greater Than Ever

CIOs are increasingly reporting to the CEO, rather than the CFO, while taking on a more strategic role in their companies — a reflection of the growing importance of information technology (IT). A recent survey by CIO magazine highlights the trend. Nearly half of the more than 500 CIOs responding to the survey report to the CEO compared with 41% a year earlier, and just 16% said they now report to the CFO, a decline from 23% a year ago. What is more, almost 75% of CIOs now sit on their company’s executive management committee, compared with 68% just two years ago.

And even where CIOs still report to the CFO, the CIOs and their staffs generally are growing more involved in business strategy and execution, and building and training their staffs to support those efforts, the survey noted. It’s the CIO, points out Ravi Aron, a professor of operations and information management at Wharton, who helps senior management determine what kind of new service the firm can introduce in the market. And it is often the CIO who will make the call about whether a given information-based strategy is realistic.

Yet, regardless of whom the CIO reports to, it’s more important than ever for CIOs and CFOs to communicate closely. For one thing, IT now takes up more than half of all capital spending. For another, IT has a growing role in monitoring compliance with financial regulations. In the wake of the Sarbanes-Oxley Act (SOX), for example, CIOs and CFOs should have found good reasons to continue working closely together to create a unified perspective on the value of IT investments. Following the announcement of SOX, many software companies rolled out new enhancements in compliance and auditing (including, even, some whistle-blower features) – hoping for a seamless integration of critical new IT and Finance responsibilities.

But SOX did not have that effect. In fact, surveys shows that only a minority percentage of CFOs feel that Sarbanes-Oxley created a tighter working relationship between Finance and IT. One reason could be that the controls required for SOX drove CFOs back to the basics — numbers — and away from the level of strategy that an integrated IT/Finance program requires.

So, does all this mean that the two functions are moving back to their respective silos, despite the need to remain wired to each other? David Wessels, an adjunct professor of finance at the Wharton School of the University of Pennsylvania, doesn’t think so. “The companies that succeed in the future will be the ones that embrace a joint IT-Finance initiative. In today’s competitive environment, it’s no longer an option — it’s increasingly becoming a necessary step in the development of competitive advantage.”

IT and Finance: Working Together to Lower Costs and Boost Returns

Given the relentless search for savings within organizations as a result of the economic downturn, it is important that small- and medium-sized businesses wring the most efficiency possible out of existing assets, including Information Technology (IT) systems. And a key function ripe for IT attention is Finance.

The interaction between IT and Finance continues to gain importance, says David Wessels, an adjunct professor of finance at the Wharton School of the University of Pennsylvania. Since technology permeates just about every enterprise activity, it’s only natural for the functions of IT and Finance to converge, Wessels notes.

“Traditionally, information technology simply involved gathering data for Finance and then pushing it out in a series of reports,” observes Wessels. “But today, IT is no longer just about information gathering. Instead, it gives CFOs timely access to critical parts of a business, enabling them to engage in more analytical functions that force them to rethink the way in which their business operates.”

The result, Wessels and others observe, is that IT/Finance alignment has become a key catalyst for business strategy – all the more so in today’s challenging business environment.

The Chief Performance Officer

“Advances in information technology have driven changes in the fundamental responsibilities of CFOs,” says Wessels. “CFOs are . . . increasingly being looked upon as chief performance officers, charged with developing and upgrading key performance indicators (KPIs) that measure the effectiveness of a business’s operations” — including those dependent on technology.

Determining just what those KPIs are, however, is a critical first step. Wessels says that it’s not unusual for companies to focus on activity that is easy to measure, like total sales or market share, instead of focusing on strategic indicators that relate to the complete activity and long-term health of the enterprise, such as customer satisfaction. That can lead to wasted efforts and missed opportunities.

“Each business will have its own set of metrics — for example, consider the airline industry,” says Wessels, who has served as a consultant extensively for different companies in that space. While airlines are a large industry, they nevertheless offer some good examples for small- and mid-sized companies. Wessels notes, “It would be easy to consider total labor costs per dollar of revenue as a key performance indicator, but that wouldn’t be extremely insightful. To build a clearer picture of performance, you must decompose the financial metric into operating items, such as average salary, productivity, utilization and ticket price. Only then does it become clear that airlines could not overcome major drops in ticket prices solely with improvements in productivity and utilization.”

Once the KPIs have been identified, a CFO can utilize them to identify weak or inefficient business processes — and that is where technology can be applied or augmented usefully.

“A comprehensive IT-Finance effort means more than just integrating a series of systems,” Wessels says. “First, the underlying business processes must be examined — otherwise you may be simply taking a bad way of doing things and making it twice as fast.”

He says that some airlines understand this approach and have added such features as automated re-booking for passengers who miss a connection. Under the system, ticket-holders can swipe their original boarding pass through a gate reader, which will automatically produce a new boarding pass with the passenger’s new flight information and seating assignment on it. The automated system reduces required headcount while simultaneously increasing customer satisfaction.

“This is an example of [technology being] identified and carefully considered before any action was taken,” says Wessels. “It saves time and money for the airline while aligning the company’s financial objectives with those of its customers.”