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.”