Should the CFO sit at the top of the IT reporting structure?

Why does the IT reporting structure continue to roll up to finance?

The IT reporting structure plays an important part in shaping how the potential value of technologies can best be exploited with known cost, known risk and defined value for the organization as a whole. There are a wide range of factors that influence the optimal IT reporting structure within the organization, and these are situation-dependent.

Understanding the origins of enterprise IT might help to explain why IT continues to report to finance in many organizations. The first incarnation of the IT department stemmed from the EDP, or electronic data processing department, of a bygone era. First generation enterprise IT systems were, in the majority of cases, adopted for the purpose of supporting the finance and accounting functions. These included processes such as order entry, inventory and invoice processing, creditors and debtors management, trial balance and general ledger processing, treasury management and management and statutory reporting.

For the most part, EDP had little to do with the other aspects of the organization outside of finance and accounting, and it was therefore logical for the EDP department to report to the finance department, its primary stakeholder. 

Another key consideration was that the first generation enterprise IT systems were decoupled from the actual operation of the organization, in that orders were manually entered into the system -- as were shipments of product, inventory movements and the like.  If these IT systems were down, the organizations could, although inconvenienced, still operate for some time. Once the systems became available, the backlog of paperwork would then be cleared.

Roll the clock forward 35 years, and we now have a very different picture. Digital technologies have become integral to the fabric of the typical organization.

Depending on the type of industry and the structure of the business, approximately half of IT departments continue to report to the CFO, the finance department, or to a shared corporate services function, which, in turn, reports to the CEO. However, in companies where IT systems are pervasive and critically important to the organization's operation and viability, the IT reporting structure of IT answering to finance may no longer be appropriate.

But the reporting relationship between finance and IT is not the primary issue – instead, it's effective, close-coupled coordination. Given that both enterprise IT and finance share a common accountability for enterprise risk and governance -- albeit from differing perspectives -- there should be a partnership between finance and IT.

The respective and shared accountabilities for delivering outcomes between IT and key organizational stakeholders, whether or not that includes finance, should be clearly articulated if IT underpins all core aspects of the organization. 

Most importantly, IT has the capability -- if managed effectively -- to drive innovation across your organization. This requires a mature IT function, which can engage directly across your entire organization and avoid being constrained under one particular service. In our competitive environment, if your organization is not utilizing technology to fuel innovation, your competition is probably already doing so.

About the author:
Rob Livingstone is a former CIO with more than three decades of experience in the corporate world. In addition to running his IT advisory practice, he is an author and commentator, providing authoritative, independent insights on a range of IT topics including emerging technologies, governance and IT security. Rob is the author of the book Navigating through the Cloud and is also a fellow at the University of Technology, Sydney, Australia, where he teaches leadership, strategy and innovation in the school's flagship MBITM program. Visit Rob at www.rob-livingstone.com or email him at [email protected].