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CIO’s–and CFO’s–Need to “Get Real”

November 5, 2009 by Mary Adams 

two-c-guys-and-a-computerThere is an interesting report at CFO.com called CFOs to CIOs: Get Real.

My response is that CFO’s need to “get real” too.

One of the biggest barriers between CFO’s and CIO’s is how they view the cost of projects. CFO’s are trapped inside an accounting model that expenses a lot of investments. Recent macro data suggested that US businesses spent $1.7 trillion on intangibles versus $1.2 on tangibles. For the most part, intangibles get expensed, tangibles get capitalized. Many  of these intangibles are related to IT-enabled systems and/or processes.

This means that over time, neither the CFO or CIO has any idea of the “installed base” of knowledge assets–which make up 60-70% of the average company’s value.

Isn’t it time to create management reporting that helps everyone do a better job?

(If this interests you, you might enjoy my recent post Goodwill is a Metric of the Failure of the Accounting Model)

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Comments

2 Responses to “CIO’s–and CFO’s–Need to “Get Real””

  1. Joe Bormel on November 13th, 2009 2:28 pm

    Mary,
    Thanks for your commentary.

    We, like virtually all middle to large sized corporations, have an extensive acquisition experience. The intangible linkage here is the time it takes for our staff, whether it’s sales, product development, or support services, to learn the products and services and develop the knowhow for the acquired assets. That’s true for existing staff and new hires.

    When we lose employees, for whatever reason, the learning time implications are considerably more massive than anyone from a distance realizes. Effective ramp up to exceed our carrying costs is in the 9 to 12 month range.

    As you know, In my blog post ( http://bit.ly/VyJyg ) I expressed optimism. We’ve been fortunate in being able to find and hire people who bring tremendous intangible value. Usually, it’s from companies with CFOs who, to use your language, haven’t gotten real.

    So, there have been strategic advantages associated with competitors not managing their intangible assets. And, secondarily luck!

    Thanks again for your blog post.

  2. Mary Adams on November 13th, 2009 2:42 pm

    Thanks Joe - We’ll all be better off when we can identify and measure the intangibles inside organizations! - Mary

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