First the bad news: Even if you’re confident that your organization has mastered Sarbanes-Oxley requirements and absorbed the worst of the costs, you still face a growing list of compliance demands that will likely consume a big chunk of your IT (and other) budgets, and continue to command major time commitments from your finance and IT staffs. If you thought 2006 would spell an end to compliance issues, think again.
But there is good news: now that Sarbox is proving to be anything but a quick hit, it is driving what may be an enduring synergy between finance and IT, propelling “IT governance” to new heights, and giving organizations new insight into their own processes. The laws that were intended to make companies more transparent to the outside world have also made them more transparent to themselves, which may usher in a new, more sophisticated level of decision-making.
A related bit of good news: there appears to be little of interest competing for IT dollars or attention. Forrester Research Inc. predicts that the current tech slowdown will continue until 2008 as companies attempt to digest what they’ve already purchased. Other market-watchers such as Nucleus Research believe 2006 will be dominated by such trends as continued pricing pressure on vendors, a growing disillusionment with outsourcing, and the steady adoption of technologies that help stitch together current IT and Internet infrastructures. That is, with no paradigm-shifting technology in sight, the management of existing technology will get most of the focus.
And much of that focus will center on compliance. Gartner Inc. analysts Jorge Lopez and French Caldwell say that spending on compliance initiatives is growing at twice the rate of IT spending, and in some cases the entire discretionary portion of a company’s IT budget is given over to compliance efforts, leaving virtually no money available to pursue other opportunities. They argue that a race between the U.S. government and the European Commission for “regulatory parity” will make compliance projects a fact of life for most large companies between now and 2010, a trend exacerbated by activity at the local, state, and regional levels as authorities at all levels attempt to exert controls that will affect businesses in a variety of ways.
This need not inspire total paralysis, of course. Southern Co., an Atlanta-based electric utility, is evaluating a number of major technology initiatives, including the adoption of Voice over Internet Protocol networking and a new general-ledger system that would integrate with Southern’s entire supply chain. And as it does so, it is singing an increasingly common refrain. “One of the key things we’ve learned is that you need the business people and the IT people working shoulder to shoulder to make such projects successful,” says Mike Harreld, executive vice president of Southern Co. and CFO of subsidiary Southern Co. Transmission. “The IT people don’t have the experience in business, and the business people don’t fully understand IT.”
The Role of Finance
Sarbox has certainly brought finance and IT closer together, as our annual IT Directions surveys have found, although fewer CFOs this year than last (34 percent versus 48 percent) said that was the case. It’s hard to say whether that decline reflects specific frustrations with Sarbox audits or the fact that at many companies IT and finance have been working together more closely for longer than a year. Either way, many CFOs say that finance-IT cooperation is becoming increasingly important and that it goes well beyond the shared mission of compliance.