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CFOs: No need to reinvent the wheel

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30th Jul 2013
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CFOs don’t need to radically invent themselves, but do need to understand which management role their organisation requires them to play, according to business software house Access.

Many who hold the role are being called upon to be more strategic, but as Access outlined in a recent whitepaper, understanding which process to implement in their company based on its needs is a far more valuable skill to learn.

Finance professionals are required to put on different ‘faces’ during their career, and this can mean taking on a broader business role than just accounting and finance.

Stanley Harding, CFO of oil giant Shell, warned against the beancounting mentality 50 years ago when he said, “It is still too common in the UK for the role of finance to be purely accounting and advisory.

“The criticisms one reads are that we are flooding the boardrooms through our ability to play around with balance sheets, yet with insufficient knowledge of the operations of the business to justify our position.”

This warning is as relevant now as in the 60s, according to Access, which asked whether CFOs have failed to get the message after all this time, or if it's the wrong message?

With help from the ICAEW, the paper identified five key financial management roles the CFO may be required to perform:

  • Foundation accounting work - Rick Payne, ICAEW’s finance direction programme manager, said that CFOs need to get this right, as many areas “feed” off it.
  • Compliance - This includes statutory reporting, tax reporting and activity in related areas. This is time-consuming, accord to Payne, but very important for the business.
  • Management control - This includes planning, budgeting, competitor analysis and so on: This is all the information CFOs need to run the business on and the controls that help people carry out the appropriate behaviours. On the management controls side, he adds that there is a need for improved forecasting to feed strategy, including being more clever around KPIs.
  • Funding  - This means managing the organisation’s relationship with banks and investors.
  • Strategy and risk - Includes final, high level involvement of finance in business strategy formulation, implementation and service management.

The role of the CFO has broadened over the last 10 years, the whitepaper says, and now includes playing a stronger role in corporate portfolio management and capital allocation, as well as being the corporate voice in investor relations.

But how can the CFO find out which role suits their company’sneeds?

Access sets out four different CFO ‘personalities’ and four questions to determine which kind of a CFO one may be.

The questions are:

1.       What are your corporate strategy and aspirations considering the nature of your industry?

2.       What is the composition of your top management team?

3.       What is the current level of capability in your finance function?

4.       What is the organisational and reporting structure of your company? Which areas report to the CFO?

The answers to these should help the CFO in determine which of the following four roles best fits them:

  • The finance expert These are CFOs with years of experience rotating through multiple roles within the finance function - i.e. controlling, treasury, audit, financial planning and analysis or business unit finance. They have intricate working knowledge of the company and are often experts in relevant finance and accounting issues.
  • The generalist These are executives with broad experience, including CFOs who have spent time outside of the finance organisation - i.e. in strategy, marketing or general management. CFOs that fit this description usually engage heavily in business operations and strategy and often bring strong industry and competitive insights.
  • Performance leader This group includes CFOs with a strong track record in transformations within the finance function and throughout the organisation, focussing on cost management, promoting the use of metrics and scorecards.
  • Growth champion This type of CFO is most common in industries with frequent disruptions that require dramatic changes in resource allocation and companies that plan to grow considerably or reshape their portfolio through aggressive M&A.

In addition to determining what kind of role suits their respective company’s requirements, CFOs need to master technology and be able to produce information and data that is timely and actionable, Access advised.

CEO of financial performance management consultancy Aramar, Mark Cracknell, suggested a twin approach to addressing this need:

  • Look at the company’s BI (business intelligence) systems, as 90% of companies have some kind of BI - but CFOs fall down on this when it comes to ‘actionable’ plans
  • CFOs need to produce forward-looking and planning information, which is a struggle for some CFOs who find it hard to stay on top of all the laborious detail work required to produce realistic plans.

Technology can support forward-looking analysis, which may demand investment in budgeting and forecasting systems that can manage the data and impose effective internal controls. 

CFOs also need to be up to speed on corporate key performance indicators (KPIs). If the CFO can understand all these components, they can raise their profile within the organisation and help it function more effectively, the paper concludes.

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