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Budget-tied CFOs still missing a strategic role

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9th Jan 2008
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Finance chiefs want to take a role in strategic decisions, and CEOs are keen to involve them in strategy. But most newly appointed CFOs are still quickly sidetracked into operational issues, and spend more time talking to those below them than divisional heads and other C-level strategists. A main part of the problem: other financial staff believe the CFO is there to sort out the accounting and reporting operations, not brainstorm with the board.

Most newly appointed CFOs spend too much time being briefed by their predecessor about operational issues, and too little talking to the CEO and business unit heads about strategy. That’s according to a global survey reported in the latest McKinsey Quarterly, compiled by the company's consultants in London, Hamburg and Copenhagen.

The poll, of 164 present and former CFOs across a range of sectors, confirms the obstacles that still stand in the way of moving beyond the budget and taking the forward-looking, wider-ranging view associated with other C-level posts. While their priority get involved in setting strategy, most new CFOs found themselves immediately immersed in operational issues. Recalling their first 100 days, 56% of the sample said that matters of budgeting, forecasting and management reporting had taken most of the time, with 42% also mentioning financial accounting, auditing and compliance.

CEOs are the most popular sounding-board because over 80% of them want the CFO to be an active member of the senior management team, directly contributing to company performance. But while chief executives support their strategic role, CFOs are pulled in a different direction by their finance staff – who mostly view them as still having a primarily functional role, ensuring and improving the quality of financial organisation.

Fundamental change – but mainly at budgeting and planning level
Asked where their time should have gone, 72% said strategic initiatives should have been among the three priority areas, but only 29% managed to make it so. Similarly, 45% believed that merger and acquisition or other business development opportunities should have been near top of their agenda, but only 11% said it had been during their first hundred days.

After budgeting, planning, compliance and reporting, other operational issues taking up more time than they should included performance management systems, IT systems and managing financial staff.

Despite resigned themselves to an operational focus, a significant proportion of CFOs believe they achieved a substantial shake-up during their first three months in post. Fundamental changes were initiated by 79% in relation to financial planning budgeting and analysis; and by 73% in management reporting and performance management. This was achieved even though only half were formally asked to produce a plan of action when they arrived. Such blueprints were most often demanded in companies that were attempting a turnaround, or had just completed one.

For 37%, fundamental change involved adding new functional positions, and for 34% it meant changing the membership of the core finance team. However, 70% or more reported making little or no change in terms of hiring and firing, eliminating financial positions or relocating the core team or other staff.

Good to talk – except to those at the bigger desks
Talking to others is the key to a successful early run as CFO, according to McKinsey's analysis. Those who expressed satisfaction with their performance in the first hundred days were generally those who held regular face-to-face meetings with their core team and other financial staff - even though they felt that too much was spent talking to other financial people, financial analysts and external investors, and too little to the company's C-level management.

While 80% of private-sector CFOs felt they were given clear guidance over what was expected of them, the proportion was far lower in the public sector, where over 60% believed they were given inadequate resources and support to make a success of the transition period.

More worrying for those in the private sector, while 88% of CEOs want their finance chief to be an active member of the senior management team, only 40% of finance staff share this vision. Before you spend more time talking strategy in the boardroom, make sure your more junior colleagues know you’re there, and understand why.

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