If you are a chief financial officer, you are probably already aware that your role is undergoing a historic transformation. You are no longer seen primarily as a wielder of the sharp pencil. Instead, you are the mouthpiece of focused investment, asking the right questions and providing the right insights so that everyone understands when to say no and how to say yes. You help the company turn down many activities so that the few most important can thrive. The deciding factor is strategic value. The allocation of resources must now favor a company’s most distinctive capabilities—those differentiating things it does particularly well that enable it to outperform competitors over time.
To be a strategically oriented CFO in companies that differentiate themselves this way, you will need to develop certain skills, talents, experience, and support. This new role also accentuates your ongoing position as a voice of reason on M&A—favoring acquisitions that fit well with the company’s capabilities system, and recommending divestitures of products and services that don’t. Finally, you are called upon to facilitate change and collaboration in addition to financial tracking and compliance.
Value Chain Insight
Although the CFO is typically the company officer charged with optimizing performance, many CFOs do not (or cannot) spend enough time helping business leaders understand the factors that could affect them. Realizing the true performance potential of the company requires the CFO to develop an unbiased, holistic, end-to-end view of the company’s full value chain—from customer needs to back-office operations to suppliers’ contributions to competitors’ positioning—and pinpoint the places that need attention. The CFO should then help business leaders convert these insights into specific action items and initiatives.
Leveraging Business Drivers
All CFOs define the metrics that track performance, which means defining the ways in which success is recognized. Since the numbers reveal trends, risks, and opportunities, these metrics also determine the company’s awareness of the outside world. A strategically oriented CFO can thus ensure that the whole company focuses on a few key business drivers that convey a broad understanding of the value proposition and how the company fulfills it. Such a CEO is among the company’s principal levers for articulating and delivering its strategic agenda.
To identify and track value drivers for each business, successful CFOs draw on all the sources of information available: enterprise-wide operational data, capital market trends, and vast amounts of financial and nonfinancial data. They take advantage of the deluge of data now available on business activity: market and company data, financial results, and data gathered from online employee and customer activity. At some companies, the IT function reports up through the CFO. At others, the CFO works in partnership with the CIO to develop analytics capabilities, thus arming the businesses with the data and operations insight needed to enhance performance.
If you are a chief financial officer, you are probably already aware that your role is undergoing a historic transformation.
Attention to Talent
Leading CFOs invest a great deal of their time in recruiting, meeting personally with team members at a variety of levels within the function, and making sure people recognize that the company is committed to their success. That’s because the caliber of the finance staff is crucial to the success of the company.
The most successful CFOs we know tend to start their tenure with an unsparing gap analysis of their own team. They often get directly involved in recruiting new talent; in providing formal training, mentoring, and personal coaching for promising staff members; and in rethinking the competencies required for promotion. These days, along with the expected level of financial acumen, those competencies might include strategic thinking, strong leadership and communication skills, or operational insights.
Fran Shammo, CFO of Verizon, has implemented a sweeping transformation of the finance function, in part to change the way talent is developed. The career path at that company, for example, now involves rotation through a variety of geographically disparate and operationally diverse assignments. “If you never get to the wireless division or a regional office,” says Shammo, “you don’t gain the perspective of the customer. If you focus only on the numbers, you’re not looking at the competitive environment or customer need, and you could lead the business down the wrong path.”
The most effective CFOs use their influence to help make the organization stronger and more flexible in general, and more resilient in the face of shifts and disruptions. These CFOs move beyond encouraging people to use resources efficiently to more sophisticated efforts such as helping build the kind of culture where people naturally want to invest only in projects linked to the capabilities that matter most. Cultural engagement is a stretch for many numbers-oriented, analytically inclined CFOs. But if they can master the skills, it gives them great impact.
Integrity and Presence
To the outside world, CFOs have long been regarded as the financial gatekeepers of the corporation, the guardian of shareholder value. Now they are also the internal conscience, ensuring that all projects are aligned to create enduring value, and that people aren’t distracted. As John Rogers, CFO of Sainsbury’s, says, “It’s absolutely critical for a CFO to have a natural integrity. You need somebody who’s capable of walking that...tightrope between supporting the individual businesses and making the right decisions for the overall enterprise. It’s quite a delicate balancing act.”
Integrity is not just a matter of probity; it requires skillful communications, and the kind of authentic leadership style that is sometimes called presence. You have to set a tone of transparency and candor, forming trusting relationships in all directions: with the CEO, business unit leaders, regulators, and the board.
Perhaps the most important relationships you build are those you have with other functional leaders. The old days, when you competed for resources and a seat at the table, are gone. Today, you cannot be successful unless you collaborate closely with the chief information officer to manage data, with the head of human resources to shape the culture, with the business unit presidents to invest in the right places to create value, with the chief operating officer to gain the most value from operational investments, and with all of them to design and build cross-functional capabilities. Spend time with these leaders developing ways that they can use finance to improve their effectiveness and distinguish worthwhile projects from lower-priority, less strategic distractions.