Finance in most organisations post 2008 crisis have been expected to play the part of a strategic partner as opposed to being just the number crunchers producing statutory and regulatory reports. This expectation started gaining ground when CEOs found themselves inheriting not only high cost finance functions but also quite incapable of properly aligning their enterprises with financial strategy – a key competency for the tough new times. However, the top teams leading finance functions in most companies have struggled to keep pace with the increasingly accelerating demands and expectations placed on them.

To be fair, some progress has of course been made and many finance functions have drastically reduced their cost while at the same time becoming more strategic. But even today, CFOs do not get around to spending much more than just 40% of their time as a strategist for their companies. They are mostly bogged down in tactical activities and decisions pertaining to maintaining the day to day of their function rather than guiding the direction of the firm and setting the right expectations for the various departments. When businesses and their chief executives are grappling with strategic questions like how to design and implement truly adaptive business models or how to balance innovation with industrial and cost neutral operating models, CFOs are finding themselves one step behind – only playing catch up. This is surely an unenviable situation if gaining a seat at the top table – to advise and shape the company’s future with cutting edge financial expertise, is a key success enabler for the firm.

Many CFOs have risen from amongst those bright minds that are also popularly known as “financial wizards” and are highly respected for their logical and computational prowess. So, is it then just the problem of being distracted by the “urgent” rather than the “important” as Stephen Covey had famously formulated years ago? Such a diagnosis will quickly point to “better time management” as the obvious solution. I think that while the problem can certainly be seen through such a lens and CFO time is definitely a scarce resource that can benefit from better management, the underlying causes must first be unearthed before any reasonable solution could be successfully implemented.

To me, three factors stand out as the likely key issues that are thwarting the CFO of any large corporation today:
1) There have been a huge focus on cost cutting in all sectors since 2008 and in many cases muscle has been cut along with fat. As so often happens, companies have adopted cookie cutter approaches to business transformation in the name of leveraging the best practices and experience curve of other companies that have gone before. Consultants despite good intentions have only adopted each other’s toolsets and methodologies with minor adaptations and tweaks at best. Finance having followed the lead from the wider parent business in general have unwittingly stepped into the same trap. This is why many finance transformations have only partially succeeded or failed altogether with change fatigue and employee disengagement as the likely results. Some CFOs have therefore managed to create even more urgent problems to solve instead of creating the bandwidth to focus on what really matters.
2) Lineage and team composition naturally predisposes CFOs towards number crunching and tactical execution. Thinking in terms of creating new markets, targeting fleeting growth opportunities, becoming the customer’s advocate, or embedding transformational practices using emerging technology is not familiar ground for most CFOs. Finance has always been about keeping score and incremental planning and forecasting for a world that is inherently stable and predictable after all. Yet, these are exactly the kind of challenges that chief executives want their CFOs to own and support today without of course abdicating the traditional responsibility for corporate stewardship.
3) Unprecedented pressure and demands from regulatory and statutory agencies in recent times have only led to a much greater focus on control and oversight aspects of the job. This has resulted in ever more governance meetings and steering forums. These forums are often about fire-fighting over issues that previously were managed lower down in the hierarchy or sometimes went undetected and uncorrected entirely. While no one can argue against the importance of robust control mechanisms, is this the best trade-off against CFO time?

CFO predicament

CFO predicament

So how can some of the above issues be addressed? Being true to my profession of management consulting, I would boldly declare that “it depends”. But it is not fair to cut it there of course.

When it comes to cookie cutter approaches to Finance Transformation, the one great lesson is to design your own programme taking into full cognizance what has worked and not worked in your company before. Every organisation is different and there is really no one size that fits all. It is tempting to hire consultants who specialise in Finance Transformation and promise to let CFOs re-use all the good stuff that have worked wonders in finance departments of other reputed clients. But I’d rather put my bet on the one that designs a custom solution based on an in-depth initial analysis of my company’s specific situation. Don’t get me wrong, experience of other finance transformation programmes and an understanding of finance as a function is still a key requirement and I am not suggesting reinventing of the wheel. But utilising the experiences of internal resources, being able to distil their combined wisdom, and igniting their ability to think creatively and innovatively is what is of real value in the end. This isn’t always easy as it involves working with soft aspects like corporate culture but why would you pay top dollar to consultants otherwise?

Expanding the skill base and exposure to how other parts of the company are coping with new challenges can be the way forward too. Out of the comfort zone is where the magic happens after all. While there is usually a lot of movement of staff between various departments, how often does that happen for finance people? Also, in addition to secondments and learning stints, staff in finance could benefit from establishing direct supportive relationships with frontline businesses. Business partnership roles can measurably address the skill and exposure gap that typically exists in finance. This has been a welcome initiative in many companies in recent years and one would have to argue very hard to establish why this will not work in any specific organisation. Another innovative way is for finance to start assessing the company’s performance and operations using new and alternative methods – for example, adopting Lean accounting principles will enable staff at all levels to look at performance from a different viewpoint and throw open optimisation opportunities that would not have been apparent using traditional cost accounting techniques.

Finally, governance mechanisms need to become not just more effective but more “smart” and “efficient” to begin with. Adding yet more layers on top of other layers of control will only partially alleviate the current pressures. What needs to happen according to me is the embracing of the total quality management and six sigma principles of designing in quality into the systems and processes (in other words, designing “out” errors and defects). “Big data” and/or integrated analytics can play a role in identifying specific risks and failure points while stress tests of various kinds can be used to assess the resilience of the overall system – this will enable decisions regarding the type and intensity of controls required. All this will steer the CFO away from using a shot gun approach to governance to replace it instead with a targeted one that is both light and lean.

In summary, it boils down to a smart CFO creating a smart Finance function that invests wisely in its own liberation from historic mind-sets, skills, and approaches that belong to a bygone era. With perhaps a little help from the right consultants along the way!

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Disclaimer: The point of view and opinions expressed in all my blog posts are my own and do not necessarily reflect those of my current or previous employers

April 19, 2016

The CFO’s Conundrum

Finance in most organisations post 2008 crisis have been expected to play the part of a strategic partner as opposed to being just the number crunchers […]