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The CFO’s Strategic Blind Spot

The CFO’s role has changed over the last 30 years.

And technology has been a key driver. Not mainly Finance technology like ERP systems and the like, in my opinion. But certainly, digital technology has transformed the business landscape and led to a fundamental shift in the way CFOs are viewed and the focus of their work.

Let’s just think this through. Online retailing – Amazon. I just think it’s great that I can go from realising I need something to getting it the next day, or even a couple of hours later, without having to plan a shopping trip!

So, that impacts on logistics – the internet has shifted postal services from letters to packages. GPS has enabled logistics planning to happen instantaneously.

There’s also an impact on high street retailing – big out of town retail outlets are closing down and retailers are moving back into town centres.

The media has been revolutionised. Audio and video can be recorded, edited and distributed for free. Books can now be self-published and distributed anywhere in the world on demand with no upfront investment – I know because I’ve done it!

Communications are possible globally and immediately. If something happens in Milan, people in Melbourne and Minnesota can hear about it less than a minute later.

Critically, this all means that the barriers to entry, even just in terms of capital requirements, in some sectors have been practically knocked down.

That means more competition.

Access to global markets means growth can be very fast. And global advertising is dirt cheap.

30 years ago, there was no such thing as a Chief Information Officer. 30 years ago, IT departments were all about buying hardware, configuring servers and installing desktop software. Now cybersecurity is one of the biggest economic threats businesses face.

Low barriers to entry means lots of start-ups, more entrepreneurs, and therefore more exit plans, IPOs, acquisitions. More individual entrepreneur success means more private equity investment.

Businesses are bought, sold, restructured, broken up, rebranded, with greater frequency. It’s much easier nowadays to be a global player, with communications being so cheap, so expansion into new markets is a realistic possibility. Business has changed. Being in business is not the same as it was 30 years ago. The point I’m coming to is this:

With all those things, the business needs a numbers person that is commercially astute right at the heart of the planning and decision making.

The CFO is the natural fit, and therefore CFOs have naturally had to become more commercial and strategic to keep up.

 The CFO as THE  Finance Business Partner

But let me bring in a concern I have.

The CFO is now seen as the Finance Business Partner. They spend most of their time with the Board of Directors, the investors, the banks, the lenders, the corporate finance advisors, the lawyers. They are always talking about the big deals, the funding; talking with shareholders, lenders and investors about the drivers of performance, the risks, the economy, the competition, acquisitions.

And yet all this causes a disconnect between the CFO and the Finance team.

They rely on the Finance team to just get things done, because they don’t have time to spend with them, and they can’t talk to them about the secret strategic projects.

The impact of that is, firstly, that CFOs start to feel that the Finance team doesn’t support them. It’s continually letting them down with errors, late reports, analysis that doesn’t make sense, budgets that have to be revised, and so on.

And secondly, they feel they ought to show leadership within the business by cutting the cost of the Finance function. They feel the pressure from Marketing and Sales, that the revenue they generate is being wasted on overheads. They feel guilty controlling costs in the business without leading the way in their own department.

So, thirdly, with no empathy for the Finance team, they don’t invest in technology or skills within Finance, because that investment doesn’t normally have a hard, tangible benefit. And they don’t have time to consider the future for the Finance team anyway, because the business ties them up in meetings all over the place!

I’ve worked in several companies where we hardly saw the CFO in Finance. In one business recently, I was doing a contract for 6 months and never saw the CFO.

And it’s a shame.

For one thing, it makes the team less motivated, as they feel neglected.

But the more serious thing is that business moves and changes so quickly these days that CFOs cannot keep up with it on their own. They have so much data thrown at them, so much information potentially at their fingertips. So many global opportunities; capital markets, offshore shared services, franchising, joint ventures, opening new branches, distribution deals. Tax rules that change as governments try to keep up with technology and globalisation.

Now, more than ever, CFOs need the Finance team to step up and help them.

The “future CFO” is one who stays ahead of the game, because they have a team that knows what is needed, what’s important, what’s relevant and irrelevant, and how the performance of the business can be managed.

For the future CFO to succeed, they must harness the power of the team. Strategic thinking for the “future CFO” starts with thinking about the Finance function. The Finance function needs to change, and it’s the job of the CFO to lead that.

The CFO’s Strategic Blind Spot

And yet this leadership role represents the CFO’s strategic blind spot.

We are all used to the CFO being integral to business strategy development and strategic planning. Business strategy rightly gets a lot of time, methodical coordination and focus.

But how many CFOs run a similarly robust process for the Finance function? Not many, a small minority, according to my experience.

And in my experience that tends to reduce the strategic focus of Finance to cutting its own costs or rather scattergun attempts at process improvement and automation.

Proper strategy development starts with defining a mission, purpose and vision. It defines goals, objectives and KPIs in the context of that purpose and vision. It gathers information about current performance against those key objectives. From that come priorities and strategic plans, identifying resources and investment required.

To state my point very briefly, all this makes a difference.

If the CFO’s vision, and the way they want to take the Finance function forward, is around business partnering and driving business performance, then the priorities that come out of a proper strategic planning process would be around how to build that capability.

Without that, we just respond to business demands to cut costs, consume data or report the P&L faster. Finance Transformation ends up being big projects with narrow or vague focus – Offshoring to cut costs; Data warehousing and analytics (but why?); Faster close (for what benefit?)

I believe that to be more strategic about Finance, we need to be talking more in terms of what it takes to bring the whole of Finance in on driving business performance. The CFO’s strategic leadership here is critical. And this, I believe, is the core of what the “future CFO” is all about.

I talk more about these issues and concerns on my blog. See especially my most recent article, Why the “future CFO” should spend less time business partnering, not more! You can find that at www.superchargefinance.com.

And I’ll cover more of this when I cover “The DNA of the future CFO” at the AICPA & CIMA Finance Transformation conference on 3-4 September 2018, which will take place in London. Find out more here: https://aicpa-cima.knect365.com/finance-transformation-london/agenda/1

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