Finance once tantamount to being mundane, inspiring fear, boredom, or even both on the part of business leaders has transformed drastically. Today, finance has moved well beyond the realm of technical valuation with urgent changes in the business environment requiring CFOs to drive sustainable value creation in their organisations
The new business mantra prompted by unstable economic conditions and increasing global competition, seems to be "do more with less" the CFO is now the primary actor to champion the creation of business value from strategy to execution. What once seemed an incredulous sight- a finance executive sitting in a marketing meeting is now a reality. Finance has finally broken out of its cocoon and emerged from the recession with an additional focus on strategy.
The finance executives have also risen to the new age challenge realising their new role. According to a survey by Accenture, the scope of responsibilities for CFOs has expanded. The survey was conducted across Brazil, China, France, Germany, India, Spain, the UK and the United States from October to November 2010 , with over 1000, respondents , 60 per cent of which were CFOs, directors or heads of finance or managing directors of finance, and the remainder included vice presidents of finance or finance directors. The findings of the survey revealed that about 80 per cent of senior finance executives felt their scope of responsibilities has expanded, with finance also now overseeing programs in other departments across the enterprise. The departments which most senior executives identified as having to now manage projects include: information technology (43 per cent), strategy and business development (41 per cent), and human resources (39 per cent). They also mentioned having program responsibilities in risk and customer service (37 per cent each), procurement (35 per cent), marketing and sales (33 per cent), research and development (30 per cent), and supply chain management (25 per cent).
In addition to the expanded scope of responsibilities, 79 per cent of the senior finance executives surveyed cited the need of more flexibility in their operations for readily responding to ongoing market changes. Also, 58 per cent of them said this increased flexibility would be needed across their operations for the next six to 18 months.
With increasing globalisation, rapid technological advances, increasing organisational and market complexity not to mention the different impacts and rates of recovery post financial crisis all point towards changing balance power. We are indeed living in very interesting times! To thwart the negative impact of globalisation and emerging markets global influencing is required and global influencing needs international co-operation and leadership provided by the International Federation of Accountants (IFAC), the only organisation of the accountancy profession with global presence in 125 countries. With the global strength of more than 2.5 million accountants, more than half are employed in business and are known as the Professional Accountants in Business.
In the current business environment, financial executives encounter tough challenges in reforming their organisations; yield the intended results by assessing the efforts of other areas of the organisation (operations, sales, marketing, and engineering, information technology) without compromising on the critical business functions and ensuring capital and operating expenses. The PAIB Committee works to achieve global recognition of professional accountants as business leaders and strategic partners in building long-term sustainable organisational success by supporting the development of these professionals -CFOs.
Management gurus have acclaimed Innovation as one of the principal drivers for success. With the increasing global competition and mounting dynamism of the environment, growth of a corporation needs to be spurned through novel designs at all process and the finance department is no exception. Here, many lips twitch in a wry smile and the question is thrown out "Really, and what form does innovation take in the office of the CFO??" The question is not in particular a surprise as traditionally the CEO is known as the visionary and accountable for innovation, while the CFO as an operational policeman, a controller, reacting to problems and the pragmatic and cold-hearted voice of risk. This conventional view is off target, if not flat out wrong!
Today the CFO must contribute and lead in creating innovation and business strategy. The CFO being the only one able to link the strategic vision with the ground realities- is a true leader with an eye on both the goal and the playing field. The vital linkage of both the strategy and the realities of the health and operations of the company make the CFO a highly valued, if not critical, developer and enabler of innovation.
With the continuously evolving business environment, the new breed of CFOs has arrived and is here to stay; meet the "Agile CFO ".This new breed of CFO participates in the CEO's most critical growth agendas bringing their unique qualifications and characteristics to the leadership table. They advocate strategic change, and empower it through their decision-making authority and power within the organisation. The agile CFO enables innovation and is ready to step up to a new and more complete role. It is now time for CFOs to improve collaboration with CEOs to simultaneously grow revenue and improve margins rather than working in seclusion. CFOs are uniquely qualified to provide meaningful input to their organisations' current and future investments, participate in the broader corporate vision, and advocate and produce strategic transformation. CFOs that understand and appreciate this new requirement- being a catalyst of change and leading transformation- create enormous competitive advantage for their organisations.
Healthy businesses continue to test their effectiveness, even in good economic climates. They continually re-invent internal and external business processes. Some companies are more proactive than others. That is, they don't wait for a crisis to envelop them before they re-assess their business structures. They embrace change, not only as a means of survival, but as a constant in finance such successful organisations require their CFOs to have vision, and the ability to look beyond the core functions of finance while possessing the fortitude to use their financial acumen and insights to drive new value and elevated levels of business transformation and performance.
Most of the successful CFOs have embraced a broad interpretation of their role, involving themselves extensively in the management of the business and its future. They view change as imperative and seize the opportunity to drive improvement recognising the opportunity to shift from internally-focused financial management to activities that produce meaningful insights for improving competitive value and providing direction to the organisation. Post financial meltdown, there were growing demands for the involvement of the CFO's in the business at a broad and strategic level.
Economic turmoil intensifies effect and the impact; the organisations that lack the human capital of excellent financial leadership will be exposed more quickly, not only because of the failure to foresee and plan for the reoccurrence but also as their lack will leave them with reactive, instinctive responses as their only defence.
Futuristic CFOs, with their innovation are working to build a solid understanding of business value drivers and to develop a more integrated relationship with customers, operations, and suppliers. Companies endowed with the formidable breed of Agile CFOs have a clear competitive advantage over those that don't. How to build the competitive difference then? The Agile CFO through the following activities creates new opportunities and directives for the corporations.
Lead innovation through insight To foster innovation that matters, the CFO has an opportunity to act as the innovation role model. This goes beyond merely setting an example for the organisation, calling for the CFO to take real strategic and tactical action to drive insight to inform innovation and growth initiatives. Leading through insight the CFO:
-- Identifies business model innovation opportunities
-- Creates a Finance function that enables insight and flexibility for business model innovation.
Eliminate innovation inhibitors The Agile CFO and the Finance function should work to bring together the organisation's key assets to enable collaborative innovation. Cutting across divisions, functions and departments requires the simultaneous integration of strategy, data and technology. To accomplish this integration, the CFO:
-- Reduces structural complexity to facilitate collaboration
-- Creates global business process sight lines.
Create an innovation climate Majority of CFOs recognise the need to support governance. At the same time, fewer than 20 percent are applying innovation at high levels for new ideas, collaboration or analytics suggesting that even though many CFOs understand the opportunity for enabling innovation and know that one of their most potent powers is governance; few are using governance in support of serious innovation-based activities. The Agile CFO creates an innovation climate through:
-- Tracking innovation without stifling it
-- Treating innovation differently than business as usual.
With the support of PAIB the rising CFO can create, enable, preserve and report value for the organisation and stakeholders, with the first and foremost being recognising a Finance organisation that fosters innovation and learning. The traditional skills and attributes required for financial work are important but in an organisation facing today's complex challenges, are not enough. Today's Finance needs to take the numbers to the next level-understand the business impact, deliver a rock-solid analysis of business drivers, and provide an educated outlook on the future. This includes the need for the CFO to reshape Finance into a business-focused team.
In transforming finance to a value-creating entity the CFO needs to ask the following questions: What is Finance's primary role now, and what should it be in the future?
-- Is the entire team involved and knowledgeable about the business?
-- What are the key issues and challenges currently facing the organisation and industry as a whole?
The responses to these questions will surface the degree of attitude and skill change needed as well as the corresponding vision required to support Finance in driving maximum business value. In creating the vision for the transformation of Finance major changes are involved including:
-- Developing new skills
-- Adopting new structures
-- Implementing redesigned processes
-- Embracing new technologies
-- Changing the culture of Finance
To effect this change, the CFO must accomplish several key tasks: Articulate a clear vision that defines a compelling reason to change, and communicate that need to the entire organisation;
-- Work with the CEO to create a compelling change mandate, otherwise known as the "Burning Platform"; and
-- Make clear the fact that the status quo will be more uncomfortable than the desired new state.
While developing the vision it is imperative that it is in the context of the company's value chain and key issues affecting its industry. In addition must highlight the organisational culture needed, as well taking in consideration the expected reactions. The crucial point is alignment of the finance vision, CEO Agenda and the company's vision. For this it is highly recommended that the CEO be engaged in this process and clearly outline his/her expectations for Finance's role in company strategy and execution.
A common occurring mistake is the CFOs assuming they have covered the right items with the CEO. More often than not they had missed critical new items because they didn't ask a simple question: "What role do you want Finance to play in the future direction of our company?" This highlights another aspect an elevated need for the "softer" skills often lacking in traditional Finance organisation. As Finance takes on an expanded role helping business managers understand the economics of their business, Finance team members must understand the business themselves and be able to communicate effectively.
The power of open communication should never be underestimated and the vision should be articulated properly. The CFO and Finance team should think through and align the key elements of a Finance vision and work with the CEO to articulate the "story" of what Finance will look like in three years. When looking back at the end of the three years, those key elements will be the factors that made Finance successful in helping the company achieve its objectives. The vision needs to focus on increasing the strategic partnership with the company's operational areas and defining those key areas where Finance leads the business. An example could be:
Define needs of internal customers Develop competencies that can add value to the business
-- Address the "what" and "how" that tie key initiatives to overall goals
-- Clearly define the measure of performance against which the organisation's success will be evaluated.
Today working in a momentarily changing business environment, where only nimble and lean corporations survive and grow. The ability to adapt to an ever-changing landscape of business events is fast becoming a critical differentiator among competitors. CFOs who can effectively move their teams to anticipate and respond to the change will ultimately transform the impact they have on the company overall. However there is immediate need to plan for tomorrow as the growth and the development of the CFO is crucial to a better future. An important benefit of being a member body of PAIB is being able to grow together. The focus should be on developing and fostering the talent for the leadership through focused consistent quality in training and CPD for the member bodies, which creates a two way gain; input from the business community and early identification of new issues and challenges. Transforming Finance into an innovative and proactive business partner can be the difference in making the leap from a stagnant to one that scales great heights.
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