Enterprises are increasingly operating in a dynamically changing and fluid environment. They are constantly changing gears just to keep pace. CXOs are constantly looking for ways to overcome or create disruptions in a world becoming increasingly complex. Infosys Consulting Blog gathers a community of subject matter experts who are driving pragmatic conversations around that which is changing and that which needs to be rethought, redefined and redesigned for enterprises to achieve market-leading performance roadmaps.

« Banking. It will never be the same again. | Main | Holding on to the Central Bank Concept »

Cut the CFO some slack!

At a Forbes conference some years ago, Peter Drucker is said to have remarked, "I have just one thing to tell you today...No one, but no one in your company, knows less about your business than your See Eff Oh!" Whether you agree or not with the statement, it's impossible to be indifferent to it. If anything, it is one of the most provocative (thought provoking?) statements in business, bordering on blasphemy for some.
business-value.jpg

At a Forbes conference some years ago, Peter Drucker is said to have remarked, "I have just one thing to tell you today...No one, but no one in your company, knows less about your business than your See Eff Oh!" Whether you agree or not with the statement, it's impossible to be indifferent to it. If anything, it is one of the most provocative (thought provoking?) statements in business, bordering on blasphemy for some.

The key premises on which the renowned management guru made this statement are two-fold - that a CFO is primarily concerned with accounting and that accounting is inward and backward looking, akin to driving forward while looking in the rear-view mirror.

We've all seen companies run by CFOs and the pains they have brought to the management, employees, customers and investors. It brings to mind scenes of nit-picking for travel bills, petty expenses, focus on a 0.001% margin dip against a 'softer metric' such as customer satisfaction or simply closing the deal. CFOs have traditionally been the financial gatekeepers and have almost always been accountants. Their Key Result Areas (KRAs) have been maintaining the books of accounts meticulously for the internal and statutory audits and little else. Over time their roles expanded to include maintaining profit margins, which they translated as 'policing the spenders' to ensure margins.

The role of the CFO as a partner to the CEO in shaping the culture and strategy of the business is a relatively recent one that necessitates a shift in focus from costs to revenues.  Or put another way, looking forward while driving instead of backward.

That change in focus is a characteristic of modern CFOs who truly partner with their CEO and the rest of the C-suite towards a common vision. They use their accounting skills for strategic financial management, leading up to strategic business management. The lines between the CFO's role and those of business and other functional heads have blurred, so much so that finance is no longer a dedicated career path. For instance, Apple's VP of Retail Jerry McDougal, who has recently quit is being replaced by none other than their VP of Finance, Jim Bean.

Good CFOs help keep the brainstorming, strategizing and decision making groups grounded, without being penny-wise and pound-foolish. However sexy an idea may sound on slides or the whiteboard, if it is not going to make money, it is best put to rest sooner than later.
Remember what happened to Facebook soon after their IPO? The company had over 800m subscribers and was hailed as a leader that revolutionized the social networking space, and rightly so. Like the story of the emperor's new clothes, however, nobody seemed to be asking how the company planned to make money. Only when their share prices began tanking did investors start asking the question!

Whether or not Zuckerberg has gotten his act together now remains to be seen.  Facebook's share price still reflects investors' skepticism about the company's business model and money making ability. In my opinion, this story is a master case where not only did a CFO not run the company, the CFO did not (or was not allowed to?) do his job adequately!

A good CFO uses accounting, financial modeling and analysis skills as tools and means to an end, not as ends themselves. Historical financial statements are like a student's interim report card that can be analyzed to identify strengths and weaknesses of the business and strategize accordingly for the future. And that's where their utility ends.

It's missing this point that has earned this fraternity the wrath of critics. Having said that, nothing takes away from the fact that any business - its strategy, sales tactics, marketing prowess, etc. - is relevant only so long as it has the ability to earn adequate returns in the long-term and generate HARD CASH!

Does your CFO play the devil's advocate, show the mirror to the C-suite when required and participate in profit generating ideas and strategy? I'd like to know your thoughts about what you think a CFO's role should be and if that indeed is being played out.

Comments

Very aptly described. The lines "use accounting skills for strategic financial management, leading up to strategic business management", should be on top of mind for any CFO.

I know a pretty half dozen, who would not work as CFO unless they had strategic responsibility, sometimes in "MNC - arms length scenarios" it also becomes an appendage instead of carrying a complete C Suite, so a pretty serious partner for the other Executive team and ahead of the People Officer and the Operations Officer if such seeding were possible apolitically

Also the See-eff-Oh is someone who has access to the ingrained management method but is proprietarily lost on purpose in other cases, while being otherwise on target in many non Technology scenarios as well.

How would your thinking apply to a banking company CFO(s)?

best regards
amit
iimb-94

Post a comment

(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)

Please key in the two words you see in the box to validate your identity as an authentic user and reduce spam.

Subscribe to this blog's feed
 

Recommend on Google

Follow us on

Infosys on Twitter