The traditional functions of a Chief Financial Officer used to include monitoring the cash flow, financial activities and serving as an accounting expert. They also included limiting unneeded spending and making sure that all financial decisions were in line with standard operating procedures.
The CFO’s traditional duties remain important, but are increasingly being replaced by the more strategic roles that are expected of them. Modern CFOs must be more growth-oriented and forward-looking as the pace of the business and the technology advance.
Accenture, a consulting firm, captured this change in its 2022 survey. It found that finance chiefs spend the majority of their time leading companywide efforts for transformation and optimization, with a focus on revenue growth and profitability.
This is a reality I have seen in fast-growing, small- and medium-sized healthcare companies where I held several leadership roles. They expect that you are not just a functional CFO who can deliver on the basic accounting duties, but also a strategic one, working closely with leadership to maximize profits and explore new growth opportunities.
How can you acquire this kind of strategic knowledge? Through trial and error, I have learned that the most effective way is to focus on your existing finance capabilities and responsibilities–those functions that are already within your purview as a CFO–and elevate them to deliver the strategic insight your company needs.
This article will share with you six key areas on which I would recommend that you concentrate. These skills can be used by a variety of people, including fractional CFOs, interim CFOs, and finance chiefs at public companies.
In order to expand and enhance your current capabilities, let’s start with the easiest ones. You’ll probably spend more time on the later topics, such as corporate vision. But I think you will find it worth your while to master them. You’ll see examples of how I use each concept.
1. Reporting and forecasting
A finance director’s job is to report and forecast. Software as a Service (SaaS), and cloud-based services have made it cheaper and easier to integrate powerful accounting software across an organisation. The CFO’s role is to ensure everyone with access to the systems are fully trained and using the system. A strategic leader will look for ways to dig deeper to uncover actionable insight for the company.
How can I best describe how to develop in this area? I will share how I showed one company how fully onboarding the team was an important step, even for leaders. When I was working for a healthcare company in its early stages, the CEO kept track of corporate finances on an Excel spreadsheet he stored on his desktop. He updated it at night and weekends. The practice caused obvious problems. His shadow financials are often inaccurate. His practice created a disconnect, which prevented his finance team to develop a regular update of information that would provide useful insights and be timely for the CEO. The CEO would have been blind without this routine when making decisions about sales and profits.
Upon joining the company, I worked with the team to standardize the financial, operational and accounting reporting templates and chart of accounts. We then decided on a calendar of reporting dates for the Finance team to provide the most recent income statement, cash flow report, balance sheet and segmentation by customer and product. This report provided regular information about the departmental performance, including a comparison of the numbers with the budgets, forecasts, and previous year’s figures.
We did not stop there. We used the data to make operational recommendations that could improve financial areas. It not only allowed the CEO to spend more time with his family, but it also provided us with strategic insights into the operations of the business.
2. Financial Planning and Analysis
A strategic CFO’s next step is to find ways to use standardized databases, and to develop quantitative skills for financial planning and analyses. FP&A produces data-driven responses to questions about financial or operational performance that can affect any part of the business. Some analyses are standard, like comparing current performance with the previous period, and others are more ad-hoc, like calculating return on investment of a new technology sales platform. The strategic CFO may use the same process and ask some of the questions that a functional CFO does, but with a proactive attitude.
As CFO of a large pharmaceutical company, I discovered that very few senior executives knew what customers, products, or geographies generated the most growth and revenue. When the company needed to increase profits quickly, this became a major problem. In order to address broader strategic issues, after implementing reporting improvements I carried out a comprehensive analysis of profitability across the multiple customer and business segments.
Using FP&A tools such as Microsoft Power BI we identified the areas of highest profit and loss. Then we broke down the data by customer, geography, SKU (product), product category and product. We didn’t simply produce a document that was sent to colleagues. Cross-functional teams were brought in to design and develop the reports and to glean insight from them. We also held in-depth discussions with executives of functional areas about changes in commercial operations and financial performance.
In a very short period of time, we had an overall understanding within the company as to which segments generated profits. We had a complete agreement amongst senior leaders to focus our efforts on the most lucrative segments. We were able to double our company’s profit in a little over a year with this strategy.
3. Manage Risk and Mitigation
Finance leaders who thought that risk management was a mere administrative side note to their financial oversight were shocked by the COVID-19 epidemic and supply chain breakdowns around the world. The CFOs of today must play a key role in encouraging teams to regularly assess risk and address mitigation questions. They must also look at risk management from the perspective of opportunities, finding out where they can create commercial openings.
From 2017 to 2020, for example, I managed a group companies who imported or assembled critical medical components in China. For many years, the companies enjoyed arbitrage at lower costs across borders and consistently increased gross margins. When I first joined the company, I saw operational, macroeconomic, and regulatory risks on horizon. In order to be able to allocate resources to the greatest material risk, we engaged our senior leaders to engage in stimulating quarterly discussions. Teams consistently stressed the operational and financial risk of any cross-border trade barriers that disrupt critical component shipments.
It was a foresight when the US-China trade war erupted in 2018. My group was prepared by our risk management and able to leverage backup components in Asia and Europe. By integrating risk management in the culture of the organization, we were able to not only minimize or eliminate risks but also limit the impact on our bottom line. This created commercial opportunities for the sales and marketing team, allowing them to gain market share. Our competitors continued to deal with interruptions while we delivered products and services reliably.
4. Digital Transformation
A CFO is used to asking department heads to work harder with less. The finance chiefs themselves can set an example by automating back-office tasks to save time and money while freeing employees from tedious repetitive work. Automating back-office operations can help finance departments deal with the constant flow of work that comes in tight deadlines. This includes monthly closings, urgent requests for analysis, and mergers and purchases. Stress levels are high when there is a constant shortage of hours and hands.
This transition is crucial. I have seen it first-hand. My finance team had only two analysts after a restructuring at a multinational manufacturing company. The team had to report and analyze financial data for 25 companies in the portfolio every month, within two days. Two people could not complete the copy and paste project on a spreadsheet within 48 hours. The only way to solve this problem was through automation.
The team restructured its approach and invested in robotic process automation for routine reporting. This helped the analysts to become expert programmers and business intelligence experts. These technologies allowed the analysts to finish the tasks of reporting in a single working day. The time saved was used to do analysis, and to work with leaders of the business to provide actionable insight to the report.
Our corporate development team took the same approach, using these lessons learned. They automate their monthly outreach to allow them 10 times more contact with prospective acquisition targets, and cultivate an expanded partner pipeline.
5. Talent and Culture
A CFO who is more involved with recruiting and nurturing talent can play a valuable role in gaining a strategic perspective. A strategic CFO, instead of merely advising HR about staffing needs, will work with HR to find ways to attract high-performing talent to the organization.
As an example, I helped to recruit a talented executive for a company I owned that manufactured healthcare devices, even though we knew it would be sold within the year. This person was asked to become the vice-president of finance and stabilize the business, as well as successfully close the deal, even though we did not have any specific roles lined up. It would have been difficult to convince this person if we had not treated him with honesty and transparency. We also wanted to retain him in an important role.
We delivered our commitment a year after sale and he was promoted to CFO for the largest business in the portfolio. He was then promoted three years later to the position of holding company chief finance officer, where he oversees all portfolio businesses.
In my role as CFO, I played a key part in the development of a finance leader with high potential. This helped me contribute to the long-term strategic plan by securing an employee that could guide the company into the future after the sale. All of this was happening in the finance division, but others across different departments noticed it and took similar steps to recruit and develop high-potential talents in areas such as sales, marketing and operations.
6. Strategic Planning
Finance chiefs bring a wealth of data to the table and a practical mindset when it comes to planning. This is an excellent opportunity for the CFO to help transform a business’s goals and capabilities by introducing acquisitions, or partnerships that will extend its competitive advantage.
While working for a cardiovascular diagnostics company in emerging markets that produced heart monitors, I was able to implement this. This company had accumulated terabytes worth of data on heart rhythms from the thousands of products it sold. The company did not use this data for commercial purposes, despite the fact that it was an unique asset. In a world of SaaS models that can be quickly commercialized, any source of large unique data was considered a possible opportunity by me as CFO.
The team was challenged to create an analytics service using the data while maintaining patient privacy. The team, after months of developing with local software providers, unveiled to the hospitals a service that would provide them real-time analysis and alerts when the software detects abnormal rhythms. This service enhanced customer relations and created a new revenue stream.
The strategic CFO can develop a unique point of view based on deeper insight and greater visibility about their organization. They will then be able to determine what M&A, products and capabilities could create transformative value. It’s also important to remember that your leadership is what will elevate your contribution to the growth of a company.
As macroeconomic conditions continue to worsen, the pressure on companies to achieve their targets will only increase. Leaders must be able to deliver growth. In this regard, the strategic CFO has a unique position. The modern CFO can transform their business by providing valuable strategic insight.