Today’s CFO is managing an ecosystem of expanding complexity.
Today’s CFO is managing an ecosystem of expanding complexity — thinking and operating globally, leveraging financial data and analytics to achieve profitable growth, challenging and enabling business strategies, and capitalizing on a dynamic regulatory environment — all with a view to achieving competitive advantage. In addition to this comes an expectation to acquire and nurture top talent and liaise and collaborate with a large matrix of stakeholders. CFOs are looking beyond their traditional finance role to become more collaborative and insightful business partners boosting the relevance and value they contribute to the business.
To manage all of these dynamics requires a truly exceptional individual that we call the Renaissance CFO, an individual who builds on the wisdom of the past, embraces the technology of the present and imagines the innovation of the future. Any senior finance executive must assume many roles — from comptroller to technology evangelist — but the Renaissance CFO is an individual who embraces and transcends all of these roles to be a leader within the organization and beyond the finance function.
To better understand the potential for the Renaissance CFO — and where change would have the greatest impact — KPMG has gathered the views of the global executives to whom CFOs report. KPMG surveyed 549 chief executives, business owners and chairmen of large companies with revenues in excess of €500 million (hereafter referred to simply as CEOs) across the globe to understand their changing views and expectations on the finance function. The data and insights from our survey revealed some stark differences between geographies, industries and growth metrics.
The findings from the survey reaffirm the critical role the CFO plays in the enterprise while also challenging the CFO to think differently and exude stronger leadership capabilities. One thing is clear: something has to change if CFOs are going to close the gap between the expectations of their CEOs and the reality on the ground. Are CFOs up to the challenge? Are their CEOs’ expectations realistic? What is the best course for CFOs who see the potential of becoming a more strategic business partner — or have set their sights on becoming a CEO?
CEOs have set a high bar for CFOs.
63 % of the surveyed CEOs from high- performing organizations believe that the CFO’s role will increase in significance over the next 3 years, as compared with other C-suite roles.
Almost one out of three CEOs feels their CFO is not up to the challenge.
30 % of the global CEOs say their CFOs don’t understand or assist them enough with the challenges they face in running their organizations.
Welcome to the age of the Renaissance CFO.
Global experience is the most important attribute a CFO can possess, say 48 % of all surveyed CEOs. European CEOs (60 %) seem to value global experience even more than their US counterparts (42 %).
CFOs need to approach the regulatory burden as an opportunity.
CEOs named the regulatory environment as the external factor that will most influence the future role of the CFO. But that is not necessarily a negative: 61 % of CEOs also see regulation as an opportunity to derive competitive advantage.
The CFO of the future leverages the latest technology.
Leveraging IT, such as cloud-enabled ERP systems, should be the main focus of CFOs in the future, say CEOs from high-performing organizations, yet less than half of CEOs from these organizations think their finance functions are doing a good job in exploring and implementing the best new technology.
Data and analytics will increasingly drive strategy and profits.
Applying finance data to achieve profitable growth is the greatest strategic value a CFO can bring to an organization, say 85 % of the CEOs of top-performing organizations.
CEOs put a huge value on people skills, but many see their CFOs as lacking in this area.
97 % of CEOs say that talent management is the most or equally important factor in improving the finance function, yet only 33 % give their CFOs a passing grade in talent management.
CEOs set a high bar for their CFOs. They want an individual who can maintain a full grasp on the numbers while keeping a forward-looking focus on customers and the markets, developing talent and leveraging the power of technology. At the same time, CFOs need to go beyond the numbers to tell a good story to analysts, investors and the press as well as turn data into actionable intelligence. They need to possess strong leadership qualities, understand and collaborate with operations, and think and act globally.
The CFO role is evolving faster than ever before.
But what does that new role look like and are today’s CFOs up to the challenge?
30% of CEOs say their CFOs don’t understand and assist with the challenges that they face within the organization
This is a tough ask for any one individual but there are strong forces driving these demands. Every CEO wants to harness new ways of engaging with their markets and their customers. They are worried about accelerating product life cycles and competitors upending their business model. Many are planning transformative acquisitions or major divestitures. They see shifting regulations across global operations driving the need for better data and analysis. And they all expect their CFOs to share in these priorities.
Not all CFOs are living up to the challenge. In fact, nearly a third of CEOs say their CFOs don’t understand and assist with the challenges that they face within the organization. CEOs at offices located in emerging markets were even more dissatisfied. Three out of five would not give their CFOs a passing grade when it came to assisting them. Why is dissatisfaction so high? Maybe part of the answer is hidden in the attributes that CEOs expect their CFOs to possess.
Automation, shared services and regulation are redefining the CFO role dramatically — but not uniformly. Global experience is now regarded as the most important attribute a CFO can possess while experience with transformation and innovation is also highly valued. Organizations are in a state of continuous change, and the CFO needs to be able to understand and have experience beyond the finance function identifying areas for growth and operational excellence across all business domains. This requires a range of skills, from the foundation and basics of the finance function to a strategic level with a focus on the outside world.
Fernando González, CEO of cement maker CEMEX, believes every CFO has a distinct set of skills. “There is the financial CFO, the strategic CFO and the operational CFO,” he explains. But he is also a realist. “There is no CFO with all these skills and capabilities at the same time,” he explains. “I think the one having the deepest knowledge of the business is the one that can make the greatest contribution.”
56% of CEOs believe the CFO role is destined to increase in importance over the next 3 years
Every CEO surveyed gave examples of how much they rely on their CFO for strategic guidance.
When asked to name the greatest contribution a CFO can make, CEOs ranked performance and growth first.
When it came to explaining how CFOs can use financial information to strengthen the alignment between finance planning and strategy, three words came up consistently: translate, interpret and communicate.
For example, Michael Bodson, CEO of Depository Trust and Clearing Corp., put it clearly: “My CFO has to focus on the numbers but also really understand what’s happening in the marketplace and be able to translate that into ‘What’s the potential impact on my business? Where should I be making investments? Where should I be backing off?’”
At most companies, the CEO remains the ultimate strategist. But even the most decisive CEO needs the strategic input of their finance team. Alex Molinaroli, CEO of Johnson Controls, for example, has been divesting some businesses and investing in the core operations he plans to keep and grow since taking the reins in 2013. Planning and executing divestitures at a company with 130,000 employees spread across six continents requires a strategically minded CFO. “In addition to his normal finance-related responsibilities, our CFO has a very active role in our M&A activity, including the separation and integration of businesses; tax and treasury matters; investor relations and strategic initiatives,” says Molinaroli.
“He is focused on our financial planning and long-term strategies along with related communications with analysts and our shareholders to ensure crisp and clear messaging.”
At Caterpillar, the heavy equipment manufacturer, the CFO has a more defining role in corporate strategy. “Since our CFO’s organization has the essential economic, financial and industry information needed to assist our business segments in defining their strategies, we’ve placed the strategic planning group under him,” says CEO Douglas Oberhelman. “Our CFO also plays a critical role in helping the company prioritize its investment opportunities to ensure we invest resources in the areas that best support our business model and enterprise strategy.”
The recurring themes here are clear: think strategically, know the business, focus on growth, and prioritize and optimize the value from investments.
CEOs are sending a clear message: they want to make the most of technology to find the most profitable markets and customers and figure out how to connect them with their business. This is an approach that goes beyond traditional sales and marketing by bringing data analytics to bear on the entire value chain.
Half of CEOs surveyed believe that the greatest strategic value a CFO can bring to an organization is to apply financial data analysis to achieve profitable growth, followed closely by deriving competitive advantage from the regulatory environment. Saif Al Falasi, Group CEO of Dubai-based ENOC, put it succinctly: the CFO’s biggest opportunity now is in translating all data — not just financial data — into coherent, concise and timely information to help business leaders make better informed decisions. “The CFO’s office is the ultimate custodian of consolidated information, both financial and non- financial, which is provided to the executive management as well as to the board and external stakeholders.”
“CEOs are relying on their CFOs to constantly measure, analyze and anticipate their clients, their markets and their channels — and create value from that knowledge to support their go-to-market strategies. Any CFO might be able to say, ‘Look, our market share has grown in Africa,’” says O’Halloran. “But a good CFO will say, ‘We may have grown 10 percent, but this is where we are in profitability. This is where I see market share. We should be at 20 percent. And here is what we should invest to reach that market share,’” he says. “This is a very different conversation”.
Who do we sell to and how? This begins by transforming raw financial data into actionable intelligence, but the data still needs someone to tell the story. “You’ve got to go to the inside of what the financial data is about,” says O’Halloran. “You could be absolutely correct from an accounting point of view and miss that you’re going to get killed by a competitor. You could miss the real story your customers are telling you.”
So, the key question is: Where are the opportunities for us to add value to clients and how do we get value back in terms of what our returns might be? “It’s much more complex looking at the entire supply chain rather than being totally inwardly focused,” he says. “There has to be a much greater understanding of the value chain across the entire spectrum. The CFO has to understand it from the client’s viewpoint and from our viewpoint.”
As many organizations continue to transform into a more customer-centric business, finance still has a way to go in leveraging the vast amount of customer data to provide valuable insight. Leveraging IT and analytics to take advantage of evolving market opportunities continues to increase in importance for the enterprise and the CFO. The key is having the data, intelligence, skills and empowerment to act on this information.
CEOs expect a lot of their CFOs. They want leaders who drive strategy and motivate teams across the enterprise. They are looking for a closer partnership between finance, technology and operations — led by an executive with global experience who understands the industry and the market. Most of all, CEOs need someone who can execute when it comes to data analysis, interpretation and modeling, from crunching the numbers to telling the story. They want an individual who can transform every challenge into an opportunity.
In fact ‘opportunity’ was the way many CEOs described what they wanted out of their CFOs for everything from increasing regulation to mastering the complexities of data analytics. No individual could do all of this alone. Underpinning the success of any good CFO are the right systems, the right people and the right data capabilities. What does it take to be a truly great CFO?
This is a journey. The CFOs that embrace these challenges will not only add significantly more value to the business, they will also become stronger leaders both, personally and professionally. REFLECT. THINK. ACT.
Conall O’Halloran is the Head of Audit at KPMG Ireland.
This article first appeared in Accountancy Ireland and is reproduced here with their kind permission.
© 2017 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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