In recent years the CFO's role has gone through a metamorphosis. Change is constant however the current change represents not just a shift, but a rift from what the role was just five years ago. One can attribute this change to some very poignant issues; the changing environment, global economic boom, socio/political changes, activist investors and dramatic technological advancement, however, the convergence of these complex issues has conspired to make the unprepared CFO's life an exceedingly risky and difficult one.
The role of the CFO has always required technical expertise. Primary was to excel at closing the books, manage assets and to report on the historical performance for the company. The CFO as the fiduciary had a mindset that was focused on the back-office on risk mitigation – firmly rooted in ‘value preservation’. That's what they were rewarded to do so that's what they excelled at. Organisations reacted and it was soon evident that as business started moving at light-speed, the CFO needed to keep-up but it became apparent they were actually getting left far behind. What they tried to do was to augment the skills that they had but in reality, a whole new type of CFO had to be created.
For current-day CFO's, technical skills are now a necessity. The ability to understand accounting practices and the peculiarities of what GAAP and tax related issues would be the most advantageous for the companies they work for is still important, however the business environment they have inherited stipulates that those prior skills were just table-stakes. What was needed was to move from what was value preservation to the value creation end of the spectrum. This demand manifested itself into the requirements that what the CFO had to do, had to be something different.
The CFO the internal customer demanded, had to be a true partner to the business. This ‘value creation’ has also manifested itself in a much more robust finance planning and analysis capability that started to get a lot more recognition. Technologies kept up with the role and there was a heightened focus around budgeting planning and forecasting in an enterprise tool and not an excel exercise. These tools quickly went to the cloud, became ubiquitous and started to produce startling results. What used to take months of time to do and left the organisation in a disorganized mess and was outdated as soon as it was launched, now the budget process has been narrowed down to a matter of a few weeks, saving incredible time and with the new tools available producing more accurate and more prescriptive results. In fact, the budgeting process has been completely eliminated by some companies who are progressing fast and seriously towards rolling forecasts that extend the vision for the company beyond an arbitrary 12 months. This is big! It allows for time to be focused on the more important tasks - forecasting results and anticipating risks.
True value creation is being unleashed at all levels of the organisation. The process and the technologies had become democratised and the results, a big release of innovation and creativity.
In the second half of this series, Vic will discuss the 5 crucial skills for the next generation CFO to deliver on that shift from value preservation to value creation and to become a trusted partner to the business.