Why culture and strategy are the key to future CFO and Finance success

By Andy Burrows

I do quite like that saying (originated by Peter Drucker), “culture eats strategy for breakfast!” I’m not quite sure what it means exactly... but it conjures images of tasty eggs, bacon, sausages, and maybe a couple of slices of toast, so it makes me smile!

But what of culture and/or strategy in the Finance function?

I’m going to argue in this article that Finance is increasingly under pressure to change. Or, more positively, we’re presented with an opportunity we should be reaching for more confidently than we are.

And that’s the opportunity to be involved in business decisions, the opportunity to drive business performance through helping to improve performance management.

The irony is that it’s the CFO who often stands in the way of the Finance fulfilling its potential to help the business and create value. And that’s because the CFO often has cultural blind spots and strategic blind spots.

The drivers of change in the CFO role

The CFO’s role has changed over the last 30 years.

Most people seem to suggest that the CFO’s role has changed because of Finance technology, like ERP and CPM systems.

And technology, I believe, has been a key driver. But not mainly because of Finance technology such as ERP systems and the like, in my opinion.

My argument is that the CFO’s role has changed because business has changed.

And there’s no doubt, digital technology has transformed the business landscape.

That has led to a fundamental shift in the way CFOs are viewed and the focus of their work.

Let’s just think this through...

Online retailing – I can go from realising I need something to getting it the next day, without having to plan a shopping trip!

That impacts on logistics – the internet has shifted postal services from letters to packages. GPS has enabled logistics planning to happen instantaneously.

There’s also an impact on high street retailing – and therefore construction, land ownership, property management and maintenance.

The media – this has been revolutionised. Audio and video can be recorded, edited and distributed for free. Books can now be self-published and distributed anywhere in the world on demand with no upfront investment – I know because I’ve done it!

Communications - now possible globally and immediately, and affordably. If something happens in Milan, people in Melbourne and Minnesota can hear about it less than a minute later.

Critically, the impact of all this means that the barriers to entry, even just in terms of capital requirements, in some sectors have been practically knocked down.

That leads to more competition and volatility.

Access to global markets means growth can be very fast. And global advertising is dirt cheap.

30 years ago, there was no such thing as a Chief Information Officer. 30 years ago, IT departments were all about buying hardware, configuring servers and installing desktop software. Now cyber security is one of the biggest economic threats businesses face.

Low barriers to entry means lots of start-ups, more entrepreneurs - and that means more exit plans, IPOs, acquisitions.

More individual entrepreneur success means more private equity investment.

Businesses are bought, sold, restructured, broken up, rebranded, etc, with greater frequency. It’s much easier nowadays to be a global player, with communications being so cheap, so expansion into new markets is a realistic possibility.

Business has changed. Being in business is not the same as it was 30 years ago.

The point I’m coming to is this:

With all those pressures, the business needs a numbers person that is commercially astute right at the heart of the planning and decision making.

The CFO is the natural fit, and therefore CFOs have naturally had to become more commercial and strategic to keep up.

The CFO as THE Finance Business Partner

But let me bring in a concern I have.

The CFO is now seen as the Finance Business Partner. They spend most of their time with the Board of Directors, the investors, the banks, the lenders, the corporate finance advisors, the lawyers. They are always talking about the big deals, the funding; talking with shareholders, lenders and investors about the drivers of performance, the risks, the economy, the competition, strategy, innovation and M&A.

And yet all this causes a disconnect between the CFO and the Finance team.

They rely on the Finance team to just get things done, because they don’t have time to spend with them, and they can’t talk to them about the secret strategic projects because of NDAs (non-disclosure agreements).

The impact of that is, firstly, that CFOs start to feel that the Finance team doesn’t support them. It’s continually letting them down with errors, late reports, analysis that doesn’t make sense, budgets that have to be revised, and so on.

And secondly, they feel they ought to show leadership within the business by cutting the cost of the Finance function. They feel guilty controlling costs in the business without leading the way in their own department.

So, thirdly, with no empathy for the Finance team, they don’t invest in technology or skills within Finance, because that investment doesn’t normally have a hard, tangible benefit. And they don’t have time to consider the future for the Finance team anyway, because the business ties them up in meetings all over the place!

I’ve worked in several companies where we hardly saw the CFO in Finance. In one business recently, I was doing a contract for 6 months at a fairly senior level in Finance, and never saw the CFO.

And it’s a shame.

For one thing, it makes the team less motivated, as they feel neglected.

But the more serious thing is that business moves and changes so quickly these days that CFOs cannot keep up with it on their own. They have so much data thrown at them, so much information potentially at their fingertips. So many global opportunities; capital markets, offshore shared services, franchising, joint ventures, opening new branches, distribution deals. Tax rules that change as governments try to keep up with technology and globalisation.

Now, more than ever, CFOs need the Finance team to step up and help them.

So if we want to talk about “the future CFO”, that would be the CFO who stays ahead of the game, because they have a team that knows what is needed, what’s important, what’s relevant and irrelevant, and how the performance of the business can be managed.

For the future CFO to succeed, they must harness the power of the team.

The “future CFO” starts with thinking about the Finance function.

The Finance function needs to change, and it’s the job of the CFO to lead that.

And that’s just the job they’re generally not doing.

And, as a result, Finance functions are left with culture and strategy that are confused and dissatisfying.

The CFO’s cultural blindspot

If you ask most people who work in large Finance departments to describe the culture, I’m pretty sure you hear words like:

• Long hours
• Stress
• Unreasonable demands for figures at short notice with no explanation
• Underappreciated
• Incessant cycle of churning out numbers that people feel entitled to question, shoot down, deliberately skew, spindoctor, misinterpret, blame shift or just simply ignore (and present their own!)

Talita Ferreira and Anders Liu-Lindberg recently published an article on LinkedIn that was very good on this subject of Finance culture.

They pointed out that culture is something that affects the way we interact with each other and the rest of the business. “... We, as finance leaders, create experiences for our teams and the people that work for us. These experiences create certain beliefs in their minds. These beliefs, in turn, create habits, and then these habits drive their actions, and in turn, actions are what drive the results of the organisation.”

If we’re to reach that goal of having a Finance function confidently playing a critical role in business decisions and performance management, then CFOs and senior Finance leaders need to start being more intentional about creating that culture within their Finance function. It’s all about having a consistency in the way we talk, act and treat each other, what we prioritise and how we prioritise.

The CFO’s strategic blindspot

CFOs also have a strategic blindspot.

We are all used to the CFO being integral to business strategy development and strategic planning. Business strategy rightly gets a lot of time, methodical coordination and focus.

But how many CFOs run a similarly robust process for the Finance function? Not many - a small minority, according my experience.

And in my experience that tends to reduce the strategic focus of Finance to cutting its own costs, or rather scattergun attempts at process improvement and automation.

Again, if you asked the Finance team on the ground what the strategy for Finance is in your large organisation, I think they’d say two words in the majority of cases: “Be cheaper!”

But my point isn’t to criticise that as a strategy, per se.

My point is that the method for coming up with that strategy is normally something like this: “Everyone else is doing it, so we need to as well. Period!”

And yet, proper strategy development starts with defining a mission, purpose and vision. It defines goals, objectives and KPIs in the context of that purpose and vision. It gathers information about current performance against those key objectives. From that come priorities and strategic plans, identifying resources and investment required.

To state my point very briefly, all this makes a difference.

If the CFO’s vision, and the way they want to take the Finance function forward, is around business partnering and driving business performance (which is what it should be), then the priorities that come out of a proper strategic planning process would be around how to build that capability.

Without that, we just respond to business demands to cut costs, consume data or report the P&L faster. Finance Transformation ends up being big projects with narrow or vague focus – Offshoring to cut costs; Data warehousing and analytics (but why?); Faster close (for what benefit?)

I believe that to be more strategic about Finance, we need to be talking more in terms of what it takes to bring the whole of Finance in on driving business performance. The CFO’s strategic leadership here is critical.

And this, I believe, is the core of what the “future CFO” is all about.

Let us know what you think in the comments section at the bottom of the page...

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