The title of this article may sound strange in an age where Finance business partnering is one of the megatrends in Finance. But bear with me. There’s a good reason why I’m going to argue that “the future CFO” should do less business partnering, and not more.
I’m going to start by arguing that, contrary to popular belief, the CFO’s role has already changed such that they are now seen as THE Finance Business Partner. There’s no need to berate them any more for being mere beancounters and scorekeepers. As a generalisation, especially in medium to large enterprises, most CFOs are seen as the CEO’s right hand, and it’s those two roles together that face the business owners.
But I’ll also argue that this has made CFOs so busy that they’ve become disconnected from the Finance function. They now almost look at Finance from the outside, as just an overhead to cut wherever possible.
And so, in order to meet the challenges of the business in the future, the future CFO’s role has got to develop into more of a functional leadership role. And that means future CFOs being disciplined in spending less time business partnering, and more time leading.
From Bean Counter to Finance Business Partner
The CFO’s role has changed over the last 30 years. Technology has been a key driver – not primarily ERP and Finance software, in my opinion, but more general digital innovation.
Let’s build a picture with some examples.
Online retailing – Amazon. If I know what I want, and I need stuff that isn’t groceries, Amazon is the first place I go. I just think it’s great that I can go from realising I need something to getting it the next day, or even a couple of hours later, without having to plan a shopping trip!
So, there’s impact on logistics – the internet has shifted postal services from letters to packages. GPS linked with the internet has enabled logistics planning to happen instantaneously.
There’s an impact on high street retailing – big out of town retail outlets are closing down and retailers are moving back into town centres. Some big names have gone out of business.
The media 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!
Daily newspapers are a thing of the past.
Communications are possible globally and immediately. If something happens in Birmingham, people in Brisbane and Boston can hear about it less than a minute later. And not just hear about it. See it and hear it directly from video.
All this means that the barriers to entry, even just in terms of capital requirements, in some sectors have been practically knocked down. That means more competition.
Access to global markets, and the affordability of global advertising over the internet, means new entrants can scale extremely quickly. Growth can be very fast.
Just think what this means:
- more entrepreneurs, and therefore more exit plans, IPOs, acquisitions;
- more individual entrepreneur success means more private equity investment;
- businesses are bought, sold, restructured, broken up, rebranded, 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 things, 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 role has changed because of the impact of technology on business, economics and management. The CFO is now the CEO’s right-hand person, THE Finance Business Partner.
The CFO as THE Finance Business Partner
And that leads to some problems.
The CFO now spends 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; explaining to shareholders, lenders and investors about the drivers of performance, the risks, the economy, the competition, acquisitions.
And yet all this causes a disconnect between the CFO and the Finance team.
You rely on your Finance team to just get things done, because you don’t have time to spend with them, and you can’t talk to them about your secret strategic projects.
The impact of that is felt as follows:
First, the CFO starts to feel that their 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.
Secondly, CFOs feel they ought to show leadership within the business by cutting the cost of the Finance function. They feel the pressure from the marketing and sales directors that the revenue they generate is being wasted on overheads. They feel guilty controlling costs in the business without leading the way in their own department.
So, thirdly, with no empathy for their 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.
And it’s a shame.
For one thing, it makes the Finance 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. There is so much data. There are so many global opportunities: capital markets, offshore shared services, franchising, joint ventures, opening new branches, distribution deals. And then there are the 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.
The “future CFO” is one 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 Finance function needs to change, and it’s the job of the CFO to lead that.
An Example – Finance Systems
As an example of where this can make a difference, let’s think about Finance systems. I don’t think I’ve worked in any business that was perfectly happy with its Finance systems and software applications.
One of the main reasons for that is that they try to use software for things it’s not set up for. And often it’s not that the software is bad, or it can’t do what they want. They simply set it up wrong.
Sometimes, also, to use the software to its best effect costs too much money, because of restrictive licencing. But that’s only realised too late after the commitment has been made.
The point I’m trying to make is that we don’t use Finance software to its full potential because we don’t have a clear view of what we want when we set it up.
And that’s because we set it up without having a cohesive picture of where these systems fit in our operating model. What are trying to do with them? Why do we need them? How important are they?
Without that, to be honest, all we try to get out of them is cost savings in Finance.
We assume that the team can already do the job, and that a new system will help us do it more efficiently, with less people. If not, we don’t need a new system, and we can stick with the one that’s 20 years old. Right?
But that’s not completely the right way of looking at it.
And what’s true of Finance systems is true on a wider scale of the Finance function in general. What’s missing is the overarching vision of what we want Finance to be and to do.
If we don’t have that, we run into problems. Which technology do we use for what? How do we get it working together properly? What are the priorities for investment? Our people get frustrated. The CFO gets frustrated. There’s no easy and cheap answer.
So, we have to be clear on our purpose as a Finance function, so that we understand the purpose of the resources we have, the skills we need, and the tools we need to fulfil our role.
The Purpose of Finance
So, here’s what I think we need to recognise, so that we can work this through:
The purpose of the Finance function is to drive business performance.
Not just report on past financial performance.
Not just analyse past financial performance.
Not just plan and forecast….
… in all three of those situations we’re observing things externally, looking from the outside in.
The reality is that we are in the business, part of it, helping it to perform as well as it can.
So where do I get this purpose statement from? It’s two things mainly.
Firstly, who do the owners of the business hold to account for the performance of the business?
And if the owners are looking to the CFO to make sure the business does as well as they expect, then the CFO needs a team that will help them to do that.
And secondly, the reason that the owners have that expectation is that the Finance function is in the unique position of having access to every part of the business. This is the reason I think this is the purpose of the whole Finance function and not just the CFO.
Without even trying, the Finance function sees the financial outcome of everything that goes on in the business. We have to understand the past performance, and be able to plan for future performance. And therefore, we have to understand every aspect of the business.
Finance is all about business performance. Not just processing transactions, reporting results or creating spreadsheets.
(Note: See my free mini course, How Finance Can Drive Business Performance, to learn more about how to start making that happen.)
The Future CFO – Leadership First
So, here’s the main point.
In order to move the Finance function forward, CFOs need to have the mindset of a leader. The leadership of the Finance team has to be their top priority. That way, all the Finance team is focused on business performance, not just the CFO and maybe a few others.
Many, perhaps most, CFOs see themselves as business partners, Board members, strategic players. Very few see themselves as leaders within their own function.
And that leaves their team alone to do their jobs the way they think best.
But some may say, “C’mon, we’re talking about adults, graduates, trained professionals. They should know what they have to do.”
But here’s the thing. We are all juggling multiple priorities, tasks, projects and activities. The way we decide how to prioritise, where to apply materiality, how much time to spend, what our output should look like, is to use a set of principles and filters. And most of the time we do that subconsciously and intuitively from the what we perceive as the purpose within that context.
What leaders do is to explicitly define those principles, so that decisions of team members are more aligned with the direction they need.
The more you talk about your vision, and the purpose of what your team does, the more clear their work becomes, and the clearer they can see how they are contributing to something bigger. That increases motivation and energy.
And it means that, in the heat of the game, the whole team is thinking about making their role count for the championship.
The CFO’s leadership mindset is key to moving forward and meeting the business challenges of the modern world.
And that’s why CFOs need to spend less time business partnering, and more time leading their Finance teams in becoming business-performance-driving powerhouses.
(And I’ll also be talking more about “the DNA of the future CFO” at the AICPA-CIMA Finance Transformation conference in London in September 2018. You can find out more about that here: https://aicpa-cima.knect365.com/finance-transformation-london/)