CFO as Architect of Value

CFO as Architect of Value

By Amrish Shah, Head of FP&A at Endemol Shine Group

 

What is different now – why is there a call for CFO to step up?

The challenges of running a modern business get tougher and tougher. Mainly externally driven challenges including regulation, increases in business complexity for example in the level of competition, the nature of competition, a more complex global supply chain, increases in the speed of change, in no small measure driven by the acceleration in computing and digital technologies. All this leads to a more uncertain and more volatile business environment.

How was the CFO looked at before and what does she look like tomorrow?

Prior to the world described above, a CFO could reasonably expect to have a fairly mundane life making sure that the numbers are correct and reported accurately and that the internal control environment was sound. In other words, as an oversimplification for sure, the CFO was making sure the books were okay. Now that has changed. CFOs are increasingly being asked to provide a lead in helping the organization make big, strategic decisions around an increasingly uncertain future. They are expected to, overnight, have fit for purpose management information and control systems in place whilst they deal with old, antiquated legacy issues in both. And, they are expected to nurture a very different finance talent organization, one that takes into account the changing expectations of motivation drivers of people from different generations as well as building a tech-savvy finance organization. An organization that challenges and cajoles and helps navigate to the future.

Why an architect?

The fundamental nature of a CFO’s role has changed from one of maintenance to building and developing. This requires much of what an architect does. Looking at what is the problem to solve, design thinking, choice-making, building, testing, deploying and evolving to stay fit for purpose.

Why value?

The nature of value and how it is recognized has changed and is changing materially. Before it was much more tangible, how much less so. Future value is also inherently more uncertain. Markets more complex so not just creating value but capturing it is key as well as then holding onto it (protecting, preserving). In the past, the CFO agenda was much more geared towards protecting and preserving present value. Now it is much more about creating future value and, of course, capturing it.

The big 5

There are 5 areas in which CFOs can help design, lead and drive value management for an organization in these times.

  • Volatility

Volatility needs to be actively managed. This requires the ability to predict & prepare. It requires a greater focus on building process excellence and building greater organization awareness of risk. It requires a mindset of being resolute and focused amidst much noise both externally and internally. Above all, it requires an eye for helping build underlying organization health and not just (short term) results. Technologies that help build more robust driver-based forecasting can be of great help.

  • Complexity

Complexity needs to be navigated. This requires the drive to standardize and simplify. It requires a focus on managing across internal organization interfaces, breaking silos, sharpening governance and reducing bureaucracy. It requires a mindset of flexibility. Driving agility through, for example, an operating model of shared business services. Process automation and workflow and collaboration enhancing technologies can be of great help.

  • Value

Value needs to be architected. This requires a focus on both effectiveness and efficiency. It requires a shift of focus from mere cost cutting to freeing up investment for growth, to focus on the quality of revenue management and gross margin expansion. It requires a move away from P&L focus only to Balance Sheet and Cash Flow. It requires serious cognitive chops. Fundamentally, it is about designing and engineering the primary decision-making processes in the organization. Technologies that can support clear decision-making processes by providing learning that improves the quality of the decisions made can help greatly here. Machine Learning technologies have some clear potential in this space.

  • Transformation

Transformation needs to be driven. Not just functional but, most likely, business-wide. This is likely to come in the form of both digital and data. This requires not only having a finance technology strategy but a clear focus on people and capabilities first. It requires the business to fundamentally shift to viewing and managing data as a core asset and therefore building a culture that focuses on decisions and the data required to support decision making is critical. This requires a clear growth mindset, rooted in possibilities and experimenting and learning. Technologies that will help build such a data-obsessed and digital culture could include the likes of mobile, cloud, social media and big data analytics.

  • Strategic Alignment

Strategic alignment needs to be fostered. This requires both influence and impact. It requires a laser-like focus on the financial and talent implication of big needle-moving decisions. And, then the ability to shift and allocate resources accordingly. It needs the CFO to be a credible business partner to the CEO and, along with the CEO and CHRO providing the ultimate oversight on organization health and resource allocation. This aspect requires a clear holistic perspective. Technologies that help model out big play strategic scenarios can be of use here.

Summary

In the past volatility would have been minimal and predictable, whatever complexity that existed would have been internal at best, value was often defined in the short term and was about protecting the present rather than creating the future, transformation was a word not even dreamed up yet and strategic alignment was less relevant in a more top-down driven environment. All of these have changed. This places an unprecedented level of change on the expectations of a CFO. The ability to address the five areas highlighted above by leading change, leveraging technology, building talent and forcing the organization to become more data, decision, learning and process-focused provides a perfect opportunity for CFOs to showcase the long-term value creation impact of a truly modern finance function.
 

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