The DNA of the CFO
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9 Martie 2011 |
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ERNST & YOUNG S.R.L. |
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The DNA of the CFO provides fresh insight into what it is to be a CFO today by talking to today's CFOs. This Ernst & Young report is based on our analysis of a survey of 669 senior finance professionals in Europe, the Middle East, India and Africa, and a program of in-depth interviews with leading CFOs and finance directors from these regions – allowing us to explore the distinctive qualities of this broad community of professionals. The research was conducted by the Economist Intelligence Unit.
The DNA of the CFO explores the expectations and aspirations of those in the job – and the skills and relationships that successful CFOs need to master the challenges and opportunities of the role. It is one of a series of Ernst & Young initiatives that seek to understand and support CFOs in their evolving – and unique – position.
It’s become fashionable to say that any ambitious CFO wants to be a CEO. But, in The DNA of the CFO a quite different picture emerges. We see a group of people whose unique optic on the business has rightly earned them promotion to the forefront. A group who are embracing their increasingly strategic remit. And, who see their career choice as one to be celebrated – not a staging post to the role of CEO.
Unprecedented demand for the CFO's unique perspective and discipline
Traditional finance skills of analysis, reporting and control are in demand outside of the finance function and the job of the CFO is broadening far beyond its technical heartland into a role that is much more "strategic" – in the broadest sense of the word. Leading CFOs are overturning outmoded perceptions of finance as "business prevention units" and repositioning the function as an enabling partner to the business. For many CFOs, the acid test is the extent to which business managers consult them for advice on key aspects of strategy. Just over half of respondents agree that this now takes place routinely.
What does strategic contribution really mean?
There is a wide variation among different finance leaders on the exact nature of their contribution to strategy. Around one-third of CFOs say they play an active role in developing and defining the overall strategy for their company. But, for a greater proportion, their contribution focuses on providing insight and analysis to support the CEO and ensuring that business decisions are grounded in sound financial criteria. For leading CFOs, this goes beyond being an "information provider" or "aggregator presenter." Their commercial understanding and analytical skills mean that this proactive, yet supporting, role is a vital part of understanding how different decisions will lead to certain outcomes.
The balance between objectivity and operational leadership
There is a delicate balance to strike between being the "objective, independent voice" of the business and assuming a broader responsibility for operations. A growing number of CFOs are adding operational responsibilities for functions such as IT and property to their portfolios. Given their firm grasp of finance fundamentals and their management strengths, it is easy to see why their roles are expanding. But, it also has the potential to increase the possibility of a conflict of interest. CFOs have a duty to be the independent, objective voice of the executive management suite and this can be tested by having an additional operational role that requires winning resource allocation to be successful.
A continued focus on the fundamentals
The CFO role is now more embedded in the development and enablement of corporate strategy and yet the financial crisis has forced CFOs to increase their focus on the fundamentals of finance as well. Compared with three years ago, it's the core tasks of cost management, risk management, cash flow and controls that dominate the CFO's priority list. This prevents CFOs from playing as big a role in broader corporate strategy as they would like. Only 37% of CFOs agree that they have enough time to focus on this area, while just under half agree that the crisis has caused them to refocus on controls and reporting, at the expense of more strategic activities. This is despite the fact that 75% of respondents say they currently spend 50% or more of their time on strategic aspects of the role.
The public face of company performance
Mastering sophisticated communication skills in order to build trust among an expanding universe of stakeholders is considered a critical aspect of leadership. Almost two-thirds of respondents say that, increasingly, the CFO has to act as the face of the company on all issues related to overall financial performance. A similar proportion agrees that, following the crisis, the CFO's key priority is to increase trust in the financial health of their business. But, relationships with external stakeholders, such as investors, analysts and the media, are a challenge for many. Less than half of respondents say that their relationship with investors is good or excellent, while just 21% give a similar rating to their relationship with governments and 25% to their relationship with the media. Indeed, these "softer skills" seem to be an issue for many CFOs. Asked where they need to enhance their skills and knowledge, respondents point to communication and influencing as the most important area for improvement.
A career destination in itself
The broadening scope of the CFO role, and the potential to influence corporate strategy and drive business change, means that most finance leaders enjoy a high level of career satisfaction. Yet, most believe that the challenges of the role mean that the ideal length of tenure within a particular company is only five years. Seventy-three percent of CFOs surveyed see their role as a destination in its own right and only 10% harbor an ambition to be the CEO. Interestingly, they report few "heroes" or role models within their own community from which to learn, which may be a reflection of the degree to which CFOs have historically invested in their external profile.
The CFO is playing an increasingly broad and vital role within today's organizations. The DNA of the CFO sheds an interesting light on what that role is and how CFOs can excel within it.
Contributing to strategy
"They may not be setting the strategy but they are an integral part of its formulation." - Caroline Raggett, Russell Reynolds Associates
Much has been reported about the increasingly strategic nature of a CFO's role. And, our research confirms a continuation of this trend with 75% of respondents saying that they spend 50% or more of their time on strategic aspects of the role, a number which increases to 83% of respondents in the future (see chart 1). However, the commentary on the CFO's migration from scorekeeper to strategist is now in need of an update, or at least, a clarification. What is the precise contribution that the CFO makes to strategy? Is the role of managing the numbers of less value than strategic advisor? Does developing strategy mean setting the long-term vision, or is this still the domain of the CEO – to be the big "blue sky" thinker?
The CFO is ideally placed to play a central role in strategy formulation. As the leader of the finance function, they should have both breadth of perspective across the performance of the whole company and a depth of perspective into where value is created. They are often more informed about a business's operations and underlying performance than anyone else in the company. "The people who are best positioned to help form the strategy of the business are the people who are in the finance area, because it's one of those functions that is uniquely interfacing with almost every other aspect of the business," says Andy Halford, CFO of Vodafone, the world's largest mobile phone company by revenue based in the UK. Simon Henry, CFO of Royal Dutch Shell, an Anglo-Dutch oil and gas company comments: "Often divisional executives are knowledgeable in their own space, but they don't see as much across the fence. Our ability to bring a common language to that discussion enables us to influence trade-offs for the application of scarce resource and capital."
However, answers from survey respondents suggest that the nature of a CFO's strategic contribution varies widely from developing strategy to enabling and executing the strategic vision. At one end of the spectrum, a strategic contribution can mean that CFOs play an active role in actually defining and developing the strategy of the organization. At the other end of the spectrum, the CFO's contribution may be more narrowly focused on providing information and analysis of the business to the CEO and the board.
Just over one-third say that they make an active contribution to defining and developing strategy. The majority of respondents, however, report their leading strategic contribution to be in providing insight and analysis to support the CEO and the senior management team. "The CFO is expected to be someone who provides guidance, advice and counsel on the bigger picture," says Firoz Tarapore, CFO of Dubai Aerospace Enterprise, a Middle East-based, global aerospace group. "It's not just the numbers, but what you do with them and how you can use that information appropriately."
