Will the CFO become the main Controller?
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August 2011 |
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HORVATH & PARTNERS MANAGEMENT CONSULTING S.R.L. |
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The traditional role and range of activities of a CFO are currently in a changing and developing process.
This becomes more transparent from the diversity of names currently used for a CFO in specialty magazines: “management consultant and strategic partner for Board of Directors’ colleagues, particularly for the CEO,” “Business Partner”, “Chief Value Officer” or “Chief Performance Officer” (CPO).
In the past different external and internal factors that influence the activity and role of a CFO were identified. Generally these refer to new or increased management and information requirements as a consequence of the continuous development of internal and external conditions. These changes have an ongoing impact on the activities, role and responsibilities of a CFO.
The main tasks a mid-level CFO performs show also a multifunctional development
Classic controlling, finance and accounting tasks are merging together more than ever. One key concept is to consolidate accounting and controlling processes. Additionally financial activity that deals with issues such as liquidity and funding should be orientated in the same direction. This is the only way to generate accurate cash flow forecasts.
Furthermore the differentiation of the task structure is intensively discussed. This is between the so called ‘transactional activities’ observed on a regular basis with high repetition and the so called ‘value increase activities’ which are performed by direct interaction with top management and describe this way an important part of the Business Partner’s role.
The first category of activities formerly mentioned includes accounting records or producing reporting standards while the second one contains preparing investment decisions or various economic scenarios. The base of differentiation stems from the different available ways of configuring these activities effectively in terms of systemizing, followed by various requirements from the persons that perform these activities.
A controller is usually seen as a Business Partner. Thus, the controller, respectively the CFO, is not just an information provider but becomes a discussion partner for top management in solving problems. Cumulative responsibilities and high complexity should be accepted as a fact. The cause lies in current business practices (globalization, volatility, discontinuities, etc.) and the increasing business requirements arising from managing a company as well as the necessary information to do so.
For example, in this context, a key challenge is to ensure that the performance of the whole company is considered the main objective rather than maximizing the profit of individual departments that could lower the cumulative gains. A CFO achieves this through:
- proper business design and management concept by using the right performance indicators;
- consistent definition of profit and cost centers;
- unitary principles for the company’s main operations;
- clear concept of performance measurement.
Another important responsibility is to introduce performance issues that lie behind the so-called leading indicators found on each level of the organization. The controller must know a company’s entire performance value chain. Using the related management he has to ensure that there is an effective controlling of each function in place.
The answer to the initial question whether the cfo will become the company’s central controller should be read as follows:
On the one hand, CFOs are familiar with new and high requirements. Therefore they consider themselves responsible to meet these requirements. On the other hand, in most companies CFOs are Head of Controlling. Thus there is a formal framework. In addition CFOs often have in their responsibility information system areas to strengthen this role. Access is granted not only to figures from the income statement, balance sheet or cash flow statement but also to the leading indicators mentioned above and non-financial information of great significance when measuring a company’s performance.
Who takes the new tasks and responsibilities in the end? Is it the CFO himself or the appointed Head of Controlling – this depends on the collaboration scheme between these two and on the profile of the involved persons.
According to our practical experience, the CFO can be considered an institutionalization of the modern concept of Controlling. We often see the role of a CFO as a “chief performance officer”. However a company’s performance is multidimensional and complex. Therefore who should be held accountable for the performance management of the company?
The institutionalization mentioned above rarely occurs in official projects and formal frameworks and often in many procedural, instrumental and organizing changes which aim to stabilize the responsibilities of the general performance. We had the opportunity to offer our support in this change and development process in various companies.
The future challenges in a developing CFO’s role include:
- Volatile markets;
- Discontinuities within economic development;
- Heterogeneous risks inside the global economy whose complexity is ignored.
A CFO must provide information regarding the future and therefore prepare early prevention indicators. He has to manage possible crisis and react in a flexible way to unexpected, fast economic improvements. These relevant challenges will shape development of a CFO’s role in the future.
Should you be interested in this topic and need more information please do not hesitate to contact us.
