Recently, I saw a question posted on Linked In, that asked for comments on how people saw the role of the CFO in today’s business. It’s an interesting question and one worth exploring.
I’ve had the pleasure of working with many CFO’s across the world from small to large-scale public companies and in the last 15 years, I’ve seen quite a shift in their attitudes, skills and positions in the company. My observations maybe a little tongue in cheek, but I think they illustrate a point.
I like to think of it in terms of ‘phases of an evolution’. I believe we are now in the third phase.
PHASE 1: SHARPENING OF PENCILS
Phase 1 was when CFO’s weren’t CFO’s at all. They were believed to wear round spectacles, carry a ledger around with them and mark entries in said ledger with a pencil that was kept constantly sharp. They were, in effect, (metaphorically speaking), bullied by the rest of the company, merely there to account for everybody else’s contribution to the success of the company. If you had asked a company executive to explain what the words Chief Financial Officer actually meant in the phase 1, he or she would have said it stood for ‘In the way of business’ or ‘to account for’.
In phase 1 they were considered cautious and conservative and avoided risk at all costs. They were there to record the transactions of the business and produce the report that the rest of the business took credit for.
PHASE 2: YUPPIES WAVE THE WHITE FLAG
As the world entered phase 2, the yuppie’s had all but taken over the business world. Business just seemed to be one big party and things were looking pretty bleak for our CFO until the party came to a dramatic end towards the end of phase 2 when much of the western world fell into a recession. Now the CFO came to the attention of the business. He naturally had to. Business was in a mess and only one person could get them out of it – the guy who counted the money and knew what business could or should spend. Let’s also not forget that in these bleak times, in lots of cases, the only person the investment community and the Board wanted to hear from was the CFO.
In phase 2, the CFO had also been involved in buying various different technologies among which was something called ERP. This dream-like application was intended to be all things to all men. Whilst ERP became critical to the financial functions of the business, it was not all things to all men and those buying experiences taught our CFO how to buy from software companies and what to watch for. The financial implications of not keeping up with these expensive technologies and getting involved in the buying decisions with the CIO sometimes proved very costly. The CFO’s core competencies were being extended to include technology.
In early phase 2, our CFO was able to sit back and take in the trends in technology, business and communication advances that were happening, and I believe, that’s when it happened, just as fallout from phase 2 was being cleaned up and as we slipped into phase 3; the world created CFO 2.0.
PHASE 3: THE CFO EXPRESS HAS LEFT THE STATION
In phase 3, all the yuppies had gone home or stepped into alternative careers, (I was tempted to list a few of those careers but I restrained myself), and a new age dawned. This new age saw a smarter, savvier CFO. This was a CFO that was front and center. One that became important and strategic to the business. Not surprising as they now had to deal with all the regulations put upon them and a highly volatile marketplace where things happened at internet speed.
It was obvious that the way to perform better as a company was to leverage technology and take informed, calculated business investments. That was the only way to out perform your competition and stay ahead of the game in the seemingly real-time business world that had been created.
In many cases, so significant was the need to leverage technologies that many IT functions, sometimes including the CIO, reported to the CFO. Being able to balance the regulatory pressures, the need to perform as promised to the stakeholders and grow year-over-year was a gauntlet that the CFO picked up and ran with.
Now, as we navigate through phase 3, the CFO is still front and center, advising the business on direction and getting more involved in the day-to-day operation of the business. In fact, over the last few years, there has been a trend of companies not appointing COO’s, preferring to settle for the savvy combination of a CEO and CFO.
Another indicator that CFO’s are becoming more business savvy and more strategic is the trend that many CFO’s are actually becoming CEO’s as Board’s recognize the advantage of their business leader being financially as well as operational savvy.
So, to address the comment regarding today’s role of the CFO; things have changed. There are no more round spectacles, (technology has advanced and now they have embraced contact lenses), the pencils are still sharp and their business and technology savvy sharper.
I wait with bated breath to see if a phase 4 emerges but I imagine that the CFO role will morph even further into the type of combined strategic and operational role that was traditionally filled by the COO. The business will rely more and more on a title that is fast becoming one of the most strategic positions in the executive team.
I just saw Deloitte's "Four faces of the CFO" at http://www.deloitte.com/dtt/article/0,1002,sid%253D15527%2526cid%253D109943,00.html
It's a very clean model of the CFO's agenda. Take a look.
-Ron
Posted by: Ron Dimon | October 18, 2007 at 07:54 AM