I usually start my CFO trainings with a simple question; “If business world during the last 15 years, on a scale of 1 to 10, has changed by 10, how much do you think the Finance function has changed?” And the answer consistently has been between 4 and 6.
The reality is that the role of Finance function in a modern business model is still not quite well defined. As a result we struggle to meet the expectation of our business partners. Resource structure and processes are quite different from one entity to another and even the role of CFO is not well understood.
In a high performance modern day business, Finance main role should be to help maximize the value creation by (a) Measuring the value created (recording), (b) Understanding and advising what drives value (analyzing), and (c) Minimizing the leakage of value (controlling). This role however can be performed if Finance and the CFO deeply understand the value creation part of the business model.
I love the analogy of a car to explain how a high performance business model works and how the top key roles are aligned together to drive maximum value creation. Before driving a long distance, one has to ensure that the car is in good running condition with enough fuel, battery power, tire pressure etc. That’s the role of the back end part of the business mainly Production, Engineering, Quality etc.
Once the car starts moving, three key front end roles come into action. The CEO on the steering wheel must know the destination (vision) and have a good idea (strategy) how to reach the destination. Sales and Marketing push on the ‘accelerator’ to keep the car running at good speed. CEO keeps focus on steering the car in the right direction.
CFO, sitting next to the CEO serves as a navigator (GPS) and is also responsible for the brakes (controls). Why do we have brakes in the car? Most people will say to stop the car. That’s the traditional mindset. We need good brakes in the car so we can drive it faster. Controls serve the same purpose for the businesses. CFOs role is to keep the brakes in good condition so that the car could be stopped when required to avoid damage.
The most important role for the CFO in a high performance business model is to provide navigation (GPS and dashboard). CEO knows the vision (destination) and CFO helps with the street directions and keeps providing alerts for speed, mileage, engine speed, fuel level etc.
A GPS can only be relied if it is a trusted brand with updated street maps. To serve as a reliable navigator, the CFO must prove to be a trusted advisor to the CEO. This can only be achieved if the CFO demonstrates a deep knowledge of the business as well as a fair understanding of the external competitive environment.
CFOs with their financial background are in the best position to serve as the Chief Strategy Officer of their businesses provided they deeply understand the value creation process of their business. This requires a different mindset than the traditional focus on financial or shareholders value creation.
Today’s business models are quite different than what we had just 15-20 years ago. The high performance businesses we see now are complex business machines fueled by huge amount of intangible resources such as people, culture, brand, systems, leadership etc. We cannot support the value creation process of such modern businesses with a 500 year old traditional accounting system.
In order to support the 21st century business models, it is critical for the CFO to ensure their senior Finance teams are properly trained in business strategy and equipped with modern business tools such as balanced scorecard. If we do not urgently initiate such actions to upgrade ourselves, the gap between Finance and non-Finance business part will only widen.
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– Saleem Sufi