Digital Transformation » Systems & Software » Insight – The 180 degree turnaround in finance

“Three years ago, I was chief financial officer of all the company’s UK operations, says the author of a new book. But by changing their finance function, they can transform their company. UK operations. The monthly reporting package back to the US, statutory reporting, and local acquisitions were what was most important. I felt I was a real company director of UK plc.

“Today I’m chief financial officer for one product group worldwide. My influence extends beyond Europe to the US and Asia. Serving global customers, worldwide product sourcing, and pooling cashflows internationally have become my priorities.”

This is not a vision of the future for a divisional finance officer of an American multinational, it’s the here-and-now reality.

He is quoted in a new book called CFO: Architect of the Corporation’s Future which has been put together by the Financial & Cost Management team of Price Waterhouse. Cedric Read, the Leeds-based global head of the team, is one of the co-editors.

He and his co-authors could see a gap in the market for the kind of book that reflects their consultancy practice. “Very little emphasis is given to financial directors in terms of the role they actually fill,” Read says of other books aimed at FDs. “Most of the textbooks today are about accountancy as it was designed in the last century. Very little reflects what people are actually doing.”

Research conducted for the book among 300 finance directors showed that what they are not doing so much of is transaction-processing and historic cost bookkeeping. Instead, FDs are moving much more towards a decision-support role.

This was the driver for the book. The result is a highly readable but fact-filled 300-page volume, with many case studies drawn from PW’s clientbase.

It lays bare the workings of shareholder value management, activity-based costing and business risk management, and also looks at finance function management issues such as shared service centres.

“The problem,” says Read “is that your traditional accountancy training and skills have led you to think in terms of historic, asset-based accounting.

But what investors are looking for is at least ten-year future cashflow projections as the basis for valuations. They are only looking to the past as a guide to the future.

“It’s what your assumptions are and your ability to achieve in the future that dictates value, not the assets in the balance sheet. So the very thing that accountants are reporting on is not the thing that investors are valuing businesses on.”

This involves getting finance people to turn their thinking by 180 degrees, to become forward-looking, thinking about future cashflows, not backward at historic costs. “All your training gears you to looking back,” Read says.

There is another problem, too, as Read acknowledges. The FD of today may not be the best FD in the world of tomorrow. Moreover, the FD of tomorrow might not be in the finance function today. “We put in the last chapter of the book an agenda for how to develop yourself personally,” he says.

“Some people do it instinctively and don’t need to be told. But the majority need education and training. They need their eyes opening.”

Obviously, much of this is pretty scary for many FDs. What keeps them awake at night is the fear of loss of control, the fear of nasty surprises.

“One way to lose your job is not to do the stewardship,” Read says. “You have to do the stewardship. But what adds value – what makes you more successful than your competitors – is the value-creation agenda.”

One FD quoted in the book said that what keeps him awake is wondering: “Will the company change, both operationally and functionally, quickly enough to compete and build shareholder wealth?”

Indeed, the book also says that what gets FDs excited is “the prospect of adding substantial shareholder value”, “implementing global strategies”, “delivering and integrating major acquisitions”. In short, becoming more engaged in the business.

The scale of the challenge is equally matched by the scale of the opportunity.

For BP, changing the finance function is the Trojan horse for change in the rest of the business, as the book reveals: “Finance… can lead the charge, knock down old organisational barriers, introduce fundamental new ways of doing business, and pave the way for enterprise-wide improvements with new systems.”

Special reader offer Readers of Financial Director may order a copy of CFO: Architect of the Corporation’s Future at a special 25% discount off the #19.99 list price.

The cost is #15, plus #2 postage & packaging for single copy orders. Please quote reference: “CFO”

To order, please contact: Belinda Giacopazzi, Customer Service, John Wiley & Sons, 1 Oldlands Way, Bognor Regis, West Sussex PO22 9SA. Tel: 01243 779777, Fax: 01243 843296.

by Andrew Sawers.