How finance directors are driving strategy

Last year Vanessa Simms, CFO of residential property group Grainger, produced a technology strategy for improving customer experience and efficiency across the FTSE-250 listed group.

The approach underlines the way in which finance leaders are increasingly driving their organisations’ strategic approach, exploiting the rich seam of information they hold to make the right decisions. “A lot of that is about insight and data and how you use that data to provide good quality information to therefore improve pricing,” says Simms.

“Traditionally a CFO has been about stewardship, performance management, whereas now I think fundamental to the role is being a good business partner, helping the business make the right decisions, and helping to execute strategy. I see that as fundamental to the CFO role,” she adds.

Rowan Baker, CFO of retirement housebuilder McCarthy & Stone, agrees with Simms. “Gone are the days when the CFO was just a custodian of all the financials within the business, I’m extensively involved in strategy working with the other members of the management team.

“A critical part of my job is ensuring everyone has the information that they need for those decisions that need to be taken, and to be the voice of reason behind them sometimes, to explain them and to flag potential problems and risks,” she says.

Data-driven strategy

David Archer, Director of executive search firm Novello Search says the days of finance leaders simply churning out the numbers and sitting on the board are long gone. “CFOs now have to earn their seat at the table. Shareholders and investors require a lot more for their money. Hiring a good CFO is an absolute game changer and this person now co-drives shareholder value.

“With many markets saturated, the emergence of disruptive technologies and background economic challenges, such as Brexit, what comes under strategy is also much wider. As such, the CEO will look to share more of the strategy piece with the CFO,” he says.

Noel Tagoe, Executive Vice-President, Academics – Chartered Institute of Management Accountants (CIMA), says: “The CFO role has changed considerably over recent years from one that focused primarily on cost, budgets and results, to one that has direct influence on driving value across the business.

“This change has been borne out of the increasing use of data and technology in the management of all aspects of a business , such as risk, supply chain, distribution, sales, and people, and combining these insights with financial data to drive strategic decision-making and run better businesses,” adds Tagoe.

Simon Boddie, CFO of industrial thread manufacturer Coats, says a major reason for the broadening of the finance leader’s role is a result of the pace of change in the business environment and therefore the demand for high quality data insights that are forward looking.

“You see something going on there and that’s how you respond, not waiting for the final results to confirm what your hypotheses are. It’s very much looking forward, rather than looking backward compared to ten years ago,” he stresses.

Novello Search’s Archer argues that it is vital that the right technology is there in the first place and fully integrated and plugged in at the front end, to offer the right level of customer insight, as the data is more difficult to interpret.

“Having well planned FP&A tools that can extract the relevant data, will always play a key part, as well as the CFO having the commercial acumen to translate this into a coherent strategy. This comes back to the CFO’s ability to work with the CTO and COO and communicate the direction and requirements effectively,” he says.

 The team player

Another crucial element for a CFO being able to help drive strategy is the ability to engage effectively with the other key members of the management team. Paul Buddin, CFO of sportscar maker McLaren Automotive and Acting CFO of McLaren Group that also includes its Formula One racing team, is firmly in agreement.

Buddin joined McLaren Autonotive as Financial Controller in 2010, becoming Director of Finance and then CFO as the group’s sales over that period went from £6m to £871m last year.

“At the very beginning my role was to create the financial model that supported the strategy, so very hands on when I was the financial controller, creating the spreadsheets, creating the model and working the various businesses to turn their thoughts into it, to the financial model.

“But as I became Director of Finance and particularly CFO it’s become a much more holistic role, so I have had to support the business in the strategy. I helped co-ordinate the creation of the business plan and I can happily claim I put a number of ideas into it.

“I have to co-ordinate and make sure that everybody is pulling in the right direction, that they’ve got the right parameters, make sure we haven’t got anyone going wayward with their thinking,” he says.

But perhaps one of the key elements in driving strategy is making sure a good relationship is set between the finance leader and the CEO. “A good CFO will need an understanding of how all of the pieces align themselves and dovetail together and that includes areas outside of finance,” says Novello Search’s Archer.

“The structure and the previously well-delineated lines of the senior leadership team have shifted, as the tectonic plates have had to factor in technology and changing consumer and business demands.

How well the key players work in unison, will make all the difference. You may have the right skill sets assembled but unless they can work together and share the same vision, it is a negative fait accompli,” says Archer.

CIMA’s Tagoe goes one further. “Today an organisation’s CFO is often considered a co-pilot to the CEO, with the two-working side-by-side to create and protect value,” he says.

Ian Smith, the CFO of challenger bank CYBG, says good strategy setting in an organisation depends on the critical partnership between the CFO and the CEO. “The way you perform in that partnership can be different depending on who you’re working with.

“But it often starts with being clear about the performance targets for the business, where we think we need to get to and that’s an important part of understanding and responding to the requirements of those stakeholders- especially investors.

Describing how strategy works at CYBG, Smith say: “We set targets and work out the path to those targets. Part of what I do is try to find ways to create the capacity to deliver on those. We’ve done a lot in the last three years in restructuring our business to create capacity to reinvest where we can do the things we need to do to improve the business.

“A lot of what I’ve done in supporting the CEO to deliver on that strategy is first of all understanding where do we think we can be at the end of the performance period, and then how do we create the capacity to do the things we need to do from a capital and funding perspective,” says Smith.

Perhaps another way of understanding the finance leader’s view on strategy is seeing it through a long-term view lens. “I think the CFO has to be a leader in that strategic space, because you’ve got a role and responsibility for the long-term shareholder value creation in the company,” says Direct Line CFO Penny James.

“As a CFO you have a role to tell your investors about what’s happened in the past and explain that, and you also a role to lead and shape and give confidence about investing in the future.

“To do that, you need to understand the financial dynamics today, but you also have to have a view on where its moving, the belief that’s it moving in the right direction. Ultimately you need to be able to offer clarity and belief in that strategic vision,” she says.

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