The CFO as strategist: from SMEs to multinationals

Chris Astle, our Resident CFO, recently chaired the 2018 CFO Agenda. The programme included numerous sessions on the role of the CFO and how this is evolving to being a key contributor to the development of strategy as part of the C-suite leadership team.

Here Chris shares his thoughts on what he heard at the conference and what he sees as the some of the key factors in the CFOs modern day role.

I believe that the most successful companies leading the way have an extra seat at the leadership team table. I cannot imagine the CEO, COO, CTO, CIO, CHRO considering themselves an effective leadership team, able to make informed decisions, without the presence of the CFO.

Although the CFO may not have been fully embraced at all companies as being a key member of the leadership team, the value of having a CFO at the table is becoming increasingly apparent. Several of the latest trends, such as GDPR, Brexit, cloud solutions, on-line market places, automation and AI, all play into the hands of the CFO who can bring an informed view on how to navigate and capitalise on these market dynamics. I hear from my network and my customers that there is an increasing expectation and demand that the CFO be involved in all areas of strategy development.

Whilst every individual is different, the opportunity is there for the CFO to step into this leading role and have a company wide impact. The finance leader is typically plugged into the organisation like no other. They don’t just attend the commercial meetings, but also key meetings with manufacturing, logistics, HR – all aspects of the operational management of a company can engage with the finance business partner. They see todays org charts and the plans for next year. They can compute the spend or revenue per head for each department and see where value is created in a business.

They can act as the doctor, prescribing the right medicine to get the company back into good health during tough times, and they can act as the performance coach, getting the business to peak performance and to lead the market.

The finance leader can bring a broad and deep knowledge of the business. When examining and understanding the financial performance of a business, the drivers of those figures and the variances to budget and prior year are reflections of what is actually going on in the business. The finance business partner will seek out knowledge of what is driving the trends and results so as to be better able to predict future evolutions and to manage risk. Bringing this knowledge to the leadership team can bring a tremendous amount of value and to help the CEO to make informed decisions on which direction to travel to create sustainable profitable growth.

Finance teams are experts in assimilating large quantities of data, sifting out meaning from the mass, apply their knowledge and experience to drawing conclusions, but the best business partners can then also make recommendations around these conclusions when they understand the business dynamics and strategy. The best finance leaders are perhaps more adept to story telling and PowerPoint data visualisation than they are at a fast close process and Excel.

This leads to another factor which is necessary to ensure success as a respected finance leader who is welcome to contribute to the leadership team. The role of a CFO is impossibly wide and deep, complex and detailed. Having a top talented finance controller as a right hand, to manage all compliance, transaction processing, tax and the elements of financial control, will ensure that this critical area is well managed because issues in this area will destroy the credibility of the CFO.

This will then allow the CFO to focus their time working with the commercial financial business partnering team, often called FP&A or decision support.  With the accounting team handing this team accurate accounts, they can work with the business to both report on performance, analyse the trends and help make higher ROI decisions.

Throughout my career, the greatest success I have experienced or witnessed, is a when the CFO and CEO become practically inseparable, with the CFO acting as the co-pilot in driving the business. The CFO is not only at the leadership table, but earns the trust of the CEO  to the extent that the CEO insists the CFO sits next to them in business meetings, is included or consulted on all key decisions, and a general confidant in all matters of business. Together they become greater than the sum of the parts pooling their knowledge and expertise across all areas of the business. The business can also then rest assured that should the CEO have to step out of the business, where temporarily or permanently, the CFO is ready willing and able to take the leading role fully informed of all aspects of the business, and can often make the permanent transition to CEO.

The SME challenge

This may be fine for larger companies with dedicated CFOs, financial controllers, accounting departments and FP&A teams. But where should the MDs and leaders of SMEs turn where they do not have such in house resources to help them make informed decisions in developing their strategy.

Typically the finance support they have is a junior book keeper and an external accounting practice. I hear all too often that these accountants focus almost exclusively on accounting, tax, compliance and statutory returns, interacting with the MD only once or twice per year with a backwards focus, leaving the MD without the forward looking strategic finance advice they need.

The evolution of finance practices from transactions to business advice is long overdue. Technology and cloud accounting tools will help them start this journey (in fact they will necessitate it). However, with a career in audit, assurance and accounting behind them, how can those in practice offer such valuable and meaningful advice to business owners on their commercial strategy?

Hiring finance professionals who have had careers as in house commercial financial business partners is an essential element to successfully transitioning to being able to offer this service and meet this rising need in SMEs. Secondments into business, training in being an effective business partner and enhancing commercial knowledge will all support the transition.

There are very few practices out there who are embracing this, but the profession should aim to build these skills and offer this as a new value adding service to help the UKs SMEs succeed and grow in the challenging market conditions that lie ahead.

Supporting all businesses, large and small, with strategy, will help round off the reputation of both the CFO and the finance profession as a whole as one that is focussed on value and strategy as well as accounting and compliance.

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