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The Twenty-First-Century CFO

John O'Rouke and Karen Dale Torre

Introduction


At the end of 2012, the changeable economic conditions of the previous five years showed no sign of abating. For example, Eurozone consumer confidence reached a three-and-a-half-year low in November 2012, yet at the same time China’s HSBC Purchasing Managers Index (PMI) recorded its first expansionary reading for a year and US sales of previously owned homes rose by a modest 2.1 percent. Navigating these regional and often contradictory patterns of economic behavior is testing the mettle of many management teams, but increasingly it is the CFO that businesses are turning to for a new course to growth and prosperity.

Evidence of the rising influence of the CFO can be found in the steadily rising number of CFOs who take on the responsibility for IT (now 45 percent) and their increasing popularity as nonexecutive directors.

In 2002, just over one-third (36 percent) of top-tier CFOs had nonexecutive roles. Ten years later, nearly half of them do.

The way in which CFOs deploy their skills is also changing. One favored approach is the business partner model in which senior finance staff work alongside both the business units and strategic head-office functions to influence, design, and execute strategy, operations, and planning. The success of this approach has paved the way for the CFO as a business catalyst, forming networks or coalitions both within and outside the company and corralling the necessary resources from across the enterprise to solve big, often global, problems.

CFOs Are Focused on Growth


But despite lingering economic concerns, recent surveys (Deloitte CFO Signals) point to improved optimism among CFOs, albeit starting from a low base. According to Deloitte, a reduction in “strategic ambiguity” is allowing a stronger focus on execution, such as process excellence around driving growth, reducing cost, and managing risk.

Driving sustainable growth is surprisingly difficult to achieve (less than 20 percent of businesses are able to drive growth consistently from one decade to another) but new technologies and techniques are helping to eliminate business complexity and streamline processes so that businesses can devote more of their energy to value-adding activities that contribute to long-term success.

With the CFO increasingly at the helm of IT investment, such remedies are well within the grasp of most companies, and despite years of cost reduction there is still plenty of headroom for improvement. For example, Hackett Group research indicates that the cost and productivity gaps between world-class and peer-group finance organizations are higher than in any other business function it has studied. World-class organizations employ 53 percent fewer full-time equivalents (FTEs) and their total finance costs as a percentage of revenue (0.61 percent) is 47 percent lower.

Processes Can Be Improved


In the quest for process improvement, productivity gains, and cost reduction, the implementation of shared service centers (SSCs) has proved particularly popular. Furthermore, highly automated procurement processes (often within an SSC framework) can lead to a rapid ROI by preventing “maverick” spending and allowing better exploitation of discounts. More recently, cloud computing has proven to be a valuable addition to the pursuit of simplified processes that can absorb growth without placing strain on the organization.

Performance management, too, holds out the prospect of significant productivity gains and cost savings. According to Hackett Group, “knowledge-centric” processes, as distinct from transaction systems, are relatively underserved by automation. It’s a view borne out by a recent PricewaterhouseCoopers survey, “Putting Your Business on the Front Foot,” which highlights that leading finance teams spend 17 percent less time on data gathering and 25 percent more time on analysis than typical finance functions. Leading finance teams also report results 30 to 40 percent faster than typical functions.

Managing Risk Is Key to Decision-Making


However, continuing high levels of business uncertainty also means that managing risk is never far from the front of the CFO’s mind. An inability to identify, quantify, and confidently manage risk inhibits management decision-making. Conversely, process excellence around compliance and risk management helps businesses match risk appetite and reward, enabling boards of management to compete more aggressively in higher-risk environments that provide better growth opportunities, such as emerging markets where competitors may be more wary. For example, companies at the leading edge of forecasting techniques factor risk and probability into business forecasts by using techniques, such as Monte Carlo Simulation, to model the range of risks and probabilities in different business scenarios, providing deeper insights and delivering competitive advantage.

New Technologies Will Stimulate Growth


Adding to the air of optimism are new and emerging technologies that promise the prospect of even more exciting opportunities for growth. Big data, mobile computing, and social business are emerging as the technologies most likely to affect competitiveness. Some commentators predict these technologies could contribute 10 percent or more to the bottom line.

With their unique combination of analytical, technical, and strategic capabilities, CFOs are very well placed to evaluate theses competing demands and priorities. The twenty-first century has seen a profound shift in the office of the CFO. It has shed its traditional image limited to financial stewardship, safeguarding assets, controls, and governance. CFOs at the leading edge of their profession are acknowledged as strategist, business partner, and business catalyst as well.

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