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Four Critical Faces Chief Financial Officers Wear

Critical Roles of the Chief Financial Officer (CFO)

The role of the Chief Financial Officer has grown more central to organizational strategy and performance than ever. They are increasingly playing an important role in strategic planning. Companies are letting CFOs take over more strategic and responsible roles in strategy formulation. The reason is the empirical mindset of the CFOs which can be beneficial for strategic planning. With passing time and increased use of technology inside organizations, the role of CFOs has also grown all the more challenging. Apart from the regular responsibilities that the CFOs have handled now they are responsible for more things including digitization of critical processes as well as managing cybersecurity and handling government and regulatory relationships.

CFOs now know that their role encompasses much more than their traditional financial duty.  The duties of CFOs are evolving and they have to build new skills to ready themselves for the challenges that lie ahead. They have to play a more active leadership role as well as rethink how they have been handling external pressures as well as looking for new investment opportunities. Strategy and planning are now a critical part of a CFO’s role and two thirds of all executives believe that to ensure the success of their organizations, CFO’s must spend more time on strategy. In this challenging scenario a CFO wears several hats or faces. He is a catalyst, an operator, a steward and a strategist.

CFOs as Operators:

As an operator the objective of the CFO is balancing the capabilities, talent as well as costs and service levels to fulfil the responsibilities of the finance organization. As operators, the key focus of CFOs is to ensure that operations are efficient and effective including overall risk management of the finance operation. Another key focus is adding value to the revenue owners.

Their key responsibilities in this area include :-

  • Balancing costs, risks and service levels dynamically while delivering the finance organization’s responsibilities.
  • Defining and adapting the operating model of finance function.
  • Developing finance talent inside the organization.

The key competencies a CFO must have to fulfil his role as an operator include:

  • Apart from the ability to leverage system project capabilities, project management and problem solving they must develop a cross functional and cross organizational attitude.
  • They must be able to focus on matters inside as well as outside the scope of finance.
  • A CFO should have strong leadership skills but simultaneously the necessary understanding of major Information systems and issues in human resource area.
  • CFOs also need to have a strong understanding of the business model their organization has adopted as well as the overall industry environment.
  • CFOs have to be experts at risk management and mitigation. For this purpose, they need a sound understanding of the risks and controls.

As operators, the most critical issues that the CFOs deal with are as follows :-

  • Ensure operational efficiency in the accounts and finance function and bring focus to the value enhancing activities.
  • To focus on the development and evolution of the finance and accounts operating model.
  • Retain focus on talent management in financial disciplines as the business model evolves while maintaining focus on efficiency and effectiveness.
  • To determine the allocation of scarce financial resources for highest returns on investment while also managing risk.
  • Ability of adapting to the global markets and operations and the evolution towards IFRS.

CFOs as Stewards :-

As a steward the main objective of the Chief Financial Officers is to protect and preserve the assets of the organization. Following are the key focus areas for the Chief Financial Officers in their role as stewards.

  • Focus on accounting and control.
  • Focus on risk management and preservation of assets.
  • Partnering with functional managers and business unit owners to identify risks for risk management.

In their role as stewards the CFOs are expected to fulfill the following duties:

  • They have to ensure compliance with financial reporting and control requirements inside the company.
  • To ensure that the risks are assessed and mitigated adequately.
  • To ensure that the necessary laws and regulations are complied with.
  • To focus upon managing business complexities as the business executes upon its strategic initiatives.

Following are the most important competencies required of CFOs to be good stewards:

  • Competent at accounting and reporting as well as compliance plus the ability to exercise good judgment.
  • Be objective and communicate risks and solutions across the organization and to the board effectively.
  • Have a sound knowledge of operational risks and risks arising of fraud.
  • Have a good understanding of controls and control frameworks like COSO and COBIT.

The most critical issues that Chief Financial Officers deal with as stewards are as follows:

  • Issues related to managing information and data quality as well as optimization of controls.
  • Rising level of regulations across global and domestic operations.
  • Level of control over international operations as well as varying operating models and cultures.
  • As business models grow more complex, CFOs have to find effective governance models.

CFOs as Catalysts :-

Another major role that CFOs get to play is that of a catalyst. As a catalyst their objective is to stimulate behavior across the organization that helps achieve its strategic and financial objectives. Their key focuses in this role include disciplined execution of strategic choices as well as changing organizational behavior to establish a value attitude. They key responsibilities they shoulder in their roles as catalysts include the following:

  • Partner with the senior management and gain business alignment for successful identification, evaluation and execution of strategies.
  • Partner with other executives and heads of business units like the CIO, CLO, HR head etc.
  • Implement a process for defining optimal targets and measuring the performance of strategic initiatives through a balanced scorecard or KPI framework.

Key competencies that CFOs need to be successful as catalysts include the following:

  • Have a business perspective, ability to manage change and conflicts as well as ability to bring organizational agility.
  • Apart from strong communication skills, CFOs need string change management  skills for being successful as catalysts.
  • Apart from strong leadership skills the CFOs need strong business partnering skills to partner with other business leaders and executives for being successful catalysts.
  • Have the ability to create a risk intelligent culture for managing risks and for executing business strategies properly.

Most critical issues that CFOs deal with in their roles as catalysts are to establish a structure of accountability for results and drive organization wide execution. As catalysts they also need to gain the acceptance of senior management. Business models are continuously changing through global expansions, outsourcing, global expansion and extended business relationships. As such, it is the duty of the CFOs to maintain enterprise accountability.

CFOs as strategists :-

The fourth important role that CFOs play is that of a strategist. A strategists their main objective is to lead the company on matters like aligning business and financial objectives like M&A, investments and capitalization. Their central focus in this role is to set the future direction of the company for better performance and increased shareholder value. Some of the key competencies CFOS need to be successful strategists are critical thinking ability, data analysis and presentation skills, global financial perspective, strategic agility as well as the ability to deal with ambiguous situations. Apart from these things, they also need to be competent at capita formation and must have structuring experience as well as merger targeting, due diligence and integration experience.

The responsibilities included within this role are leveraging financial perspective for framing of capital as well as undertaking mergers and acquisitions and other investments. They also have to focus upon strategic decision making and performance management. Their duties also include creating a risk a management lens that can help execute the company’s strategic initiatives effectively. If the risk issues exceed the defined threshold of risk tolerance, it is the responsibility of the strategist CFO to establish, implement and monitor the interventions strategy suggested by the management.

Some of the most critical issues that the strategist CFO deals with include providing the tools and information that the organization needs to make sound business decisions. They also need to provide a financial perspective on things like innovation, M&A and profitable growth, capital acquisition and translating expectations of the capital markets into internal business imperatives. During M&A waves, there is a need to get ahead of the curve. The CFOs have to deal with difficult capital markets and lining M&A funds as well as merger integrations. Another critical issue strategist CFOs deal with is to balance risk tolerance with the changing business model and M&A opportunities.