This article was first published in the April 2016 international edition of Accounting and Business magazine.

In order to outperform competition in today’s fast-paced and chaotic business environment, organisations demand a lot more from their CFOs than just accounting and reporting skills. Guiding strategic decision-making, aligning priorities to overall business needs, developing and motivating teams towards higher performance and providing early alerts for future risks and opportunities are just a few of the highly critical tasks that a CFO must undertake regularly.

Many established organisations today do not have accountants as their CFOs. This is because the role has evolved dramatically. CFOs today need to demonstrate a wide array of leadership skills in addition to their technical expertise. Their role is often focused on the following five major areas:

  • risk management and efficient resource allocation
  • building relationships and communicating effectively
  • focusing on developing the team
  • focusing on standardisation and automation
  • aligning the finance function’s objectives.

Manage risk

Mark Zuckerberg started Facebook from a university dorm room in 2004; today, in just over a decade, it is worth over US$300bn. This is just one example of rapid business transformation and increasing volatility in today’s competitive landscape. In such an environment an organisation’s success is contingent on effective leadership and efficient resource allocation. CFOs, by virtue of their position, have access to a wide variety of information and can employ a variety of tools to achieve these objectives.

Historically used matrices like profitability and return on investment are often lagging indicators. They neither provide an early alert on future opportunities nor predict the ‘tsunamis’ – disruptive changes that threaten to make the business model ill-suited to the competitive landscape.

One tool to manage risk is to provide businesses with a few easily understandable key matrices focused on customers and competitors that help to explain the competitive landscape better. For example, our company looks at leading indicators for our intermediary product demand by monitoring consumption of major end-products downstream. This helps provide an early indication of future fluctuations in demand. 

For long-term business competitiveness, efficient allocation of resources is critical. However, quantifying every benefit may be difficult. Let’s say your company wishes to implement a new enterprise resource planning (ERP) system. The improvement in productivity or benefits resulting from standardisation, automation and better controls may be difficult to list down, let alone quantify. While implementation and licensing costs are large, stories of failed ERP implementation are not unheard of. Even if the implementation is declared successful, it is often difficult to measure whether the targeted benefits have been completely realised.

But not staying on top of technology also has its cost in terms of lost business opportunities and poor resource allocation. Thus it is important for CFOs to consider:

  • Is this an area of highest priority according to company strategy?
  • What are the quantifiable benefits?
  • What are the future opportunities that will be created or risks mitigated?
  • What is the cost of not staying on top?

Once the funds are committed, CFOs are expected to play a critical role in budget control and post-evaluation.

Build relationships

A CFO with great business insight may not be able to add value without communicating the analysis effectively and winning support from other stakeholders. Similarly, implementing change initiatives also demands extensive communication and a knack of winning allies. Businesses today therefore expect the CFO to possess excellent interpersonal skills and be great team players.

Let me share an example from my work life. One of the segments in our company was struggling for some time. The sales head proposed that we take an offensive position to enhance our market share. However, I felt that our expectation of the market response was too optimistic. At the same time there was a high risk that we would end up building a lot of fixed cost and committing investment while missing the revenue targets. The challenge for me was how to communicate this effectively enough to win everyone’s support.

I did a detailed analysis and summarised the findings in readily understandable graphs and tables. Then, before the final meeting, I talked to different functional heads individually to win consensus for a change in strategy. These meetings also gave me an opportunity to fine-tune my analysis before the final presentation. That way, the actual meeting proved only a formality as I knew that I had already won support from most of the functional heads.

For today’s CFO, interpersonal skills are at least as important as the technical skills.

Focus on development

Accurate and timely reporting, in-depth analysis, cost control and financial discipline all require an excellent finance team. In order to enhance the effectiveness of the finance function in our company, we had to focus on:

  • developing specialists for specific areas
  • imparting the right training to the right person
  • providing cross-functional exposure
  • focusing on a development path for each team member.

We have tried to ensure that the finance team does not just sit in the office but actively interacts with internal and external stakeholders to get closer to the business. I have worked extensively with HR to ensure that my team members have clear personal development plans. This has helped us retain good talent within the organisation as well as improve motivation levels.

Consequently, my team members today are not only capable of identifying and leading change initiatives within the department on their own but also often guide other departments in implementing changes for enhancing efficiency. This has eased my work and has earned the finance team a lot of respect within the organisation.

Consolidate and standardise

The bigger the organisation, the greater the need to consolidate operations and simplify group structures. This often involves the merger of independent companies and unification of the functions, which can lead to immense chaos and complexity. Why? Because of differences in cultures, policies and procedure, and software – including disparate ERPs, customer relationship management systems and mail systems.

Here, again, finance has a critical role to play. Let me tell you about the transition our company went through.

Until recently, we had more than one legal entity in most countries, each representing a separate business segment. This often raised administrative costs. The global financial crisis forced us to simplify group structure and reduce costs. In Pakistan we merged the two companies and consolidated departments.

Here again finance played an important role. As the CFO, I had to oversee statutory compliance and provide support to ensure the more efficient group structure was adopted.

For correct and timely reporting/ analysis, I had to ensure the consolidated entity was running one ERP and that this was carefully modified to cater to the needs of each business segment. I had to ensure the actual merger exercise was completed within schedule while focusing on issues such as determination of swap ratio and transfer of assets and stocks.

I also co-led standardisation of policies and procedures. We brought about financial equity for all concerned. We ensured the policies and procedures included adequate internal controls and didn’t violate our global guidelines.

I consolidated the two finance departments from old companies. There was a big shift in roles and responsibilities as well as a change in reporting lines. Ensuring people adjusted well and alleviating their fears about their new positions in the organisational ladder was the hardest part; for this, we provided them with new growth paths that were either equal to or better than the old ones.

Going forward, we are focusing on automating our data-gathering and processing procedures as much as possible. This is helping us to reduce human intervention, which is now limited to handling exceptions. This has freed up a lot of time for us to focus on insightful analysis and scenario-building for future risk and opportunities.

Align finance’s objectives

If the priorities of the finance department are not aligned to support other departments in meeting their key performance indicators (KPIs) and maintain efficiency levels, then all the good work a CFO puts into improving the performance of the function will never be truly appreciated.

To achieve this alignment, the CFO needs to have a holistic understanding of the business model and strategy. They must work closely with the relevant stakeholders to come up with a list of objectives for the year, together with improvement initiatives. This should be complemented by KPIs for the finance department that measure efficiency and/or progress towards meeting objectives with a focus towards enhancing service levels. 

In conclusion, CFOs today must be able to offer insights to steer business growth and to make it more competitive both in the short and long term. They help their businesses in identifying the gaps between their professed mission and their real direction while keeping an eye on rapid market transformation. They must act as cautious business leaders that balance growth and value creation with the risk appetite of the shareholders.

Mansoor Ali Zaidi FCCA is finance director at J&P Coats Pakistan