I attended Armanino’s annual conference last week. Matt Armanino went through their CFO Evolution Survey which talked a lot about CFO’s and business transformation. The survey has been going on for 8 years and it benchmarks what CFO’s do and what they should be focused on. The survey refers to three main focuses of the CFO, accountant, protector and business leader. According to the survey, accountant and protector roles chew up 75% of the time, while the ratio they suggest, should be more 50/50 with business leader being a much more important role. The actual conference material was focused on the accountant and protector, which is where most of the attendee’s currently spend their time.
CFO’s spend their time where the needs are, not where they’d like to work. Allocating time has to be done in the field based on the challenge the company faces.
When I work with CEO’s I often use the metaphor of operating a car.
Getting the Car Running
The first level is the accounting figures, the controls, audit and compliance are about getting the car working, and telling you where you have been. To do this well you need a great understanding of GAAP, compliance and tax. In big firms this is often a senior level job that doesn’t necessarily lead to a CFO role. At a medium or small firm this level is “table stakes” for CFO’s and Controllers. If you can’t do this, you have to find a different career choice.
Having correct accounting figures is like driving by looking out the rear view mirror, because this is reporting on what has already happened. CFO’s that fail
here do so because they have a weakness in a core skill (planning, reporting, managing). In a bigger firm, that weakness can be covered by strength in the staff. Getting compliance, process and controls right can be a big job. Although Armanino suggests that the CFO spend less time in this area and focus on automation of routine functions, successful CFO’s in a new situation can spend years getting this right. If this isn’t right, being the best business leader in the world won’t help, you have to get the numbers right.
Drive the Car
The second level is the use of metrics and tools to identify how the business is operating. It is like driving the car. The use of key performance indicators (kpi’s), development of dashboards to manage the business and reduce risk is like looking out the front window of the car. More real time data allows you to make changes as circumstances change. Forecasting and planning become relevant. Executives who are uncomfortable with building metrics on the management of the business become compliance “bean counters”. A great deal of firms in the small, middle market haven’t developed a good set of KPI’s which help drive the business. They are often happy just having accurate financials.
The main time focus of the second level is the next 3-6 months. CFO’s that excel here use technology and reporting to drive change. The challenge is to maintain balance in reporting – too much focus on financial numbers will pull attention away from customer and staff oriented metrics.
Many, many businesses survive with minimal KPI’s and really no long-term planning. Reactive management styles can be successful. In a fast moving market, sometimes all you can do is drive fast and aim in the general direction of success.
Plan the Route
The final level is the transformative level, where the CFO plans the trip and picks the stops. At this level the CFO becomes a business partner to the CEO and helps create the circumstances and changes needed to keep the business successful. The business model becomes relevant, exit strategies, market changes and management development are important. This is the level that Armanino suggests CFO’s should be working at.
I don’t think every financial executive should work their way to the final level. There are lots of companies without a good level one reporting system or without good KPI’s or metrics. When hiring, CEO’s and Boards should think more conceptually about the current challenge of the business and stop worrying about industry knowledge. Wal-Mart and Dolce & Gabbana are both retailers, but they aren’t the same.
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Dr. John Zott is the Principal consultant at Bates Creek Consulting. John is the chair of the Careers Committee at FEI Silicon Valley, a senior adjunct professor at Golden Gate University and comments regularly on issues that affect consumer businesses. If you are looking for a CFO for your e-commerce/retail/consumer company, or are a former student, colleague or would just like to connect – reach out.