In the last segment on “Reinventing the CFO”, I covered the CFO role as a Freedom Fighter, which mainly dealt with the CFO providing management with the necessary data for them to make effective decisions and execute the strategic goals of the company. Taking this role a step further, Jeremy Hope classifies the second discipline as the CFO as Analyst and Advisor.  In this role, Hope defines the role of the CFO as one that transitions from Accounting Specialist to that of a Strategic Business Partner. One of the quotes I value in this book, and worth repeating here, comes from an interview Hope conducted with the finance team at UPS, where they communicated “our business is delivering packages, not debits and credits.” Outstanding!

 

            One point that Hope touches on during his discussion of this discipline is that some CFO’s find themselves conflicted in this role as they believe they should “first and foremost be about effective stewardship and scorekeeping rather than business advice and score making.”  This is a good point, but Hope further clarifies that “this doesn’t mean that CFO’s can’t take their eye of the compliance and control ball.” Absolutely!  The view that I take when I come into a company, especially into a position where there may not have been a dedicated or performing CFO position, is that the position should not be looked at as an expense, but should be viewed as an investment.  With this in mind, the expectation is that the CFO delivers a quantifiable return on that investment. This return on investment is achieved by working collaboratively with all functional areas and providing the financial analysis and guidance that allows them to achieve goals. An achievement of goals that results in increased financial efficiencies, whether that might be improved working capital, reduced operating expenses, or improved gross margins by identifying deficiencies.

 

            A perfect example of playing this role in a company is during the time I spent working with a capital equipment company in which 30% of their revenues were Service-based.  At the time I was tasked with developing additional reporting on this segment, there was little in place.  The segment was 30% of revenues, encapsulated 35% of our headcount, and consumed a significant part of our operating budget. There were no hourly cost standards in place, nor was there any insight as to profitability of the different service segments. After a slightly painful period of changes (legacy employee habits…), we implemented a nationwide hourly reporting structure which tracked all hours according to a new site of activity codes. Based on these new activity codes, and whether they were productive or non-productive activities, we were able to calculate productivity levels by region, determine hourly costs rates, and then determine if our Service offering was appropriately priced.  Since this project had the ability to drastically improve our bottom line, I managed the effort, thus assuming the role of Analyst and Advisor.  The latter role more so as we used the data to prompt decisions about the management of hours and making proper deployment decisions.

 

            In Hope’s book he identifies 4-key steps “that the CFO and the finance team need to take to be in a position to act as trusted and valued business partners.”

  • Strike the right balance between control and decision support.
  • Build a high performance team.
  • Use technology to deliver high quality information.
  • Provide effective decision support.

 

This is clearly an area that can be discussed in much more detail. I believe that one of the more important aspects of this discipline is that assuming the role of Analyst and Advisor is not one of static reporting and involvement. This discipline requires the ability to by dynamic in the position and an ability to adapt to not only the changing needs of management, but to adapt to the changing conditions of the market and advise the team of your observations. It’s not about being continually buried in a spreadsheet, but being in tune with all aspects of the business and assuming a position to identify potential risks to the business. Have you effectively assumed the role of Analyst and Advisor?

 

Thanks for reading . . . .

 

Jeffrey Ishmael