August 22, 2014 | Written by: THINK Leaders
Categorized: Data | Finance | How To
What it means
The CFO profession is evolving. When the financial crisis of 2008 hit, companies large and small leaned heavily on their finance leaders to shore up balance sheets, manage risk and preserve capital. By and large, CFOs answered the call. The best among them relied on data and analytics to improve finance efficiency and provide business insight throughout their companies. IBM’s 2010 CFO study referred to these CFOs as value integrators and their companies continue to outperform all other groupings in the survey in terms of revenue growth, EBITDA and return on invested capital.1
But as the world changes, the CFO’s role continues to evolve. Now, amidst improving economic conditions, many organizations are asking their CFOs to take on a new challenge: take the same core skills and approaches used to manage during the downturn and apply them to growth and innovation. We call this data-driven, rigorous approach to transformation and growth a discipline of performance, and more and more, CFOs are expected to drive change well outside the walls of the finance function. They are expected to continue to bring their trademark sound fiscal reasoning to the table, of course. But they will now have to become partners in change, innovation and vision, too.
“Finance is putting together strategies that help create revenue and we’ve looked at strategies to drive premium revenue,” said Peter Cole, CFO of the Americas, Marriott International. “We’ve looked at strategies that support our marketing plans, and how best to deploy resources in the hotel. In my opinion, finance is not simply about driving cost out of a business. That’s important, but it’s not the only thing you can do.”
Why it’s important
The global economy is improving, but competition is fierce. Forces like commoditization and globalization are squeezing once profitable business models. Companies need to evolve their business models quickly and find new sources of growth. To do this, organizations of all sizes must anticipate market shifts and foster the speed and agility to get to new opportunities first.
The CFO is uniquely positioned to rise to this challenge. Most CFOs already have the skills, organizational positioning and process control to help their companies pursue growth with appropriate controls and restraint. Their facility with data and fact-based decision-making can help link strategy to execution, encourage smart risk taking, and even uncover market opportunities. This discipline of performance combines the prudence of financial management, the ambition of revenue growth, and the accountability of data analysis and measurement.
It’s important to note that in this scenario, a close working relationship between the CFO and CIO is essential, because of the critical role data and analytics play in defining and enforcing this new discipline.
What will change
To meet new challenges, companies will need to integrate data and organizational structures to improve enterprise agility. This agility will then enable them to better anticipate the future. Both changes are necessary before they can tackle the business model transformation and innovation challenges before them.
For many CFOs, becoming a performance accelerator represents a major shift in mindset. They will need to supplement compliance, fact-based rigor and control with a new embrace of change, experimentation and iteration. But they will do so through a disciplined approach that is driven by data and facilitates adapting rapidly as new learning emerges. A discipline of performance allows for resources to be protected and risk to be mitigated while still fostering the innovation needed for growth.
The CFO role continues to evolve as those in the role are asked to lend their unique skills to new challenges. The market demands are pressing and the CFO is well positioned to foster the necessary transformation, innovation and growth. With the performance accelerator role, CFOs have a unique opportunity to extend their reach, prove their strategic worth and drive measurable business outcomes.
Key questions to ask
- Is my organization ready for increased discipline in how we innovate and explore sources of new growth? Do we have the right skills on board?
- What are the key metrics that would measure the success of this transformation?
- What are the critical relationships I must forge to promote performance throughout the enterprise?
- What are some of the potential roadblocks to success?
1 IBM Center for Applied Insights “Accelerating performance: The evolving role of the CFO.”
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