CEOs increasingly want CFOs to not only deliver a finance organization that gets the numbers right, but also partner with them in shaping the company’s strategy. This is one of the core strengths of CFO Growth Advisors due to our relentless focus on how financial insights drive strategy and operations.
According to Deloitte, there are several key requirements for a strategist CFO to help guide better alignment between CFOs and CEOs. These key requirements go beyond the traditional four faces of the CFO as operator, steward, catalyst, and strategist.
The strategy process: core questions
Making the necessary choice starts with a version of the cascade of strategic choices first laid out by A.G. Lafley and Roger L. Martin in their book Playing to Win: How Strategy Really Works. Key corporate strategy questions include:
What are the aspirations and goals of the company?
What products and/or services will your company choose to offer, and in what markets will you offer these products and services?
How will your company differentiate itself to gain advantage over competitors?
What distinctive capabilities are required to sustain competitive advantage?
What management systems and processes are required to succeed?
CFOs can then bring a financial discipline to support and extend the above strategy process by addressing questions such as:
Are the financial goals of the company viable? And, what should the financial targets for the company be short-term and long-term?
What products and markets deliver the greatest promise for revenue or margin growth?
How should the company organize and structure financing of key investments to generate competitive advantage?
What structures (for example, business models; legal and tax entities; onshore, offshore, or outsourcing talent models) and processes (automation, build vs. buy, networking, and so on) enable competitive advantage and deliver superior market valuation and returns?
What financial and management reporting enables management to effectively execute and deliver the strategy?
The strategy process frames answer to the above questions and executes on them to deliver long-term company success. The challenge for CFOs is to choose effective ways to engage in the process in the context of their company’s business, leadership, and directors. The four key directions below outline how CFOs can choose to engage the strategy process.
There are four distinct roles CFOs can play —responder, challenger, architect, or transformer:
Responder. As a responder, the CFO and the finance organization support the company’s strategy development by helping key business leaders quantitatively analyze the financial implications of different strategy choices. This type of CFO focus is especially evident in highly decentralized businesses where the CEO chooses to drive accountability for strategy and performance to business-unit leaders. Occasionally, this direction is also prevalent when the CEO chooses to limit the role of the CFO or finance in the strategy process to quantitative and analytic support. To be an effective responder, the CFO and finance organization should consider having a central financial planning and analysis (FP&A) capability that delivers the relevant analyses and data to the businesses, whose leaders have primary responsibility for generating strategy alternatives.
Challenger. As a challenger, the CFO and finance organization act as stewards of future value in the strategy process by critically examining the risks to, and expected returns on, different strategy alternatives. Being a challenger is sometimes equated with saying “no” as the CFO and finance organization seek to minimize risk or ensure adequate returns to future capital allocations and investments. Being an effective challenger may require the CFO and finance organization to have FP&A capabilities similar to those required of a responder, as well as access to requisite information from the business units on key strategy assumptions and models. Importantly, the CFO requires the permission of the CEO to challenge business-unit leaders and their strategies. When given that permission, the CFO as challenger is especially critical to the review of major strategy investment decisions.
Architect. As an architect, the CFO, finance department, and business leaders jointly work through shaping strategy choices and apply finance strategies to complement and maximize the value of particular strategies. Architects go beyond the challenger orientation to enable the financing of innovative initiatives through varied finance strategies and finance arrangements with suppliers, customers, or delivery channels. Architects thus work to find “a path to yes” on key business investments. To effectively deliver as an architect, the CFO, finance organization, and businesses might need to establish mutual trust and work together at the outset of setting the strategy. In addition, the CFO often needs a strong finance team inside the businesses to proactively partner with business leaders throughout the strategy process.
Transformer. As a transformer, the CFO becomes a lead partner to the CEO in shaping and executing future strategy. The CFO is key to execution of “real operational and financial options” for shifting the product market mix, delivering value, and creating distinctive capabilities. For example, consider a multidivisional company with common accounting and financial systems where the original synergies driving the existing product market mix no longer exist. By upgrading the systems, but doing so in a way that allows the efficient spinout of a division in the future, the CFO operationally creates the capacity for shifting a core strategy choice—the product market mix. Or by changing the mix of debt to equity, the CFO may free up cash to invest in future growth, creating financial options for the future. Through carefully structured financing and lease models, the company could change how customers are able to buy or use its products, thus shifting the business model to more-profitable formats. In short, CFOs as transformers proactively engage in addressing the core questions in a strategy process, and they develop and execute options through finance in a way that allows the company to shift its strategy effectively.
For CFOs, choosing to be an effective strategist demands earning a seat at the strategy table, having an effective finance team, and selecting the strategy direction that is appropriate to the context of the company and level of permission granted by the CEO. This is obviously not simple, and effective CFO strategists continually need to reorient themselves to changing organization situations and contexts.
One way to generate valuable strategy opportunities is to ask critical questions about the dominant growth constraints, uncertainties, and risks, and scale assumptions confronting the company. A strong finance team is also key to earning a seat at the table, for three reasons. First, by getting the basics right, the team presents the finance organization as credible. Second, a strong finance team frees up the CFO to attend to strategic matters. Third, it can provide the quantitative analysis and support capabilities vital to shaping strategy.
There is no one single approach to being an effective strategist CFO. Moreover, these approaches are not static, and the appropriate direction will vary with the changing context and performance of the organization.
If you are a business owner or CEO within the San Francisco Bay Area or Silicon Valley, in need of an experienced fractional CFO to help your company create new strategies to increase profits and profit margins, improve cash flow, and establish efficient accounting and billing processes, our highly skilled outsourced CFO services provide direct access to high-quality expertise in a cost-effective manner.