Guiding a company through disruption requires a CFO to act as both gamekeeper and poacher. Provided they can adopt this contradictory mindset, they’re ideally placed to weigh up the risks versus the rewards of investing in new ideas, ventures and technology.
David Axson, Managing Director at Accenture Strategy, comments: “We are seeing the CFO take on a much more expanded role. We’ve talked for twenty years about finance being a business partner; now it’s moving towards being a much more proactive ‘strategic enabler’.”
For David the point is that while the CFO is expected to be the guardian of cash and capital, they are now under pressure to allocate funds to back the forward strategy, “whether that’s to invest in disrupting markets, changing the business model, new technology or innovative products and services”.
In research conducted at Criticaleye’s 2017 CFO Retreat, attendees identified the following as their top five priorities:
• Retaining key talent and developing skills
• Digital disruption
• Improved performance management
• Recruiting people with new skills
Phillippa Crookes, Senior Relationship Manager at Criticaleye, says: “CFOs are at the heart of the fundamental process of reinvention that many organisations are undertaking as they navigate disruption.
“Whether it’s looking at cloud-based technology, blockchain, analytics, artificial intelligence or responding to new competition, the CFO must work collaboratively to decide where to make the big bets which hopefully secure a company’s future.”
Dealing with Unknowns
The current business environment requires CFOs to be at ease with uncertainty. Matthew Lester, Criticaleye Board Mentor and Non-executive Director at Capita, Man Group and Barclays, comments that business risk has grown in the context of success being harder to find.
He explains: “With digital disruption, you have to invest at a time when you don’t know what the return will be – you can say it will probably be better than if you didn’t make the investment, but that’s about it. That’s a very different environment than in the past.”
In his executive career, Matthew’s roles included being Group Financial Controller and Group Treasurer at Diageo and CFO at Royal Mail Group, where he helped to lead its IPO. He says: “When I did Group planning at Diageo, we spent six months, honing to the last million – on a £5 billion business – what the future was going to be in 18-months’ time. It is so different now – the mindset and how you bring investors along with you.
“It requires a lot of trust in the management team and a willingness on behalf of investors to accept experimentation and failure.”
Matthew explains that for investors to have the necessary degree of faith and confidence in an organisation, a CFO must articulate a consistent narrative: “The key thing is demonstrating how you are going to fund the investment, saying: ‘Here’s the cashflow where it’s coming out, and it’s going back in here.’
“At Royal Mail, we said: ‘It’s not just about more investment; we're taking costs out of here – and previously you’d have been able to take the saving to the bottom line – but you can’t have it now as it’s being reinvested over there, or else you won’t have any cash in three years’ time.’”
It's a fine line to walk. One where the CFO has to manage uncertainty with keeping a sense of discipline, as it’s far too easy for companies to waste large sums of money on doomed projects. Dylan Minto, CFO of Shawbrook Bank, says: “In financial services at present, significant amounts of cash are having to be invested into the banking platforms of the future and this requires cash early on.
“When off-track, some people become so committed to these individual projects that they find it hard to step back and say ‘no’, so they can stop and retrench."
There are also myopic boards which won’t back their CFOs and CEOs when it comes to breaking new ground, preferring to focus on short-term returns. It shows a dangerous lack of foresight on the part of some chairmen and NEDs as it’s increasingly obvious that commercial models need to be overhauled.
As Dylan puts it: "People are too wedded to the successes of the past as sources of future success. They forget the industry’s key disclaimer: ‘Past performance is not a predictor of future returns.’
“You often leave that at the door when you're considering your own business' success."
A Numbers Game
CFOs need to be able to see through fads and avoid blind alleys. They have to be constantly mindful of their duty to provide an independent view, stating what they see as viable in terms of initiatives which will move a business forward.
According to David, this extends to the wider finance function as it ought to be providing information which supports an executive team in its decision-making, rather than focussing solely on historical results. “Finance’s job starts when you deliver the report or analysis. This is a very different mindset.
“When I worked in finance and I hit send on a report, it was: ‘Great – that’s over with for another month.’ But the value of finance’s analysis is only as good as the decisions that result from it.”
The challenge here is to not be overwhelmed by data. "We used to say: 'You can't manage what you can't measure.’ Now it’s: ‘We can't manage what we can measure,' and that's because there's so much data out there.”
It falls on the shoulders of the CFO and their function to figure out what’s important for a business and what’s a distraction. “Finance needs to filter, select and synthesise the truly relevant information," adds David.
Emma Riddell, Senior Editor, Criticaleye
Want to learn more about CFOs? Take a look at the following filmed interviews: