A new CFO agenda: the activist; CFO responsibilities have moved far beyond what the title itself suggests. Indeed, research shows that the CFO, in many cases, is actually doing the job of the COO, a position that is slowly being eliminated--which involves line-management decision-making.Put yourself in the shoes of a typical chief financial officer for a moment, and see if you can imagine the following scenarios taking place:
* You breathe a sigh sigh (sī),
n an audible and prolonged inspiration followed by a shortened expiration.
sigh of relief after closing a major acquisition. Just then, the CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. taps you on the shoulder and gives you the daunting daunt
tr.v. daunt·ed, daunt·ing, daunts
To abate the courage of; discourage. See Synonyms at dismay.
[Middle English daunten, from Old French danter, from Latin task of overseeing the entire post-merger integration.
* Together with the CEO, you lead a successful board presentation discussing the company's growth strategy. The board endorses an exciting new alliance and asks you to oversee governance of this new joint venture.
* An email from the CEO asks you to intervene and resolve a seemingly seem·ing
Outward appearance; semblance.
seeming·ly adv. unbreakable deadlock See deadly embrace.
(parallel, programming) deadlock - A situation where two or more processes are unable to proceed because each is waiting for one of the others to do something. in the new-product development committee.
* In a quiet moment at a management off-site, your CEO whispers Whispers is a novel by the best-selling author Dean Koontz, released in 1980. Plot summary
Hilary Thomas is attacked by Bruno Frye. Hilary went to visit him on some business trip. When she gets home one day Bruno comes out of the closet and tries to rape her. , "Look, our business model just isn't getting us where we need to be. We're running as fast as we can on our current model. We need a new one. I need your help."
If these communications seem reasonable to you, congratulations! You recognize that the role of the CFO See Chief Financial Officer. has changed substantially, taking on new responsibilities and calling on skills not previously required. If, on the other hand, these discussions seem a bit far-fetched, you may have missed a major evolution in the CFO position that stands to impact not only the organization's performance but the work of all those who report to the finance chief.
It has become clear in the work Booz Allen Hamilton Booz Allen Hamilton, Inc., referred to as Booz Allen is one of the oldest strategy consulting firms in the world. The firm formerly had two consulting divisions: WCB (Worldwide Commercial Business, also known as “The Commercial Side”) and WTB has done with CFOs across a broad spectrum of industries that the position of "chief financial officer" has moved far beyond those responsibilities the title itself suggests--even beyond business partnering. Today's CFO must be an "activist," with line management-like decision rights supported by different action agendas. These agendas should be based upon the organization's competitive and operating situation, and be driven by the company's strategic priorities.
This is not about the demands brought upon the position by The Sarbanes-Oxley Act See SOX. of 2002--that is yesterday's challenge. Rather, this call is a fundamental demand that the CFO play a major role in changing the business while serving as a true right hand to the CEO. The era of the Activist CFO has arrived.
The biggest driver of change in the CFO agenda is a dramatic shift in the activities the CEO oversees. At many companies, the CEO is stretched thin, with far less bandwidth for areas that the office of the chief executive previously owned. While the CEO is busy working with the board and struggling to satisfy the ever-growing demands of Wall Street's analysts and institutional investors Institutional Investor
A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. , there is less time to focus on those drivers of operational excellence that are central to bottom-line performance.
Much of this is becoming the domain of the Activist CFO. The modern-day CFO must continue to serve in the traditional role of technical expert on profit and loss (P & L), balance-sheet issues and capital structure. The CFO also remains a respected advisor, providing a true sense of external market issues and internal performance trends. Quite simply, the CFO's new activist agenda is being layered on top of these fiduciary fiduciary (fĭd`shēĕ'rē), in law, a person who is obliged to discharge faithfully a responsibility of trust toward another. and business-partnering roles.
In many ways, this can be seen as the next step in the CFO's evolution. By and large, CFOs have already completed a successful transition from stewards of value preservation to business partners in the value-creation end of the business. This, of course, calls upon overall business savvy in addition to the accounting smarts of the older, traditional CFO role. The activist agenda is a further evolution still, moving the top financial executive into the corporation's center of influence. In essence, the CEO and CFO are becoming a close-knit and powerful team.
On observation, it could be noted that these new CFO responsibilities could easily be overseen by the chief operating officer Chief Operating Officer (COO)
The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. . While that is true, in practice today, the COO (Cell Of Origin) See mobile positioning. role is being eliminated in many organizations--given the move toward flatter, more responsive organizations. Eliminating the COO grants greater authority to the business-unit heads, but it brings more pressure to bear on the CEO, who has seen an increase in the number of direct reports. The Activist CFO is the natural solution.
In fact, the CFO is uniquely positioned to play this new role. The CFO's traditional tasks give him or her a unique viewpoint from which to meet these new challenges. A 30,000-foot view of the entire organization provides the CFO with an enterprisewide perspective; indeed, good CFOs seem to have an innate ability to understand what makes each business in the portfolio tick tick: see mite.
Any of some 825 parasitic arachnid species (suborder Ixodida, order Parasitiformes), found worldwide. Adults may be slightly more than an inch (30 mm) long, but most species are much smaller. .
In addition, the CFO's traditional responsibilities in accounting and compliance provide a tremendous level of independence and objectivity. The CFO has only one core constituency: the shareholder. This, combined with the trust-based relationships CFOs develop with senior business executives, allows the CFO to move seamlessly into the activist role.
Additionally, the CFO comes equipped with the skills and capabilities to recognize performance patterns and interpret their impact on execution and earnings growth. This can be particularly important when the CFO is asked to oversee direct change within the organization. The Activist CFO has the ability to mobilize mo·bi·lize
1. To make mobile or capable of movement.
2. To restore the power of motion to a joint.
3. To release into the body, as glycogen from the liver. information-gathering and analysis resources to keep programs on track, as well as the relationships to consult broadly with business-unit heads and others on the operational side of the business.
So who exactly is the Activist CFO? What characterizes this individual and sets him or her apart from the traditional CFO? There is no single stereotype stereotype (stĕr`ĕətīp'), plate from which printing is done, made by casting metal in a mold, usually of paper pulp. The process was patented in 1725 by the Scottish inventor William Ged. , but there are characteristics. The Activist CFO must, by definition, be agile enough to succeed in a variety of different roles, depending on the company's current operating situation, market needs and industry dynamics, constantly reinventing his or her value-add to the CEO.
Booz Allen has observed four different and distinct profiles--or agendas--that the Activist CFO could adopt in order to perform optimally, given the demands of the situation. These are: 1) Execution Maestro (1) (Maestro NT) An earlier name for scheduling software for Windows NT from Tivoli Systems, Inc. When IBM acquired Tivoli in 1996, the program was renamed IBM Tivoli Workload Scheduler. ; 2) Turnaround Surgeon; 3) Growth Navigator See Netscape Navigator, Netscape and Norton Navigator.
Navigator - Netscape Navigator ; and 4) Business Model Transformer transformer, electrical device used to transfer an alternating current or voltage from one electric circuit to another by means of electromagnetic induction. . A detailed look at each begins on the previous page.
It is important to understand that these profiles describe four key roles a CFO may adopt in particular situations--they are not definitions of four CFO "types." For example, the CFO role at a company in severely distressed financial shape may call for a Turnaround Surgeon. Five years later, with the turnaround accomplished and the company on a strong growth trajectory Trajectory
The curve described by a body moving through space, as of a meteor through the atmosphere, a planet around the Sun, a projectile fired from a gun, or a rocket in flight. , the CFO may need to transition to be a Growth Navigator. This calls for tremendous flexibility and breadth.
It should be clear that the bar has been raised substantially for today's CFO. This individual must be able to adopt all four of the activist agendas--and understand when each is needed--as well as executing on the more traditional CFO responsibilities, which are as necessary today as ever. While the challenges are large, the potential rewards are even more substantial--for both individuals and the organization as a whole.
In an environment where investors demand sustainable growth and both forecasting precision and reliability of earnings, executives who can help their companies achieve these goals quickly become valued players. The old CFO model simply won't do in this era. Only the Activist CFO has the qualities to meet the dynamic, challenging requirements of the modern corporation.
RELATED ARTICLE: 4 Key CFO 'Situational' Roles
Perhaps the easiest role to understand, given "normal" market and operating conditions, the Execution Maestro focuses on operational excellence. This CFO instills his or her company with a value discipline that enables it to do more with less. This individual might work for an organization that has performed well against both internal and Wall Street expectations in the recent past and is looking for Looking for
In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. continuous execution going forward. The operating model Operating Model is a term that is used in many contexts. In essence an operating model describes how an organization operates across both business and technology domains. The Operating Model describes what is important for the organization. is effective, and the greatest need at this point is fine-tuning and execution. The Execution Maestro must be adept at spotting early signs of failed execution, participate actively in operational reviews to make sure the business units are in a position to out-execute the competition, and should eventually seek an "execution premium" from the capital markets.
If the Execution Maestro represents evolution in the role of the CFO, the Turnaround Surgeon is about revolution. This CFO has to step in under close scrutiny to make the difficult decisions that others often will not make. The goal: restoring an ailing company to financial health. We have all seen enough troubled organizations in recent years to recognize where this type CFO is needed. However, the challenges of this CFO agenda are great. The Turnaround Surgeon must be able to focus on making changes where businesses are failing to produce acceptable returns, as well as cleaning up the balance sheet by restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). debt, reducing working capital and selling assets when appropriate. Even after the bleeding has stopped, this CFO is not finished. He or she must be able to transition from crisis mode to a more collaborative decision-making process at the right time.
As the name suggests, Growth Navigators work closely with their CEOs to develop aggressive plans to achieve profitable growth both organically and through acquisitions. A company that is looking for growth but has been unable to meet its own, internal goals would be a candidate for this type of CFO. The challenges CFO include: disaggregating the company's business portfolio and identifying the greatest sources of growth; spearheading initiatives to capture value from acquisition; and sponsoring and funding growth incubators for new markets or businesses. Simultaneously entrepreneurial and operationally focused, the Growth Navigator must be equally adept at resource management and the intricacies of integrating disparate organizations.
Business Model Transformer
The Business Model Transformer is a CFO who can see above the fray fray 1
1. A scuffle; a brawl. See Synonyms at brawl.
2. A heated dispute or contest.
tr.v. frayed, fray·ing, frays Archaic
1. To alarm; frighten.
2. . This CFO must recognize opportunities for strategic innovation and take advantage of them by recasting re·cast
tr.v. re·cast, re·cast·ing, re·casts
1. To mold again: recast a bell.
2. the company's business model and organization. The type of company that would need this CFO typically is one that is not meeting internal expectations and where it is clear that the current operating model needs an overhaul. Challenges for the Business Model Transformer include defining peak performance and mobilizing mobilizing,
v 1. freeing or making loose and able to move.
2. observing any ongoing movements in a client's body, whether small or large, assisted or not, that identify strengths and weaknesses, as well as the client's physical and the organization to achieve it, as well as realigning decision rights, performance measures, rewards and structure. The CFO in this role must be a consensus-builder, yet be able to set appropriate goals for the new business model that will deliver the kind of growth Wall Street and the company's board expect.
Understanding which agenda is the right one at any given moment is a valuable tool for the CFO, who is often pulled in so many directions that it's hard to recognize shifts in the corporate agenda and swiftly define the top priorities for himself/herself and the finance organization.
Help is available at Booz Allen's interactive CFO Profiler at www.cfoagenda.com.
Vinay Couto (firstname.lastname@example.org) and Gary Neilson (email@example.com) are Vice President and Senior Vice President, respectively, in Booz Allen Hamilton's Chicago office.