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The new breed of CFOs.

Not long ago, I had lunch with the chief financial officer of a promising biotechnology firm. To illustrate how his role as CFO was changing, he drew his job as a one-inch square on the back of a napkin. Next, he drew his personal management capabilities, which he represented as a two-inch square overlaying the first square. The message? His classic accounting responsibilities were taking up but one-fourth of his capabilities. We began talking about how other senior financial managers address the problem of outgrowing their jobs, particularly in Silicon Valley, where a model of a new CFO may be emerging.

The world of financial management is changing, especially in nonmanufacturing organizations where "top line" is replacing "bottom line" financial management, particularly as cost structures become increasingly layered and fixed over the medium term. Other trends of the '90s, such as outsourcing and activity-based costing (ABC), while offering improved cost predictability, also lock in the period cost layers, unless they are pried open with severe re-engineering efforts. Meanwhile, for many firms, improved information technology, often available on the desktop, has ushered in the era of custom pricing and P&Ls by customer, frequent RTFs (responses to forecasts) and just-in-time systems that respond to daily demand cycles.

Because of some of these changes, I see an increasing number of financial vice presidents also act as senior vice presidents of operations, or some equivalent title. This is a new organization paradigm that I have named |CFO.sup.2~ (the chief financial and operations officer).

At first, I thought the operational CFO and his or her organization had finally teamed up with the chief executive officer to effect the classic "Mr. Outside/Mr. Inside" model, particularly as the role of chief operating officer gets squeezed out in flat organization models.

Yet, this is not what I hear when I talk to CFOs, many of whom are just as externalized as the CEO and frequently work with customers as much as they do with the analyst community. The new business world order of the mid-1990s requires the CFO to manage what has been called the "virtual corporation." Such firms thrive on a profound customer orientation, encompass time-based competition to compete on a global scale and organize with high employee intensity and productivity to achieve fast responsiveness to market conditions of the moment.

SEIZE THE DAY

For the CFO and the finance organization, seizing the moment is easier said than done, but clearly some are doing so. Both intensity and responsiveness are achievable, often with the existing staff, but the organization must focus ahead and deliver guidance and solutions to problems as they occur.

I recently observed this at a financial planning day at Advanced Micro Devices in Santa Clara, Calif., which is now closing its books even faster than its largest rival, which was renowned for its aggressive five-day close. With the additional time saved, the AMD finance staff is implementing ABC costing systems that are being used as examples in the latest textbooks. The financial leadership at firms recognized for their superior operations management, companies such as Sun Microsystems and Symantec, becomes intense, highly operational and committed to productivity and customer responsiveness. Others, such as General Electric, have thrown out the "monthly close" to allow even more time for finance to get close to the business. Firms like Apple Computer are pushing the |CFO.sup.2~ model down into the organization where, for example, the Apple USA vice president of finance also serves as chief of staff to the president and is tightly focused on future-based activities.

One of my favorite definitions of the new paradigm of a successful company is one where "history is every bit as uncertain as the future." To achieve the effectiveness of the finance staff in such organizations, the CFO must choose to minimize historical fact-finding and focus on the future. Ford Finance, for instance, has eliminated hundreds of staff members who were operating "in the past," such as accounting staff assigned to match up old paperwork. Shouldn't all finance departments begin to assess the focus of staff deployment in their own organizations?

STAKE YOUR CLAIM TO THE FUTURE

The future truly is where all decisions are made, so carefully pick your domain, and position and prioritize your staff accordingly. For example, the CFO and finance staff at Sun decided to challenge their management team to add the next billion dollars in revenue with no net headcount additions. Is this possible? Well, Intel's headcount grew by only 5 percent during a five-year period in which the corporation more than doubled its revenues. Companies like Ford, Intel and Sun recognize the importance of finance on future-based activity and have increased their staff to support this.

I am sad to say that the deployment of finance on future-based activities is far more prevalent in medium and large companies than in small firms. The compelling dream of wealth creation in small companies places a premium on the traditional accounting CFO who does initial public offerings, not on the operational |CFO.sup.2~ who can design a decision support system that lets the entire management team remain effective and tightly coordinated well into the future.

Ironically, most of the IPO work is done by law firms, accounting firms and investment bankers, who would much rather deal with the operational |CFO.sup.2~ who is respected by the management team. On the other hand, if small-company finance is busy keeping score and generating registration statements for the Securities and Exchange Commission, then it is no wonder that small firms account for most of the growth in headcount in the United States. In fact, President Clinton is counting on this phenomenon!

Professor Vilandre is professor of finance at Menlo College in Atherton, Calif.
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Title Annotation:Viewpoint; chief financial officers
Author:Vilandre, Paul C.
Publication:Financial Executive
Date:Jul 1, 1993
Words:959
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