The time is right to give more focus to value generation and for the strategic CFOs to participate in the most pressing of strategic challenges: the pursuit of growth, say Jeff Jackson and Tony Street.

In the post – capitalist society it is safe to assume that anyone with any knowledge will have to acquire new knowledge every four or five years or else become obsolete,” – Peter Drucker, Post Capitalist Society.

In his book Reinventing the CFO – Jeremy Hope argues that while CFO’s have a pivotal role in their organisations they have failed to heed Drucker’s advice and keep their knowledge up to date.

In fact many CFOs spend most of their time reporting on what happened. They continue do this in light of the fact that the demands of the role require that they adopt a more future-oriented view of the business and to allocate the majority of their time anticipating change and ensuring the company’s resources are allocated to the most important opportunities.

For the modern CFO the challenge is to find ways to sustain performance and grow the business by investing in new business models, and products and services that will lead to sustinable growth:

The challenge for the strategic CFO is to leverage their position within the organisation to build greater value for the organisation.

This involves the CFO stepping out of the counting house and acquiring a greater appreciation of the drivers of competitive advantage and financial success, and working with colleagues to ensure that the investments and resources are allocated to innovative initiatives that exploit growth opportunities as they evolve.

During the recent economic crisis many CFOs used their expertise in cost – containment, operational efficiency; and cash flow and working capital management to ensure survival.

The did what they do best; managed cash and cut costs resulting in a retur to profitability, debt reduction and in many cases an accumulation of cash. We could call this activity value curation.

While the value curation activities have been successful in restoring confidence and creating platforms on which to build future business they must now be balanced with an increased focus on growin.

Finding the right balance between capturing value from growth opportunities and sustaining the existing business is key, as just maintaining “business as usual” will ultimately lead to falling revenues, rising costs and reduced profitability and cash flow.

With recession behind us the time is right to give more focus to value generation and for the strategic CFO to participate in the most pressing of strategic challenges: the pursuit of growth.

In meeting this challenge there are three key things that a strategic CFO must focus on: first embracing an innovation-based culture; second investing the company’s assets productively to achieve strategic objectives, and third, financing the assets at the optimum cost of capital.

Strategic CFOs who are oriented towards innovative investment decisions will be constantly analysing the portfolio of assets to determine how the assets can be used to grow the business and enhance returns.

They will recognise that organisations, business models and business processes evolve over time and that new technology progressively displaces old technology. So allocating capital based on historic use is no longer viable.

Strategic CFOs will embrace better management of the decision processes around resource allocation, capital expenditure, asset portfolio management and capital allocations.

One of the key challenges for the strategic CFO in moving into the field of value generation is risk management.

Avoiding or ignoring risk is no longer an option. The strategic CFO will approach risk with an open mind and will be proactive in accepting the responsibility for thoroughly investigating the potential risks in any investment proposal.

Adopting a risk-thinking approach involves focusing on both upside and downside risk which in turn encourages people to be more open about identifying risk. Making the uncertainties within a proposal explicit is the first step in managing risk and avoids the losses that could arise when the vested interests involved in a proposal attempt to hide uncertainties.

In adopting a risk thinking approach, the strategic CFO will take a strong ethical stance that says concealing uncertainty is wrong.

The strategic CFO will be instrumental in changing an organisation’s attitude to risk by implementing processes that evaluate proposals for risk as they develop – ensuring that uncertainty gets identified early on in the life of a proposal.

However in order to take a leadership role in dealing with uncertainties, the strategic CFO will need to acquire an appropriate level knowledge about risk and uncertainty and become familiar with the appropriate identification and management methodologies

The management of uncertainty is becoming increasingly imperative as investors and other stakeholders look for greater assurances over the financial viability of business strategy and the delivery of value.

As the pressure for better execution of strategy evolves there will be an even greater focus on developing decision making processes that ensure investment decisions deliver measurable value.

The strategic CFO is well placed to undertake the task of improving the quality of decision-making by taking ownership of the decision-making processes.

The CFO is virtually the only person in the organisation that is in a position to see all the connections across the bigger picture. Everyone else has their own objectives

Achieving the correct balance between investing in growth opportunities and sustaining existing business makes the decision-making process a critical area of focus for the CFO to ensure optimum prioritisation of the investment portfolio.

So there is a lot for the strategic CFO to do. Strategic CFOs who will lead change within their organisations will possess the strategic insight and ability to challenge accepted ways of doing things and to encourage the development of processes and methodologies that support value generating initiatives that embrace the principles of innovative thinking, informed decision-making and integrated value delivery.

Travelling around the country and speaking to CFOs in various organisations we are often saddened by the narrowness of their outlook. Of even greater concern is the lack of appreciation of the need for the capabilities we have described in this article.

On the other hand we are encouraged by several recent United States surveys. This research found that while functions such as budgeting, reporting and forecasting remain vital parts of the finance portfolio, they have been surpassed in importance by a shift towards a more aerial view of the business, incorporating functions such as capex planning, strategic planning and performance management.

Strong CEO’s work with strong financial people who provide forward looking financial information that is focused on the future and geared towards using the available resources to deliver economic value

For most CEO’s their period of tenure is based on the results they deliver, hence CEOs need CFOs who have à value generation mindset and know how to create and deliver sustainable value.

Jeff Jackson is a former CEO of four high profile NZ organisations, as well as having held various CFO, COO and director roles.

He specialises in corporate governance, decision analysis and business case development. He is a leading conference presenter in the field of strategic

management and business case processes.

Tony Street is a leading strategist and consultant in the field of capital expenditure management. A CA, he is experienced in large scale, high level corporate capex management.

MAY 2015 | management.co.nz |