The Emerging Role of CFO

The best place for assessing the role metrics for particular function is to skim through Job portals and look what potential employers are putting up as requirement for a particular function. This is an activity I undertake with lot of interest as it helps me to understand the moving trends in current scenario.

The most dynamic of current functions is turning out to be that of CFO. This function has come out of age and has moved from a mere custodian of finance and transaction, strictly speaking a technical profile to even beyond a techno-commercial profile. So much so that there is a need to coin a new term for this profile which should encompass Technical, Commercial and Operations. Maybe Techcomop is a better word. I invite suggestions for same.

The landmark event which triggered this transformation was the crisis of 2008. Post 2008, in order to survive, mature businesses streamlined their assets by divesting non-core assets, worked upon improving cash flows through better Cash to Cash cycle management. But these measures were not enough. The most important of all was to improve efficiencies in operations (core and non-core) in order to yield a better bottomline. 6 years down the line, we can witness that businesses which have treaded this path are fit than ever before, efficient and have beaten the economic growth rate. Time has come that businesses are looking beyond endurance to prosper more.

Another way 2008 influenced the way businesses operate was emergence of a complex control environment. Regulations were tightened and more transparency was brought in reporting and disclosure environment.

Owing to above CFOs started to have more personal stake in and accountability for their function. On behalf of the business they are accountable for, they have to put in place business processes and protocols which ensure that the objectives stemming out of changed business environments are being met and the finance function has the necessary expertise to handle the same.

In particular when I speak of personal experience, I was working for an Apparel business when the crash of 2008 happened. Prior to that industry had to absorb shock of withdrawal of quota system whereby preferential treatment to business according to geographical location was withdrawn. Suddenly the business which was truly local, became global. Pressures came on costs and operations. In order to be competitive, entire strategy of business was to be reworked overnight. Focus, which earlier on quantities was turning the business into more like a commodity business was shifted to efficiency. In order to sustain, the business had to be efficient in all terms – operational, costs and processes. CFO played a greater role in bring about fiscal and operational discipline. Primary responsibility of function changed from custodian of finance and data to guarantor of success of business objectives.

A collective influence of regulation and globalized environment ensured that traditional MIS setup no longer worked for any organization. The business truly had to be restructured and changed and to monitor the efficacy of this restructuring, more analytics came in the threshold of finance function. The data multiplied as the businesses grew in all direction and existence to large and complex data provides challenge and opportunities for more analytical and predictive insights. Today it can be safely said for any mature business that at any given point of time, data systems and hierarchy do not reflect business needs. This is so because the environment is ever evolving. Plays in dataset catches up and the team of CFO spends significant time in reworking the data to meet the business needs. Thus one of the most important challenge for today’s CFO is the emergence of Business Intelligence. CFOs are supposed to be natural analysts and modern day Business Intelligence falls under the realms of CFO.

Today’s finance function needs to have sufficient understanding of the business and its full operational complexity to report on non-financial KPIs – the publishing of which is a growing trend. These non-financial KPIs often don’t come through traditional accounting system. There is a growing appetite for non-financial KPIs another expectation from modern day finance team.

With changed scenario, business risk is now at a higher level than ever. Avoiding risks is no longer an option. CFOs are facing extreme circumstances whereby they are being asked to cut corners by budgetary practices and also being pushed by business necessity. At the same time, they are expected to derisk the organization from emerging risk approaches. CFOs are expected to scrutinize the effectiveness of risk management processes. The CFO is expected to bridge the gap between risk and opportunity and be proactive and prepared to take risks. Owing to access to data set and analytical capabilities, the CFO is better placed than anyone else to mitigate the risk associated with any appropriate business action.

Another area where the CFO of toady is expected to contribute is transformation of business. When we talk about medium sized businesses, transformation primarily comes from three activities a.) Reducing (or rationalizing) costs, b.) Improving efficiency and c.) Integrating the different business functions. Today’s CFO is expected to re-engineer and transform the business on an axis which encompasses these three activities. The function of CFO is today a catalyst of change across the business, driving changes which effect long term business performance.

From a stakeholder perspective, Bankers are perhaps the most important customers of a CFO. I may not win many friends for making this statement but more often than not, particularly for a small business, lending renewals become a period of pain and distress. An effective CFO is at a helm of banking communication. Being proactive, serving the bankers beyond the absolute necessity of protocols goes long way towards building a strong relationship. The days have gone when the only point of communication with bankers was submission of QIS/Stock and CMA statements.

Modern day CFO has to act as a perfect partner to the CEO. A modern day CFO is a person who owing to his unique position in organization is able to comprehend connections between all functions and make them agree on holistic view of the business. So he acts as a conduit between all stakeholders of business. Through this position, the CFO inform and contribute to strategy of the organization. This has become such an important relationship (of CFO and CEO) that in today’s time we see a growing trend from the role of a CFO to that of a CEO.

It can be safe to say that traditional roles of finance function are now taken for granted. The rules of the game have changed for CFOs, reflecting a more uncertain, dynamic and global economic environment in which their businesses operate. This is made more complex by extraordinary rate of technological change. This future environment presents enormous challenges for CFOs, but it also provides a great opportunity for ambitious finance professionals seeking a rewarding and enriching career. Aspiring CFOs with commercial exposure, who have developed their non-financial expertise are the ones to watch.

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About bsbasan

Professional with over 20 yrs of experience managing business. A strategist, A thinker and an innovator. Experience in cross sectional functions in various industries like Chemicals, Apparels, Retails,Hospitality, Construction, Manufacturing, Services. Proven experience in Business Development, P&L,Finance, Risk Management, Strategic planning and organizational transformation. 20+ years record of success managing corporate finance & business operations for growing manufacturing companies with multistate and international operations. Made break-through improvements in business processes utilizing lean methodologies and Six Sigma principles. Currently designated as Chief Executive Officer of Texport Syndicate India Limited
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