The future CFO as architect of sustainable value
June 23, 2021
The ‘CFO of the Future’ Summit series is a joint effort by INSEAD Business School and Accenture to explore topics that are critical to aspiring CFOs and build a community where they can learn from industry leaders and peers. We recently completed two sessions on the CFO’s role as the organization’s value architect. During the first session, Bruce Burrows, Senior Vice President of Finance, Supplier Management and Business Transformation (FSB) at Tetra Pak presented his take on how modern finance leaders need to be both the value-drivers and change-makers in-chief of the business.
Visual capture of the discussion during session 1. View larger image
In the second session, Lily Fang, Professor of Finance at INSEAD, reflected on why today’s CFO is in a prime position to assume the role of architect of sustainable value. She also explained how future CFOs can implement the tools and techniques required to step into this critical value driver and change-maker role in the future.
Visual capture of the discussion during session 2. View larger image
Following are my top takeaways from the sessions. While some of them may be familiar points, they’re nonetheless still relevant today.
The CFO has a unique and dual vantage point
Through the internal finance and control function, CFOs have a clear view of the performance of the business and more importantly its potential. And as the company’s main interface with investors and markets, CFOs also play an important external role. The CFO - more than any other executive apart from the CEO - has a unique dual vantage point in leading the enterprise’s growth agenda. The combination of financial acumen and a solid working knowledge of the business means that CFOs are best placed to be the organization’s true value driver and change agent. Under the leadership of forward-thinking CFOs, we are seeing finance functions shift from being primarily ‘bean counters’ with an internal focus to playing a strategic role in crafting, and in some cases driving sustainable value creation. This unique ability to provide a 360° view can only benefit the company if senior finance executives embrace the role of value coaches and team players, rather than that of 'policemen.' According to modelling work completed as part of our latest Global CFO Research, high performing CFOs can expect to double their annual growth rate.
Future CFOs need to be curious and partner with the business overall
When Lehman Brothers filed for bankruptcy in 2008, there was a joke circulating on Wall Street about the company’s balance sheet: “On the left-hand side there’s nothing right, and on the right-hand-side there’s nothing left!” This describes a situation all CFOs want to avoid. But if CFOs and finance functions are solely focused on financial decisions such as where to invest and where the capital will come from, they won’t be able to create business value. To be a true partner to the CEO, it’s time to look beyond the balance sheet and reflect on the business as a whole and how to deliver sustainable growth. Proactively managing and developing finance talent is a powerful way to nurture this collaborative mindset and respond to this creative challenge. Often overlooked, but highly effective at strengthening business acumen is rotating finance leaders to sales, marketing, supply chain and product development roles between two finance positions. It is also important for individuals to grow through a mix of headquarter-based and local roles to better understand the demands and challenges the business faces and attune their skills as change agents. This type of frequent job rotation should become easier to manage and less disruptive to family life and organizations as the pandemic drastically increased the acceptance of remote work routines.
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Tap into your organization’s most valuable and unique asset… its people
Nobody would argue that assets aren’t important in driving value, but what’s the most important asset? Some say cash - and for liquidity and solvency reasons cash is vital. But the most important and unique asset of all is your people. Employees are the firm’s value creators and value drivers and in service-based industries the true differentiator. To measure this, there are widely-used frameworks which help CFOs present the value that’s being added to the business by its people – the ‘market value added’. This is essentially the market value, the present value of the future cash flow of the business, minus the book value, the historic cost at that moment in time. As CFO, you want the market value to be bigger than the book value and you want to protect and sustain this position over time.
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Focus on what you can influence
Finance professionals can’t directly influence the market value added, but there are other operating metrics that you can influence to help drive as much value for the business as possible. This is about identifying what creates value and what destroys it. Going back to the balance sheet, value creation essentially means having a bigger capital spread. Think about where your sustainable competitive advantage come from and focus your investment there to capture the full potential. Think of this as the moat that protects you from ‘enemy invasion’. For example, product, service and experience innovation.
Take affirmative action to drive value
Conducting an analysis of the organization’s Return on Investment Capital (ROIC) situation can help to identify problems, including those that aren’t necessarily ‘visible’. However, problem-solving alone isn’t enough. For CFOs to drive sustainable value going forward, it’s important to take decisive action. The first step is to complete the diagnostics by diving deeper to shed light on the best path forward. Then create an executive plan with a clear timeline so that the CEO and board understand where the value creation is going to come from. Next, it’s time to put critical data capabilities in place for continuous monitoring and improvement. Finally, rethink incentives so that you’re setting meaningful KPIs (key performance indicators) throughout the organization which align individual performance to the overall business strategy. This means everyone driving in the same direction to deliver on the company’s North Star ambition.
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In summary, value creation goes far beyond profit maximization. High performing organizations translate familiar financial and business measures into data insights and knowledge and then into managerial tools and capabilities, setting the business up for long-term and sustainable value creation. To deliver this level of success, CFOs of the future need to have a value-focused mindset and fresh thinking. The ultimate goal is to understand how to use the tools and techniques at your fingertips to become a value driver for the whole organization.
See more finance insights here. To learn more on how you can get involved with the ‘CFO of the Future’ Summit, contact us.
