Like their peers elsewhere, CFOs in Asia are now expected to play their part in the strategy process. But do they really understand what’s expected of them, asks Cesar Bacani
This article was first published in the February 2015 China edition of Accounting and Business magazine.
It’s an accepted notion now in Asia that the CFO’s remit should extend beyond compliance and reporting to also include a seat at the strategy table. The head of the finance function knows everything that is going on because nothing gets done without money. The CFO, therefore, has a unique perspective about where the company should be going and how it can get there.
But what exactly does being a strategic CFO entail? Having interviewed many finance executives and moderated discussions in conferences and roundtables, I have a feeling that CFOs have yet to really grasp how exactly they can contribute to strategy setting.
This is why I find particularly useful a new framework developed by Deloitte. In contributing to strategy-setting, the CFO can act either as a responder, a challenger, an architect or a transformer.
‘As a responder, the CFO and the finance organisation support the company’s strategy development by helping key business leaders quantitatively analyse the financial implications of different strategy choices,’ Deloitte explains.
A responder role is typically the case in highly decentralised organisations where the CEO makes business-unit leaders accountable for strategy and performance. The CFO may also take on this if the CEO limits finance’s role in the strategy process to the provision of quantitative and analytics support.
CFOs can also be challengers – critically examining the risks in and the anticipated returns on various strategies. In this role, the CFO is particularly important in the review of major strategy investment decisions.
‘Being a challenger is sometimes equated with being a ‘“Dr No”,’ says Deloitte, ‘as the CFO and finance organisation seek to minimise risk or ensure adequate returns to future capital allocations and investments.’
The third potential role is as architect; the CFO shapes strategy choices with other business leaders. ‘Architects go beyond the challenger orientation to enable the financing of innovative initiatives,’ Deloitte explains. ‘Architects thus work to find ‘a path to yes’ on key business investments.’
Finally, the CFO can play the role of transformer, someone who acts as lead partner to the CEO in both shaping and executing strategy. For example, the CFO may effectively alter the business model by restructuring financing and leasing arrangements, thus changing how customers buy or use the company’s products.
What is important is for CFOs to be aware of what is required by each role and make sure they have the tools and infrastructure needed. As a responder, for example, it is important for the CFO and the finance function to have effective financial planning and analysis capability.
As a challenger, the CFO should have the permission of the CEO and business-unit leaders to make critical assessments. The CFO should also work to earn the respect of the strategy setters. It’s even better to go a step beyond and offer concrete solutions or, at least, a pathway – becoming an architect, a Doctor How and not just a Doctor No.
What I like about the Deloitte framework is that it is actually a roadmap in the journey to becoming a strategic CFO. Going straight to the transformer role can be an overreach and a source of frustration for many finance professionals. The better strategy is to start as a responder, then move on to challenger, architect and finally transformer as you acquire the skills, knowledge, experience and respect of the CEO and other business leaders as a strategic CFO.
Cesar Bacani is editor-in-chief of CFO Innovation.
"In contributing to strategy-setting, the CFO can act either as a responder, a challenger, an architect or a transformer."