Today’s CFO

CU360
January 22, 2010 | COMMENTS

The role of the CFO has expanded significantly in the past decade. It's becoming more difficult to tell where the accountant ends and the strategist begins, writes Kurt Kuehn in the Institute of Management Accountants' magazine Strategic Finance. Kuehn is CFO at United Parcel Service (UPS).

We're not only seeing more CFOs with diverse business backgrounds, but we're also seeing CFOs evolve from their traditional roles as gatekeepers and “cost cops” to enablers of growth. CFOs' traditional focus on return on investment (ROI) has generally shifted to managing a balance between ROI and growth. Many CFOs today are—along with the CEO—the primary drivers of corporate strategy. This journey from tactician to strategist has happened very quickly as companies have responded to new realities in the marketplace.

Today's CFOs have greater opportunities than ever before to become corporate change agents. But how can they best use their growing clout to drive positive change and help lead growth?

With a nod to Stephen Covey, I think there are Seven Habits of Strategic CFOs. While not revolutionary, these habits can nevertheless help ensure that CFOs sustain their new roles as corporate change agents.

Habit #1: Take a seat at the strategy table. The CEO is most likely your chief strategist, but the CFO should be deeply involved with strategy formulation, not necessarily as a proponent of any one strategy but as an arbiter of various strategic options.

It goes without saying that the CFO should be a regular part of meetings where corporate-strategy decisions are made. Scenario planning is a particularly important planning tool for the CFO and other corporate strategists. This is a beneficial exercise for looking outside the four walls of the company and identifying long-term marketplace risks and opportunities associated with several strategic options.

Habit #2: Define and manage return expectations. Most larger companies aren't monoliths but are portfolios of different business lines with different characteristics. Each business line probably will have different maturity levels, varying capital requirements, and different levels of asset intensity. A strategic CFO will define different, separate return expectations for each of these businesses and communicate clearly the return rationales to the market.

Habit #3: Manage to the portfolio. Another aspect of managing your business lines as a portfolio is that there can be synergies and interdependencies among them that make setting return expectations more complicated. Lower rates of return might indicate that a particular business line needs to be dissolved, but killing that business line could hurt better-performing lines in your portfolio. Strategic CFOs manage holistically to the portfolio instead of making investment decisions based on rigid rate-of-return requirements for each business.

Habit #4: Nurture a customer-centric growth culture. One of the traps that CFOs can fall into is that they can get isolated from customers and lose track of what creates value for them.

Strategic CFOs can help nurture a customer-centric culture in several ways. First, they should meet with customers regularly to understand their needs and concerns as well as escalate the resolution of unresolved problems. Second, assuming alignment around the customer is a priority, the CFO needs to make sure that financial systems are fully supportive of sales and operations.

Strategic CFOs can also ensure that any cost-savings initiatives don't come at the expense of the customer. Here's just one example: It might be tempting to save money by urging customer-service representatives in your call centers to keep calls short. Often, though, this just leads customers to make more than one call to resolve the problem, which ends up diminishing customer loyalty and ultimately raising costs.

Habit #5: Don't be afraid to prune. As CFOs evolve from gatekeepers to growth enablers, it might make more sense to initially relax return requirements to green-light promising growth initiatives. But with lower approval barriers should also come greater accountability for results.

CFOs should set specific metrics and return expectations along with timelines for achieving these returns. If a new product or service fails to meet these targets, the CFO shouldn't be afraid to discontinue investments in the project. In other words, if you're going to fail, it's best to fail quickly before the financial damage spreads.

Habit #6: Fertilize in the winter. At UPS, in our 100-plus years in business, we've seen a lot of business cycles—depressions, bull markets, recessions, and housing bubbles. That's why they call them cycles. In fact, the country is currently coming out of a down cycle.

It has been our experience that down cycles are ideal times to keep investing in long-term growth initiatives. Long-term growth requires a long-term vision, and that vision shouldn't be affected by temporary downturns.

Habit #7: Know when to buy and when to build. Growth generally can come in one of two ways—organically, by increasing core business volume and building new capabilities, products, or lines of business, or by making acquisitions. How, though, do CFOs help their companies decide when to buy and when to build?

At most companies, the preferable option is to grow organically. This makes sense when the capabilities you need to add are a natural extension of your core business. If that's the case, the time and resources needed to add these capabilities will likely be manageable, and it will be easier to meet rate-of-return requirements.

Sometimes, however, when building capabilities in-house will cost too much or take too long—letting your competitors gain critical competitive advantages—acquisitions make more sense. Having made dozens of small to mid-sized acquisitions in recent years, I've reached a couple key conclusions: First, buy capabilities rather than market share. Second, avoid the temptation to make trophy acquisitions.

Accountant, strategist, growth consultant, market analyst, investor, customer advocate, change agent: Today's CFOs wear a lot of hats. Developing some basic but essential habits will help them remain critical drivers of growth strategies.