CFOs – Evolution of the CFO role
Let us start of with the evolution of CFO role discussed very well at the session.
The evolution of the role of CFO has been interesting over the past few decades. The CFO started off as ‘Chief Accountants’ where they were just responsible for number crunching and ensuring financial statements are rolled out. Then came the era of finance function where they started to be the money raising person for the company, here they added the responsibility of taxation. Further there was an era where they started to do a risk manager role, buying insurance for the profit centers. In another part of the history, they became the Management Information Systems man or responsible for all reporting – financial, non financial etc. And now they have become almost similar to a CEO with having additional responsibilities such as being the Forecaster, Economist, Volatility manager and strategic advisor.
Why change in the role?
One of the debate was, why the change in the role? What is the most important reason for the change. The CFOs attribute this to environment that we are working and not necessarily the core function. Environment around us changes significantly with new compliance such as Sarbanes Oxley, IFRS, new responsibility to manage knowledge and information that is available in abundance.
Also there was other perspectives such as being a coach to CEO, peers (other C-level execs), team, being a trusted advisor and value creator for CEO, ensuring the final goal of every business to achieve and run profitable best businesses. This involves a tact to enable risk taking, and as a manager and forecaster of volatility, CFOs are the best people to give a sign off on how risky a decision could be.
Strategic advisor for Mergers & Acquisitions
CFOs are key people driving M&As both pre and post deals. They become a good internal integrators across the business, finance, legal aspects of the M&As. They are the key internal strategic advisors for M&A since they understand the business very well, can appreciate the complexities from a legal or financial aspect, and also ensure that the deals result in some value creation. They often raise important pre deal questions that drive acquisitions such as –
does this bring new customers or markets
does this result in low cost of manufacturing or service
does this bring new IP or people who can derive new IP
are there synergies existing between these companies for value creation
Also CFOs are key to be the people responsible for raising money for the M&As. They assess the business and financial risk of such an acquisition. CFOs recommend that acquisitions should not be done beyond the means of the company, that is borrowing heavily to acquire.
Where could CFOs fail?
Some of the aspects that could result in failure of a CFO in the present era would be if they continue to look through rear view mirror and continue adopting the consensus & conformism approach. CFO will have to acquire new skills, and expected to know things they didn’t have to know earlier. These were identified as some of the major CFO blow outs:
Fail to Identify asset liability mismatches in long duration projects
Fail to identify risk and mitigation to manage the possible risks
Inability to forecast major economic change
Inability to predict liquidity crunches
Inability to complete fast financial closures
Inability to stop arrogant investments
Allow accounting misstatements!!!
SAP makes life easier for CFOs
With all the above insights, having technology support some of these pain points would be a key element. SAP’s focus on Why EPM solution with integration to ERP and built in GRC are critical? solutions, which is a combination of Financial Performance Management, Governance Risk and Compliance and ERP is full suited to not only take care of the core finance function (through ERP where process like fast close can be achieved) but extends it to allow CFO to become a strategic advisor through Empowering the business user to implement business change with CPM focused tools such as SAP Strategy Management (that combines the objective, initiatives and KPIs), SAP Business Planning and Consolidation (that allows budgeting, forecasting, predictive analytics using statistical forecasts, what if scenario analysis to build in the volatility models, allows for compliance to IFRS/Sarbanes Oxley/GAAP), SAP Profit and Cost Management (to analyse customer and product productivity using activity based costing), SAP Access Controls and Process controls (to make sure the compliances are taken care of), SAP Risk Management (where all potential risks are foreseen and mitigation plans identified). These solutions can be changed and managed by business users, and therefore can be used as an effective tool to model post merger integration by change of entity structure etc. As you can see all these aligns into some of the concerns of CFO in order to help CFOs to never fail and add value as a strategic advisor.