In recent years, CFOs have assumed increasingly complex, strategic roles focused on driving value creation across the business. Growing shareholder expectations and
activism, more intense M&A, mounting regulatory scrutiny over corporate conduct and evolving expectations from the finance function have put CFOs in the middle of corporate decisions.
While financial performance is what it is, the CFO’s role in helping stakeholders interpret the numbers in the context of the business environment is critical. This article explains the significance of the role that CFOs have to play in managing investors, communicating with customers, suppliers and internal teams, Continue reading →
Dr. Abhijit Phadnis worked as the Chief Operating Officer of UBS Investment Bank in India and as Head – Finance, Operations and Administration with Credit Issues. He also served on the board of a leading co-operative bank. Abhijit has experience in manufacturing and consulting sectors in a wide variety of interesting engagements.
Abhijit’s academic record is quite exemplary in the accounting & finance domain with high ranks in all the professional examinations such as CWA (1983), CA (1984), CS (1987) and CFA (1989). His all-India ranks were 2nd, 11th, 1st and 3rd respectively. He was recently awarded a PhD by IIT Bombay for his pioneering work on ‘Factors influencing investments into Indian states.’ Abhijit’s teaching experience also spans over 26 years. He has participated in over 250 executive education interventions. Abhijit has in the past served on the Academic Council and Board of Governors of the Institute of Chartered Financial Analysts of India. Abhijit has devoted significant time for non-profit activities.
Budgeting is a hotly debated tool. There are companies that swear by it. There are companies that have long abandoned it citing the dynamic nature of this world. Its proponents emphasize use of budgeting as a strategic, planning and control tool. Its opponents reject it as a ritual with huge costs and little benefits. Any tool is useful if we engage its heart and soul. At the soul of budgeting is the trio of communication, involvement and ownership. Often this soul is completely forgotten and then budget circulars, budgeting calendar and deadlines take over. Finance professionals are busy crunching numbers throughout the year. Six months before the year begins, they begin their work on the budget, three months into the year there is an updated budget, in the middle of the year there is a mid-term review, the rituals go on but we hardly find any involvement of and communication with the people who are at the forefront executing the company’s strategy in the operations and market place. They hardly get to know what the firm’s strategic thinking is and how it is panning out. The question of seeking their views and involvement just does not arise at all! The ego at senior levels that we know everything often pushes firms to take a top-down approach to budgeting. But if one lets it go and accept the reality that intelligence and knowledge resides at all levels of the organization, it opens up the wonderful door to the real soul of budgeting: communication, involvement and ownership with lasting benefits for the organization.
I had an opportunity to serve on the Board of a leading co-operative bank. Come budget season, we gave up the past processes of a top-down approach and focused on the trio at the soul of budgeting. We began with a communication session in which the Board had an open session with all the operating and branch managers. Important aspects such as emerging banking environment, bank’s strategic imperatives, opportunities, critical organizational action issues were communicated with the operating and branch managers. The branch managers shared their views as well. More importantly, they carried these discussions forward at the branch level. The branch managers with support of senior executives held communication sessions with the branch staff. They together worked on the opportunities at the branch level, challenges and areas of improvement. Some of the operations staff even carried out surveys in the market place, giving them a feel of what the customers are looking for and emerging competition. The branches had a nearly a month to work together and prepare themselves for today and the future. This exercise wonderfully created a sense of camaraderie and involvement. The branch budget was no longer that of the senior management or of the branch manager. The staff members were focusing on certain business opportunities not because they were told to do so but because it was they who felt such opportunities were waiting to be exploited and they had to be done with alacrity for their common good. This baby step of involvement and communication had a lasting impact on the ownership paradigm and I am really delighted to see that this sense of involvement and ownership has benefited the bank immensely with the bank being a proud winner of many awards and laurels.
The author examines the evolving role of a modern day CFO and believes that for the survival of the CFO ‘breed’, its essential to move out of the comfort zone.
Atul Kumar Agarwal is the Chief Financial Officer of MedPlus and has more than two decades of experience in Finance and Accounting in organizations like Tata Steel, PT Texmaco Group (Indonesia), Genpact, AB-InBev India. He has worked in the areas of Business and Corporate finance that included business planning, capital structuring, budgeting, creation of business support system (ERP implementation), corporate funding , working capital management, M&A, financial process outsourcing. Atul has hands-on finalization experience of accounts, financial audit, cost accounting, building cost systems and activity based management. Amongst other activities, he has been responsible for HR and commercial activities. He has chaired performance committees and advised boards on matters of corporate performance and governance.Besides being a permanent invitee on boards of various organizations, he also worked as CFO and member of board of Ab-InBev (India Operations) group entity.
Worldwide, the profession of CFO has not just undergone a change but is dynamically changing on an ongoing basis that can be witnessed in our daily lives as a CFO. This is due to constant changes in the economic & regulatory scenario worldwide and the uncertainty of the impact this would have on the organisational performance. The CFO’s role therefore is important not only as the custodian, but as a successful change manager who has the ability to ensure sustainability and effect business goals at minimum risk. The CFO has also moved on from a person just reporting to the company head or CEO to the mainstream and is the prime resource for shareholders/ boards/ other stakeholders who rely on this person to take decisions and take the organisation forward.
The CFO is required to have pre requisite skills and these are not just being good at numbers but as a strategic action implementer who is required to focus on key areas like sustained organisational performance, proactive de- risking of organisational challenges, ensuring corporate governance and being futuristic about technology. Some of these skills are as discussed as below:
Having access to right people and right information resource that can be strategic business enablers. Quality and timeliness of resource can hugely benefit the organization.
o Relationship & change management skills
Ability to influence internal and external stakeholders to get initiatives implemented. A good amount of negotiating skills & clear communication skills is of great importance especially with stakeholders whenever there is a need to work on change- management.
o Strategic Planning skills
Plan organisational future well ahead and be ahead of time. Create thought process that emulates strategy into action in various challenging scenarios and document it to enable future successors to build upon.
o Analytical and forecasting
Forecasting is not just playing with numbers. It has also to do with gut feeling of the CFO that can be relied upon. Besides having a good hand on the numbers, a CFO also needs to have a few core team members who can build on a dynamic business model that can keep improving over a period of time. This business model should be used to play with different scenarios that can aid the CFO to decide.
o Understanding of present and future technologies
Understanding technology is not just to know the present and future hardware and software requirements to take care of information management but to understand the ever changing dynamics that would support scalability, dilute human intervention in operations that allows them to focus on analytics and other high value-add domains. He should also look at promoting acquisition of intelligent systems that can build strategic edge over competition. At this point, I must say that the CFO is without doubt an inevitable part of information management of the organisation.
The CFO has to cut across boundaries in the organisation to push certain initiatives. For instance, lets take an example of an organisation that is low on performance and is in a high growth. The CFO knows that the best and the quickest way of turnaround of performance can happen with implementing KPI’s (metrics) and then bringing in a discipline that can monitor those KPI’s. The CFO constructs a list of performance based KPI’s related to sales, profitability, liquidity, HR, logistics etc., creates benchmarks, circulates & monitors them. I had the opportunity of doing this and it showed tremendous results in the employee morale especially when organisational performance parameters started improving. At times, the CFO may not get support at times from various stake holders in an organisation, but he should cut across boundaries to ensure that certain time tested ways of performance improvement exercises should be implemented to improve organisational performance.
Communications is an important attribute and soft skill for a CFO to have, since the metrics and expectations that are set for the Internal (employees, board and shareholders) and external (auditors, regulatory bodies, government agencies) are relationship based and require buy-in from all to succeed.
The CFO needs to constantly acquire new skill sets with an aim to create sustained value as the CFO is a powerful engine that not just designates the person as a custodian of shareholder wealth but as a value addition tool with sensors to predict organisational challenges, mitigates risk and factors them in his plan to ensure continuity, growth and a zero surprise environment.
Today’s CFO is highly stressed and pressured to constantly improve the results. Cost control, banking relationships, raising capital, financial restructuring make today’s CFO’s position at the centre of business as the CFO holds the key to company’s financial security. Hence the CFO also needs to ensure that a good work life balance is maintained.
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