Beyond Numbers: The CFO’s Journey to Strategic Leadership

As the most senior finance executive in your company, your ultimate goal is to create significant value. This involves transitioning from simply managing a complex finance function to becoming the CEO’s principal thought partner. Some CFOs face an even greater challenge when they are unexpectedly thrust into the top role during a time of crisis or major change. In these situations, urgent tasks such as cash management, reporting, talent development, risk and control, and scenario planning cannot be ignored.

Many CFOs wonder how they can find the time to run the finance function while also being a thoughtful, strategy-first leader. They also struggle to establish credibility as a deputy CEO in the eyes of other senior leaders. However, some CFOs meet this challenge head-on. By improving in six critical dimensions, they become enterprise-wide leaders, superior decision-makers, and value-creating confidants of CEOs. They achieve this by running a more efficient, dynamic, and farsighted finance function.

The Strategic CFO's Playbook

As CFOs focus on procedural exercises and small details, they often overlook how these details contribute to executing the company’s strategy. The best CFOs prioritize core strategic issues, such as identifying new sources of growth and realizing the highest risk-adjusted returns for company capital. They ensure that they have disciplined strategy development processes with clear targets to track progress, hold people accountable, and maximize value creation.

Effective CFOs simplify and slow things down to identify key pain points, align their organization’s incentive structure, and assess current capabilities, particularly IT systems and tools. Automation, particularly with emerging, commercially practicable solutions in generative AI, can be more impactful in accelerating processes. For example, cash flow and revenue forecasts that used to take weeks to produce can now be generated in minutes. Competitor investor presentations and initial drafts of securities filings and stakeholder presentations can also be generated near-instantaneously.

One company’s CFO created a formal discussion format that focused on a few fundamental questions to link strategy to financial planning. The CFO tailored a planning solution to ensure a common understanding of the drivers and probabilities of revenue and cost goals and early team collaboration. The improvement not only saves time but is also much more accurate than the company’s earlier, off-the-shelf spreadsheet software and its disjointed decision process.

From Minutiae to Mastery

It is highly essential to focus on the bigger picture to achieve significant changes rather than getting caught up in the minutiae. Our research suggests that leaders who focus on the whole rather than the sum of its parts tend to perform better in terms of top and bottom-line performance. It is recommended that CFOs shift more than 60% of annual capital expenditure to different business units every ten years for resource allocation. However, depending on the specific industry, the time period may vary. Other significant moves include gross margin improvements that place your business within the top 30% of its industry, SG&A productivity improvements within the top 40%, and labor productivity improvements within the top 30% of peers.

For instance, a CFO in the life sciences industry can focus on capital allocation and have only three main priorities: business development of innovative products, funding for clinical development to support internal programs, and support for the successful launch of the largest commercial product. This approach can help the CFO concentrate on the team and drive the big moves that matter most to the company.

CFO Strategies for Simplification

Effective CFOs simplify their function by reducing duplication and mapping out roles and responsibilities. Finance departments can have hundreds of reports that its employees must fill out, often with duplicative or unconnected information. One CFO discovered that employees in external communications regularly released data that did not align with key messages from investor relations. Effective CFOs map out roles and responsibilities to have the most important details at the ready and anticipate what the CEO would ask if they were running the company. One highly effective CFO who thinks at the enterprise level was referred to by the CEO as a “walking encyclopedia”. Effective CFOs identify potential outcomes and keep their teams focused on creating outsize value.

Navigating Financial Waters

It is important to maintain a consistent pace when managing a company’s finances. While some days may be busier than others, it is important that daily work does not feel like a series of crises. Top CFOs invest time in creating tools, reports, and calendars that facilitate agile change. This involves using standardized templates, clear action items, and targeted outcomes that are regularly updated to track progress. CFOs should develop a playbook that outlines key questions to assess actual and forecasted results for momentum, investments, and initiative tracking.

Conclusion

CFOs have to tackle multiple challenges simultaneously, including executing company strategies at all levels, managing complex functions, and providing valuable insights to the CEO. It requires tremendous focus and discipline to balance all these responsibilities, especially for CFOs who are new to the role. However, the most successful CFOs follow six critical steps that enable them to manage their time effectively and help the company create significant value over the long term.