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STEP 1: IMPROVE YOUR LEADERSHIP EFFECTIVENESS BY LOOKING AHEAD
The pain of change comes from within—your need to face your own ego and self-imposed limitations.
Leaders in management accounting are often so focused on to-do lists, tasks and deadlines that they forget to take time to look at the big picture. This first step is designed to provide a global view of where the role of the CFO and, by extension, the controller is heading. You will quickly discover that the roles they play must change or they will be left behind. In this global economy, speed, flexibility and innovation are paramount.
After reading this chapter you should be able to
redefine the role we must play to benefit our employers.
see our evolving profession through recent survey and research results.
isolate the critical skills that we will need to be effective in the future.
isolate core attitudes that will benefit us in the future.
identify the most important changes in management accounting that we address now.
OUR FUTURE—MORE OF THE SAME, AT WARP SPEED
The various components of management accountants’ jobs are changing faster than you might imagine.
CFO and Controller’s Future Roles
Our primary roles in the next few years, and probably beyond, are as follows.
Collaborator
You must be able to collaborate with everyone in the organisation. You will not be invited to the table and trusted unless you know how to collaborate effectively.
Consultant
Operational managers and executives look to you and your team to offer suggestions for improvement. You must be proactive and consistent in this role.
Communicator
In our near future, communicating takes on a whole new dimension. You and your team must be the truth tellers for the organisation. The data and metrics you report on must be meaningful for everyone.
Strategic Leader
The CFO or controller must be the one taking the initiative to lead strategically.
Fulfiller of the Eight Expectations
Figure 1-1 uses a wheel to represent your team’s success. Without a strong, flexible and talented team, you will not be the strategic leader that you must be. Each segment of the wheel represents the expectations and demands placed upon the CFO’s team by the CEO, board, managers and other stakeholders.
Figure 1-1: The Eight Expectations of Management Accounting
The CFO and Controller Team’s Responsibilities
The wheel represents what management accounting must continuously and effectively do.
Assert Financial Control
One responsibility that has not changed for us is ensuring that our organisations have a control system in place that works. Whether you are subject to government regulations, worried about your company’s survival, or working for a successful organisation, this role continues to grow in importance.
If you do not take this responsibility seriously, no one else will.
Manage Liquidity and Working Capital
A second responsibility that remains the same is ensuring that your organisation has the funds to operate. This also has grown in importance because of the recent recession’s after-effects.
Ensure Regulatory Compliance
Management accountants continue to have the significant responsibility of ensuring that they keep executives and themselves out of prison. Every year there are more rules they must spend time understanding, so that they can help their employer remain compliant.
Be the Stewards of Financial Performance
This stewardship responsibility goes beyond issuing regular reports. The CFO and controller are depended upon to ensure that they are measuring and monitoring all the important success factors of the business and reporting on them. In addition, because their reports will now contain more nonfinancial metrics, they must work to determine the quality of those data points that they do not control.
Carry Out Cost Control and Perform Profit Enhancement
Because staying competitive has become of extreme importance in the global economy, the controller and CFO are expected to offer multiple suggestions on reducing the cost of doing business and enhancing the bottom line. Everyone else in the organisation is narrowly focused on their responsibilities; therefore, the controller and CFO must be focused on the broad strategic picture.
Be Bridge Builders
The management accounting staff can no longer afford to be a silo or an island unto itself. An increasingly important role for us is building bridges with other parts of the organisation, a function that works in parallel with communication.
Be Advisers to Management and the Board
CFOs, controllers and other management accountants in leadership roles are now viewed as key people to whom management and the board turn for advice. If your executives do not include your thoughts in their future planning, then you have not taken on this responsibility.
Partner with Operational Managers
Another responsibility of management accountants is equal partnership with other groups in the organisation, especially operational managers.
The Management Accounting Department’s Journey Into the Future
Here is what the future holds for all of us who work in the internal finance function of an organisation: public, private, government, nonprofit and so forth.
We are all in the midst of a major transformation.
If we do not take advantage of this transformation, or even notice that it is occurring, we will continue to be minimised, downsized, chastised, criticised, ostracised or, worse yet, outsourced.
This transformation that the finance team, group or department must make is designed to help our employer stay viable and successful. Making this transition will ensure that we will be seen as a core function.
We must move from being the people who keep the data to the people who keep the trust. This transformation is referred to as a value creation approach to management accounting.
VALUE CREATION APPROACH TO MANAGEMENT ACCOUNTING: EIGHT INSIGHTS INTO MANAGEMENT ACCOUNTING’s FUTURE
In the following section are eight different points of view about what the future holds. Each study states similar findings in different ways. As you read each one, look for common or universal themes.
The first theme is the most obvious.
Universal Theme No. 1: An Emphasis on Nonaccounting Roles
Our roles are rapidly expanding far beyond traditional management accounting. This expansion is not a suggestion or a request; it is a mandate.
View 1—Future Perfect: The CFO of Tomorrow
There will always be a high demand for the strategic CFO.
Strategic Transformation
The purpose of this research project was to determine how the role of the management accounting team is changing with all the pressures bombarding it. A key finding was that all the executives surveyed expect a continued transformation of the management accounting group that they employ.
Too Much Transacting
The CFO spends less time today on traditional tasks, yet such work still amounts to about 50% of his or her time. This time-intensive work must be reduced to about 25% of the CFO’s day so he or she can spend more time on decision support. Executives said they desire a strategic CFO to be on their team.
Surveyed CFOs said few finance departments have the depth of talent and experience necessary to undertake a more strategic role and assume nonfinancial functions. Making this transition of mindsets and attitudes along with the acquisition of the right skills is a long-term process, so the organisation’s senior leaders and CFO must be patient.
You, a Strategic CFO
Three essential areas in which executives want their C FO to improve are the following:
Stronger and more strategic leadership
Management
Communications
The report identified necessary and specific skills that enable the CFO to become an active partner in the business. A leader of finance must perform the following skills extremely well:
Strategy development
High-level decision making
Planning analysis
High-level negotiating
Being assertive and outspoken
Building a collaborative environment
Being a trusted adviser
Championing company-wide initiatives
The CFO of tomorrow should be a big-picture thinker rather than detail-oriented, outspoken rather than reserved, prefer to delegate rather than be hands-on, emphasise what gets done rather than how things get done, and make collaborative rather than unilateral decisions. He or she should also master the ability to foresee the future consequences of current actions, follow through on decisions, and manage projects effectively.
The preceding quote and views expressed in this section are drawn from a report by CFO Research Services in collaboration with KPMG, July 2008.
View 2—The CFO’s Role in Achieving Operational Excellence
The role of the CFO is to foster and support organisational excellence.
Excellence Defined
The study’s purpose was to determine how much the CFO is involved in operational excellence initiatives. A majority of CFOs said they are already involved, and many said they must become more so. Operational excellence is defined as “execution as measured in terms of greater process consistency, lower error rates, higher quality, lower costs, and other metrics that a company considers key to its operating performance.”
Your Expanded Role
The CFO’s role has expanded from traditional oversight to that of a performance manager, and our new mission is to forge relationships with operational managers so management accounting can provide them with the data that they need, not what the CFOs push on them. CFOs are embracing the important role that finance must take on to help their employer achieve operational excellence. A majority stated that operational knowledge has a substantial impact on their ability to do their jobs. The CFOs expressed the desire to be more involved in improving their employer’s operational excellence because they are not content with the status quo.
The definition of excellence for the finance team is to have the ability to add value. The team’s ability to do this is dependent on the following four factors:
Targeting data and helping managers see the financial impact of decisions
Having good communication and leadership skills
Fostering a supportive work environment in terms of culture and the executive’s priorities
Understanding how the business actually operates
To meet this goal, the finance team must enhance its skills in the following areas to improve its involvement and results:
Interpersonal and communication skills
Leadership skills
Operational business experience and knowledge
The CFO’s Current Barriers
What stops the CFO from being better at operational excellence?
According to the CFOs responding, operational excellence is affected by
the amount of support they formally and informally receive from their employer,
the corporate culture,
the priorities established by their executives, and
the type of company for which they work.
Self-Fulfilling Loop
Communication and involvement with operations is a mutually reinforcing loop, as shown in figure 1-2. Greater involvement and communications is a win-win for management accounting.
Figure 1-2: The Finance Manager’s Self-Fulfilling Prophecy
The views expressed in the previous section are drawn from a research project by CFO Research Services in collaboration with Accenture, April 2009.
View 3 — Finance’s Talent Challenge: How Leading CFOs Are Taking Charge
Restoring Credibility
Because of the damage done by Andrew Fastow and the failure of Enron, the Economist Intelligence Unit wanted to uncover what CFOs are doing to rebuild their credibility and reestablish trust. After surveying 636 executives (9 industry segments, located in 73 different countries), it reported that “the results present a vivid picture of the uphill battle many CFOs face to populate their finance organisations with high-potential individuals who can support and partner with them and the business at large, to help ensure corporate performance is maximised and sustained.”
Survey Findings
Many finance organisations are ill equipped to excel in value-adding activities. It is easy to assume that we know what that means, and yet the survey reported that very few of us do.
Branding the company as a career destination for finance professionals is critical for attracting talent. Few companies do this well.
Many finance organisations do not capitalise on the graduate pool.
Career development is critical to those individuals who are career-focused. Yet many companies keep finance people from pursuing learning or growth opportunities outside the management accounting function.
Those with CFO ambitions need to take deliberate career steps and gain diverse business experiences.
Few finance organisations have developed proactive or innovative strategies to attract, develop and retain talent.
The CFO’s Current Challenges
The survey identified six challenges that CFOs face and the best ways to resolve those challenges.
Many accounting teams remain in a vacuum in which they deliver numbers but do not use the information to create value.
Solution—The CFO must take specific action to turn his or her team’s numbers into something valued by others.
Of the finance team’s competency deficiencies, the abilities to be strategists and catalysts are the most glaring.
Solution—The CFO must undertake a resource review of his or her team’s talent needs and abilities.
The CFO rarely knows the types of talent needed and where to find those people.
Solution—The CFO must create structures, then seek out and recruit management accounting talent wherever it exists.
The entire accounting group has trouble recognising talent.
Solution—The CFO and team must hire people who have a value creation mindset.
The CFO does not assist his or her employees in finding experiences outside finance.
Solution—The CFO should create or identify leadership development opportunities for his or her employees wherever they exist in the organisation.
The CFO typically relies on comfortable or traditional methods for assessing talent.
Solution—The CFO must find additional ways to assess a person’s potential, in partnership with the human resource department.
The views expressed in the previous section are drawn from a research project conducted by Economist Intelligence Unit in collaboration with the Deloitte Touche Tohmatsu, May 2007.
View 4—The Superstar CFO: Optimising an Increasingly Complex Role
The CFO who helps the organisation become successful operationally garners great rewards for himself or herself.
Intense Pressure
“Chief financial officers are under greater pressure, scrutiny, and accountability in companies large and small. The demands of both internal and external stakeholders continue to expand, and seemingly everyone expects more from companies and their finance function. The stakeholders look to the CFO for his or her unique understanding of
company performance,
business strategy,
value-creation, and
risk.”
This study was undertaken to determine how the CFO currently deals with these increased pressures and to discover the attributes of highly successful CFOs.
Superstar Status Defined
A senior financial executive at a manufacturer said, “Extraordinary CFOs know no boundaries. They participate in the management and optimisation of the assets of the company—both physical and human.” Superstar CFOs can be recognised by the following four traits. They
take ultimate responsibility for finance’s efforts and results,
closely work with other parts of the organisation,
become a process expert and adviser, and
take responsibility for the integrity of the company’s process and controls.
The CFO is more likely to excel as a leader of the finance function and demonstrate personal leadership by
being both a navigator and a copilot,
building consensus,
inspiring confidence, and
making decisions authoritatively.
The CFO’s Achilles’ Heel
The people who employ CFOs say that what most undermines their effectiveness is their spending too much time on management accounting’s regular work. CFOs must develop a team who can take on these tactical matters so that they can focus their attention on mission-critical work.
The views expressed in the previous section are drawn from a research project by CFO Research Services in collaboration with SAP, May 2007.
View 5—CFOs and the Talent Gap: Does Finance Have the Right People?
Increasingly, business leaders see the competition for talent as the most significant global trend facing their companies.
Your Talent Gap
Corporate finance is on the forefront of today’s fierce competition for talent. The following are causes for a shortage of qualified accounting people:
The highly specialised and technical requirements of the job
The globalisation of business, leading to more complexity
Organisations reporting more on nonfinancial matters instead of financial ones
Finance as the hub of company data that must provide forward-looking analysis for sound decision making
Solutions to Have the Right People
Tactic 1
As the leaders of talent management on our team, CFOs must better explain to candidates the role management accounting plays. They must help those they hire understand that management accounting is a springboard to many other career paths.
Tactic 2
The CFO must expand the use of tools beyond what he or she is comfortable with in order to both assess and develop talent. For example, appraisals from the line manager are good indicators of an employee’s ability to provide the insights that operational people need. Some other tools a CFO can rely on include the following:
360° feedback
Mentoring
Coaching
Succession planning
Altering the team’s incentive plans
Tactic 3
The best tactic the CFO can employ for better talent management is to seek out and obtain internal appreciation for the work that his or her people do. This helps the team improve the services it provides.
The views expressed in the previous section are drawn from a research project by CFO Research Services in collaboration with Microsoft, May 2008.
View 6—Preparing Finance Staff for the Future
The head of the management accounting team is in the midst of a longstanding effort to transform finance from a processor of data, to an organiser of information, to a true business partner and performance leader.
Prepare to Be Great
The survey in this report addresses the question of how the accounting function and leader of finance can prepare his or her staff to become true business partners and performance leaders. The survey uncovered a major barrier: the lack of well-rounded business, technology and even technical skills among finance employees. This barrier has become very difficult to overcome.
Survey Findings
Although many large organisations offer formal training to management accountants, companies are more likely to use informal training. According to those surveyed, ad hoc training is valuable and low-cost; however, it is inconsistent and neither continuous nor measurable.
Formal training programmes most often emphasise technical accounting skills rather than analytical skills. For organisations that have such programmes for the finance team, the training was described as lacking breadth and depth because of an over-emphasis on technical accounting and not enough attention to analysis, decision support and risk management. Formal training can suffer from being narrowly focused and not involving collaboration and partnering.
CFOs recognise the value of formal training, yet they fall short on providing it. The lack of resources provided to the finance function is the major cause. Another concern is the concentration on only tactical topics and the fact that only two specific employee groups get trained: (a) the newly hired and (b) those who show leadership potential.
The top priorities for employee development and improvement include (a) increased emphasis on leadership skills and (b) building a closer connection between those skills and the organisation’s needs. The CFOs who responded believe that any training to finance must be tied into real-world and business-related issues and problems. In other words, management accounting’s training must be tailored, not generic.
The top barriers to improving employees’ skills are competing priorities within both finance and the organisation at large. CFOs said that it is much more difficult to provide necessary training for their employees if their organisation does not believe that training is critical for its success.
The Value of Training
“One of the most prominent themes to emerge from this research was the connection CFOs see between formal training programmes and career enhancement. They don’t view formal training as a distraction” or as a remedial action for underperformers.
The views expressed in the previous section are drawn from a research project by CFO Research Services in collaboration with ACS, November 2007.
View 7—The Right Stuff: Leadership in Finance
Now, more than ever, finance leaders have the opportunity to guide and influence their organisations.
Continuing Pressure
This research project was “undertaken to examine the state of the finance profession from the perspective of senior finance executives” and found that, at least in the United States, management accountants “are acutely pressured by increased responsibility and heightened accountability. The research found that finance departments are not only under pressure to manage financial compliance, processes, and controls in environments of intense regulatory scrutiny, but also increasingly accountable for business performance.”
However, the CFO has not been given adequate resources to respond to these pressures. What skills does the CFO need to meet these pressures?
Our Crucial Skills
Although this situation is difficult for many, it is also an opportunity for us, because the CFO is considered to be a major influence over both finance and the business in general. This role requires both technical skills and soft skills—complex management and leadership—in these specific areas:
Collaboration
Negotiation
Communication
Those who responded to the survey said most often that the nuanced interpersonal skills, such as decision making, collaboration and flexibility, are necessary for their own success and to meet these demands and pressures. The skills that the CFOs defined as crucial are also those required for leadership effectiveness. Nevertheless, CFOs rated themselves higher on getting their traditional work done and lower on dealing with organisational politics.
Tactics to Enhance Your Leadership Abilities
When asked about specific suggestions for the person who wants to become a better leader of finance, these six suggestions came to the forefront:
Obtain ongoing feedback
Seek out new experiences
Provide mentoring and training to others
Take courses on leadership
Seek out and maintain connections
Spend time doing personal reflection and self-analysis
These six skills that contribute to our success mirror the corporate culture that our employers need in order to foster our organisation’s lasting success and sustainability.
The views expressed in the previous section are drawn from a research project by CFO Research Services in collaboration with Tatum, March 2008.
View 8—Bean Counter to Business Leader: The Changing Role of the CFO
CFOs have a golden opportunity to show that they are true business leaders.
No More Beans
The role of the CFO is evolving, but due to the daily and never-ending pressures of closings, reporting, meeting deadlines and the sea of other finance duties, a strong tendency still exists for the CFO to act as the “chief bean counter.” The white paper reviewed in this section encourages CFOs to shed this title in the following ways:
1. Improve Your Visibility by Turning Data Into Better Business Decisions
CFOs must create a common platform for the data they control so that everyone knows both the source and integrity of the numbers—financial and nonfinancial. They must have high quality data that is shared and fosters sound business decisions.
2. Create Quick Wins
CFOs and their team should work on low hanging fruit and focus their efforts on the sharpest pains. One way to help a team get quick wins is to have better forecasting techniques and share reliable data with others.
3. Design the Right Roadmap
CFOs must establish an accurate roadmap for their team and establish specific and achievable goals with three different time frames. Three different time frames for goals help you to be strategic but not neglect the tactical part of your job:
Long-term
Mid-term
Short-term
4. Empower the Organisation
As CFO, your responsibility is to empower the organisation by
distributing information,
balancing centralisation with authority,
providing tools,
providing data with analysis, and
fostering a performance culture.
However, you cannot implement this fourth strategy alone. The entire leadership team helps to establish a performance-sensitive culture, which requires each member to
collaborate,
convince others,
negotiate,
inspire others, and
listen.
The views expressed in the previous section are drawn from a BPM Partners white paper, July 2009.
What do the eight trends and findings previously discussed say about you and what you need to accomplish or change in the next 12 months?
Universal Theme No. 2: Our Performance Gap
Another theme to take away from these eight different views about the CFOs’ future has to do with the gap between how CFOs are performing now and how they need to be performing. This performance gap has the following multiple dimensions:
Our own skill level
Our team’s performance level
How we develop future management accountant
The quality of services that we provide to our customers
As the head of the management accounting function, you cannot afford to stay in this performance gap very long because the longer you stay there, the quicker you lose the credibility and respect you have with your employer and with your peers on the management team. Therefore, it is vital to quickly determine where you and your team have performance gaps and spend the next 12 months resolving them.
Universal Theme No. 3: The Collaborative Partnership
Another theme in many of the studies is our relationship with people in the operational side of our organisations. Management accounting is not only a service provider to them, but also a partner with them. Management accountants must collaborate with them in order to provide the services that they require from the accountants to do their jobs. Nearly every study discussed how CFOs must create a culture of collaboration, not only within the organisation but also within their team. This means that every member of their team must know how to collaborate.
As with any partnership, each side has obligations and responsibilities. The following chart shows these obligations. Ours are on the left side, and the obligations of the people we serve are on the right. As head of the management accounting function, your responsibility is to instil into each member of your team the importance of living up to his or her obligations. As a member of the organisation’s leadership body, your responsibility is to help the operational side of the business understand their obligations to us.
Mutual Obligations
Table 1-1 represents a contrast between the management accounting team’s obligations and the operational team’s obligations. Notice as you review this table how much we need each other’s support.
Table 1-1: Management Accounting vs. Operations Team Obligations
| MANAGEMENT ACCOUNTING OBLIGATIONS | OPERATION’S OBLIGATIONS |
| Tell the truth | Listen to the truth |
| Know the business | Understand the basics of finance |
| Spend time in operations | Spend time meeting with finance |
| Support operations | Support finance |
| Create insight | Believe in the numbers |
| Offer ideas to operations | Offer suggestions to finance |
| Communicate openly | Communicate needs to finance |
| Communicate often with operations | Communicate often with finance |
| Speak and write in operational terms | Learn basic finance terms and concepts |
| Help executives hold operations people accountable | Be accountable for the results |
| Provide narratives | Use finance’s information in day-to-day decisions |
| Provide simple, concise and to-the-point information | Provide high quality operational data to finance |
| Predict the future | Predict the future |
| Support operations in making good decisions | Rely on finance for decision making purposes |
| Analyse current and future risk | Analyse risk with finance’s help |
| Create transparency with your data | Be transparent in your decisions and data sources |
Solution No. 1—How to Overcome the Performance Gap
Here are nine specific actions that you can take to help overcome your own performance gap:
Select your own mentor or coach and use that person to turn your weaknesses or blind spots into strengths.
Regularly survey the people you serve to find out how they view your current level of service and performance. Use this valuable feedback to improve.
Every month, conduct a team self-analysis, in the form of Plus-Delta, to find out what you have done well and what you must change. Use this valuable feedback to improve.
Make every effort to attend important meetings that occur around the organisation, especially those that do not involve financial issues. Use these events as opportunities to collaborate.
Encourage the members of your management accounting team to spend time with their customers as part of their regular responsibilities. Use these interactions as opportunities to collaborate.
Spend at least two hours each week thinking strategically and setting goals for the short-term, medium-term and long-term.
Spend time in every staff meeting brainstorming additional ways to provide value-added services to your team’s customers. Use this as an opportunity to collaborate.
Discourage members of your finance team from speaking in accounting jargon and encourage them to use the same words and phrases that operational people use.
Write a development and training plan for every member of your team. Include areas in which the team member is deficient and needs to improve. Include those skills in which he or she excels so he or she can teach those skills to other team members.
Your turn: offer your own suggestions for overcoming your expectations gap.
Solution No. 2—How to Prepare for Tomorrow
As a wise professional, you know that to be prepared for the unknown future, you need to start preparing yourself today.
Answer This Question:
What does the controller or CFO need to do to become the visible and influential leader of this major transition?