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BOOKS
Quo vadis?
Peter Griffiths
Published: 03-NOV-06

Reinventing the CFO, a title Jeremy Hope considers perhaps a little too daring, takes a critical look at what the CFO should be doing in a post-capitalist society. He argues that CFOs have both become complacent about being bogged down with repetitive tasks that add little value and haven’t taken the time to invest in change. People need to ‘re-learn’ themselves all the time to stay ahead, he says.

In Reinventing the CFO Hope interviews CFOs from several large multinationals to determine what it is top CFOs are doing and why transforming the function of the CFO is proving to be so difficult. Hope realises that there are both external and internal pressures that are making it almost impossible for financial managers to invest in themselves, while rendering them incapable of providing high-value input.

The world in which the CFO operates has changed markedly since the 1980s, adding a huge amount of stress. New success drivers mean that financial mangers need to find a way of quantifying the value of human capital instead of, as in the past, financial capital and physical assets. Another key element is that the world is very different post-Enron, with financial managers placed under an enormous amount of stress to increase transparency while dealing with increasingly complex legislative requirements. Shareholders have also become more demanding, often moving for changes which are unlikely to add value to their shares.

Internally, CFOs have to deal with increasingly complex — and what Hope argues as often largely unnecessary — reporting and budgeting requirements. These multifarious budgets make it impossible for financial mangers to fulfil their roles as forecasters as it takes so long to draw up the reports that they’re inevitably out-of-date by the time they reach the boardroom. An over-reliance on these flawed budgets has made CFOs poor managers of risk.

All these pressures make it difficult for CFOs to function as high-value drivers in the organisation. Hope believes that the CFO needs to act as a freedom fighter “to liberate both finance and business managers from huge amounts of detail and the proliferation of complex systems that increase their workload and deny them time for reflection and analysis”. Hope tells a story about how a large UK firm in 2005 had 5000 ledgers of which less than 250 had two or more transactions per year.

Hope believes that all the unnecessary data simply adds extra stress and increases the likelihood of incorrect, unusable data. He stresses that many of the things that are measured in organisations come from “a meeting that goes back a management generation” and are no longer necessary, if ever.

“CFOs are constantly amazed when nothing happens when they don’t file a report, but most of the time managers don’t even know what the report is for anymore,” says Hope. His advice: Do an audit of all the reports and measurement schedules and delete every one that doesn’t tell you where you where you’ll be in 3 to 6 months.

Hope believes that “blowing the whistle on detail and complexity” will free up time for CFOs to provide managers with the information they need to make effective decisions, while making it easier to spread financial knowledge across the organisation.

The next step though is where every financial manager is likely to feel a chill. Abandon the budget, says Hope, to become an architect of adaptive management. While anyone with a financial background may want to cling onto a budget as a source of measuring performance, Hope believes the budget is too often the stumbling block to success. He argues that performance should be driven by competition and not budgets, as meeting a target means nothing if another company does better.

However, the budget doesn’t disappear completely — so those accountants gasping for breath can come up for air. Once the budget is simplified it will become possible to do reporting on a quarterly rolling forecast basis. The extra practice will help financial managers become far better at what they do, thereby reducing the risk of error, while also providing for high-frequency planning.

The extra time will also allow financial managers to become warriors of waste. Finance teams will be able to focus on challenging costs that have never been looked at in an attempt to remove non-value-adding work to make the organisation more competitive.

Hope believes that CFOs should become masters of measurement, only needing six or seven measures to be used for improvement and to understand strategy. These measures should not be linked to targets as this will focus attention on the targets rather than the functions of risk management and forecasting.

This is a book every CFO who worries that they may not have a job tomorrow should read. -Business in Africa Magazine

  • Author: Jeremy Hope
  • Title: Reinventing the CFO
  • Publisher: Harvard Business School
  • Price: $29




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