by Steven Brown
Jan 2 2018
The role of the 21st Century Chief Financial Officer is drastically different from its traditional book-keeping function. Deloitte tried to map this transition with their article 2011 “The Four Faces of the CFO”, but their failure is that they stop at the theoretical and haven’t gone the extra step to put figures to their ideas. I wanted to see if I could do just that. As such, I got in touch with 449 Chief Financial Officers in Australasia and asked them to look at a more recent article by Deloitte where they delineated that a CFO tends to fit into one of the four categories listed below. Putting this recent article to the test, I asked the CFOs how they felt their role as a C-Suite executive had changed in recent years and did it match any of the following four categories. The following is an outline of the different perspectives as advocated by Deloitte:
Responder: The Responder CFO supports the company’s strategy development by helping business leaders to quantitatively analyze financial implications of different strategy choices. This CFO is usually evident in decentralized businesses where the CEO drives accountability for strategy and performance to business-unit leaders.
Challenger: The Challenger CFO acts as a steward of future value in the strategy process by examining the risks to and expected returns on different strategy alternatives. Being a Challenger is sometimes equated with being a “Dr No,” as the CFO seeks to minimize risk or ensure adequate returns to future capital allocations and investments.
Architect: The Architect CFO shapes strategy choices and applies finance strategies to complement and maximize the value of particular strategies. Architects go beyond the Challenger in enabling the financing of innovative initiatives. Architects thus work to find “A path to yes” on key business investments.
Transformer: The Transformer CFO becomes a lead partner to the CEO in shaping and executing future strategy. The CFO is key to the execution of “Real operational and financial options” for shifting the product market mix, delivering value and creating distinctive capabilities. In short, CFOs as ‘Transformers’ proactively engage in addressing the core questions in a strategy process.
For some people this might seem like a lot of pseudo-business bingo, here’s my quick breakdown of Deloitte’s four category model:
- The Responder provides those at the top with financial information so as they may all create an informed strategy for the future.
- The Challenger asks as the opposite side of the yin-yang spectrum to the CEO to make sure that the business has thought about all of the possible ways to develop itself. Is the CEO pushing for X? Perhaps the CFO proposes executing Y or Z instead because the company will look to be in greater profit in doing so.
- The Architect serves to take the direction the CEO wants to push and find out how to get to that point with the resources to hand. If the “Pharaoh CEO” wants a pyramid, it’s up to the CFO to strategize how resources can be allocated to achieve this dream.
- The Transformer normally acts as an arbiter of change. A business wants to enact some sort of change; the Transformer uses their financial knowledge and skills to execute that change.
The Transformers came from the following industries; Transport, Energy, Manufacturing, Logistics, Sporting Organizations, Online Services and the Big Four.
The results that returned from my survey showed that the respondents felt that they suited the following categories:
- 47% Transformers.
- 21% Thought that they were all four.
- 20% Architect.
- 9% Challenger.
- 3% Responder.
Having looked at these figures, I wasn’t surprised that the majority of respondents found themselves to be Transformers as I have, in my own experience, often been assigned Executive Searches for individuals with the ability to execute on, as the CFOs themselves fittingly put, “The financial and operational detail across the business”.
Here are some of the views from the CFOs who saw themselves as Transformers;
- “In my organization it is the CEO and CFO driving strategy and the business forward.”
- “In this day and age, all CFOs need the ability to be transformers. These are the CFOs with vision. A CFO that has both quantitative skills and commercial nous, the transformer effectively acts as a receiver (although not when the company is in trouble) by predicting if a business model will not work, if there is an opportunity in the market, or if they can take advantage of an arbitrage opportunity. Often a transformer would be more of a CEO than what the CEO is. In this case, the actual CEO would be free to have more of an external facing role, and motivate staff by constantly travelling around divisions.”
- “Working with the CEO to challenge, empower and enable our various division managers to execute on the key strategies within their businesses.”
- “As CFO, I have taken different approaches depending on the skill set of my CEO at the time. I consider it essential that the CFO acts in a way that is complementary to their CEO, in filling gaps and bolstering strengths”
What did surprise me however, was the number of CFOs that couldn’t decide between the four categories and saw themselves as operating as each of the roles in relation to the day at hand. One respondent gave me a poignant explanation for this in that “The modern CFO will inevitably move between styles” depending on “The needs of the organization at a given point in time”. In that case, it makes sense that these CFOs would see themselves as Transformers as a lot of New Zealand companies are currently seeking drastic change in order to expand and capitalize on their growing market.
Another view from a CFO who saw themselves as been all four categories:
“My thoughts on the article is simply that while the definitions are largely correct, no CFO is only one of these categories. Their role is defined by the needs of the company, and these needs can change at any time. I believe all exceptional CFO's can be all of these defined categories.”
Respondents who saw themselves as being all four categories came from the Finance, Dairy, Livestock, Packaging and Recruitment industries.
To conclude, I would have to say that I disagree with Deloitte’s idea that there are four faces or even four categories to the Chief Financial Officer. My results certainly point to the fact that the CFO has moved away from “Traditional…accounting…morphing into a strategic role” (Wayne Goodall, Oracle, 2017), but I would argue that, like the Roman god Janus, there are only two faces for the CFO:
Arbiter of Change
Acting as a partner to the CEO, this CFO is close to Deloitte’s ‘Transformer’ category. Once the C-Suite have set a direction for big change, the CFO will utilize their financial skill set and resources to make this big change a reality.
Whilst this may seem almost a carbon copy of Deloitte’s idea, I feel that there is subtle enough difference for this Arbiter of Change category to exist as a concept. The Deloitte author seemed to imply that the CFO simply acts as the King’s Hand with little emphasis on their input in the creation of a roadmap. My experience grants me that CEOs are usually clever enough people to take input from the rest of the board, including our modern CFO, in informing whichever overhaul the business needs rather than simply playing the Great Dictator. This might seem like splitting hairs on my part, but I believe in minding the details.
Unlike the Deloitte article, I don’t feel that there should be a distinction between the ‘Challenger’ and ‘Architect’ category. Trying to find an optimal strategy is all part of being a successful business leader so playing “Dr No” or “Finding a path to yes” is all one and the same; hence I feel that the Devil’s Advocate suits this category best. Inevitably, a great CFO will find a way to execute to the best of their ability a business’s roadmap so this category essentially encapsulates a confident modern CFO who is willing to advocate and challenge opinion in order to best serve the greater good.
What’s the difference between the two? It seems with the Chief Financial Officer that it is less down to the individual themselves, but the team around them and the business that they serve. In industries where there is great room for expansion or the ability to implement needed or wanted change, Arbiters of Change come into play; where a CFO simply needs more to add their input to help guide the ship as best as possible, you have the Devil’s Advocate.
These ideas only serve the now though. What waits around the corner will, I’m sure, interest us all as I think there’s big change in store for all executives as the century goes on.