Today’s CFO has been elevated to the right hand of the CEO, acting as a trusted advisor and making strategic recommendations for the business. The CFO–CEO relationship is more important than it has ever been
The volume of data available to businesses has exploded over the years, but with more information comes more complexity.
Mining these data assets often falls to the CFO, who must find ways to translate these swathes of numbers into actionable insights and then communicate these to the CEO and other senior C-Suite stakeholders.
In many ways, CFOs are now the chief storytellers of their businesses, fawning over reams and reams of numbers from across departments and external insights to make dynamic suggestions to drive their businesses forward.
The challenge CFOs face is, that once the data is translated, quite often, the language they speak is different to those of their other C-Suite peers. Then there is the issue of managing expectations – a problem when any two people try to have a conversation in two different languages.
“Typically, there is a difference in opinion and expectation for when returns on investments will start to materialise”, explains Dean Gels, CFO for Netrix Global.
Failure to properly communicate these expectations can lead to gear-switching, poor performance and a breakdown in relationships. So how do you learn to speak a new language? Or get your C-Suite peers to understand yours?
“Historically, the CFO has not had a seat at the table” during operational challenges, says Gels, and would only be called upon to raise capital or coordinate M&As.
The CFO role has – over the past decade – shifted to a more operational and strategic level. While individual departments use their own metrics “the CFO metrics are the ones that are relied upon by Boards”, Gels says.
The CFO’s unique access to different metrics and overall view of an organisation puts them in a primary position to advise on broader business challenges. They have access to tools that help summarise data and create insights that can be utilised by senior leaders.
This means CFOs can tell “the CEO questions that the CEO did not know to ask,” says Mike McCracken, co-founder and chairman at McCracken Alliance.
Finance is “integral” to designing business strategies, he says.
But having data is not the same as understanding what those numbers mean, nor does it guarantee a CFO will be able to communicate those figures succinctly to the wider business.
As a result, CFOs must design models that allow them to put that data to use. “That requires very insightful finance people”, says McCracken, who can not only build and run those models but also know how to design those models to create useable insights.
Drawing strategic conclusions from raw data can be challenging, even for the most adept data scientists; even today, it relies on time-consuming manual processes, which due to a lack of automation, can lead to errors. Centralised data, and automated workflows can enable CFOs to get a better real-time performance metrics.
However, trying to manage too many metrics can split focus and severely impact progress.
CFOs must limit the key performance indicators they are reporting as some CEOs like to “pile on more KPIs, thinking they will provide better insights and results”, explains Gels. He advises CFOs focus on “three to five priority KPIs” that have the most significant impact.
CFOs must also understand broader organizational goals to contextualise data into strategic recommendations, which includes understanding the capabilities of their systems, resource levels, and the individual talents of staff, says McCracken.
If the numbers say you need higher productivity, but you are understaffed, a CFO needs to know how to close that gap efficiently.
For example, one of Netrix’s KPIs is days sales outstanding (DSO), which shows the amount of revenue that has been generated but not yet collected, and the ratio of how many days it will take to collect the revenue.
Using this information, the CFO can translate this “into a daily dollar amount and clearly show how the data aligns with driving cash flow conversion”, explains Gels.
Once a CFO has a comprehensive understanding of the data available to them, the task then becomes communicating what the numbers say to those who are unlikely to have backgrounds in finance or economics, spend their days looking at data, not have the same cross-departmental network.
One way to do this is to focus on key metrics relating to “their audience’s role and experience level” and put facts into a human context while avoiding “accounting jargon”, says Gels.
Resources like PowerPoint or simple graphs can help to frame information in a more digestible manner, says McCracken. Preparation therefore becomes the key to success.
Before meetings, the CFO “should prepare relevant insights, come prepared with questions”, and present financial data in ways that account for different scenarios, Gels explains.
They should also limit their comments to center around three priorities, “whether around sales, bookings, pipeline, delivery, or utilisation”, and present in ways that resonate with the CEO, he adds.
For example, when reporting on utilisation, they could communicate not only in percentages, but how these numbers affect revenue.
Finally, CFOs should be aware “of how [they] are received by their audiences”, says McCracken. “Using the approach of ‘I’m the CFO, they need to listen to me’, is not always the most effective way to get your message heard”, he says.
According to Gels, while the strategic roadmap may shift as the company evolves, two core elements must remain for a harmonious CFO–CEO relationship.
They must agree on values and principles, and the strategic direction of the business, he says. They should both also learn to withstand disagreements.
On paper, the success of a business is judged by margin management – especially during economic uncertainty. CEOs have therefore become reliant on their CFOs to present them with the facts, even if the picture is not a positive one.
“We’ll continue to see CFOs involved at a much higher level supporting the CEO with company strategy,” says McCracken.
This means CFOs may need to upskill slightly in order to offer discernment and avoid overspending on inefficient solutions. This does not mean CFOs need to become technologists overnight. As McCracken notes, “approximately 70% of CTOs report into the CFO.”
An awareness of new technologies, such as AI and cloud technology, will likely help them to bolster growth. CFOs should learn their business “at the ground level”, says Gels, as it is hard to formulate a point of view without understanding the whole picture.
They should also encourage CEOs to expand their understanding of the inner workings of the business “which will help strengthen the relationship between the two roles”.
