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Why CFOs are the 'critical friend' within their businesses

What is a critical friend?

According to a recent panel of senior financial leaders, they are people who support but also challenge their teams. Aka, they are CFOs.

During Connect CFO, discussions focused on one of the most pressing paradoxes facing modern CFOs: balancing innovation with financial prudence.

It is no secret the role of the CFO has changed rapidly; in the past, they primarily focused on financial management and control. Today, they are expected to drive strategic innovation while still ensuring financial discipline.

This dual responsibility – promoting innovation and maintaining prudent finances – presents a significant challenge for modern CFOs. Failing to innovate can cause an organisation to fall behind competitors. However, taking excessive risks can threaten the company’s financial health.

“We are the critical friend to our business teams. We support them, but we also challenge them,” says Huiming Chen, CFO – Europe Commercial at Illumina.  This duality lies at the heart of the CFO paradox, where finance leaders must simultaneously foster innovation and act as gatekeepers.

Marco Sebastian, CFO at Volkswagen’s European production plant, echoed this sentiment, stating, “It’s a balancing act on a daily basis to challenge the different departments – accounting, controlling, IT – in the same way.”

L to R: Marko Sebastian (Volkswagen Autoeuropa), Huiming Chen (Illumina), Lee Allen (Corecentric), and Susanne Liepmann (FiPlus)

Real-life application

Volkwagen’s approach to budgets

At Volkswagen, Sebastian has implemented a portfolio approach to budgeting that balances conservative and risky investments.

“We allocate 50% of our budget to clear business cases with defined ROIs, while the remaining 50% is split between enablers and high-risk, high-reward projects,” he explains.

This method allows for strategic risk-taking while maintaining overall financial stability.

“It took the organization almost two years to believe that this is worth it to go through,” he notes. The key, he shared, was giving decision-making power to lower management and specialists who better understood the specific needs and opportunities.

Illumina’s Profitability Focus

For Illumina, a leading manufacturer in the genomic space, shifting the organisational mindset from top-line revenue to profitability has been a critical transformation.

Huiming helped to implement margin-based incentives for the sales team, complemented by comprehensive training on profitability.

“We had to educate our team on the impact of their day-to-day decisions on profitability,” Huiming shared.

“When you’re trying to win business from competition, don’t just think about discounts. There are other levers you can potentially leverage to optimize profitability.”

Strategies for Success

 A key strategy discussed was the importance of cultivating an experimental mindset within finance teams.

“Trying things is a necessary step. Without experimentation, innovation is impossible,” says Huiming.

She emphasises the need to view failures as learning opportunities, saying, “When a crazy idea works, it’s called innovation. And if it doesn’t work, it’s called an experiment. Both are good things because if you don’t try, you’ll never know.”

People-Centric Leadership

Engaging and motivating team members emerged as a crucial factor for driving change.

Lee Allen, Senior Vice President at Corecentric, shared a sales lesson.

“You have to find the dissatisfaction they have, multiply that by the vision of what could be, and then multiply that by the first step towards that outcome,” he says, going on to emphasise the importance of addressing different mindsets within teams.

“You have to engage them differently in order to bring them along on the journey,” he says.

Sebastian echoed this sentiment, sharing how he adapted his leadership style during a digital transformation.

“I changed a little bit my leadership style for this transformation. It’s much more about getting the people understanding it’s the way,” he says.

Becoming the friend needed

The role of the CFO has never been more critical or more complex.

Navigating the paradox of innovation and financial prudence requires a strategic approach that combines practical budgeting strategies, a commitment to fostering an experimental mindset, and people-centric leadership.

As the panel discussion highlighted, today’s CFOs must embrace this paradox with agility and foresight, empowering their teams to take calculated risks while maintaining financial stability.

Key Takeaways:

  • Balance conservative investments with high-risk, high-reward projects to drive innovation while maintaining financial prudence.
  • Align team incentives with profitability goals and provide comprehensive training to enable strategic decision-making.
  • Encourage calculated risk-taking, embracing both successes (innovation) and failures (experiments) as learning opportunities.
  • Recognise diverse mindsets within teams, address their unique concerns and motivations, and adapt leadership styles to drive change effectively.
  • Identify areas of dissatisfaction, paint a compelling vision of what could be, and take the first step towards change.
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