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CFOs – The Architect of Business Value

business valueA while back, I read a study published by Accenture about how the role of the CFO is moving towards driving business growth and managing complexity.  Encouragingly, of the 600+ senior finance executives and 30 CFOs and other senior finance professionals surveyed, 75% say that the CFO’s role in supporting strategic decision making is on the rise. 70% think that the CFO’s influence over executing business transformation initiatives has grown.

CFOs – The Architect of Business Value

Here is a summary of the key findings of the study:

Finance functions have made significant progress over the past three years in managing some of the external factors impacting performance, including the challenge of permanent volatility. Overall, senior finance executives are more satisfied with the performance of their finance function than they were in 2011 across every dimension surveyed.

Complexity, in its various forms, is the biggest challenge finance organizations face today. But it is also an opportunity. Companies can help manage business complexities by standardizing and optimizing processes to streamline and simplify the organization.

Cost control is no longer the primary emphasis in most organizations today. Instead, CFOs increasingly focus on investment in growth. In doing so, many are also finding an opportunity to drive broader organizational business transformation, building value for the enterprise.

Digital technology is having a deep impact on the finance function’s performance. It provides a clear opportunity for CFOs to accept and exploit the digital revolution. Especially, given their unique position at the intersection of finance, technology and strategy.

Finance leaders at high-performance businesses are more likely to have seen their influence grow in key strategic activities. They report high levels of satisfaction with the performance of their finance function. They also closely involve themselves in assessing technology investments.

Cost Control Is Not A Primary Emphasis

I found a couple of the study findings particularly interesting. Firstly, the study found that cost control is no longer the primary emphasis of today’s CFO.  Rather, investment in growth and building organizational value have become the focus.

The finance function is now increasingly being assessed in terms of its effectiveness (its ability to deliver what the business needs) rather than a narrower focus on its efficiency (its cost in serving the business).

Digital Technology

The second noteworthy finding is that digital technology is having a deep impact on the finance function’s performance.  One comment in particular got my attention:

The evolution of such digital assets, software and services provides a clear opportunity for CFOs to accept and exploit the digital revolution. This is especially true, given their unique position at the intersection of finance, technology and strategy.

CFOs often forget that they are truly one of the few people in the organization that see how all the functional areas of the company intersect.  This presents an opportunity for the CFO to build relationships with other departments to facilitate their role in driving growth.

You can find a link to the survey on Accenture’s website or by clicking here.

To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.

architect of business value

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Cost Control vs Cost Reduction

cut costs There is a difference between cost control vs cost reduction. Most people think that controlling costs and reducing costs are one and the same when, in fact, they can generate two totally different outcomes.

The first thing you need to know is that you can’t grow a company by cost reduction alone. You can get short term gains but, eventually, they fade. When public companies reduce costs through a restructuring there is typically a  short term lift to their stock price. However, for the increased stock value to be sustainable they must grow revenue.

An example might be Barnes and Noble bookstores. No amount of cost cutting is going to change the situation that they find themselves in today. They must reinvent themselves and pivot.

So if we want to add value we must grow revenue, how do we do it? There are three ways that come to mind. We could develop new products or services, increase market share or increase selling efforts. What do all three of these strategies have in common?

You have to increase costs to increase revenue!

So instead of looking for the lowest cost in a transaction you should look, instead, for the largest value received per dollar spent. It is easy to apply this train of thought to selling costs, marketing costs or product development costs, but what about overhead?

Does hiring the candidate at the lowest salary translate into a good value proposition? Does paying a premium get you a better employee?

The answer is: “it depends”. You should evaluate each cost incurred in light of the excess value received and the goals of your company.

We knew a company who wanted to spend as little as possible on their accounting staff. So they hired the cheapest accountants they could find not the most competent. In the end, they spent more money on cleaning up the financial statements, bringing them current and completing the year-end audit than the savings recognized.

The moral of this story is that you can’t build a house with only a hammer. Consequently, you can’t grow a company profitably by just focusing on cost reduction.

Learn how to apply concepts like this in your career with CFO Coaching.  Learn More

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