About 20 years ago, I commissioned an Action Man in my likeness. Action Lee (as I named him) travelled the world without me, handed off from traveller to traveller. Every now and then I’d get an unexpected email with a photo of him in Paris or Peru, India or Iceland. About 5 years ago the emails stopped and Action Lee was presumed missing, if not killed, in action. RIP my 12” plastic and elastic effigy. Then last year we were unexpectedly reunited. To conclude his travel adventures, I arranged for him to ascend into the Stratosphere on a weather balloon.
What has this got to do with the modern CFO? To be honest, not much, but I thought it was at least an interesting way to start the article. Now bear with me as I attempt to pivot this to the subject in hand. At the apogee of his space flight, Action Lee was about 4 times higher than the old management cliché of the ‘30,000 ft view’. A phrase meaning to focus on strategy and the big picture. I haven’t been to space (or indeed India or Peru), but I have spent a lot of time with CFOs and therefore acquired a decent overview of their world. As luck would have it, their world is increasingly strategic and focused on the big picture. This brings this article back on topic.
My hope in sharing what I’ve learnt as an outsider looking down is that it’s helpful to those of us who work with or for a Chief Finance Officer. The traditional focus for the CFO is on maximizing capital. As this is used to fuel the company’s
strategic initiatives, the CFO is increasingly asked to be strategic and provide perspective and guidance. This has led to the role expanding. In 2016 a CFO had an average of 4.5 functional areas reporting into them. That had risen to 6.2 by 2018 (1). It’s a broader role that continues today.
And of course, today we’re facing levels of uncertainty unlike any in the last 28 years of my working life. We’ve seen unprecedented macroeconomic, market, industry, and supply chain volatility – or more colloquially Brexit, pandemic and war. Capital management is more challenging than ever.
That’s before you factor in the current workforce challenges. People are struggling to recruit and retain the right calibre of finance professionals to do all the work. On top of that, the shift to remote working has transformed the back office into a myriad of micro-offices, creating challenges in the way teams operate, collaborate, and are managed. Bigger job, challenging circumstances, and fewer people to manage it. In short, the job of the CFO is as tough as it’s ever been. As you’ve all probably experienced, digitization within your customer’s Accounts Payable department has created an ever-rising level of complexity, consuming time and money and throwing up some interesting surprises. For the CFO, this is happening across all Trade Partnerships—on both the buyer and supplier sides.
1 McKinsey, The New CFO Mandate: Prioritize, Transform, Repeat, December 2018
Think about your customers. They are of different sizes and types, from very large and sophisticated to small, and everything in between. Some are mature with advanced processes that require IT resource to set-up integrated connections. Many smaller companies still use paper and spreadsheets, and those connections are very manual. In truth, many automated customers are also very manual, as AR teams provide stop-gap solutions waiting for IT projects to complete.
These dynamics are exactly reflected on the supplier side too. Everybody has different platforms and preferences, with their own standards and rules. Your teams in Procurement, Accounts Payable, and Accounts Receivable are doing the best they can to keep up, but it’s like trying to climb a Teflon pole. That’s been greased.
So, how does a CFO manage? Traditionally it involves heavy investment into the finance department’s technology and digitization. Often point technology solutions are deployed in the most urgent priority order, focused on incremental improvements. As these various products are stitched together with legacy technology, gaps and deficiencies emerge. Those are typically filled with external resources such as BPOs and contract labour. Despite massive investment, arduous change management, and endless implementations, this patchwork of solutions is often found wanting. This is problematic because transactional friction jeopardizes partner relationships and increases exposure to fraud, regulatory, and reputational risk.
Oh, and process inefficiencies that burden people with repetitive, error-prone, and boring tasks? They contribute to the whole recruitment and retention issue. Perhaps more importantly it locks up real money, putting a squeeze on cash flow and capital. The back office has unwittingly become a barrier to the CFO’s primary strategic initiative. This is why CFOs are now shifting their focus to a broader overview, optimizing all inter- and intra-
company processes for how to purchase, pay and get paid. Like Action Lee, CFOs are looking down and seeing the bigger picture, surveying the whole finance operation to drive predictable and
profitable growth.
That means engaging with partners who can provide that holistic view across the entire source-to-settle continuum and looking with increasing interest into managed technology solutions. I know some International Credit Professionals can see this focus shift as threatening, like bringing a cuckoo into the nest. I don’t agree. I think Credit Professionals are in the unique position to guide, inform and steer CFOs in these strategic decisions. There’s a chance to be part of the conversation, to provide the granularity. ‘The secret of change is to focus all your energy not on fighting the old but building the new’. Socrates is credited with saying that. The philosopher, not the footballer, so it’s maybe worth some thought.
Lee Allen Snr Vice President EMEA Corcentric