FINANCE

Change everything: A CFO's to-do list for the first 100 days

May 23, 2008

Becoming a corporate CFO is the peak of a professional career for many, if not most, of the men and women who reach that top position in finance.

But the demands of the job are such that even at a prosperous, well-run company, the title of “CFO” is not one to be pursued without a measure of caution.

The pressure is relentless.

And the high rate of turnover among CFOs in recent years¹ suggests that, rather than stepping in to keep a steady hand on the tiller, many CFOs assume their new roles only after the ship has gone seriously off course.

What are – or what should be – the primary concerns of the new CFO upon entering that prestigious, precarious job at the top of the finance organization?

McKinsey & Company recently surveyed 164 CFOs of various tenures to ask that question.

Their researchers wanted to identify the “critical tasks that all finance chiefs must tackle in their first hundred days.”

And their findings were presented in the March 2008 issue of The McKinsey Quarterly.²

What to do to make a mark?

First, of course, any new CFO wants to join the team and support the strategy of the CEO. But new CFOs also want to make their mark on the organization.

The most critical activity during a CFO's first hundred days” is understanding the drivers of the company's business. – McKinsey

To do so, the McKinsey survey suggested a set of “some activities that should make almost every CFO’s short list of priorities”

High on that short list were several items pertaining to financial processes and financial performance management. Among them were:

Learning what creates value for the organization, and identifying key business drivers.
Strengthening the finance organization by initiating “fundamental changes in the [finance] function’s core activities.”
Identifying “gaps in the effectiveness or efficiency of key systems, processes and reports.”
Managing performance actively through the use of tools such as “dashboards, performance targets, [and] enhanced planning processes.”

In each of these priority areas, Financial Performance Management solutions can help.

Identifying business drivers

The McKinsey survey found that “the most critical activity during a CFO’s first hundred days” is understanding the drivers of the company’s business.

Three quarters of the new CFOs initiated...fundamental changes in the [finance] function's core activities.
– McKinsey

An example is given of one CFO whose strategic plan offered specific product suggestions, based on an analysis of the various drivers that created value.

Cognos, an IBM company, has long championed the value of driver-based planning and the importance of linking financial decision-making to the nuts and bolts of daily operations.

A planning and budgeting tool such as IBM Cognos 8 Planning, which facilitates input from hundreds of front-line managers, helps support this level of involvement with the business.

Strengthening core activities

In this area McKinsey found that approximately “three quarters of the new CFOs initiated… fundamental changes in the [finance] function’s core activities.”

For a large finance organization, there is no more basic core activity than consolidation.

Automating consolidation with a solution like IBM Cognos 8 Controller offers the new CFO more confidence in his or her numbers and reduces the anxiety over possible financial surprises.

Controller can consolidate multiple, diverse ledgers representing thousands of operating units or accounts into a common chart-of-accounts structure, providing a single view of key information.

Closing gaps in effectiveness and efficiency

To be effective in their new jobs, CFOs have to gain credibility and earn the trust of their new executive peers.

Credibility, it might be said, begins at home.

When the CFO has confidence in the accuracy of his or her numbers, it allows the CFO to present those numbers with fewer conditions and caveats.

While IBM Cognos 8 Controller improves efficiency by reducing close cycle times by days or weeks, even more important is the fact that Controller ensures data quality, and enables the finance team to track data back to its source, giving the new CFO greater confidence in the accuracy and reliability of the numbers.

Managing performance actively

“Many new CFOs find that disparate IT systems [and] highly manual processes… hamper their ability to do anything beyond closing the quarter on time.”

Many new CFOs find that disparate IT systems [and] highly manual processes… hamper their ability to do anything beyond closing the quarter on time. – McKinsey

When the finance team is burdened by manual processes, (read “spreadsheets”) the members of the finance team are often spending the bulk of their time fixing broken macros, tracking down discrepancies, and correcting errors.

These highly paid professionals could instead be spending their time on the serious financial analysis that their education and training has prepared them for.

And with tools such as dashboards built on IBM Cognos 8 BI, they can investigate and analyze information that is both current and comprehensive.

“It was the best of times, it was the worst of times”

The job of CFO comes with enormous pressure, especially today, as the world’s economy enters uncharted waters, with galloping demand for basic commodities, and uncertainty around every corner.

Yet difficult situations, do have their advantages. They offer of a level of freedom to act that is not present when things are going well.

When the old ways have been proven inadequate, the new CFO has more latitude to make changes.

We suggest that implementing Financial Performance Management solutions should be among the items for consideration on the short list of any CFO, whether he or she has been on the job for decades, or just began this morning.