The move among financial executives to create the so-called “Strategic CFO” may have reached a tipping point in 2015, placing a greater emphasis on business and operational acumen over accounting experience.
More than half of CFOs have said that the time they spend on strategic issues is increasing, according to the Bank of America Merrill Lynch 2015 CFO Outlook. Currently, they spend two-thirds of their time on tactical activities and one-third on strategic activities. Strategic activities that were mentioned include managing technological advances, risk management human resources issues and communications strategies.
Someone that exemplifies the change in the CFO role from number cruncher to strategic advisor is Jan Siegmund, Corporate Vice President and Chief Financial Officer at ADP. Siegmund has been with ADP since June 1999, most recently as ADP’s chief strategy officer and president of the Added Value Services Division from 2007 to October 2012. He joined ADP as vice president-corporate strategy.
Siegmund came from McKinsey and Company, where he lead consulting engagements primarily in the financial services industry. He holds a doctor of philosophy degree in economics and a master of science degree in industrial engineering.
Financial Executive magazine sat down with Siegmund to discuss the unique way he thinks about strategy in the CFO role.
Financial Executive: Many of the positions in your background use the word ‘strategy’ in them. Then you made the transition to the CFO role. How did you find yourself defined by strategy, and how did that transition go from that role into CFO?
Jan Siegmund: Strategy jobs have been central to my entire career. I started as a strategy consultant and started in strategy for ADP and I was, for six years, a chief strategy officer with a broad range of responsibilities. Those ranged from core strategy, M&A activity, product management and government affairs. But always, I was focused on the medium to long-term growth aspects of the company. It is how I was thinking and it is what I like to do. It has been a great career path.
Then the switch to CFO was really not my wisdom, it was the wisdom of my CEO and our board. Quite honestly, I never thought about the possibility to become a CFO because I don’t have a traditional finance background. I don’t have a CPA background. The core accounting and tax and requirements are highly technical and it’s not my specialty.
Our board wanted somebody who was focused on driving change, helping the company to progress and being able to communicate a comprehensive investment strategy to our investors. I believe a very important part in the decision was to leverage analytical capabilities to help the finance organization become more supportive of our business success. I got very excited about the opportunity, and for the last two years I’ve been in the job.
FE: Your core competencies aren’t necessarily around accounting. How do you address the technical aspects of the CFO job?
Siegmund: Number one, in ADP’s case, we have a very strong finance organization with very strong financial skills. We had a very experienced corporate controller, and an excellent treasury and tax function. The heads of those functions are very capable, and so that gave comfort, of course, for auditors and for the board to make this transition.
Secondly, I had worked with the finance organizations for many years, and that was integral to how I had been thinking about strategy. Very analytical, numbers driven. In the end, it turned out that the transition was even a little easier than everybody had anticipated. You have to have a good deal of humility and respect for the finance function, and you find, with your team, a way to define the agenda that we have been pursuing.
FE: From your experience, in this transition, do you think it’s easier for a CFO to become a strategist, or a strategist to become a CFO?
Siegmund: Strategy is a vision of where the company has to go, and translating this into actions that are not too detailed, but also not too visionary. That’s translating a strategic vision that the CEO typically would provide into actionable steps in a comprehensive story, and translating it into initiatives that need to be funded and executed and monitored. For me, that’s the space where even a strategist in a corporation typically would work.
The overall vision is the responsibility of the CEO, so I don’t think a strategically-minded CFO should become a deputy CEO. That is not the role. I view my role as helping to formulate a story and a program that maps the strategic direction that is being set by the CEO. Clearly, if you have a passion for the business, a passion for your clients and a propensity for change rather than protecting risk, it’s the perfect role.
FE: How would you define strategy?
Siegmund: A strategy is a medium to long-term plan that translates a company objective into tangible initiatives that allow the company to safely execute and achieve those strategic goals. And these initiatives can be — or should be — mostly client- and go-to-market oriented strategies. It could also involve strategies regarding capital allocation and dividend and shareholder distribution strategies. It can be very comprehensive but I think the most important part in strategy is to define executable and tangible go-to-market strategies, that translate that strategic goal that you set into initiatives that you then execute.
The characteristics that I personally emphasize are: Is there a change program that you’re executing? Is there a tangible difference in the path that you’re imposing onto the trajectory of the company? If it’s too small, that’s not a strategy; if it’s too long-term and you’re not monitoring it, it’s kind of just a vision. You want to emphasize the executability and initiative-orientation of a strategy. That’s my personal preference of how I always viewed my role as a strategist is, “Am I bending the curve of the trajectory to the better?”
Throughout my career as a chief strategy officer, we had a very action-oriented perspective versus an analysis or a presentation-oriented style. So we would ask ourselves at the beginning of the year, “What should be different? And what do we need to do it? Are we making a difference?” That was appealing also in my appointment to CFO, because you can’t be too theoretical and you can’t be too analysis-oriented if you want to help to drive change in an enterprise. That’s certainly my propensity of what I want to do.
FE: How would you teach a younger financial executive to become more strategic. How do they talk to their bosses about being in front of a client and understanding the business?
Siegmund: It is being close to the clients and also being close to your competition and to the markets that you serve. And doing that, I think, establishes the credibility to translate the strategy into operating plans and budgets. You have the credibility to impose certain directions.
Being close to the business, which starts always with a client, is for me, an entry card to have an opinion about what we should be doing and then helping to formulate those plans and meld them into budgets. That is the ultimate tool in our company of how we’re driving resource allocation and the execution of certain strategies.
In my case, the discussion is rarely about, “Here’s the budget and here is the number, one up or down.” It is about the business issues that drive them. It’s that type of thinking that would become the benefit of a strategically-oriented CFO. It should permeate the FP&A organization and help drive a broader contribution from finance to the business success.
FE: Do you think junior staff are getting the training they need to become more strategic? Or do you have to provide that as the CFO?
Siegmund: When you want to insert this type of thinking, you have two things that you have to do: Number one is providing explicit training. At ADP, we established a finance academy that is focusing on what we call analytical decision support. That comes with business cases and teaches our finance team to translate them into the right analyses that isolate the problem and support the field in its decision making. So training is critical.
Secondly, I think it requires also a little bit of rethinking of the skill mix that one wants to have in the organization. And I observe that historically many finance organizations grow out of accounting and external reporting. You grow into an FP&A function, but you still bring an accounting mentality to the job which can be very important. But we have started to hire more strategy and purely analytically focused talent into the organization that comes unencumbered with the knowledge of accounting rules into it, and just sharp minds that start to ask a lot of questions, and drive then thoughtful analysis.
That means we focus on MBAs, we focus on business consultants who have a strong financial strength to augment and mix with a more traditionally organized finance team. And so, those two things, training and a different hiring profile, I think will help.
FE: Do you think that approach, putting more strategic thinking into the finance function, is being taken up by the broader industry? Is corporate America taking the same tack as far as strategy in the finance function?
Siegmund: There’s certainly a lot of discussion around a more strategically oriented finance organization. But I think change in a finance organization is typically even slower than in the rest of corporate America. I found that as we implement our transformation program in finance and ADP, that change is even more complex to implement than regular change in the field or the business because you have complex regulatory requirements. You have accounting and audit requirements.
The finance environment tends to be risk-averse to change. And so, it requires a lot of heavy lifting. And when I talk to my CFO colleagues, we often agree that change in a finance organization can be hard to implement. And so, I think it requires a little bit of a tenacity to do. It doesn’t come easily.
FE: Is that a hard sell to the CEO when it comes to resources for training in the finance function?
Siegmund: It shouldn’t be. In our case, we are identifying cost saving opportunities in the finance organization and we’re re-investing part of it into our training. In our case, those investments for training are relatively minor compared to the benefit that we’re hoping to achieve from it. We’re doing it with a mix of external and internal partners. I’m teaching a class, or a head of strategy is teaching classes. We are pragmatic and innovative in the way we are building the academy while being thoughtful of its cost. Hopefully this creates an exciting environment to learn.
FE: What are your goals for the academy going forward?
Siegmund: This is the first year the finance academy will offer classes at ADP. We’re testing the program and establishing a curriculum. And in the following fiscal year, in about 12 months, I think we will have a requirement for every finance associate to participate and finish a certain number of classes every year.
FE: What’s the dialogue between the CEO and the CFO when it comes to strategy?
Siegmund: Well, 101 of corporate governance is that the CFO and the CEO have to have a very trusted and deep relationship, and a clear understanding of what each other’s roles are. It’s important that I recognize that I’m not here to develop the corporate strategy. I’m helping to communicate and I’m participating in the dialogue. It is led by our CEO, and I’m helping to make it as powerful as it can be. I’m helping to communicate it to our shareholders and I’m helping to execute it as I meld it into our operating plans.
Strategy has so many components for it to be successfully executed that are way beyond setting a vision and setting strategic objectives. About 90 percent of the work starts after that, in my point of view, and that’s where I think my work comes in. Making sure that ideas and direction gets efficiently translated and for ADP as a public company also gets then effectively communicated to our investors.
FE: How important is the role in explaining the strategy to external investors when you’re a CFO?
Siegmund: Our board in particular paid a very high premium to that ability. It’s very, very important. And in today’s environment with high volatility in equity markets, credibility with investors and an ability to articulate what we are doing in a business sense way, not only in a financial way. And for CFOs of public companies, that’s a big benefit if one likes to do that. And I think that has been a fun part for me also.
FE: What are your three strategic imperatives for the next year?
Siegmund: Clearly, we are operating in a very volatile global environment that can impact the U.S. economy as well as our multinational operations. So how do we plan and prepare for high volatility in energy prices, high volatility in demand across the globe and regional contracts?
We have an area for the next years to come that takes into account that global volatility. It is an imperative to think about and to scenario plan around it.
Number two, working at ADP we of course have a very close look at labor markets. And we’re going see a transition to even tighter labor markets, particularly in the U.S. I would predict that we’re going see more wage pressure and more fighting for good talent. As after eight or nine years of steady increases in the job markets, and really good employment and low unemployment rates, I think that would be more the topic than in past years where we, as CFOs, were good with the wage increase and the budget that was fairly low, and doing our thing. Next year is going to be a little bit different, thinking about employee retention, compensation and how to attract talent in different ways.
Every company is a little bit different. For us, it’s the regulatory environment as a third component, and this gets more and more complex. How is ADP making the best forward looking offering in business solutions? But also, how as a company are we in compliance and how are we dealing with a slew of requirements from regular privacy to money laundering, and the compliance list that a CFO has to address is endless.FE: If there was one risk you could think of that’s at the top of your mind, what is it?
Siegmund: The answer is not surprising to you for a technology oriented, financial services, and human capital management company — the safety and security of our transactions, and the data and information that we host for our clients, is a primary concern. On a short-term, high-impact risk factor, cyber security is the number one factor that we’re concerned about.
In our situation, we have our global security organization reporting into me and we have separated it from our IT organization to ensure independence and a check-and-control partnership model that allows both organizations to do what they need to do, but for us it was important that the chief security officer was independent of the IT organization to be the most effective for it. So I have direct responsibility for all global security, as a matter of fact, and it’s one of our fastest-growing investment areas in the company.