CEOs and boards increasingly want CFOs to not only deliver a finance organization that gets the numbers right, but also partner with them in shaping the company’s strategy. But when asked what they want from a strategic CFO, their answers vary widely.
Based on practice observations, discussions with numerous CFOs, and knowledge gained from more than 500 Deloitte CFO Transition Lab™ sessions, we have framed the four orientations of a strategist CFO model to help guide better alignment between CFOs’ actions and CEO and board expectations. Beyond the well-established four faces of the CFO as operator, steward, catalyst, and strategist,1 the orientations bring greater clarity to the strategist role and the capacity of an organization to reorient and execute a new strategy. In this issue of CFO Insights, we outline the orientations and examine how each is a choice regarding the scope of a CFO’s role and means of involvement in the strategy process.
Four orientations
There are four distinct ways CFOs can choose to orient themselves—responder, challenger, architect, or transformer:
- As a responder, the CFO and the finance organization support the company’s strategy development by helping key business leaders quantitatively analyze the financial implications of different strategy choices. This type of CFO orientation is especially evident in highly decentralized businesses where the CEO chooses to drive accountability for strategy and performance to business-unit leaders. Occasionally, this orientation is also prevalent when the CEO chooses to limit the role of the CFO or finance in the strategy process to quantitative and analytic support. To be an effective responder, the CFO and finance organization should consider having a central financial planning and analysis (FP&A) capability that delivers the relevant analyses and data to the businesses, whose leaders have primary responsibility for generating strategy alternatives.
- As a challenger, the CFO and finance organization act as stewards of future value in the strategy process by critically examining the risks to, and expected returns on, different strategy alternatives. Being a challenger is sometimes equated with being a “Dr. No,” as the CFO and finance organization seek to minimize risk or ensure adequate returns to future capital allocations and investments (see Lessons from the Lab: It Takes More than “Dr. No” to Create Value). Being an effective challenger may require the CFO and finance organization to have FP&A capabilities similar to those required of a responder, as well as access to requisite information from the business units on key strategy assumptions and models. Importantly, the CFO requires the permission of the CEO to challenge business-unit leaders and their strategies. When given that permission, the CFO as challenger is especially critical to the review of major strategy investment decisions.
- In the architect orientation, the CFO, finance department, and business leaders jointly work through shaping strategy choices and apply finance strategies to complement and maximize the value of particular strategies. Architects go beyond the challenger orientation to enable the financing of innovative initiatives through varied finance strategies and finance arrangements with suppliers, customers, or delivery channels. Architects thus work to find “a path to yes” on key business investments. To effectively deliver the architect orientation, the CFO, finance organization, and businesses might need to establish mutual trust and work together at the outset of setting the strategy. In addition, the CFO often needs a strong finance team inside the businesses to proactively partner with business leaders throughout the strategy process.
- As a transformer, the CFO becomes a lead partner to the CEO in shaping and executing future strategy. The CFO is key to execution of “real operational and financial options” for shifting the product market mix, delivering value, and creating distinctive capabilities. For example, consider a multidivision company with common accounting and financial systems where the original synergies driving the existing product market mix no longer exist. By upgrading the systems, but doing so in a way that allows the efficient spinout of a division in the future, the CFO operationally creates the capacity for shifting a core strategy choice—the product market mix. Or by changing the mix of debt to equity, the CFO may free up cash to invest in future growth, creating financial options for the future. Through carefully structured financing and lease models, the company could change how customers are able to buy or use its products, thus shifting the business model to more-profitable formats. In short, CFOs as transformers proactively engage in addressing the core questions in a strategy process, and they develop and execute options through finance in a way that allows the company to shift its strategy effectively.
No single approach
There is no one single approach to being an effective strategist CFO. The four CFO orientations described should help CFOs, CEOs, boards, and business-unit leaders better establish mutual expectations on how the CFO will engage in the strategy process and address key strategy questions within the company. Moreover, these orientations are not static, and the appropriate orientation will vary with the changing context and performance of the organization.
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1Deloitte LLP’s Four Faces Framework: http://www.deloitte.com/view/en_US/us/Services/additional-services/chief-financial-officer/four-faces-cfo/index.htm