The Missing Piece: Strategic Finance

Pendulum swings are a natural occurrence and with the Sarbanes-Oxley Act of 2002 (SOX) small businesses to Fortune 500 companies have been focusing on the compliance side of finance neglecting the other facets of finance, so important for sustainability and growth. I believe today’s financial expert or CFO needs to bring an organizational mind-set to a business, actively participate in value creation and connect the dots between finance, strategy and operation.
Working in the emerging businesses sector, I find this strategic piece missing; in fact, often the CEO is not sure what type of CFO is needed, since for the past ten years compliance based number crunching as been the focus. CFO.com ran an interesting story on how long the list of controller-turned CFOs is getting, yet they tell the story of Archie Black, CEO of SPS Commerce. His number one criteria in hiring a new CFO was to bring someone on board who could help him drive change, number two criteria to understand the vision and articulate it to the investment community and the board, and third for traditional accounting skills.
Reading the CFO.com article piqued my curiosity to find out just how wide-spread the compliance focus really is. I found an excellent in-depth study called the IBM Global CFO Study 2008 that indicates the lack of organizational mindset among CFOs of large corporation and in how SOX has kept everyone focused on the number crunching. This was somewhat surprising to me, assuming that large corporations would have such experts in place.
Small and medium sized businesses struggle even more with getting the full spectrum financial expertise. Often CEOs hire a fulltime CFO too early and if that CFO is not the organizational forward looking kind, tensions will arise as the company grows. Interestingly, the controller or CPA is and should be very detailed oriented; it is unreasonable to expect them to be part of the visionary thinking. Very few people can do both. This also brings up the point of communications to investors and boards, which was the number two criteria of Archie Black mentioned above.
An excellent white paper by the Economist Intelligence Unit seconds the above findings. It talks about the empowered CFO and the evolving focus need on business creation. It points out that today’s CFO needs to lead with an array of skills including general business expertise as well as financial skills. Again, the paper refers to SOX as having been the driver of perfect accounting, leaving the strategic finance piece in the dust.
One of my favorite articles talks about the strategic momentum under threat. This KPMG Study reiterates the importance for the CFO to remain future-focused. They agree that governance cannot be ignored, but always looking in the rear-view mirror is a thing of the past. Today’s CFO must look forward 99% of the time.
This is where I came up with the idea of driving sustainability and growth with financial headlights. I think it gives a nice visual in how we should think about business finance, make sure your taillights work properly and then focus on the headlights. Do you know where you want your company to be in two years? How will you get there?

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