As Deloitte's Chief Strategy Officer, John Meacock is closely positioned to see the nexus between strategy and the C-suite.
Meacock says at the most fundamental level, the CFO should be involved in holistically connecting strategies to financial performance.
“Many organisations don't connect corporate strategy and business unit strategy to the business plan and the financial plan. It sounds really basic but most organisations tend to do their corporate strategy, put it away and the business units will prepare their own strategy."
“There's only a broad rather than direct linkage between these processes," he says. "Then generally businesses will do their annual business plan at another time and the CFO will do their financial plan separately again. But those four elements should be linked and the CFO plays a critical role in this."
Consequently, says Meacock, it can be difficult for a business to realise its strategic goals if it doesn't link corporate strategy, business unit strategy, business plans and financial plans. The CFO's other main strategic role is an ability to individually analyse the various portfolios in the business.
“The CFO has to understand each business division or product, not just from a financial perspective, but using a range of metrics so they comprehend the drivers that make the business work," he says.
As an example, Meacock points to a firm wherein management believed there was a direct link between business performance and the economic cycle. “But after doing some analysis we found this wasn't the case; there was actually quite a lag and they were looking at their business completely the wrong way. So there's a real role for CFOs to look at commercial drivers and how the business responds to them, rather than making judgements not based on fact."
To achieve these insights, Meacock says the CFO must position himself or herself as more than a number cruncher, but as someone with a deep understanding of the business as a whole.
“A lot of organisations are now appointing a financial controller who is taking on much of the old role of the CFO, which is starting to push the CFO up the organisation and take
a more strategic position," Meacock adds.
CFO coach Brendan Sheehan from White Squires agrees being able to strategically communicate across the business is key. To aid strategic development and implementation, he says a superior understanding of technology is now paramount.
“CFOs have to use technology in a way that is effective for growth and decision making," he says. Behind this must be a sound grasp of the data the organisation produces, as well as information from external sources. “They have to correlate the two to pull out meaningful, insightful information that supports decisions," says Sheehan.
According to Sheehan, understanding the essence of the business model, as well as gaining an appreciation for other business models, is also important for the CFO's input into strategic thinking.
Responding to a world of unknowns
Making a meaningful contribution to strategy can be difficult in a world where there are many unknown variables, such as economic and political factors CFOs must navigate.
One approach Meacock suggests is for CFOs to engage in detailed scenario planning. This involves brainstorming a range of likely situations that could impact the company, and then ranking them in order from very likely, to likely, to unlikely.
“The CFO should play a role modelling these scenarios. You are never going to predict everything that's likely to happen to the company," he says. "But by understanding the various scenarios that can play out, you'll really understand in a much better way how the business will respond, which starts to shape the strategic direction of the organisation," Meacock explains.
Overall, says Meacock, there's a real opportunity for CFOs to make a greater contribution to strategy.
“Certainly in larger organisations, we're seeing a lot more Chief Strategy Officers than in the past, which is changing the C-suite dynamic. Some chief strategy officers report to the CFO, others report to the CEO. So, how the CFO works in conjunction with the chief strategy officer is an important dynamic."
Meacock suggests if the Chief Strategy Officer has the same level of seniority as the CFO, both should be focused on connecting the corporate strategy to the financial plan.
“There's the potential for a very good partnership between the CFO, CSO and CEO, which is something that's a new dynamic in organisations," he adds.
Finally, Sheehan says it's essential for the CFO to think strategically about HR planning in the finance team and in the wider business to effect strategy.
“That ability to think strategically about human resource planning is really important," says Sheehan. "This requires emotional intelligence, and an ability to read people and communicate effectively around what needs to be done. That's really important to get the best out of people."
“CFOs must get a real understanding of the skills and competencies required to do a particular job, and make sure the people who are being interviewed, and are being brought in to do that job have those skills and competencies," he adds. They have to have emotional intelligence and empathy with people in the organisation to get decisions made and act on them,"
Ultimately, if CFOs are able to influence planning across the business and gain access to accurate data to make decisions, they can be positioned to make a meaningful contribution to strategy and potentially elevate themselves beyond the numbers.
- The CFO's involvement in long-term corporate thinking starts with connecting corporate and business unit strategies to business and financial plans.
- CFOs are uniquely positioned to consider and plan for a range of scenarios for the business.
- Similarly, the CFO can continuously explore business models to help ensure business growth.