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Why the best CFOs can mix their own paint
Delaney Turner 270003RQ8K Delaney.Turner@ca.ibm.com | | Tags:  finance_forum business_analytics finance
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With IBM Finance Forum events on now around the world and efforts behind the Clarity Vision 2011 conference now in full swing, we continue our "Focus on Finance" week with a look at why effective CFOs are being asked to participate in decision-making and strategy in operations, marketing, sales and beyond.
If you’re the CFO of a big box home improvement retailer, do you really need to know how to mix paint?
Not necessarily, but it doesn’t hurt.
Carol Tome, the CFO of $68 billion home improvement giant Home Depot, does know how to mix paint. She learned how in the course of her weekly visits to stores. And this particular bit of knowledge came in handy in 2009, when the company was deciding whether or not to spend millions on new paint-blending equipment for the 2,244-store chain.
The CFO as "strategic partner"
Tome was profiled in a recent story in Bloomberg Businessweek.1 She is a prime exemplar of the growing trend—and growing need—to get CFOs more involved in operations and more active as “strategic partners” in businesses of all kinds.
CFOs and finance organizations in virtually all industries are now being asked to go beyond the traditional duties of processing transactions and delivering financial reports. They’re being asked to contribute their perspectives on decisions across the entire enterprise agenda—in operations, sales, human resources, supply chain and more. In fact, in the IBM 2010 Global CFO Study, when asked to rank the importance of all their activities, CFOs named “providing inputs into enterprise strategy” as their number one priority.2
Collecting and reporting on data no longer enough: CFO magazine
CFO addressed this topic in its December, 2010 issue in an article titled "Strategic Inquisitions." “It’s not enough to simply collect and report on financial data,” said CFO. “You have to figure out how to help your companies capitalize on it.”3 CFO interviewed a diverse group of CFOs who were actively involved in creating and implementing corporate strategy and found that “[f]or CFOs, being ‘strategic’ often hinges on addressing the many tasks that turn an idea into reality.” One CFO observed that, “finance training allows [CFOs] to understand the business, end-to-end. They are able to look at a strategic idea and see how it will connect across the company, in terms of impacting current business or accelerating it.” He added, “I don’t know why companies divide ‘financial analysis’ from business analysis.’ They’re the same thing.”
Experience in operations a plus
Another CFO, from a multi-billion dollar restaurant company, cited his experience in operations and marketing in helping to make him a better strategic partner. “My operations experience gave me great respect for the other disciplines as I engaged them from an accounting standpoint. … I am better equipped and more confident in how I support and fund the growth initiatives that come out of the strategic planning process.”
But how does a CFO gain operational insight? What if you’re not familiar with the nuts and bolts (or the eggshell and semi-gloss) of your particular business? While it’s useful for any executive to get out on the “shop floor” from time to time, the fact is that the economic turmoil of the last decade has produced significant turnover in the ranks of corporate CFOs. Thus, the Carol Tomes of the world, with 15 years of experience at one company, are something of a rarity. But CFOs and other finance people can bring the business reality, if not the sights and sounds of the shop floor, to them, in the form of operational KPIs and metrics based on input from people in all areas of the business. And they can do that with financial analytics software from IBM.
Three ways to get there
Here are three basic ways that CFOs and other finance leaders can use IBM Cognos technology to gain and share insights about operations:
1. Model the business to gain a better understanding of the drivers that affect performance. Use multiple dimensional views that include product, customer, region and sales channel.
2. Use scorecards and dashboards to monitor performance and align individual or departmental goals with long-term company goals. Link operational and financial KPIs and connect those KPIs to broader corporate strategy.
3. Perform “what-if” scenario planning to examine options for changing business conditions. Include factors such as cash flow, customer profitability, product profitability, and revenue performance.
When CFOs see timely, relevant operational metrics alongside their financial metrics, they gain a broader view of performance and the operational insight they need to be strategic business partners.
It’s also worth noting that, while knowledge of operations enables you to serve your company better as a CFO; it can also open the door to that other C-level office that many CFOs aspire to. In the case of Home Depot’s Carol Tome, her deep knowledge of the operational side of the business has helped to make her, in the words of Bloomberg Businessweek, “a leading contender to be the retailer’s next chief executive.”