CFO's first 100 day's
18 july 2023
There are few positions that offer financial executives the same opportunities to test their skills. Conversely, few positions present the same threats. The skills and knowledge that make a CFO successful in more typical operational environments are of utmost priority in the ultimate responsible CFO position. The risks are greater, the pressure to achieve results is higher, and the scrutiny from stakeholders is more intense. The level of autonomy can also be challenging. Some stakeholders heavily rely on local management, while others closely monitor daily operations.
The challenges for the CFO are significant but highly recognisable for financial executives who explicitly acknowledge the differences in managing people, processes, and performance. Based on our conversations, interviews, and experiences with CFO transitions, we recognise the following priorities that can help ensure or at least improve the success of a CFO in a new position:
Grip on Finance
Quickly understanding the financial landscape and establishing a well-organised IT infrastructure
Identifying talent gaps in their teams
Creating a reliable database for critical decision-making
Actively leading the necessary transformation
This is self-evident. The primary responsibility of the new CFO is, of course, to gain insight into the company's balance sheet, financial results, cash flow, and debts. The finances in this context are likely to be complex.
The CFO needs an understanding of the details of what creates value and costs within the organisation, examining fixed and variable costs that reveal what is most important in the company's operational leverage. One CFO we interviewed estimated that developing this understanding took up to half of his time in the first six to twelve months. He faced IT issues (disparate systems) and cultural issues (isolated and protective business units), both of which limited his access to critical data. This brings us directly to the next point.
The CFO should not expect to have the right information readily available or that existing reports will help them understand the company or tell a consistent story. However, a comprehensive solution will likely require more time than is available. Instead, the CFO will need to establish a minimal feasible level of clarity while carrying out current operations and launching improvement initiatives.
A CFO from a client recognised that it would be impossible to gather all cost data for the organisation's product portfolio because the IT systems were outdated, and there was no time for manual cleanup. Instead, his team created a model with standard costs that could be applied, with minor adjustments, to most of the company's products. Although the model was not precise enough for detailed questions regarding cost prices or profitability, it revealed that entire product categories were significantly unprofitable, largely because their prices did not account for all logistical costs. By eliminating many products and increasing delivery costs, the company was able to halt a large portion of the loss situation. This gave the team time to further refine the model when revising the rest of the company's product line.
Even CFOs who pride themselves on their people skills and management abilities often face challenges in the area of personnel. The CFO, usually new to the organisation, must determine which individuals can lead under specific circumstances and deploy them effectively.
It is an opportune moment to remember that skills are much more important than job titles. For example, an analyst in financial planning who is eager to change the way things are done can be a natural complement to the transformation team.
The CFO should encourage talented, engaged employees to lead initiatives that achieve the organisation's goals, thereby democratising value creation beyond the financial function.
A fourth priority concerns the use of data. The CFO, who is often still an outsider at the start of their tenure, must have an expandable, reliable factual basis to uncover new and powerful value creation opportunities that the company can quickly seize.
Relatively few organisations have truly good information readily available. Moreover, they often lack the data analysis capabilities necessary to capitalise on value creation opportunities. However, a multi-year rollout of a new enterprise resource planning system is often unfeasible for various reasons. Therefore, CFO's must understand where and how cheaper digital technologies can be used to maximise benefits in months or even weeks instead of years.
Even within a relatively short timeframe, the CFO can make investments in productivity-enhancing tools, such as ready-made cloud software for invoice management, which reduces time and effort while increasing transparency and policy adherence. A useful approach is to identify data initiatives that deliver high-quality, quick results in the short term while also supporting other projects in the medium and long term.
This was the approach of an international retailer. Before it was acquired, it had over 40 separate IT systems.
With declining revenues, there was no budget or time for a major IT upgrade. However, a focused, limited investment in a data warehouse provided many of the same benefits, such as supporting business intelligence and data visualisation, both of which are essential for future performance improvement investments, but with just a few weeks of design and implementation.
The final priority for the new CFO is to keep the overall transformation on track together with Human Resources. This includes defining key performance indicators and monitoring objectives in a robust but not overwhelming manner. Almost always, the organisation will have identified concrete goals and will want to create rapid momentum. However, in day-to-day operations, the CFO must understand how value is created on both the cost and revenue sides of those goals and then deploy all resources toward the desired outcome. Ideally, the CFO will be the owner or co-owner of several key transformation initiatives, providing a showcase for the change leaders want to see. With a firm grasp of the financial function and a clear understanding of the key levers for value creation, the CFO can be a challenger and influencer within the organisation.
The CFO should lead monthly business reviews with leaders from all functions, examining the factual basis of their operations and proposals (free from biases and emotions) and ensuring that their investment decisions align with the overall objectives of the company. In this way, the CFO becomes the CEO's right-hand (and that of the rest of the management and stakeholders) in strategic matters, financial results, and decisions.
In most organisations, CFO's are constantly measured against increasingly higher standards. Financial leaders who master the five critical priorities described here can increase their chances of success.