February 2015Finance

The CFO’s Changing Role: Growing Challenges Demand New Skills

The CFO's Changing Role

Scott Davis of UPS, Indra Nooyi of PepsiCo, Joe Kaeser of Siemens AG, and Gregory Hayes of United Technologies: they’re just a few of the high-profile CFOs who became CEOs in recent years. And although most CFOs don’t get tapped to lead their organizations, these four are part of a growing trend that is seeing the role of the Chief Financial Officer move from numbers-only to becoming a key strategic partner.

Whether a CFO moves up in his or her company or not, having a different lens through which to view the decisions they make every day can help them become stronger strategic partners — something the recent IBM Global CEO study identified as a critical part of a firm’s success. So-called “Value Integrators,” the highest performing CFOs in the study, are more effective than their peers in every area the study assessed. Those areas include integrating information from numerous internal sources, planning and forecasting, measuring and monitoring business performance, managing risk, and generating predictive insights. And their skills have a direct effect on their organizations’ performance. Over the past three years, companies with Value Integrator CFOs consistently delivered superior revenues and earnings.

To meet the demands of this changing role, Wharton developed The CFO: Becoming a Strategic Partner, a week-long program that helps CFOs expand their skill set and develop a more strategic mindset. “CFOs are not just managing internal reporting systems for financial reporting anymore,” says Wharton finance professor David Wessels. “More operating data is available than ever before. It can have enormous strategic importance, but it needs someone to make sense out of it. CFOs are getting pressured to take on that role.”

Wessels notes that CFOs are also under external pressure. “We have seen activist shareholders become involved at some of the most well-known companies in the world about how they plan to use the resources of the firm. The CFO becomes the critical go-between the investors and management.” The combination of internal and external pressure has led to what Wessels calls the “perfect storm for CFOs to take a more prominent role — but only if they have the skills.”

Participants in The CFO: Becoming a Strategic Partner learn how to enhance their leadership skills, better communicate with non-financial colleagues, and find and design growth opportunities for their organizations. Wessels, who serves as faculty director, notes that those who teach in the program have extensive experience with CFOs, and their content is customized to that audience. “A general leadership or strategy program is geared toward people from throughout an organization. We look exclusively at all of the tasks the CFO is responsible for and how those pieces impact strategic questions.”

One important challenge involves skills and experience. Because most CFOs have a background in accounting, they often develop as linear thinkers who excel at solving well-structured problems. But today, organizations face increasingly complex, ambiguous challenges — and the data they have to address them is often incomplete or even contradictory.

“The CEO, the board, and other leaders are looking for CFOs who can assess disparate data from many areas of the firm and create a long-term path forward.” As Wessels emphasizes, though, that path can be anything but straightforward, as stakeholders respond and circumstances shift over time. “Today, you have to think through the implications of every action and prepare to be on multiple paths.”

For example, just a few years ago companies were talking about how they could survive with oil prices over $200 a barrel. If they only developed a capacity to serve local markets, believing that the price of oil made it prohibitive for competition to enter those markets, their strategy would today be in ruins.

“You have to lay the groundwork for multiple scenarios,” says Wessels. “You can’t just plan out a few steps forward. Problems are often complex, and they require creativity to solve them. If you are continually being caught by surprise, you need to think and plan more strategically, with an eye on the long term. The rest of the C-suite and other stakeholders now expect this from their CFO.”