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CFO - Protection or Productivity Role?

Years back, when I had more hair on my head, the corporate office of the enterprise I worked for at the time brought in a BCG trained consultant to work with the management teams of each operating division.  One of the take-aways from the strategic planning session was this summary of the role of the senior Finance Executive in the organization.   I kinda liked it, because I found it help me identify what kind of person I needed to be my controller so that I could work with the CEO of our operating division.

Feel free to weigh in with your comments!

DEFINING THE FINANCIAL ROLE IN AN ORGANIZATION

INTRODUCTION

Financial Management is made up of 2 broad functions:

1.       Prevention of Loss in the Value of the Enterprise (Protection)

2.       Acquisition of Gain in the Value of the Enterprise (Productivity)

In everyday words:

1.       Stopping us from losing money we already have

2.       Helping us to make more money that we otherwise would have

EXAMPLES OF PROTECTION ACTIVITIES

EXAMPLES OF PRODUCTIVITY  ACTIVITIES

Obtaining effective security for a delinquent receivable/debt

Educating managers with P/L responsibilities in the financial implications of decision making

Designing  effective risk management and hedging programs

Designing a highly motivating results-linked incentive program

Rapid, tightly controlled cash handling and reconciliation

Negotiating cost-reducing supplier contracts

Reconciliation of accounts

Establishing a tightly measured productivity improvement program

Inflation-shield clauses in contracts

Designing innovative asset management programs

Expense budgeting

Negotiating a lower cost-of-debt with fewer constraints

Tax shield maximization

Participating in industry organizations that can materially influence the competitive market

Effective warehouse inventory receiving steps

Setting up creative and competitive pricing practices

Payroll processing and payments

Develop finance function training for all finance staff

CHARACTERISTICS OF PROTECTION ACTIVITIES

CHARACTERISTICS OF PRODUCTIVITY  ACTIVITIES

Defensive, inward looking, preventive, procedural, technical, legalistic, bureaucratic, authoritarian

Outward facing, anticipatory, flexible, interactive, participative, innovative, social, developmental, educational

HYBRID ACTIVITIES

Banking relationships, preparing the marketing/advertising budget, stakeholder reporting

PITFALLS TO AVOID

You will almost always produce mediocre, if not downright substandard financial management, if you try to get a clear-cut Protection person to handle the Productivity functions, or the other way round. Very few people do both well, but many do one or the other very well indeed.

THE SOLUTION

Split the two functions. Coordinate them, but split them. Staff them according to their Critical Success Factors.

MULTI DIVISION ENTERPRISES

If a Division cannot afford a fully staffed, twin stream financial structure at each operating entity, then set up Protection functions at each operating level and a Productivity function at the Divisional level,

So, what kind of person became my controller?

The answer is: the Protector.  My role was to help the divisional CEO grow the operation. Our corporate CFO was more of a protector too, but I preferred the business side.

Comments

Patrick Fleck
Title: CFO
Company: AnswerLab, LLC
(CFO, AnswerLab, LLC) |

This is a very helpful framework. It ties nicely into a another framework -- the STARS model, created by Michael Watkins of Harvard Business School -- that puts the focus first on the situation or stage of life of the business as a key determining factor in what skill set to look for.

From an HBR article on the subject, link below:
“ 'STARS' is an acronym for the five common situations leaders may find themselves moving into: start-up, turnaround, accelerated growth, realignment, and sustaining success. The model outlines the characteristics and challenges of, respectively, launching a venture or project; saving a business or initiative that’s in serious trouble; dealing with rapid expansion; reenergizing a once-leading company that’s now facing problems; and following in the footsteps of a highly regarded leader with a strong legacy of success. "

The BCG model above would most typically be a priority in the sustaining success stage, whereas other competencies would be more highly prized, say, in turnaround and start-up situations. Or, perhaps another way to look at it, would be that the emphases on protecting and productivity (i.e., the proportions of the two) would vary based on the urgency of the need for each, which would be a function of the STARS stage.

http://hbr.org/2009/01/picking-the-right-transition-strategy

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Patric, thanx for your reference to the STARS model. Makes a lot of sense as organizations grow from "infant to adult" :).

A good friend of mine (CFO) describes himself thus: " I help small companies grow to become bigger companies, then I go find another small company and do it again!" He clearly knew what transition stage his target companies were in.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

I like the table very much and agree with the Consultant in all areas except - "Split the two functions. Coordinate them, but split them." I want people that seek to enhance "Productivity" for the sake of revenues, but always mindful of the "Protection" requirement. A split will create friction, requiring the CEO to arbitrate. It is worth the time to identify the person with the right mix of each.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Regis-thanx, I agree with your sentiment in that if you can find a person that does both, hire them! As our consultant remarked at the time, few people do both well. Also, your organization size may also impact what you can do.

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