With 2016 almost in the rear view mirror, the CFO Alliance Q4 Roundtable series, The Crystal Ball for CFO Success: What Matters Most Going into 2017, offered CFOs the opportunity to reflect on what worked in 2016, what didn’t, and why. CFOs gathered to identify strategic opportunities that need to be seized upon, and garner insights relative to how to ensure adequate business agility to effectively react to market dynamics driven by the navigation of unchartered domestic and global political water in 2017.
The interactive discussions were framed around addressing three key questions:
1. What factors are driving any variances between 2016 financial expectations and 2016 results?
A. What are the root causes?
B. How have these variances impacted strategic planning for 2017?
C. What do CFOs need to do different in 2017?
D. What do CFOs need to do better in 2017?
2. What factors will have the greatest expected impact on company results in 2017?
A. How has the magnitude of key factors changed from going into 2016 to going into 2017?
3.How does a company leverage technology to deliver business agility relative to financial, operational and systems risk exposures that turn into reality (I.E, FX rate volatility, a data breach)? ?
The CFO roundtable in each city in Q4 began with a look back at 2016 by quarter to review and add color to key take-aways from quarterly CFO Alliance CFO Roundtables and the results of CFO Alliance surveys including the 2016 CFO Sentiment Study, Q3 CFO Alliance CFO Regional Pulse Survey and the 2016/2017 CFO Alliance Mid-Market Compensation Survey.
The theme of the 1st quarter CFO Alliance Roundtables focused on how CFOs can impact performance across the enterprise by understanding how the Office of the CFO can directly or indirectly impact customer behaviors, and owning the optimization of human capital in the Office of the CFO. Delivering on optimistic 2016 expectations began and will end with having the right human capital in place to execute strategic initiatives. Companies that had the right talent in the right place with the right skills and resources in 2016 were on target to meet 2016 expectations those who did not are going to fall short. How were they able to do so?
I. CFOs were engaged in the success of person in the Office of the CFO:
A. One CFO took the door off of his office to create an open door policy.
B. One CFO started his day each and every day in the office with a walk around each morning to touch base with staff to be accessible and to instill an environment of departmental accountability and collaboration.
C. CFOs focused on communicating that each person has and is allowed to have the “I am “Me” component”, but we all need to be vested in “We”,especially the CFO. CFOs need to embrace the diversity of your team.
D. CFOs need to lead their team so each person is true to his or her own authenticity.
E. Many focused on instilling clarity on strategy which was always rational,reasonable, achievable by open communication that lead to process alignment.
II. Impacting performance means being a trusted advisor across the enterprise and that includes the CEO.
A. CFO may get criticized at times for being the Chief Reality Officer, but that helps a CFO build trust and establishes credibility, so embrace the role and help others realize the value.
B. Trust is not just about the accuracy of numbers/forecast.
C. Trust is a two-way street.
D. CFOs should endeavor to understand the specific challenges of each leadership role across departments, and how to help shape the future of the company and create alignment relative to the company’s strategic vision, and craft it collaboratively.
E. Building trust goes beyond the walls of the office. Some of the most important interactions happen outside of the office.
F. Let personal connections develop organically and avoid being anything but authentic.
The theme of the 2nd quarter CFO Alliance Roundtables focused on risk exposures CFOs need to own. Discussions focused on financial, customer retention, cyber, & brand reputation risk exposures, but the main focus of conversations gravitated towards mitigating cyber risk exposures, and how to create an effective breach response plan to mitigate the cost of a successful cyber-attack. Therefore our review in Q4 focused in these areas. Lessons learned and what worked for CFOs in 2016 included:
A. Employee education is critical. Employees need to know how their actions create cyber risk exposures, the potential consequences, and need to be trained to recognize suspicious e-mails and exactly what to do if they accidently open one and/or see strange activity within their e-mail account.
B There is no substitute for a data breach response plan. Stories of breaches that happened were shared, and the fact that the actions relative to beaches once surfacing were reported in a timely way. In one case a company that has a “roach motel” approach in that someone may get in, but no data gets out detected unlawful system access where a party sat and waited for several months, and once they tried to act and extract data no data got out.
C. Good things can happen from a data breach. Relative to the Sony data breach, company policy dictated a temporary suspension of e-mails and this really improved the culture as people needed to pick up the phone or meet face to face. This is an exercise all companies should consider, maybe a day without e-mail every so often.
The theme of the 3rd quarter CFO Alliance Roundtables focused on how to ignite Growth as the CFO by cultivating a high performance Finance team. Success in this area is driven by how well a CFO identifies the skills that the Finance team needs to acquire and/or upgrade to foster innovation and company growth, and how effectively a CFO can collaborate with HR to design programs that develop and reinforce key skills by delivering the right the employee experience at your company, and in doing so optimize the productivity of the Finance team by positively impacting the customer experience. Lessons learned and what worked for CFOs in 2016 included:
A. Starting each and every day in the office with a walk around each morning to touch base with staff to be accessible instills an environment of departmental accountability and collaboration.
B. Focus on optimizing the human capital, and just focus on the cost. A cost/benefit analysis is critical. Relative to the benefits to investing in human capital, how did investment in talent impact performance, help us reach or exceed our goals. How is that communicated given that it is not captured in financial statements unless we look at human capital financial statements? CFOs should not define or restrict the career trajectory of anyone in Finance to be linear. They need to look at what is best for the company and the path for a future CFO may well involve a position or positions outside of the office of the CFO.
C. CFOs would do well to need to create a vertical reporting environment even if you have a horizontal reporting structure.
D. Each Finance team member needs to “step up” and have a broader view than traditional Finance, they need to have the skill and the will.
E. Some CFOs recognized that they had not been active enough in motivating the talent they have and needed to master the art of taking people out of their comfort zones.
F. Teach Finance members to “Know what they don’t know”, not be over confident- be willing to stop and re-evaluate what it takes to execute effectively and reach goals. The CFO needs to mitigate the fear of failure and nurture a culture of continuous improvement which involves trial and error.
G. Honest communication between Finance team members up and down the org chart is critical.
H. Engage millenials who are naturally drawn to the CFOs as they are the keepers of data and technology. CFOs need to leverage this opportunity to foster human capital optimization.
I. Teach Finance team members how to identify and help train an analytics guru within each department outside of Finance to leverage to create a culture of data-based decision making across the enterprise.
Our 4th Quarter CFO Roundtable in DC had a unique element of what we called “Heard on the Hill” during which some incredibly valuable insights were shared relative to what could be expected relative to how the incoming administration would do business and potentially impact domestic and global markets. These insights included the following:
A. Change is coming relative to policy, and the manner in which things are done as the new administration works to fuse Government and the “business experience” of the president elect, his cabinet, and chief advisors.
B. Things are going to be much more transactional. That being said “Campaign in poetry, but you govern in prose”, so the administration will need to focus on how to align rhetoric with outcomes.
C. Business agility will more critical now more than ever.
D.The Democrats have 23 Senate seats in play in 2018 so they will need to wield any administrative might very carefully.
E. The new administration will mean a period of deal making, so eyes and ears in Washington are more important than ever. “If you are not at the table you then you are one the menu”.
F. Republicans will be the conductors, but they will need to deal with plenty of political friction given the divide within their own party, and this means even more inherent barriers to action.
2017: A Year of Many Challenges, but Great Opportunity
Going into 2016 CFOs had high expectations relative delivering top line growth and bottom line results. The CFO Alliance 3rd Quarter Pulse survey results and CFO Alliance Q4 CFO Roundtables offer indicators that 2016 results may not live up to these expectations. Key factors inhibiting top line revenue growth in 2016 are price sensitivity and human capital shortcomings in terms of intellectual capacity and deployment efficiency. Bottom line pressures are (and have been) fueled by input price volatility and higher than expected human capital acquisition and training costs. Financial results in 2016 many not live up to CFO expectations, and given the headwinds created by market volatility driven by uncharted political waters we look for CFO expectations going into 2017 to be less optimistic than CFO expectations going into 2016. However, CFOs learned valuable lessons in 2016. Many CFOs were focused in the right areas to optimize performance across the enterprise, and those who invest even more on impacting employee performance and impacting the breadth and quality of customer relationships will lead their companies through headwinds driven by market volatility driven by uncharted political waters to develop or enhance market leadership.
I invite you to take the 2017 CFO Alliance CFO Sentiment Study to help us identify top challenges and opportunities for CFOs in 2017, and more importantly how CFOs will turn challenges and uncertainty into market leadership in 2017.