BIOS: Technology Means Business

For many finance professionals, the pinnacle of their career is to become the CFO of a blue-chip organisation. Yet studies have shown that in recent times a typical CFO’s tenure is only around three years.

A leading commentator even went so far as to describe the role of CFO as being a ‘temp job’ in many companies. So why is it that CFOs spend so long striving to reach the top only to leave their posts prematurely?

Boardroom coups, succession battles and culture clashes are unavoidable, and will always account for some board-level staff churn. But CFO tenures, particularly within the world’s largest companies, are usually cut short for a handful of other reasons.

Often senior financial executives are tasked with managing one of two strategies - growing the company or cost cutting. Both require specific, and different, skills and both can be extremely difficult to execute. Failure to deliver on either objective may lead to the chop.

The integration of a new company following a major merger or acquisition can also present a set of challenges, the majority of which fall at the CFO’s feet. If the cost savings promised to shareholders aren’t reached, the CFO is in trouble - even though the CFO isn’t actually in charge of the assimilation of management teams, IT systems and international locations. Acquisition-hungry Oracle, for example, has already seen two CFOs leave over the course of 2005.

In a few, but growing number of cases, CFOs have been caught out by the increasingly strict regulatory environments with their demand for absolute clarity of financial reporting. In the wake of high-profile accounting scandals the information presented in reports must be ‘whiter than white’. What is interesting is that all of these reasons share a common root cause - lack of visibility. More specifically: the visibility of the business at a global level. Without a clear view of performance - as viewed through key business metrics such as gross margin by product and channel - the CFO simply cannot be fully aware of the business’ financial health.

Successful CFOs must be ready to react to a changing market, but within large organizations they often find themselves confused by a lack of meaningful information across the enterprise. Lack of data is not the problem, but a lack of timely and accurate data is. For example one of our customers discovered that it actually had negative gross margin on certain transactions, i.e. was losing money on every sale. This fact had been buried within a series of separate systems and cost allocation rules, which disguised the true picture.

At the board-level, global visibility into the overall business is vital. Yet the clear view a CFO may have enjoyed at a regional level, when they were much closer to the facts and figures they needed, suddenly becomes much harder and more time-consuming to achieve. To steal a phrase, it’s cloudy at the top. And it’s little wonder. Regional units, or individual departments frequently operate in their own distinct ways in global enterprises.

Each has different financial regulations, reporting structures, product specifications and currencies. Data is stored in a multitude of different systems accumulated over the years, using different coding structures, subtly different business definitions, and different languages. When this disparate information is consolidated to get a global view, inaccuracies are common, making it difficult to compile and compare global performance across international operations. Take the example that you have to work out how profitable a particular product line is - if different subsidiaries use slightly different cost allocation rules, comparing gross margin becomes rather difficult.

Compounding the problem further is change, unavoidable in modern business. Re-organisations, new products, consolidation programs and de-mergers all impede the ability to view key business performance metrics. These may sound like technology problems for the IT department to deal with and, indeed, this is traditionally where the responsibility (or blame) has been laid.

Billions of dollars have been invested in pursuing ERP and business intelligence initiatives to achieve the much-coveted ‘single view’. Unfortunately, in practice, a single view and identical business processes are a holy grail for global companies: nice if you find it but you’ll be looking a long time. Now is the time, however, for the CFO to proactively drive and support IT strategies, and demand that this expensive IT investment adequately meets their needs.

It’s no secret that IT and finance have not always seen eye to eye. However today their relationship has become much closer as compliance and performance management have become critical to corporate strategy. Past suspicions need to be put aside as they work together to put in place the systems and processes required to conform to regulations such as Sarbanes-Oxley.

Crucially, going forward, CFOs must make efforts to understand the origin of the data on which they rely, and its impact from a business and IT perspective. This means taking an active role in defining the process from which data is derived. It’s imperative to see how, for example, business definitions are defined and communicated through the company, and to institute and adhere to compliance-strength controls and processes.

Flexible enterprise data warehousing and master data management software are two examples of application solutions that can help deliver clearer visibility. They can empower CFOs to gather all their company’s financial data together and view it from any perspective and at any level of detail - without having to standardise operational systems and business processes. The most intelligent software uses a model of the business, not the data or the supporting IT architecture, as its blueprint. So when the business model needs to change, the reporting formats change just as quickly in response to this.

Using such intelligent software means that business change - such as re-organisations, new products, consolidation programs, and de-mergers - should no longer be feared. Leading the organisation throughout change - by making informed decisions based upon accurate, timely data - provides a real opportunity for the data-driven CFO to make his or her mark.

Visibility is more important than ever, and successful CFOs will be defined by their ability to assume a ‘data-driven’ role. By overseeing the deployment of IT systems that deliver data with integrity, particularly as the corporation’s strategy or structure changes, the CFO will only improve the chances of delivering on promises and staying in their post longer.