What Makes a Great CFO?

Great CFOs encourage behaviors required to drive profitable growth and deliver on their CEO’s expectations for financial performance. Here’s where to focus.​

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Where CFOs must focus to deliver impact​

To be effective today, CFOs must focus their time and energy on initiatives that will deliver impact on critical strategies, such as improving the returns from digital bets for the organization and digitalizing the finance function itself.​

Download the Leadership Vision for Chief Financial Officers and home in on three strategic actions for success.

World-class CFOs focus on three critical leadership areas

Amid unprecedented external disruption and growing demand from boards to accelerate digital initiatives, the most effective CFOs don’t just approve and understand the need for change: They focus on championing growth.

Don’t just support value realization — spearhead it.

The most effective CFOs encourage behaviors for profitable growth among the CEO and board, and meet the CEO’s financial performance expectations. They get involved in business-level issues and become personal champions of strategic initiatives that advance their agenda.

One area where CFOs can demonstrate critical value is by partnering strategically with the business to realize potential economic value through capital responsiveness. 

In a disruptive business environment, capital responsiveness requires the ability to:

  • Quickly shift capital to new high-value uses

  • Quickly shift capital away from new low-value uses

  • Make significant, rather than incremental, changes to where capital is allocated

Few companies consistently achieve any one of these abilities. The most common among companies (38%) is the ability to quickly shift capital to new areas. Even fewer companies manage to bring all three together to maximize enterprise returns and minimize underutilized capital.

Those companies that do achieve capital responsiveness see real benefits. “Responsive” companies earn, on average, 2.5 points more in economic value added than “unresponsive” peers.

World-class CFOs practice capital activism.

Capital activism takes the principles embraced by the most productive activist investors and private equity firms and applies them to the internal management of capital through CFOs and their teams. Senior finance leaders and finance business partners actively direct capital flows to respond to changes in enterprise value drivers by:

  1. Viewing the enterprise investment portfolio as a set of trade-offs and synergies

  2. Applying a “nothing is sacred” mindset to the company’s investment options

Capital activism improves capital responsiveness by actively challenging attachments to legacy investments, siloed value creation and other outdated practices that impede meaningful capital pivots. 

“Activist investor” CFOs put a laser focus on their companies’ value creation strategy and willingness to divest — sometimes even profitable businesses — to bring the portfolio in line with a coherent vision.

Meet and exceed expectations for board communication.

A supermajority (94%) of board members we surveyed believe they have a good working relationship with the CFO — eclipsing other C-level executives, including the CIO, CHRO and general counsel. But when it comes to communication, CFOs have room for improvement. 

As CFOs begin to wear more hats and respond to a fast-changing business environment, they find themselves presenting to the board more often, providing big-picture information on complex topics — like how the pandemic has permanently shifted cost structures, how macroeconomic forces will shape economic recovery, and how to fund and evaluate the ROI of high-priority digital projects. 

As CFOs continue to communicate with the board on a rapidly expanding array of topics, they must understand where they stand in the eyes of the board and how they can improve. 

Step No. 1: Schedule personal development discussions with individual board members. 

Conversations should focus on each of the four enablers of effective CFO-board communication:

  1. Educating on complex issues

  2. Explaining data

  3. Delivering presentations

  4. Introducing new and pertinent information

Ask questions such as:

  • Can you give an example of a board presentation in which I shared too much — or too little — information? 

  • Which forward-looking priorities would you like to see me cover more specifically in my updates? 

  • How would you rate the overall clarity and simplicity of our one-on-one communication and my board presentations? 

Step No. 2: Cultivate a strong customer orientation.

Our research shows that personally effective CFOs spend 40% more time with customers than the average CFO. Build a stronger customer orientation by owning (versus delegating) pricing and working capital efficiency strategies — areas that provide different views of customers. Staying ahead of customer trends, buying patterns and customer research can simplify the process of determining what to present — and what not to present — to the board.

Step No. 3: Stay grounded in the business.

To keep business performance in focus, develop strong relationships with business leaders and take on business unit CFOs as direct reports. Doing so will provide early insight into trends, challenges and opportunities at the ground level, which can translate to a more relevant, strategic and compelling narrative when presenting to the board.

Drive autonomous finance forward by modeling the mindset.

Sixty-four percent of finance leaders believe autonomous finance will become a reality within the next six years, but the vast majority are not using the necessary technologies. Failure to adopt these technologies is delaying organizations’ ability to move information swiftly and insulate the business from shocks such as inflation, global conflicts and pandemics. 

World-class CFOs understand that creating a future-forward finance function isn’t just about steering the ship: It’s about charting the course. CFOs need to be fully invested in autonomous finance. 

Demystify new technologies by piloting them across the finance function.

A common mindset among CFOs is that starting “small” with technology can help avoid costly failures. This uber-cautious approach is understandable. As one CFO put it, “Finance is not given the same permission to fail.” 

But expecting finance to avoid failure is misguided. Successful organizations experiment broadly with technologies that enable autonomous finance and reap greater rewards in terms of value and perception:  

  • More trials yield greater returns. A Gartner survey revealed a significant gap between leaders who deployed a median of eight technology pilots in their first 12 months of investment, and those who deployed a median of four pilots. The group with the greater number of pilots consistently showed a higher number of applications for AI over time — with no meaningful difference in spending.

  • More trials have a transformational impact. A lower number of trials may cause finance teams to perceive those trials as one-offs, whereas a higher number of technology experiments signals a larger shift in the way finance will operate. 

To minimize fear of failure, CFOs can explore the anxieties that can hamper innovation, define the worst that could happen and weigh the benefits of taking action with the potential costs of inaction.

Build a comfort level with autonomous finance technologies.

Our CFO survey revealed that finance leaders doubled the median acceptable variance for financial forecasts generated by people (10%) versus those generated by technology (5%). Instead of comparing an algorithm’s performance to unrealistically high targets, finance should compare an algorithm’s performance to human judgment.

As long as an algorithm performs as well as or better than people, consider it a win. CFOs who understand this principle will no longer need to rely on people alone to do the work.

To build in trust in autonomous finance technologies, CFOs can:

  • Listen to stakeholders’ questions about a given technology — and address their concerns.

  • Have the team compare its own forecasts to an algorithm’s — and discuss the results.

  • Bolster the value of a new tool with information about the model’s logic and how it was built — and let the team pressure-test before they implement it.

These action steps will help finance make the shift from “technology as a tool” to “technology as a decision maker.”

Encourage adoption by showing a personal interest in new technologies.

When it comes to technology adoption, actions speak louder than words. While CFOs may be very vocal about a technology’s transformative potential, teams pay more attention to behaviors.

Only 29% of CFOs say they invest significantly in learning about autonomous finance technologies and how they are applied. The good news is that a few immediate “culture hacks” can change a team’s mind.

One great culture hack: Try setting a minimum failure rate for innovators, signaling to the team that if they aren’t failing enough, they aren’t being bold enough.

Another culture hack: Make it mandatory for the entire team — including leadership — to complete internal digital training to emphasize the criticality of those skills.

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The top priorities of a CFO are to drive profitable growth and deliver on their CEO’s expectations for financial performance. And amid growing demand from boards to accelerate digital initiatives, CFOs must also be prepared to chart a course for autonomous finance.

Successful CFOs partner strategically with the business to encourage behaviors that drive profitable growth and value realization through capital responsiveness. They also optimize board communication skills to ensure they can educate the board on big-picture issues and introduce new or complex topics. Finally, successful CFOs lead transformation by modeling the mindsets, behaviors and culture that drive autonomous finance forward.

As CFOs present to the board more often, they are called upon not only to present data, but to deliver key information on complex topics and high-priority projects. CFOs must also be able to partner within the larger organization to stay grounded in the business. Finally, CFOs must communicate effectively with their teams to lead the change needed to build a future-ready finance organization.

Drive stronger performance on your mission-critical priorities.