The traditional finance function has a unique role in any business organization – finance interfaces with all points in the value chain and has more direct contact with other functional departments and divisions than most other areas. The finance function also has overall responsibility for information management and delivery and acts as the interpreter, communicator and educator regarding the financial impact of various management decisions.
However, rapid economic and technological change in the world in recent years has led to questioning among professional accounting bodies of the role of the traditional finance function in businesses, and renewed concerns among professional accounting bodies about the skill sets, knowledge and professional responsibilities of tomorrow’s accountants. Key factors driving reappraisal of the traditional finance functions include the rapid globalization of Australian business; the impact of information technologies; changing business and organizational structures; the growing importance of strategic alliances; and a new focus on value creation, resulting in activities that do not add value to the organization being eliminated (see Institute of Chartered Accountants in Australia, Vision 2020, 2002).
Conscious of these changes in the early 2000s, the two leading professional accounting bodies in Australia, CPA Australia and Institute of Chartered Accountants have commissioned a number of studies to assess the future role of the CFO and finance function, and the skills needed of tomorrow’s accountants.
The ICAA published two major professional studies “CFO of the Future” (1998) and was followed up by the “The New CFO of the Future: Finance Functions in the Twenty-First Century” (2001).
The future role of the CFO and the traditional finance function has also been considered at an international level. The Financial Management Accounting Committee (FMAC) of the International Federation of Accountants (IFA) has also published “CFO in 2010” (2002) which reports case analysis of ten leading CFO’s around the world.
The importance of the CFO performing a more integrated and proactive ‘strategic’ and ‘value creation’ role pervades the professional literature. The ICAA report noted: “businesses are increasingly turning to their finance professionals to help them manage through the changes they confront, but not specifically in their traditional finance roles. Leading finance professionals are taking on new roles that add greater value to their businesses” (ICAA, 2001, p.2). And: “Rather than just crunching numbers, finance people will be an integral part of business decision making” (ICAA, 1998, p.1). As for strategic decision making:
“Setting strategic direction to pursue competitive advantage is more important than ever before. CEOs are now thinking it imperative that businesses get financial input to help decide, not just predict the financial outcome of, all facets of their strategies” (ICAA, 1998, p.10).
While it is anticipated that the future CFO will become more a ‘strategic contributor’ and ‘value adder’ these terms are not defined in this literature. The distinction between strategic contributor and value adder remains indistinct in the literature. What, for instance, constitutes value adding activity and what outcomes are expected to be influenced by such activity – does ‘value adding’ imply a contribution directly to firm financial performance (as measured by traditional indicators such as EPS and ROA)? Or is the role of the CFO more a internal facilitation role within the organisation? In this sense, the CFO contributes indirectly to financial performance. Further, what are the attributes most CFO’s possess to make a greater strategic or value creating contribution? The ICAA case studies attempted to define certain activities that a value creating CFO must perform. These activities may be influenced by certain key determinants or attributes such as skills, gender, professional education & qualifications and experience in a CFO role.
It has been stated “CFOs need the skills of politicians (to handle difficult situations) and jet pilots (to quickly identify and solve problems)” (Birkett, 2001). The traditional role of the CFO is on an inexorable path of change. Increasingly, CFOs are expected to play vital strategic and leadership roles within their organizations, as well as contributing to overall value creation. This study provides an empirical dimension to these discussions by surveying a sample of 241 CFOs drawn from Australia’s top 800 listed companies and top 200 public sector entities. A finding of this study is that CFO management, leadership and strategic skills enhances value creation within the organization more than factors such as qualifications, gender, technology skills and understanding of the finance function. Another key finding of this study is that CFO value creation is most strongly linked to a strategic facilitation role rather than to direct or global measures of organizational financial performance such as EPS and ROA. In terms of performance, CFO value creation activities appears to be more effective at the business unit level, which appears more consistent with the traditional role of a CFO in contrast to the CEO (who has a primary responsibility for external performance measures). Furthermore, CFO ratings on value creation activities, overall strategy, and various CFO skill sets are not significantly different across private and public sector entities in Australia. This confirms the growing importance of the CFO in the public sector. Overall, the results suggest that while the more traditional roles and functions of the CFO still remain important in both the private and public sector domains, the CFO role is fast changing. In terms of value creation, CFOs are placing greater emphasis on leadership and strategy within the organization which are likely to become the vital skill sets required of tomorrow’s accountants.
Source: Research done by Rohit Sharma and Stewart Jones Click here to see full research
