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.

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.

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