Value Creation: The Conscious CFO and the real source of Profit

Rightly or wrongly, the reaction that comes up for a lot of people when they have something to do with a Chief Financial Officer can range from fear and frustration through to ambivalence.

The profession is changing, but historically in many organisations the Chief Financial Officer has tended to have the reputation of an axe wielder.

For 11 years of my life I worked as a Chief Financial Officer in two early stage companies that I took on a journey to listing on the Australian Stock Exchange. Both of these companies were on a long path to establishing significant international businesses exporting technology to international markets. The strategies in these businesses were complex. We operated in highly regulated environments, across international borders, with complex technology and with intellectual property strategies to manage. Businesses operating amid these types of complexities are becoming increasingly common in today’s globalised and highly competitive world.

The historic influence of a CFO tended to be a myopic one, where profit and bottom line were their quest and where engagement with operational managers could at times be high handed and with little room for negotiation.

The Conscious CFO is quite the opposite. Any quest that begins with profit as the primary objective is not recognising the true source of profit. Profit is an outcome and it is the product always of having created value for the community that a business serves.

The Conscious CFO also recognises they are a leader in the community at large. The organisation can only continue to exist and serve their constituency and generate profit while they continue to work in harmony with all of that community. It isn’t enough to serve just the part of community that represents your customers. A Conscious CFO is aware of costs and impacts they impose on a community and does not encourage short term profit at the expense of others. Business models like that should be of great concern to the CFO, and the liabilities from Asbestos  at James Hardie are an example of why.

The quest for a Conscious CFO should be to work with operational managers to understand how their functions operate in supporting value creation for the community.

value

The Conscious CFO should be the business partner who helps the operational manager understand their part in creating value, and helping them create more of it efficiently and, even more importantly, effectively for all stakeholders involved.

The CFO is the custodian of the financial models that translate the strategy of the business into tactical actions in the areas of responsibility of each operational manager. The CFO’s responsibility is to work out what needs to happen on the capital funding side to allow the business to deliver on its strategy, and to model revenues, costs, and profit to show what returns the capital can expect. Then the CFO works with operational managers to manage execution against that plan, adjusting plans as needs be when the business meets reality.

The call for the CFO to be conscious is a call to truly engage with the operational managers. It is a call to commit to the fundamental proposition that the organisation exists to serve, and to create value for a community. It is only from this place that true value is created, and it is only from value created that profit can come.

The antithesis is the ‘Axe Wielding CFO’, the one who engages with operational managers with mandates to cut costs by 20% and “make it work”. This is a prescription for a dying business. The operational managers now have a scape goat for the issues the business faces, “The CFO forced these cuts and be it on his head”. They now have a reduced commitment to ensuring the organisation functions effectively in creating value. A niggling part of them may even like to prove the CFO has created a disaster.

This is not to say that a Conscious CFO won’t go looking for cost savings. I’ve been in that situation many times. It’s a part of business that things change and a business can only continue to exist by dealing with its reality. But the Conscious CFO faces the circumstance not by reducing communication to mandates, but by even more deeply engaging with all the people affected and involving them in creating solutions together, and always with a focus on ensuring an understanding of how value is created. If the Conscious CFO has the skills to create a truly authentic connection, they can be a catalyst to help people reach inside in such moment of crisis and tap into the extraordinary creativity that lies inside all of us, from which new strategies can emerge creating new sources of value.

You can choose to shut people down such that they disengage their consciousness and blindly chop resources by 20%, or you can truly engage the innate creativity that lies in every employee by engaging with them and thinking differently about the business.

The place to truly understand profit is from the shoes of the customer, the community that the business serves. To truly prosper over the long term requires a commitment to creating value for the customer, to innovate, to know their world, to improve their outcomes and the quality of their lives, to truly be of service. When a business focuses here they create value, and that value justifies premium margins and creates profit.

A Conscious CFO does not create a blind focus on profit, because such blindness can choke the value creation activities that underpin innovation and ultimately profit. The Conscious CFO helps a business understand the various drivers from which profit is created, and they support the business in navigating the sometimes stormy seas of reality adjusting plans as appropriate.

A Conscious CFO is of service to all stakeholders internal and external, and is a very positive influence on the culture of an organisation.

The time has come for the CFO to stand proudly as a shining and conscious example of leadership, and as an enabler!

 

Ura P Auckland
Managing Director
Conscious Commerce & Conscious Governance Advocate and Advisor
Authegrity Pty Ltd

www.authegrity.com

The best years of my working life....so far

 

 

 

Image Attributions:

  1. Value – Scrabble image‘ by Nick Youngson at NY Protographic on The Blue Diamond Gallery licensed by CC BY-SA 3.0

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