By Gary Apanaschik and Mike Boyle
For the past decade, companies have had to contend with a series of large-scale macroeconomic disruptions, and their associated pressures on costs and earnings. Now, as the US economy continues to recover from the recession and the global economy seeks ways to jumpstart growth, companies can turn their attention to the top line again.
US companies and large multinationals have already taken advantage of the more obvious cost reductions. In many cases, there is little left to cut. Many continue to have strong balance sheets and growing cash reserves, so they are starting to increasingly focus on growth.
The ‘evolved’ CFO can play a unique and critical role in the quest for growth—providing insight, managing risk, and ensuring that companies fully realize the potential value of their growth strategy.
1. Make sure the foundation is in place
Often, the selection of a growth strategy is a matter of fit, and fit is usually a function of organizational and process maturity as well as core capabilities and capacity. This is particularly true for the finance function looking to move from being largely transactional to becoming more strategic. Before a company undertakes any growth strategy, make sure you are staffed for the future. Start hiring ahead of the growth strategy since finding top talent takes time.
2. Build agility into your finance infrastructure, with a defined finance information model and flexible financial systems
The CFO of a company in growth mode has to assume that it will be acquiring or building completely new business models. Hardwiring too much into current systems could lead to trouble on either a cost or complexity basis (or both). A single, integrated Enterprise Resource Planning (ERP) tool that handled everything from purchase-to-pay, order-to-cash, contracts, and project costing for an entire organization may have worked in the past with businesses that weren’t likely to change much.
But today, many nimble organizations are developing flexible financial systems that include individual, non-customized best-of-breed modules to account for different parts of the business. Similarly cloud-based solutions allow CFOs to add to or reconfigure finance infrastructure, adding newly developed (or acquired) business models more quickly and easily. In either case, speed and agility are critical.
3. Build systems and processes that can easily scale or absorb multiple paths of growth
While the entire C-Suite is invested in growth, it is the finance function and the CFO in particular that provide the institutional baseline understanding of financial capacity and infrastructure that enables the selection of the right strategy as well as its successful execution. Any growth agenda will likely become a company’s preferred avenue for growth and be repeated over time.
Organizations that can fully operationalize and refine the execution of a particular strategy on an ongoing basis then have a competitive advantage. For any growth initiative, the CFO should understand which capabilities will be required, assess the organization’s current strengths and weaknesses, and work with the rest of the executive team to address critical gaps.
4. Spot and eliminate biases
A critical and growing responsibility among finance organizations is the ability to identify bias in decision-making. As executive teams evaluate a specific market, product, or strategy, they sometimes operate with blinders on, following habit rather than data. These leaders can unintentionally eliminate options that could represent a better solution to the company’s needs. Avoiding these biases usually requires organizational maturity—companies need to be able to evaluate themselves and their competitive environment objectively.
As a result, it’s often a bigger challenge in young and fast- growing companies (and those seeking to expand to emerging markets) which simply may not have all the information required to make the best decision. In all cases, the CFO can broaden the potential universe of options by seeking to identify and root out bias, making sure the executive team is asking the right questions and applying the correct filter to their decisions.
5. Invest in analytics and modeling
Just as transparency is needed to give the business a clearer sense of what’s happening in the organization at a point in time, analytics and modeling are needed to give organizations a more accurate understanding of what’s likely to happen in the future. Analytics and modeling software is increasingly available, costs less, and requires less computational power than even just a few years ago. And just as importantly, the underlying algorithms are becoming more accurate in being able to model various scenarios.
For example, a company looking to enter a new market can consider what might happen if that country’s interest rate were to rise 1 percent, or if unemployment were to fall, or if certain demographic shifts were to accelerate or slow down. The result is a greater ability to identify the universe of potential outcomes and prepare for both upside opportunities and downside risks. This function is becoming so critical that some organizations now have a central analytics function that can work across all business units. This is becoming a core capability, particularly in consumer-oriented organizations. The CFO is a logical choice to oversee this function.
The growth-focused business needs a CFO who can navigate the way forward – through better insights, appropriate speed and agility, and mature finance capabilities that align with the strategic growth ambitions of the company. To position your business to capture emerging opportunities, we think the five-step action plan above is the optimal place to start.
Gary Apanaschik is a PwC Advisory partner focused on finance performance management for the healthcare industry. Mike Boyle is a PwC Advisory partner focused on finance performance management for the technology, information, communication & entertainment industries. They are authors of the PwC white paper, “Getting It Right with Growth: How to Be a Great CFO in the New Growth Economy,” published in December 2014.