Performance management pivotal to work of CFO

Performance management and business support will be the most important trends in the next three to five years when it comes to the work of a CFO. This is the conclusion of research carried out by Vlerick Business School and financial service provider TriFinance as part of a three-year research project aimed at providing more insight into the role of the CFO in the future.

“We interviewed the CFOs in 2007 and in April and May of 2008 posed five essential questions on the future of the CFO to Chief Executive Officers,” says Professor Filip Roodhooft, who is leading the research. “Of the 120 respondents, 80% worked in small and middle-sized companies and 20% in multinationals."

Performance Management is No Hype

All this attention for performance management seems to be a hype. “Yet it’s not,” says Maddy Lauwers, partner at TriFinance. “Performance management may be at the top of the list of priorities but it’s no hype. It’s been around for over ten years. The research suggests however that there’s still a lot to do. We need performance management because companies need support in their strategic decision making. But it’s also important in finance as it’s the financial aspect that backs up line managers when directing their team."

Strategic Right Hand to the CEO

Lauwers isn’t surprised that it’s only now that performance management is really catching on. “Some CEOs just didn’t see the point,” she says. “The figures and the results were what mattered. The task of controlling, checking the accuracy of the figures, remained undervalued because the performance management aspect got so little attention. Although multinationals have been working with performance management for some time, the mid-sized market didn’t start until much later. Yet it’s important to not only report the figures, but to also understand the drivers behind them.

CFOs have long been wanting to play a strategy-focused role. Now the CEOs are also wanting the CFO to become a strategic right hand. However, CEOs have to recognise the right profile of a CFO and take the time to clearly explain strategy to the CFO and his team. Many long term plans seem to be developed using a numbers-based approach. It’s almost a game. Very little time is spent actually developing the action plans so that they reflect strategy and the CEO and the CFO need to understand each other much better on this point.”

Surprises

“The outcome of the research includes some surprises,” says Filip Roodhooft. “For example, CEOs are looking less at improving transaction processing and processes, and focusing more on the quality of data. They see that as the most important challenge for CFOs. In fact, more than 85% of the CEOs interviewed thought that the quality of data was not yet adequate. What amazed me most was that the CEOs placed so little importance on Enterprise Risk Management (ERM) as one of the future tasks of CFOs. Yet it’s the CFO that is responsible for the figures and internal control audits and an appropriate ERM. He should be playing a much larger role in the debate on good management.”

A Different Interpretation

Most notable is the difference in interpretation of the profile of a CFO by CFOs and CEOs. Two years ago, CFOs saw themselves as having to be team players. CEOs, however, feel CFOs need to know their job and be accurate. CEOs that had previously been a CFO themselves were, according to the study in 2007, more likely to think along the same lines as CFOs. “Whether or not a CFO goes on to become CEO depends very much on the company strategy,” says Filip Roodhooft.

The study also looked at the collaboration between the CFO and the company. CEOs appeared satisfied with the finance department but were only moderately satisfied with the collaboration between the finance department and other internal departments. They emphasise that the financial function should not be an island within the company.

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