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Summary
The evolution of the CFO’s role from chief bean counter to something more strategic has been under way for some time. Indeed, data from our recent research study, “Financial Innovation in Midsize Companies” (sponsored by Lawson and Prophix and media sponsors Business Finance, IMA, Intelligent Enterprise and Montgomery Research), shows that most executives and managers in midsize companies not only want to see their CFO take more of a strategic role in their organization, but they also believe that is essential to improving the company’s performance. Moreover, we found larger companies are ahead of midsize ones in making this transition. While Ventana Research believes that several elements are necessary to make the change, information technology (IT) is an essential ingredient. Indeed, the research also confirmed that a company’s ability to execute business processes is a function of the maturity of its IT infrastructure.

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Ventana Research believes that finance organizations in midsize companies (100 to 4,999 employees) should play a more strategic role in management. And we recognize that these businesses face unique challenges. They are no longer small and nimble and need many of the same capabilities large companies (5,000 or more employees) have, though they lack their resources in money and people. The finance function can be an important force in regaining lost agility and enabling a company to make better use of its people and other resources. IT can be an important tool in helping it do so. Finance plays a key role in collecting and disseminating information vital to running a company. Today, midsize companies can use IT to provide managers and executives with greater visibility and insight into company operations. They can use IT to plan more effectively, to make better use of resources and to anticipate how best to respond to competitors and changing market conditions. They can enlist IT to reduce administrative burdens through automation that eliminates paperwork and an increased ability to manage by exception. And they can use IT to automate other repetitive, low-value tasks so Finance can be free to take on a more strategic role.

Taking on a more strategic role is not just an academic concern. Most respondents to our survey in midsize companies, regardless of their role, said it is very important that their finance organization take a more active leadership role and that doing so would materially improve the company’s results. Finance organizations must go beyond the narrow traditional definition of their role. What form the new role takes will differ from one company to the next, but it will require a CFO who has the desire and vision to innovate. At the very least, Finance needs the discipline to ensure that the right skills, processes and IT tools are in place to support its existing role in the most efficient ways possible.

One barrier that most CFOs confront is complacency. A common mistake executives from any functional area make is not looking at their organizations from an outsider’s perspective. In terms of job performance, three-fourths of respondents with finance titles told us they already are doing a great job. But responses from those outside the finance department were quite different. For instance, while half of those with finance titles asserted their organization goes beyond simply doing the accounting and plays a leadership role in the company’s operations, fewer than half as many (24%) of those with other titles made that assessment. Finance organizations also tend to do things as they have always done them. Therefore, it should not be a surprise that finance departments think they are doing an above-average job while the rest of the company rates them as mediocre. Taking a leadership role requires that the CFO assume not just a different mindset but also have a formal plan for moving the whole department forward. 

CFOs in midsize companies also face special challenges. CFOs at larger companies typically have more resources, including IT resources. By contrast, in midsize companies, the CFO must assume more of a “shirtsleeves” role, personally directing many day-to-day operations. Thus, it is much easier for CFOs in midsize companies to focus by default on tactical issues rather than to carve out strategic roles. Until about five years ago, midsize company CFOs had very little help from their IT systems, but that is no longer the case.

Assessment
Transitioning from tactical to strategic is not an easy task. We advise CFOs in midsize companies who want to play more of a strategic role to establish a systematic program. An important component of this program is defining how IT will help with this transition. IT can both drive and constrain a company’s finance organization in its bid to play a larger role. We find many finance executives are not aware of what can be achieved using IT and often have an “if it ain’t broke, don’t fix it” attitude to the software they use. Just because systems are not broken does not mean that they are not a barrier to better performance. More capable enterprise resource planning (ERP) and business intelligence (BI) software, once affordable only for Global 2000 organizations, is now available to midsize companies. By automating many manual tasks and spreadsheet-based processes, finance organizations can devote more time to forward-looking analytical tasks. IT is an essential ingredient in enabling midsize company CFOs to become more effective.