Under performance pressures from shareholders and boards, CEOs are, in turn, raising the bar for CFOs. They are tasking them with helping to meet today's challenging -- yet, to some extent, conflicting -- expectations for aggressive growth, while at the same time managing risks and costs.

Being a world-class CFO is becoming more and more challenging, since the job description keeps changing. As we approach the 2004 planning period, the time is right to reexamine, reshape and re-prioritize expectations of the multiple hats they wear in the organization. Although regulatory compliance and growth are major responsibilities, there are other roles that the CFO is also trying to balance:

• Operational Excellence -- Increasing global competition has most finance chiefs acutely focused on reducing operating costs and headcount, with the primary focus being selling, general and administrative (SGc&A) costs. The hunt for excess costs inevitably begins in their own backyard: finance. Finance costs as a percent of revenue for the average company are about 1.07 percent, yet world-class performers have established a significant cost advantage, at 0.76 percent of revenue. Many CFOs are evaluating a variety of sourcing options with the goal of reducing the cost of routine transaction processing activities, from shared services to outsourcing.
  
  
• Cash Flow -- Cash flow continues to be a priority, from both a cash management and operating-model perspective. One key to better managing cash is to gain better visibility into cash flow requirements. Optimizing cash flow can have a significant impact, not only on availability of cash for operations, but also on the income statement. A spread of 30 to 50 basis points between overnight and 30-day investments can yield a $500,000 annual return on a $100 million portfolio.
  
  
• Compliance and Risk Management CFOs have always had fiduciary responsibility for ensuring adequate internal controls and compliance with reporting requirements. However, in these post-Enron, post-WorldCom days, tighter reporting and compliance rules have been enacted. Even though some of the reporting requirements have been delayed until 2004, many CFOs spend considerable time and resources ensuring that there are adequate controls throughout the organization.
  
  Some leading-edge companies have established the role of the "chief compliance officer," reporting to the CFO. This ensures that the organization maintains a dedicated focus on compliance at the very highest levels of the organization. Other companies have instead assigned this responsibility to the corporate controller or the head of internal audit.
  
  
• Return on Investment (ROI) -- Companies have spent millions on technology initiatives -- enterprise resource planning (ERP) systems, data warehouses, Web initiatives -- yet few have achieved the expected return and benefits. The leaders have established a sizable advantage by paring the number of transaction processing systems by 44 percent, compared with the average finance organization. Accordingly, most CFOs are establishing investment criteria with a very short time frame, typically less than one year.
  
  
• Improving the Visibility of Financial and Operational Information -- Despite the investment in data warehouse technology and tools, most executives still feel that it takes too long to uncover and evaluate information that is critical for effective, timely decision making. It is amazing that financial analysts are still spending in excess of 70 percent of their valuable time "racking and stacking" data in spreadsheets and reconciling these with other sources. Most companies still generate mountains of reports, which have limited value. This requires analysts to then spend a lot of time reconciling these reports.
  
  
• Strategic Business Partner -- Expectations this year are for global growth. In addition to all the other hats they wear, CFOs are still expected to be strategic business partners at both the corporate and business-unit level. CFOs have an important role in assisting in setting organization performance targets and evaluating operating goals. At a business-unit level, understanding of customer profitability and competitive analysis is still critical.

Taking Action

What are the world-class CFOs doing that you can learn from, and how can you adopt these best practices to your company? A major theme here is that the CFO needs to work closely with colleagues in the other functions to be successful. CFOs should focus on the following action items to maximize the value of their contribution to the company and to business units:

1. Isolate the areas with the greatest levels of inefficiency and target these for immediate improvements. World-class CFOs focus on no more than three areas at a time and also establish improvement opportunities based on end-to-end processes. Focus first on short-term opportunities. Establish a clear improvement target, such as cost savings, productivity gains or error-rate reduction.
   
   Then make certain that the responsibility is clearly assigned. Many leading CFOs use the budgeting process as a way to manage and gain commitment by incorporating these goals on the lower costs and headcount into the annual budget.
   
   
2. Review project investment criteria and ensure that the payback period and amounts are appropriate in view of 2004 business objectives. CFOs must consistently challenge the business case to test the quality of its assumptions, and make certain that when projects are completed, realized benefits are formally compared with those projected in the business case. This will help to evaluate the established approval criteria. Work closely with the CIO to ensure that investment criteria are in line; over time, more CIOs will report to CFOs, given the huge technology investment requirements. 
   
   
3. Ensure that all functions are involved in assuring compliance with the mandates of The Sarbanes-Oxley Act. Compliance is not just a finance activity. Companies that ignore the importance of support functions and business units in the assessment, documentation and testing for compliance are opening the door to trouble. 
   
   
4. Make sure that a formal process is in place for identifying and shaping up-and-coming leaders. Ensure that future leaders are getting experiences that will round out their capabilities. This enables a strong bench. Additionally, this is a good opportunity to assign these emerging leaders to the improvement opportunities underway in 2004. Leading-edge CFOs add HR professionals to the finance team to ensure that there is a focus and a commitment to investing in people. These organizations have higher employee retention rates. 
   
   
5. Understand cash-flow velocity. Focus on not only improving working capital management in day sales outstanding (DSOs), inventory levels and payables, but also develop an approach for gaining visibility to forecasting cash requirements. 
   
   
6. Identify data standards. Despite having made large investments in data warehouse tools and related technologies, the visibility of information is still muddy, at best. The primary driver of this problem is a lack of data standards across the organization. Think for a moment: Does your company use a common definition of a customer or a sale, or does this vary from business unit to business unit, or between the front-end and back-end functions?

Looking Ahead

Over the past decade, finance costs for the average company have dropped 21 percent, while finance costs for the world-class companies have dropped 29 percent (see graph). The Hackett Group data leads to the conclusion that these costs will continue to drop for world-class companies, fueled primarily by a drive for more electronic processing of information. Unless average companies take action now to adopt best practices in streamlining and automating transaction processing, the finance cost gap between world-class and average will widen.

Cash will continue to be king, and world-class performers will leverage all available strategies to manage and operate the business using the least possible amounts of cash.

CFOs are poised for success in the role of strategic business partner. But there needs to be clarity of roles within the organization about compliance, operating performance and transactional performance. The bar for becoming world-class continues to rise, so be watchful for not only a balancing act: juggling may be next.