Today’s CFO: Which profile best suits

your company?
By Ankur Agrawal, John Goldie, and Bill Huyett
Today’s CFO: Which profile best suits your company?

Profiles of today’s CFO show how the role is evolving and raise important
questions for boards about talent and leadership development.

Most readers are well aware that the role of the CFO generally has broadened over the past decade.
Beyond the core responsibilities of financial reporting, audit and compliance, planning, treasury, and
capital structure, many CFOs are playing a stronger role in corporate portfolio management and
capital allocation. Others have become prominent as the voice of the company in investor relations
and in communications to the board, as leaders in performance management, and as exporters of
finance-experienced personnel to the rest of the organization.

Where does it end? It’s unproductive to stretch the role too far and unreasonable to expect a CFO to be
good at everything. How can the CEO and the board—through the audit committee—shape a
manageable profile for the position? It’s an important question, both for companies hiring a new CFO
and for existing CFOs who see their roles expanding without a broad perspective.

To get a more detailed picture of how the role continues to evolve, we analyzed the experience,
credentials, and backgrounds of CFOs of the top 100 global companies by market capitalization. 1 Our
review, while not definitive, suggests that companies are shaping the role to meet their current needs.
Indeed, we identified four distinct profiles of the role defined by the breadth of the current CFO’s
experience in finance or in nonfinance functions; his or her professional focus, whether it’s an internal
focus on operations or an external focus on strategy; and the sources of the CFO’s expertise, whether
from years of experience at the current company or another one, for example, or whether it includes a
traditional accounting degree or some other.

The four profiles include what we would characterize as the finance expert (or numbers guru), the
generalist, the performance leader, and the growth champion. And while there is no single CFO
profile that will fit the needs of every company—each must target candidates with competencies that
best fit their strategy, the composition of the rest of the company’s top team, and current finance-
function capabilities—these profiles do offer a glimpse into how the role is evolving and where peers
are looking for talented and innovative CFOs. They also raise important questions for board audit
committees thinking about CFO development or the profile of the person they would like to hire, as
well as for executives seeking to shape their current role or considering new ones.

Four profiles of today’s CFO

Management roles vary by organization, depending on a company’s history, the characteristics of its
industry, and the demands of investors. And although fitting CFOs into a clear-cut typology may seem
artificial, we found it useful to understand on how companies are filling the role to get a clearer picture
of how it’s changing. Based on our research, we categorize CFOs into four general profiles.

The finance expert. Typically internal hires, these CFOs have years of experience rotating through
multiple roles within the finance function—controlling, treasury, audit, financial planning and
analysis, or business unit finance. They tend to have intricate working knowledge of the company and
are often experts in relevant finance and accounting issues, such as financial regulation, international
accounting, or capital structure. Many have advanced accounting degrees or experience at an auditing
firm.

This type of CFO is particularly well suited to highly decentralized companies with stand-alone
businesses or early-stage ones scaling up and professionalizing the finance function. Their strong
finance-function knowledge across a broad spectrum of activities is critical to effective compliance
and standardization of processes. The finance-expert profile may also be best for any company whose
top team otherwise lacks strong finance leadership—or whose finance department is inefficient or in
disarray.

The generalist. Companies in highly capital-intensive industries, such as basic materials, oil and gas,
and telecommunications, put a high premium on operational capabilities. So they naturally look for
executives with broad experience—including CFOs who have spent time outside the finance
organization—in operations, strategy, marketing, or general management. Indeed, among the 51
CFOs in our sample who were hired since 2009, 31 of them have such experience, up from 17 of
those hired prior to 2009. Among all the CFOs in our sample, 62 have MBAs or other advanced
degrees, compared with only 28 with advanced accounting degrees—reflecting a premium for
management and communication skills over deep technical expertise.

CFOs that fit this description tend to engage heavily in business operations and strategy and often
bring strong industry and competitive insights. They are often found in companies in mature sectors,
such as financial institutions, where operational similarities across business units provide a good
platform to rotate managers among businesses and eventually into functional leadership roles; most
are internally hired and already fill an executive function, often being groomed for a CEO role. These
rotations give managers insights about different businesses that they need to support tightly run
operations, allocate resources, and influence peers—which, regardless of industry or strategy, make
them ideal for companies where personal influence is needed to get things done.

The performance leader. CFOs with strong track records in transformations both within the finance
function and throughout the organization are what we have dubbed performance leaders. They tend to
focus on cost management, to promote the use of metrics and scorecards, and to work to standardize
data and systems. They are often hired externally, and many have previous experience as CFOs. Most
have worked internationally—explaining in part why, among the 51 CFOs in our sample hired in the
past three years, 30 have significant experience in multiple geographies, up from 21 of those with
longer tenures.

Companies employing these types of CFOs are often highly diversified companies requiring rigorous
analytics to compare performance across businesses, companies with aggressive growth or cost targets
that must be met in the near term, or companies with scarce resources that must be carefully allocated.

The growth champion. Externally hired professionals are the least common type of CFOs, but they
have risen to account for nearly 25 percent of new CFO hires. They are most common in industries
with frequent disruptions that require dramatic changes in resource allocation—and in companies that
plan to grow considerably or reshape their portfolio of businesses through aggressive M&A or
divestiture programs. Such moves make external hires especially valued for their significant
experience in M&A, as well as for their external networks, independent thinking, and strategic insight,
often gleaned through working as a CFO or serving for years in professional-services firms. Many
growth champions are among the nearly one-third of new CFOs who have spent a sizable portion of
their career in investment banking, consulting, or private equity, up from one-fifth with a similar
background prior to 2009.

Aligning the role with the company

These profiles are obviously not prescriptive; it would be simplistic to suggest definitive rules
prescribing a specific CFO profile for general categories of company. That said, with the profile
characteristics in hand, companies can more explicitly weigh them against the skills and capabilities
they expect to require from the CFO as they shape, refine, and implement their strategy for the future.
Whether this means selecting a new CFO or rebalancing the role of an existing one, they will need a
candid assessment of their current corporate strategy, the skills and temperament of the CEO, the
composition of the senior-management team, the current capabilities of the finance function, and
organizational and reporting structures. We propose four questions (by order of importance) that
CFOs should answer when planning their own career-development plans—or that CEOs and boards
should answer when beginning the search for a new CFO.

1. What are your corporate strategy and aspirations—especially considering the

nature of your industry?

While there are certain trends in the hiring of new CFOs generally, CFO profiles often reflect the
structure, conduct, and performance of a company’s industry. Stable sectors with large global
footprints and extensive supply chains—such as oil and gas and consumer packaged goods—are more
insular in their CFO selections. Only 4 of 28 CFOs in our sample in these industries were hired
externally, and only 2 had significant experience outside the sector. However, international experience
is very important, with 9 of 13 CFOs in oil and gas and 10 of 15 in consumer packaged goods having
worked in multiple geographies. At the other end of the spectrum are industries with rapidly changing
technology and significant R&D, such as pharmaceuticals and medical products (PMP) and
technology. Companies in these industries tend to have CFOs with more experience in strategy and
transactions, and they are much more likely to select CFOs from outside the company or the sector.
For example, of the 14 PMP CFOs, 8 were hired externally, 6 had consulting or investment-banking
backgrounds, and 9 had general-management backgrounds. Over half of CFOs in both the PMP and
technology industries have experience outside their sector.
In addition to industry context, companies must consider how certain CFO characteristics might best
support their own strategic plans. Leadership teams of companies following inorganic (M&A) growth
strategies require a higher degree of market insight and strategic orientation. Senior executives of
companies following organic growth strategies, meanwhile, exhibit a high competency in people and
organizational leadership. So regardless of industry characteristics—and as long as candidates meet
the threshold of finance expertise and performance-management skills—a company embarking on an
ambitious M&A program, for example, would want to give a strong preference to those with
significant transaction experience and industry insight, more akin to a growth champion. A company
lagging in profitability or undergoing significant industry consolidation may require a CFO more
similar to the performance leader—strong in performance management and cost containment.

2. What is the composition of your top-management team?

The selection of a CFO cannot be made in isolation; companies must consider the strengths of the rest
of the top team, paying specific attention to its blind spots and missing capabilities. Recent research
has found that the top teams of high-performing companies score higher on all measures of leadership
competencies—including thought leadership, people and organizational leadership, and business
leadership—than those of low-performing companies.2 Finding the right set of leaders is clearly an
important determinant of corporate performance.3 This means that the specific profile of your CFO
may need to be different from that of other companies—even those in the same industry or those that
have similar strategic goals—in order to create a robust top team.

Companies with a disproportionate share of leaders with a few areas of deep expertise—so-called
spiky leaders—tend to outperform those whose leaders have a broad range of more general skills. This
requires members of the top-management team to build on one another’s strengths and compensate
for one another’s shortfalls. A company with a visionary CEO may require a CFO with a firm grasp of
the economics of the business and enough influence capital inside the organization to provide a
counterbalance against potentially risky moves. Or a company that recently hired a CEO from outside
the organization may require a CFO with deep company expertise and a firm grasp of the numbers,
such as a person who fits the finance-expert or generalist profile.

The downside of mistakes in selecting the top team, and the CFO in particular, is significant. Myopic
top teams can undertake risky or costly acquisitions, fall behind on innovations in the market, or fail to
retain key talent. High-performing CFOs must have the integrity and conviction to challenge the CEO
and other members of the top team on key strategic and financial decisions and hence steer the
company to a higher performance trajectory.

3. What is the current level of capability in your finance function?

As long as a CFO’s profile fits with a company’s strategy and complements the top team, further
considerations are more tactical. The current level of capability of the finance function is the most
important of these, since the CFO’s primary responsibility is to ensure the execution of core functions
of the finance group, especially strong compliance and controls, accurate data, and systems
integration. If a company struggles with efficiently performing the basic finance functions (relative to
peers), then it may be necessary to promote candidates for CFO with considerable experience in a
variety of finance roles and a track record of performance improvement.

However, if strong capabilities are already present in the finance organization, a company may
consider candidates with other competencies, such as broader management experience or strategic
insight. Companies that do so typically pair such a CFO with a senior finance executive who manages
accounting and other traditional finance roles.

4. What is the organizational and reporting structure of your company? Which

areas report to the CFO?

It is also important to consider the company’s reporting structure—that is, does it have solid or dotted-
line reporting to the CFO—and the breadth of formal CFO responsibilities. For example, a CFO in a
global company with a complex matrix structure and only dotted-line reporting must be able to exert a
considerable amount of personal influence to be successful. In this situation, it may help to hire a CFO
internally—regardless of which general profile he or she fits—who has the networks and institutional
knowledge necessary to drive change. It is also important to define the areas of responsibility that may
lie beyond traditional finance areas, such as IT, procurement, and transformation, which demand day-
to-day hands-on management and people skills typically seen in the generalist CFO profile.
The right fit between a company and its CFO involves a complex set of trade-offs reflecting its
strategy, the skills and abilities of top management and the finance function, and a given individual’s
ability to drive change. Understanding how the role is evolving can prompt useful conversations that
shape the CFO’s role at your company in the future.

The Role of the CFO (Chief Financial Officer)

by James Wilkinson on September 1, 2015 in WikiCFO
See Also:
How Does a CFO Bring Value to a Company?
Chief Financial Officer (CFO)
Controller vs CFO
Adding Value as a Financial Leader

The Role of the CFO (Chief Financial Officer)

The role of the CFO (Chief Financial Officer) has been changing over the past twenty years. Originally,
the role of the CFO revolved around producing and analyzing the financial statements. However, because
of the computerization of the accounting function the need for accounting skills in performing the roles
and responsibilities of a CFO diminished. Though the job description of a CFO (Chief Financial Officer)
remains broad the tasks comprising that function fall into four distinct roles.

The Strategist CFO

The first role of the CFO is to be a strategist to the CEO. The traditional definition of success for a chief
financial officer was reporting the numbers, managing the financial function, and being reactive to events
as they unfold. But in today’s fast paced business environment, producing financial reports and
information is no longer enough.

CFO’s in the twenty-first century must be able to “peak around corners”. Therefore, they must be able to
apply critical thinking skills, along with financial acumen, to the long term goals of the organization.

The CFO as a Leader

The second role of the CFO hand in hand with the first one. That is one of a leader implementing the
strategies of the company. As a result, it is no longer sufficient for a CFO to sit back and analyze the
effort of others. The chief financial officer (CFO) of today must take ownership of the financial results of
both the organization and senior management team.

The chief financial officer of today must be responsible for providing leadership to other senior
management team members, including the CEO. The CFO’s role can sometimes force them to make the
tough calls that others in the organization don’t or can’t make. Occasionally, this can mean the difference
between success and failure.

The CFO as a Team Leader

The third role of the CFO is that of a team leader to other employees – both inside and outside of the
financial function. Not only will a coach call plays for a team, but they are also responsible for getting the
highest results out of the talent on their team.

An aspiring and successful coach will produce superior results by finding the strengths of their team
members and obtaining a higher level of performance than the individuals might achieve on their own.
The role of the CFO (Chief Financial Officer) is to bring together a diverse group of talented individuals
to achieve superior financial performance.

The CFO with Third Parties

Last, but not least, the role of the CFO is that of a diplomat to third parties. People outside of the
company look to senior management team for inspiration and confidence in the company’s ability to
perform. In almost every case the financial viability of the company is vouched for by the CFO.

The CFO’s role becomes that of the “face” of the company’s sustainability to customers, vendors and
bankers. Often these third parties look to the CFO for the unvarnished truth regarding the financial
viability of the company to deliver on it’s brand promise.

Today’s Role of the CFO

In today’s fast paced environment the role of the CFO is extremely fluid. One day the CFO might be
developing a compensation plan for employees. Then the next day taking their bankers on a tour of the
facilities. Consequently, to be a successful CFO in the future you must be a more multi-functional
executive with financial skills.

To learn other ways to be a add value to your company, download the free 7 Habits of Highly Effective
CFOs to find out how you can become a more valuable financial leader.
Key Financial Ratios for Manufacturing Companies

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By David Gorton
Updated Sep 10, 2016

A manufacturing company requires efficient use of inventory, equipment and personnel to develop its
products. To gauge the appropriateness of operations and to determine how well the manufacturing
process is going, a company uses the following financial ratios to evaluate its business. Additionally,
these financial ratios are equally useful to an investor wishing to gain a deeper understanding of a
manufacturing company.
Inventory Turnover

The inventory turnover ratio measures the effectiveness of a company’s manufacturing process. It is
measured by dividing the cost of goods sold by the average balance in inventory. An investor should
maintain a watchful eye for a turnover ratio that is high, as a low calculation is an indicator that a
manufacturing company is handling too much inventory. This places the manufacturing entity at a greater
risk for inventory obsolescence or theft of company property.
Maintenance Costs to Total Expenses

A manufacturing company may utilize equipment or machinery during the production process of its
goods. A critical measurement of the sustainability of long-term operations is comparing repair and
maintenance costs in relation to total expenses. A low proportion of repair costs signals one of two things.
First, a company has in place durable fixed assets that do not require as much ongoing maintenance.
Second, a company may elect to simply replace equipment with newer, more reliable heavy machinery. In
either case, an investor gains insight regarding management's long-term strategic planning in regards to
implementing available technology.
Total Manufacturing Costs per Unit minus Materials
A manufacturing company incurs numerous expenses while developing and manufacturing a product.
Although the direct materials of the product are easily traceable, the numerous other factors and charges
that go into a good may not be as easy to identify. Therefore, this financial metric divides the total
manufacturing costs, not including direct materials, by the number of units produced. An investor can
utilize this figure by determining how much overhead is required to produce a good and how efficient a
company’s process is compared to other entities.
Manufacturing Costs to Total Expenses

A manufacturing company incurs expenses while producing a product as well as indirect costs needed to
operate the business. From an investor’s standpoint, it is more desirable to see a majority of costs directly
tied to the product being made as opposed to other expenses, including supervisor salaries or building
rent. Manufacturing costs to total expenses is a financial metric that measures this proportion. A higher
calculated result indicates more expenses are attributable to costs directly needed to manufacture the
product.

Sales Per Employee

Dividing the total revenue of a manufacturing company by the number of employees generates the
revenue earned per employee. An investor uses the calculation to determine the technological efficiency
of an entity. For example, two manufacturing companies each earned $10 million in revenue. However,
one manufacturing company has 50 employees, while the other has 20. Assuming the companies produce
similar goods, the company with 50 employees may be operating inefficiently. Alternatively, the
company with 20 employees is theoretically employing more efficient technologies with greater
capabilities. To an investor, this metric is important, as the company with 20 employees is better
financially leveraged in the long term.
Unit Contribution Margin

The contribution margin ratio is calculated by taking the difference between total revenue and total
variable costs and dividing this figure by total revenue. For example, products sold for $1,000 with $300
of variable costs have a contribution margin ratio of 70% (($1,000 - $300) / $1,000). The ratio measures
what percentage of revenue is attributed to covering fixed costs. An investor can use this ratio to
determine the security of a manufacturing company. A manufacturing company with a high contribution
margin ratio has an easier time covering fixed costs and is a less risky company in which to invest.
Return on Net Assets

A manufacturing company utilizes its assets — primarily its inventory and equipment — in producing
revenue. For this reason, an important financial measurement is return on net assets. By dividing net
income from a manufacturing plant by the net assets of the division, a manufacturing company can
measure how successful parts of its business are in utilizing its assets to develop a profit for the company.
An investor should use this ratio to determine the most efficient manufacturing companies.