Reinventing the CFO: How Financial Managers Can Transform Their Roles and Add Greater Value
By Jeremy Hope
Harvard Business School Press, 2006
272 pages, $29.95
In his last book, Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap (Harvard Business School Press, 2003; reviewed in s+b, Winter 2003), management researcher Jeremy Hope made a persuasive case that in most firms, the traditional annual budgeting process is a powerful barrier to fundamental change. He recommended that the two prime functions of budgeting, financial forecasting and performance management, be separated, and that fixed performance contracts based on internal targets be replaced with stretch goals based on relative improvement measured by external benchmarks.
In Reinventing the CFO: How Financial Managers Can Transform Their Roles and Add Greater Value, Hope explores the implications of this advice for the chief financial officer. He begins by outlining the pressures that limit today’s CFOs: Corporate success is no longer driven by physical assets and financial capital but by intellectual assets and human capital; the new regulatory environment is adding pressure even as shareholders become more demanding; and internally, CFOs are being overwhelmed by too much detail and complexity, so they cannot forecast accurately or deduce exactly how to cut costs. Systems designed to track transactions do not lend themselves to supporting frontline decisions. The author contrasts two visions of how to improve the situation, dubbing them “A” and “B,” perhaps in tribute to Douglas McGregor’s Theory X and Theory Y, which they resemble closely. The first, Vision A, is based on assumptions of individual self-interest and the efficacy of “carrot-and-stick” management; it is a centralized model with stability and control imposed from the top. Vision B, on the other hand, is rooted in greater trust and cooperation; it encourages frontline operators to continually improve processes in order to increase value for customers and shareholders alike. Vision B’s emphasis is on adaptability and growth rather than stability and control.
In the seven chapters that follow, Hope explores a variety of roles for the CFO, including “freedom fighter,” “architect of adaptive management,” “master of measurement,” and “champion of change.” As he does so, the radical nature of Vision B becomes clear; its key ingredients are trust, integrity, responsibility, and commitment. The kinship of Vision B with “lean” processes practiced by companies like Southwest Airlines and Toyota is obvious, and indeed the case for companies becoming more like these exemplary organizations is difficult to refute. The challenge is, How? These models, which entail a radical shift in organizational power and seem to be of the all-or-nothing variety, cannot be adopted piecemeal. Perhaps stories of such transformations are forthcoming in a future book.permalink.