From Fortune 500 companies to midsized firms, more is expected from chief financial officers than ever before. In addition to traditional responsibilities (such as managing budgets and costs, financial reporting and compliance), CFOs are now expected to help guide strategic innovation and growth, digital transformation and more.
The word “financial” in the title doesn’t begin to describe it — the job is much more than crunching numbers. Deloitte aptly frames the expanded role as the “four faces of the CFO” — steward, operator, strategist and catalyst.
To meet the evolving demands of their position, CFOs who think of themselves as chief value creation officers (“CVCO”) will be in greater demand as the responsibilities of the CFO evolve. Whether or not the acronym CVCO ever really takes hold, CFOs who recognize value creation as a top priority for their firms will be best positioned to help drive the success of their companies.
Metrics such as revenue and EBITDA growth are important, but they can’t begin to tell you what you need to know to spot growth opportunities, know when it’s time to shutter an unprofitable business line or detect subtle tremors in the competitive landscape that could be tomorrow’s earthquakes.
Only a thorough, systematic self-valuation can do that. This process will open your eyes to opportunities and threats that might otherwise go unnoticed.
Let’s explore five reasons why you can benefit from expanding your role to CVCO.
1. Your Company Needs One
Businesses create value or die. Yet too many executives, caught up in daily or quarterly concerns, leave long-term value creation to chance.
Companies should conduct self-valuations at least once a year, and more often if business conditions warrant. Identifying specific value creation opportunities requires a step-by-step analysis and grading of your company’s individual value drivers.
A thorough and honest appraisal of your essential value drivers is the best way to learn what you’re doing well and what needs to be fixed. A persistent individual must ensure that valuation becomes and stays top of mind at the highest levels of the company.
2. You Are the Best (and Only) Person for the Job
Nobody in the organization is better suited than you as CFO to serve as captain of value creation. That’s because no one else has the combination of intimate knowledge and stewardship of the company’s financial reporting, a heavy hand in the annual budget and strategic plan, and the ready ear of the CEO and board.
The traditional stereotype of the CEO-CFO relationship involves a dynamic, charismatic leader with good instincts and a taste for risk, countered by a spreadsheet-toting financial expert supporting the CEO’s vision while at the same time providing a reality check and dutifully earning that old moniker, “CF-no.”
The CFO’s expanding role is driving more of a peer-to-peer relationship, one in which the CFO may have opportunities not just to support but help shape the CEO’s vision and ensure that each new venture passes muster on the crucial question of how it will create value for the company.
3. Spot Growth Opportunities
Your assessment of value drivers can serve as a bridge between a company’s strategic plan and its annual budget, offering an evidence-based platform for new investments and strategies.
Separate the drivers where you have the most control, and hence the greatest opportunity to improve. There may not be much you can do about barriers to entry in your industry, or your industry’s overall market size. But if market share is one of your essential drivers and an honest assessment shows you’ve got room for improvement, get busy!
Intellectual property is another value driver for many companies. If your company owns intellectual property that is not being fully monetized, recognize this opportunity could lead to new products or sources of revenue.
4. Identify Problems Before They Become Crises
On the flip side of finding avenues for growth, the same review can prevent pouring money into declining areas or making risky capital investments. If a legacy line of business is burning through cash but barely moving the needle on your value assessment, encouraging the CEO or owner to make that tough decision and shift resources into more promising areas could drive new long-term value.
Say that your business is overly dependent on a handful of customers. If that is the case, you probably tend to do whatever is necessary to accommodate their needs. If one of them asks you to buy expensive new equipment that is only of use in servicing their business, that customer’s unexpected departure or a shift in their business, could leave you burdened with a large expense for which you do not have offsetting revenue. As CVCO, you might look to lease the equipment rather than buy it, or you might try to convince other customers that they should also use this new equipment.
5. Enhance Your Own Value
As a CFO, you’re already stretched. The last thing you may need is someone suggesting you take on a whole new role in addition to the one you’ve already got.
The beauty of thinking like a chief value creation officer is that it’s not about taking on a new job; it’s sharpening your focus on what matters most.
As CVCO, you can make a meaningful impact on your company. What makes you a better CFO can only make you more valuable to the organization, and more prominent in your industry.
The business world may not be ready to replace the word “financial” in your title with “value creation,” but we are advocating for that change in mindset. Overseeing and reporting on a company’s financial performance, while essential to your position and the company, is a somewhat passive exercise — an estimate of future results based on a look in the rearview mirror. Shifting to a mindset of value creation is proactive and allows you to drive real change and improvement for your company.
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