What It Takes for a CFO to Go From Scorekeeper to Futurist

The role of the CFO continues to evolve. As part of that process, finance leaders are increasingly moving from tracking the value of their organization to a more active role in creating value. But the process doesn’t end there.

Scott Moyer, director of product marketing, office of the CFO at Workday, noted that companies in the S&P 500 double in value roughly every seven years and the average tenure of a CFO is less than five years. 

“So if you want to be an above-average CFO, logic would have it that you’ve got less than five years to double the value of the company,” he said. “And if you strip everything down that’s on the plate of the CFO, or the office of the CFO, that is the ultimate job—value creation.”

In a recent webinar, Moyer joined finance leaders from Aon, a global provider of risk management and wealth management services; the Association of International Certified Professional Accountants and the Chartered Institute of Management Accountants (AICPA-CIMA); and McKinsey & Company to examine what CFOs need to do to elevate their function from solely an accounting role toward that of a futurist.

Top CFO Mindsets and Practices

Scott Schwaitzberg, an associate partner at McKinsey & Company’s New York practice, noted that the tasks being asked of finance leaders have expanded into new areas not traditionally overseen by CFOs. Those responsibilities come as organizations generate more data than ever before and are answerable to more stakeholders as well.

“We’re also seeing CFOs play a much larger role in digital alongside the more traditional areas like budget, risk and planning, and things of that nature,” he said. “There’s more on their plate than ever, but the North Star of ‘I’m the CFO, and I’m responsible for driving value creation’ is no different.”

The challenge, then, involves cutting through the noise to focus on what really matters, not to mention value creation.

Schwaitzberg listed a few mindsets and practices a CFO should focus on to succeed.

• Scope the challenge. Understand what it is you need to accomplish, and what it means to double an organization’s value in the next five to seven years.

• Develop a bias toward action. “It’s unlikely that just business as usual is going to get you where you need to be,” he said. “The basic way to think about it is working under the assumption that you need to do something. There’s another kind of ongoing assumption that sometimes can occupy folks’ minds, which is: Should we do something?” 

• Be proactive about risks. “One of the things we found when we were talking about mindsets of CFOs is: One of the biggest risks you can take is taking no risks at all,” Schwaitzberg said. “A really important factor is having the right data, having the right approach, and taking calculated risks as opposed to just blindly taking risks.” 

• Mind environmental, social, and governance (ESG) metrics. “You need to be thoughtful around the footprint that you’re going to have,” he said. “How are you going to think about governance and sustainability in that context?”

• Build a capable team. Schwaitzberg emphasized this point: Your team matters. Establishing the right group of stakeholders and supporters is critical to accomplish bold goals. “If you want to do something big, the likelihood that you can do it alone is effectively zero.” 

Matt House, global CFO for commercial risk at Aon, picked up on the idea of being proactive about risk, managing it, and transferring it where appropriate.

“We do that both in the property and casualty space, more traditional areas of risk transfer,” he said. “But also we’re starting to think about that in terms of intellectual property, which is today largely uninsured, largely unmanaged in terms of the valuation risk. And in areas like climate, which kind of hits on the ESG bullet.”

The idea of making room for bold bets in a portfolio also resonated for House: “Today, we have an Aon united strategy where we look at the entire firm through one common lens, which is a return on invested capital lens, and think about where we can make deliberate bets to deliver maximum value creation for the firm.”

From Scorekeeper to Futurist

Ash Noah, vice president and managing director of learning, education, and development at AICPA-CIMA, shared the Finance Assessment Model for Effectiveness (FAME) concept and how CFOs and their finance function can be categorized into one of five roles within their organizations: scorekeeper, advisor, partner, value creator, and futurist.

“There needs to be a finance data model that is the single source of truth, and that’s how we measure the effectiveness of data,” he said. “Connecting financial and nonfinancial data in order to measure intangibles is absolutely essential when we look at data. They’re not financial measures for intangible asset management, but there are proxy data points that finance needs to leverage.

“Finance must own a finance data model that is the single source of truth and that is a key measure of effectiveness of finance as value creator and futurist,” he said. “As there are no financial measures to manage intangible assets, it is absolutely essential to connect nonfinancial proxy data to financial data.” 

The finance function needs those types of capabilities to enable the organization to make data-driven decisions faster, Noah added.

Finding Value in Nontraditional Data

Moyer cited the case study of Team Car Care, a large Jiffy Lube franchise operator and Workday customer that uses nontraditional data—such as weather reports—to project revenues and profits at each of its stores. “They have found out through the years that when there’s bad weather, people don’t change the oil in their car,” he said. “They can then predict the amount of staffing they need to have, the amount of inventory they need, down to the store level on an hourly basis. This gets right at the heart of value creation.”

House emphasized the importance of being thoughtful around the data structure and level of granularity needed, hinting at the breadth of sources Aon has incorporated. 

“On the external data sources, we’ve identified some through academic research and some through our own analysis that there are a number of macro data points that we can use to help us understand where certain businesses are going in certain geographies,” he said. We’ll use data from Moody’s Analytics or other third-party forecasting firms, and we also use a McKinsey database to help understand where insurance premiums are going, where economic growth is going, and that helps us think about how we invest and stay out in front of demand.”

Economic Profit as a Measure of Value Creation

Economic profit—the profitability of a company after factoring in the cost of capital—is an important measure of value creation, Schwaitzberg said.

“When you think of your North Star, building in profitability after the cost of capital is a really great place to start,” he said. “Your overall return will be affected, but the relationship between economic profit and shareholder return holds even after factoring in whether you’re in a high-growth environment or a low-growth environment.” 

Schwaitzberg added, “When you look at economic profit growth, you can see again the top performers on economic profit growth have higher shareholder return than the bottom performers on economic profit growth regardless of overall revenue growth.” 

House added that understanding the true margin of Aon’s various businesses is an important focus. “We want to make sure that we have a fully allocated margin with all the corporate expenses and everything else so that we have a true bottom-line view of what our businesses are generating in terms of economic profits,” he said. “We’ve invested a lot in this over the years. This is our primary decision-making framework.”

Rather than comparing performance to one’s industry peers, Schwaitzberg said, economic profit provides a common metric that can be applied to any company. “If you look across thousands of companies, you’ll notice a couple of things,” he said. “One, most companies—the second, third, and fourth quintile—are just kind of hovering right at the edge of their cost of capital.”

A small set of companies are generating a large portion of the overall value, Schwaitzberg said, adding that it might make more sense to ignore the outliers.

“What we found is that it’s easy to look at this holistically and ignore some of the outliers for the purposes of the analysis,” Schwaitzberg said. “Obviously, it’s fantastic to be one of those companies delivering $20, $30, $40, $50 billion in economic profit a year, but it may not be a reasonable aspiration when even just moving from the left side of the top quintile to the middle would deliver a huge amount of value.”

The Future CFO’s Continuous Focus on Data

Moyer, a former CFO, said he envisioned future finance leaders to be far more data driven than they were in the past, largely due to the data they have available. 

“Now that there’s so much data out there, getting it harnessed and captured, we’re going to see a shift toward much more numbers-based facts and figures as opposed to gut instinct in our next generation of CFOs,” he said.

House added that straying too far from an organization’s core business due to the latest “shiny new thing” can be detrimental to its portfolio, which is why it’s important for finance leaders to bring their CFO lens to the table. “Sitting in the finance seat, you can bring the speaker-of-truth role to things,” he said. “We bring data, we bring facts to the discussion.”

Noah expressed an expansive view of what a finance futurist looks like.

“The whole idea of value creation stretches the CFO’s role beyond the traditional, the idea of allocating the future cash flows to the right projects,” he said. “When you really look at how your value generation is linked to the allocation of your future investments into the right projects, that’s fundamental to value creation.”

Watch the full webinar “From Scorekeeper to Value Creator: Creating the Data Foundation for Economic Profitability.” Read the AICPA-CIMA white paper “From Scorekeeper to Futurist: The Journey to Finance 5.0.”