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Performance Magazine > Trending > Balanced Scorecard > Articles > The Balanced Scorecard: Influencing CFOs to become the Business Leaders of the Future

The Balanced Scorecard: Influencing CFOs to become the Business Leaders of the Future

Written by Marcela Presecan on . Posted in Articles, Balanced Scorecard

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CFOs

Modern practices have provided enough proof to show that performance management has a tendency to alter organizational processes and to shift mentalities. It is of little surprise that archaic business functions, such as the financial one, find themselves in need for refinement.

The question that inevitably comes to mind is: Are the persons in charge aware of the transformation? Are Chief Financial Officers the financial leaders that organizations expect them to be?

The Balanced Scorecard approach to financial performance monitoring has shifted its focus from bottom line spreadsheets to financial strategy. The Chief Financial Officer is compelled, therefore, to reconsider his role within the top management team.

The more a CFO’s role in the company expands, the more value that company draws on the execution of its overall strategy. In the same manner that the Balanced Scorecard focuses on more than its financial perspective, so should the CFO report not only on financial results, but also reveal their end-to-end significance to the entire company.

More explicitly, the Chief Financial Officer of today is expected to use his/her analytical skills to overcome performance driven challenges and to encourage business growth. In the present business environment, the CFO is required to not only record financial data, but also to interpret the numbers for future forecast and decision-making.

In the context of performance management, re-modelling the rigid structure of the financial function is one of the hardest things to do. Communicating financial results to executives in a manner that encompasses the company’s full value chain and operational engagement may be perceived by CFOs as a time consuming demeanor that does not always fit the job description.

Furthermore, CFOs are generally more concerned with regulatory aspects, such as financial compliance, rather than improving performance in an organization. Either way, the increased demand for performance achievement and strategic orientation call for a reassessment of CFO positions within organizations worldwide.

Long story short, CFOs of today must do better than duplicate the role of their controllers. Consequently, an effective way for CFOs to get involved in the strategy formulation and execution processes of an organization is for them to deploy the Balanced Scorecard implementation process.

CFOs – From Financial Controllers to Strategic Leaders

Beyond their purpose of connecting strategic objectives to day–to-day operational activities, Balanced Scorecards provide an in-depth view on financial tracking, as well as non-financial parameters that aid financial forecasting.

A strategically focused CFO ensures that financial indicators track not only performance, but they also reveal trends, raise awareness to risk and highlight business opportunities. Of course, there are the rigid financial metrics such as $ Earnings before interest and taxes (EBIDT), %Return on equity (ROE) and %Net profit margin that are too specific and lagging to create value in the future but, nonetheless, indispensable when evaluating past performances.

Altogether, just as everything evolves with progress, so do performance indicators. Continuously refining financial indicators so that they are aligned with business and market trends, consumer behavior changes and technological advancements, must be the duty of the modern CFO.

Performance indicators such as $Liability adjusted cash flow yield (LACFY), $Cash burn, $Cash build, $Net cash position and %Bad debt expense, can stand out as refined indicators which can be both lagging, and leading, in their contribution to management decision making.

Successful CFOs must also pay special attention to calibrate their finance team and spot new talent. By actively taking part in the recruitment process, CFOs provide a valuable insight into the level of financial knowledge a promising candidate possesses. By delivering in-house trainings, a CFO can acquire a better perception of an employee’s competencies, as well as find reasons to rethink competencies required for their future promotions.

Team scorecards can be a useful tool in creating the performance-oriented financial team that modern CFOs need. These performance monitoring tools enable objectives to be achieved by increasing alignment of individual tasks with the overall expectations of the financial team, and the organization, as a whole.

By sponsoring and supporting the implementation of team scorecards, the CFO can add value to the financial department and instill the advantages of balanced reporting on his team.

Excel is an outstanding tool for designing a trial template of the financial team Balanced Scorecard. Tests performed over a relevant period of time can provide the CFO with substantial insights on the benefits and challenges the team Balanced Scorecard brings to the financial department. A pilot Balanced Scorecard for the financial team can be easily designed with Microsoft Excel as follows:

CFOs

Additional strategies for CFOs to smoothly embrace their transition from lead controllers to strategically oriented leaders would be:

  • Employee empowerment: transferring designated workload to create capacity for high value work;
  • Identifying value: focus on the key business drivers of the organization when delivering the strategic agenda;
  • Building knowledge: using all available information resources to collect both financial and non-financial data;
  • Monitoring performance: selecting the right set of performance indicators to adequately convey the meaning of the organization’s value propositions; encouraging the use of customer oriented indicators, such as# Repeat customers and # Customer satisfaction index  can contribute to cohesive strategy delivery and decision making across all levels of the organization;
  • Upgrading technological infrastructure: business intelligence tools are an investment made for long-term productivity and operational efficiency and, additionally, they guarantee higher returns (ROI) when used to build on performance;
  • Sharing practice knowledge: use influence to emphasize the importance of a performance oriented culture as well as encourage propensity for financial literacy.

Although the transition from financial controller to strategic leader, might be a challenge for most CFOs, the process of becoming tomorrow’s leader in finance is based on adaptation to market trends. As the main business trend of today is performance management in its entirety, implementing the Balanced Scorecard might just be the way out of the rigid, outdated CFO’s financial role.

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Comments (102)

  • Dr. Houda Hedi Baccouche

    |

    The BSC approach to financial strategy perspective, needs that the CFO has to be aware of the transformation. He has to be the financial leader that the organization expect him to be.by using his analytical skills to overcome performance driven challenges and to encourage business growth, by ensuring that financial indicators track not only performance, but they also reveal trends, raise awareness to risk and highlight business opportunities, by paying special attention to calibrate their finance team and spot new talent, by empowering employees, by identifying value, by building knowledge, by monitoring performance, by upgrading technological infrastructure and by sharing practice knowledge.

    Reply

  • Marwan Al Emadi

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    Controllers have a new role in their organizations, and strategy is the key. Traditionally their role has been process driven and governed by routines such as month-end and statutory reporting. Financial statements, general ledger, cost accounting, payroll, accounts payable, accounts receivable, budgeting, and tax compliance are typical responsibilities. Yet numerous research studies indicate that corporate controllers are doing much more. Their role is expanding and changing in ways that mirror those of the broader finance function and it has shown an ongoing transformation of the finance function into more of a strategic business partner within organizations. Professionals in the finance function are moving from the delivery of data and results to the interpretation of information and contributing to decision-making activities.

    Reply

  • Performance Magazine | A Business Perspective on the IT Enterprise Architecture, BSC and KPIs

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    […] This limitation must be recognized and addressed by understanding that business leaders don’t care about what the EA is doing at an operational level. Instead, they want to understand and, more importantly, measure how the EA program helps enable the organization’s future-state business capabilities, which in turn contribute to its financial performance. […]

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  • Falah Mrgi Alshammari

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    In this article, the writer urges financial managers to participate in the strategic direction and not be limited to their job duties and move to a higher level that can achieve great effectiveness and success for the organization

    Reply

  • Faisal Aldhafeeri

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    CFO must be aware of the transformation because he is leading one of the BSC perspectives. His interaction in the organization is very helpful since he ensures that the financial indicators identify patterns, enhance risk awareness, and highlight business possibilities in addition to tracking performance. CFOs must concentrate on their current position to assist the business leader in achieving the desired level for the organization.

    Reply

  • Wasmiah Aldosari

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    CFO must be aware of the transformation from Financial Controllers to Strategic Leaders. CFO who has analytical skills will encourage business growth by overcoming performance. Additional strategies for CFOs to the transformation into strategic leaders would be empowering employees, identifying value, building knowledge, monitoring performance, upgrading technological infrastructure, and sharing practice knowledge.

    Reply

  • Haya alkanhal

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    The Balanced Scorecard: Influencing CFOs to become the Business Leaders of the Future:
    Comment: Balanced Scorecards provide an in-depth view on financial tracking, as well as non-financial parameters that aid financial forecasting. CFO must know the transition from financial controller to strategic leader by Employee empowerment, Identifying value, Building knowledge, Monitoring performance, Upgrading technological infrastructure and Sharing practice knowledge. It challenge for CFO report not only on financial results, but also reveal their end-to-end significance to the entire company.

    Reply

  • Benedicta Wiggle

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    The CFO’s role has gone beyond reporting only on financial results as laid out in this article. It took it further to continuously refine financial indicators to align with business and market trends, consumer behaviour changes, and technological advancements. Indeed, this calls for a reassessment of the role of the CFO in the light of the changing business environment

    Reply

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