Читать онлайн The Role of a CFO: motivating people, managing assets and hedging risks бесплатно

The Role of а CFO

The position of Chief Financial Officer (CFO) differs fundamentally from that of their counterparts in company management. The CFO primarily serves the shareholders and only secondarily the CEO. While this principle is universally accepted in modern business and international law, it may not always be intuitively clear to CFOs themselves or their immediate superiors.

However, it’s essential to understand that the CFO is not in opposition to the CEO and the management team; rather, they are an integral part of it. Nevertheless, what sets them apart from other leaders is their role as internal skeptics and sparring partners in strategy discussions. Additionally, the primary focus of the financial leader and their teams is to provide accurate information to all stakeholders within and outside the company for decisionmaking and risk management purposes.

Traditionally, the CFO’s responsibilities included financial planning and analysis, budgeting, management accounting, tax reporting, and liquidity management. One notable recent trend in business management is the expanding role of the CFO in business development and strategic operations management. The CFO is evolving from being solely an accounting specialist to becoming the CEO’s right-hand partner and a permanent member of the board of directors.

Over the last 30 years, the strategic responsibilities of the CFO have undergone significant transformations. In the 1990s and 2000s, particularly in most developing countries and many developed ones, CFOs had to establish tax optimization systems involving international tax havens and secure timely bank financing, often relying on personal connections and tolerating conflicts of interest. The few exceptions among senior managers and bankers, primarily from top-tier institutions, merely reinforced this general trend.

In the 2010s, intensified competition across most industries, including global players, rapid technological advancements in public administration and tax control, the desire and ability of companies, their shareholders and management to enter international markets and attract capital through IPOs, all led to a rapid shift in financial management priorities. It became critical to demonstrate consistent growth, invest in electronic sales channels and business digitalization, sometimes at the expense of customer acquisition efficiency. Shareholders and executives encouraged financial teams to focus not just on business efficiency and operational automation but also on rapidly expanding into new regions and launching products, using external funding obtained through promising forecasts and creative reporting.

Furthermore, starting in 2020, the impact of the pandemic, accelerated business digitalization (driven more by necessity than by trends), geopolitical tensions, and the resulting fragmentation of the once-global world, intensified competition across most industries and significantly complicated operational processes, particularly for companies with access to international markets. Dependence on foreign suppliers and investors became more pronounced, and challenges arose in obtaining financing from foreign banks, as well as in purchasing equipment and raw materials.

In the past, organizations prioritized performance growth at any cost, often at the expense of investors or margins. Today, however, the focus has shifted towards profitability and operational efficiency, especially for medium-sized businesses. Those who survived the drying up of cheap international funding – successful entrepreneurs and senior managers – realized that sustainable business development requires the establishment of regular management accounting, an internal control system, and end-to-end process automation. Ultimately, this demands a radically new approach to company management, based on modern, comprehensive financial management principles.

Among recent trends, there’s a movement towards adopting an effective service-oriented approach within organizations. The essence of this approach can be summed up in a simple slogan: outsource what can be done more effectively that way, while internal departments should focus on their economics and adopt a customer-oriented competitive approach, considering market conditions and external competitors.

If an internal function like legal or recruitment lacks customer focus and performs poorly, internal clients may seek external specialists for the same services, leaving internal teams idle. To assess employee performance adequately, tools such as basic financial dashboards with efficiency metrics, departmental and team income and cost comparisons against market benchmarks, along with customer satisfaction indicators, are essential. This includes developing methodologies for calculations, data collection, interpretation from various sources, process automation, and engaging with end consumers, who are also internal clients of the financial department, and evaluate the services provided. Customer orientation and marketability of obtained services are paramount.

The tasks outlined above undoubtedly fall within the purview of the CFO and their team, presenting a new challenge for the profession. It’s crucial to not only realign oneself but also to transform the work and mindset of teams (if not done already) and assist the entire company in this transformation. This underscores the pivotal role of the CFO, the primary responsibility of the financial planning and analysis manager, and the key function of financial business partners.

From Accountant to Business Partner

What does the modern approach to financial management entail? It’s a system-building endeavor where every process within a company, every business initiative, should contribute to achieving its strategic goals, both quantitatively and qualitatively. While financial management is often perceived as solely quantitative, focused on numbers, in reality it goes beyond that.

Modern financial management primarily revolves around setting and achieving strategic business goals, emphasizing a select few critical quantitative and qualitative objectives, and adapting plans flexibly to rapidly changing external factors and competitive landscapes. It delves much deeper into business processes compared to traditional «accounting» financial management.

The conventional financial department typically comprises accounting, finance and treasury. In modern companies, these departments are augmented by automation and financial system support, along with financial coordinators handling month-end closures with client-contractors, monitoring accounts receivable, and managing client credit limits. Moreover, financial directors have expanded responsibilities encompassing shareholder and investor relations, corporate governance (often incorporating the ESG agenda or «Environmental, Social, and Governance»), legal services, compliance control, risk management, and HR document flow.

A recent trend has emerged: service departments are supplying businesses with functional experts – internal business partners – who are incentivized by the company’s overall performance, possess a deep understanding of operations, and aid employees in commercial departments with issues related to the corresponding internal service (or external if outsourcing is involved), be it HR, logistics, finance, legal affairs, and more, tailored to the industry.

Distinguished from regular employees in service departments, business partners boast extensive experience and expertise in related functional or commercial fields. They possess profound insights into the production process and are relentlessly focused on achieving departmental and company objectives.

Typically, a financial business partner is a former financial controller or experienced financial analyst. Although accountants less frequently assume this role, it presents personal, professional, and career advancement opportunities, safeguarding against professional obsolescence. This aspect will be explored further on.

A financial business partner aids business units or subsidiaries in addressing operational budgeting and long-term planning tasks, calculating unit economics, and conducting financial modeling. They operate as a financial team member within a business unit, closely supporting functional or business leaders in collaboration with internal financial services.

Having a specialist within the business unit benefits the financial team. They immerse themselves in operational tasks, assist financial coordinators in period closures with clients and counterparties, manage budgets within the unit, analyze actual versus planned results, and engage in ongoing planning.

Becoming a business partner necessitates a broad, forward-thinking perspective, a steadfast focus on the company’s overall results, strategic goals, and future development, transcending the narrow goals of a service function. Successful business partners must be subject matter experts, possess deep insights into the company’s processes, be well-versed in the competitive landscape, exhibit independence, responsibility, agility in learning, and undoubtedly, substantial professional experience.

Given the geopolitical shifts, economic structural changes, and the evolution of the financial profession since the turn of the 21st century, I firmly suggest that any modern financial manager or forward-thinking accountant aspiring to maintain competitiveness in the job market will need to transition into a business partner role in the foreseeable future.

Allow me to share an example of one of my colleagues. Initially a traditional accountant, she temporarily had to leave her profession due to relocation. After working remotely in a call center for some time, she showcased her capabilities and earned the opportunity to serve as an accountant in a company where she started as a remote call center employee and later became a team leader.

Her profound understanding of operational processes, gained during her stint in the call center, swiftly propelled her beyond her accountant role, essentially transforming her into a business partner. Eventually, she rightfully assumed the position of chief accountant in the company. She diligently enhanced her English language proficiency, revamped conventional rigid accounting approaches into customer-centric and service-oriented ones, and broadened her scope of responsibility beyond traditional accounting to encompass methodological aspects.

Additionally, she spearheaded the establishment of an active and expanding professional community through a chat in Telegram, which not only assists colleagues and enhances the quality of the accounting environment in her home country, but also contributes to the development of her personal brand.

This example illustrates a challenging yet commendable journey from a conventional accounting role to a multifaceted, self-developing financial business partner – a role emblematic of the future.

The Profile of a Modern Financial Manager

Adapting to modern demands in today’s professional landscape, possessing deep expertise and experience in a single field is no longer sufficient for maintaining long-term competitiveness in the job market. Versatile professionals are sought after almost universally. This shift is largely driven by the acceleration of business processes, widespread automation, digitalization across industries, and the heightened need for businesses to conduct rapid, high-quality analysis of vast datasets.

In the post-COVID digitalization era, characterized by dwindling investments and the imperative for businesses to achieve financial independence in a globally fragmented economy amid ongoing military conflicts, modern professionals must embrace T-specialization. This entails having expert knowledge and experience in a primary responsibility area, along with general skills and varying levels of understanding in related complementary fields, all while continually learning and enhancing existing skills.

For instance, a financial analyst should excel in financial analysis, demonstrate proficiency in professional-level Excel and PowerPoint, possess strong information search and analysis abilities, and effectively present information in both textual and visual formats. This forms the foundational skill set.

Furthermore, complementary skills might include the ability to create SQL queries to access database information for report preparation and conducting statistical analysis of large datasets (commonly referred to as big data).

An additional specialization could (and should) involve proficiency in utilizing common visualization interfaces such as Power BI and Tableau. It’s not only about utilizing these interfaces, but also configuring complex graphical visualizations and analytics dashboards, establishing auxiliary databases, and designing the overall analytics system architecture.

Without doubt, any modern financial professional intending to thrive in their field for the next 10–20 years should possess a high level of English proficiency (if not their native language), even if their immediate role does not require oral or written communication in English. English serves as the international language of business and science. I firmly believe that daily self-study, analyzing current changes and innovations, and maintaining a forward-thinking and strategic mindset are impossible without independently studying relevant presentations, books (such as this one), lectures, articles, and other sources in English.

Continuous learning is imperative, with professionals autonomously identifying the directions and courses necessary to maintain competitiveness while considering their own strengths, weaknesses, and career development plans. In my opinion, taking professional and personality tests to understand one’s inclinations and shortcomings is beneficial. Additionally, having a career development plan and regularly reviewing and analyzing it is essential for long-term career planning. Modern business evolves so rapidly that «retraining» into a new specialty may be necessary not just once, but multiple times. Therefore, continual learning, retraining, and ongoing education are indispensable throughout one’s professional journey.

Allow me to share my own career track as an example. As I completed my school education at the close of the previous century, banking, international economics and legal studies were considered the most prestigious higher education paths. With guidance from my parents, I chose a specialty that integrated legal and financial aspects, crisis management, which was deemed relevant after the 1998 crisis.

I ventured into the banking sector, managing relationships with large corporate clients and gaining experience in supporting banking operations and structuring financing deals across industries such as machinery, production of equipment for power plants, shipbuilding, pulp and paper, and other heavy sectors. I spent five years in a leading foreign bank in Russia and another seven years abroad, in two Western European countries.

A decade into my career, it became evident that the banking industry was increasingly subject to strict regulation and operational automation, reducing the need for manpower. Consequently, a surplus of unemployed experienced specialists would emerge, leading to wage decreases due to heightened competition. Recognizing this, I considered my profession at the time, where I had found success and earned a good income, to offer limited prospects for career advancement. I viewed employment in modern technology companies digitizing traditional industries with mass customer demand as more promising.

After exploring entrepreneurship and gaining corporate finance experience, I transitioned to managing technology startups. Here, I developed skills in company finance management, scaling operations, and honed managerial competencies in leading a growing team amidst annual doubling or tripling of workloads and rapid expansion across various geographies. Concurrently, I mastered related skills in database management, IT tools, and product development. I view this as proactive career planning and self-development towards becoming a T-shaped specialist.

Leading career development experts are already discussing the future for π-shaped specialists (greek letter «π», which also defines the mathematical constant 3.14). Unlike T-shaped specialists, who possess expertise in one core professional skill, π-shaped specialists deepen expertise in two professional areas, typically related.

For instance, for a financial analyst, this could entail expertise in financial analysis and database management, financial planning and econometric modeling, or statistical analysis coupled with profound knowledge of marketing tools and related fields. For a manager, it might involve developing process automation skills and studying and implementing flexible management methodologies (agile management).

As is evident, the demand for specialists encompasses not only polished communication skills and the ability to effectively engage with all types of employees and stakeholders (soft skills) but also expertise in automating routine processes and data analysis (data management), coupled with a willingness to continually develop in this direction. The trend towards an increasing demand for «negotiating analysts-automators» is unmistakable.

Motivating Financial Staff

Among the primary areas of focus for a financial director, I prioritize people management. This is not arbitrary; in today’s world, a business’s success hinges on its human element. I firmly believe that a leader who recruits individuals less intelligent than themselves is making a mistake. In every pivotal position within the financial department, there should be a specialist who possesses a deeper and more nuanced understanding of their area of responsibility than their manager – the CFO.

The «people first» priority applies not only to product development, core production, and operational functions but also to internal business processes like financial management. I will continue to adhere to this principle throughout the main discussion.

Since the quality of people and their dedication to their work directly impacts your business and its success, strategic priority should be given to enhancing the efficiency of this resource, both in the short and long term.

Undoubtedly, every position should be occupied by individuals genuinely passionate about their profession, driven by dedication rather than merely a paycheck. If you, as a financial professional, find yourself disengaged from your work, uninterested in your daily tasks, and lacking the eagerness to independently and willingly develop in your profession, it’s imperative to reassess your priorities and goals and seek alternative avenues for your energy and time.

Given that – excluding sleep – work comprises the most substantial and productive portion of our lives, engaging in a job one dislikes is imprudent. However, the intrinsic satisfaction derived from work does not diminish the importance of fair monetary compensation. Ideally, compensation should cover all basic needs for oneself and one’s family, considering the high level of skill required.

There are instances where the salaries of accountants and financial coordinators may be lower compared to those of other staff members within the company, aligning with market standards. Unfortunately, if the market dictates such circumstances, then commercially-oriented organizations may be unable to offer significantly higher compensation. To maintain motivation and enhance the standard of living for such specialists, they should proactively seek self-improvement opportunities to expand their expertise and scope of responsibility.

As the CFO – unlike other senior managers – primarily serves shareholders rather than the CEO, motivating them should rely on long-term strategic objectives, particularly the capitalization of the business. This approach helps to mitigate conflicts of interest, particularly reducing the risk of making short-term decisions to boost current business efficiency metrics. Often, in companies, reports may be manipulated, either intentionally or unintentionally, to meet annual bonus targets, leading to short-term initiatives beneficial to management but detrimental to the company’s long-term value. The task of the financial leader, alongside the board of directors and internal auditors, is to structure processes to strike a balance between short-term objectives and the company’s strategic goals, averting conflicts of interest among different staff groups and organizational objectives.

Employees engaged in financial management should be motivated by a substantial fixed salary to reduce reliance on variable components tied to the company’s annual performance. Variable components should be introduced for specific projects requiring extraordinary efforts, such as M&A deals, investment rounds, IPOs, audits, or due diligence[2] conducted within tight time frames. This approach applies not only to the financial director, but also extends to key members of the finance department.

Returning to the competencies of a financial professional, they must possess comprehensive knowledge of the business and its operations. A modern financial manager requires a broad perspective and a profound understanding of processes beyond finance and accounting. Even an accounting clerk or cashier and accounts manager must grasp the organization’s business processes, value creation chain, competitive landscape, and consequently, recognize their role in sustaining the company’s performance and growth.

The role of a financial leader also entails selecting the right people and consistently conveying to them the company’s tasks, values, and competitive position. From the employees’ perspective, there should be genuine interest in operational processes, the organization’s strategy, its products, and a recognition of the significance of their role in shaping the overall outcome.

This approach to motivating financial professionals fosters the development of a sufficient level of expertise and engagement in the business, instilling a healthy sense of perfectionism within their tasks and motivating them to pursue common goals. The head of the financial department should possess substantial independence within the management team to effectively oversee control processes and establish an information system for decision-making by product leaders, functional leaders, shareholders, and investors.

Therefore, by maintaining significant independence from business leaders and prioritizing long-term results, the financial leader can offer insights on performance indicators compared to other top executives at board meetings, exhibiting reduced susceptibility to the influence of short-term goals. In turn, this enhances trust in their assessments and significantly reduces, ideally eliminating, conflicts of interest.

Among the qualities crucial for a CFO, integrity is paramount – shareholders must trust that results are transparently and honestly communicated – even when it may not be personally advantageous. It is essential to establish a system where the judgments and decisions of the financial department leader are not influenced, directly or indirectly, by short-term motivating factors like quarterly or annual bonuses tied to company performance.

From the financial leader’s perspective, it is crucial to consider that, when presenting financial reports and company performance results to senior management, the board of directors, and shareholders, documenting conclusions in writing and sharing them among participants is advisable. This helps avoid misinterpretation of numbers and biased perceptions due to the «broken telephone» effect.

Hiring a CFO

The process of hiring a CFO is a significant undertaking for both the organization and the candidate. The company aims to find a qualified staff member who not only possesses the requisite skills and experience, but also aligns with its corporate culture. This alignment is particularly critical as the CFO substantially influences the internal service culture, encompassing areas such as HR and accounting documentation, payments, budgeting, financial analysis, automation, and more.

As an experienced financial leader seeking employment, it is imperative to pose direct, incisive questions regarding the company’s financial health and related processes during the job search. Before finalizing any employment decision, it’s essential to request key internal financial documents for personal analysis. Typically, these documents include:

1. Monthly financial reports used for operational decision-making by management.

2. An up-to-date financial model or the current one in use.

3. The latest set of documents submitted for regular board of directors meetings.

Understanding how significant decisions are made within the company is crucial. Clarifying which decisions are within the purview of the CEO and which involve the senior management team members, including the CFO, is vital. It’s also essential to delineate the responsibilities of other top managers: who falls under CEO-1, which decisions the leader makes independently, which ones are made jointly with the second-in-command or the CEO, and which ones are made jointly with the second-in-command or the CEO, and which decisions the CEO brings for discussion and voting among the top-management team.

In medium-sized and large privately-owned companies, decision-making mechanisms may lack structure and systemization, leading to interpretation challenges, decision delays, and personal risks for management personnel.

While the division of responsibilities between the company’s operational management and the board of directors is typically simpler and regulated by legislation, bylaws, and shareholder agreements, «gray areas» are still encountered here. The shareholders sometimes intentionally leave open issues in the internal decision-making process in order to retain additional leverage over the management. Having «gray areas» is not a problem, but it is crucial for senior management to understand where the boundary lies between their authority and the responsibilities of the board of directors and shareholders. They should also have a clear understanding of the segments within the «gray area».

Hence, during the hiring process, prospective financial directors should directly address pertinent issues with stakeholders. This includes inquiring about existing processes and procedures, decision-making approaches, documentation preparation, and the attitudes of leaders and the board of directors toward potential changes within the CFO’s domain.

Engaging in targeted discussions with stakeholders during the preliminary stages of collaboration allows decision-makers, such as the CEO, board of directors, and shareholders – those who ultimately make the decision to hire a financial director and interact with them – to understand and evaluate the motives and objectives of the potential CFO. This approach facilitates the selection of appropriate negotiation tactics and criteria for identifying suitable candidates.

It’s essential to acknowledge that hiring a leader entails a long-term commitment and, typically, no one is directly interested in deception. However, in practice, the opposite situation often arises: when choosing a partner for a long and fruitful collaboration, parties may, due to oversight or insufficient preliminary analysis, engage in self-deception. Correcting such mistakes can be arduous, time-consuming, and costly. With this groundwork laid, let’s proceed to discuss goal-setting and employee motivation.

Goals of the Finance Department

The cornerstone of any enterprise lies in meeting the demands of its clientele. Enterprises arise where needs are unmet and fade away when customers no longer require their offerings, often due to the emergence of alternatives or more efficient competitors. If a product becomes redundant or can be fulfilled without the enterprise’s involvement, customers will seek alternative solutions, potentially leading to the enterprise’s insolvency.

The principles guiding internal services within an organization should echo this viewpoint: it is imperative to continually identify and address customer pain points while striving to make this process as cost-effective as possible, all the while enhancing customer satisfaction. Anything extraneous, artificial or coerced will naturally diminish over time; hence, processes should align with the casual, day-to-day needs of the customer.

In the realm of finance, this entails bolstering decision-making, managing assets, reducing risks, and, importantly, financing the enterprise itself in a comprehensive sense. Adherence to tax authorities and other governmental structures is only fulfilled because it is an integral aspect of asset and risk management processes. Shareholders, encompassing equity, bond, and other debt or convertible securities holders, credit note holders, long-term investors, and creditors within project and syndicated financing, stand as some of the most critical clients for the finance department.

To fulfill the needs of both internal and external clients, finance professionals should configure processes within the enterprise to ensure the most seamless and predictable satisfaction of the demand for information and analytics, primarily catering to management and shareholders.

Therefore, when recruiting employees for the finance department, attention should be directed not only to their resumes and qualifications but also to their alignment with the enterprise’s values and operational methods within the finance department. While this may seem like common sense, these simple and straightforward aspects are often overlooked in practice. The ramifications of erroneous decisions and negligence can be detrimental to both the team and the reputation of the finance department within the enterprise.

As an illustration, one can look at a leading company in terms of sales volume and undeniable leadership in Russian product retail – «Vkusvill». Its founders and leaders have long championed a corporate policy of customer orientation and maximal reduction of bureaucracy internally and externally. Each employee in the company fulfills specific functions for a particular customer, often catering to several types of customers. The primary customer is the consumer – the visitor to the store or the «Vkusvill» website. Another equally important customer is the consumer of work or service within the company – the internal customer.

The consumer, also an external client of the retail network, supports the company through their visits or attention to the brand, the size of their shopping cart, and the amount spent within a specific period. Consequently, their actions may either bolster or diminish their usage of «Vkusvill» products or lead to their cessation. Similarly, an employee – the user of internal services – should have the option to choose between internal service providers and the possibility to replace them entirely with external, third-party services.

In line with this, «Vkusvill» has implemented not just «customercratic» practices, as its leaders term it, but has also duplicated all key functions, or service providers. This has been executed to ensure that internal customers always have options, and internal services thrive in an environment of motivational and healthy competition. Undoubtedly, such a model may not be suitable for every enterprise and sector, as some may lack the profit margins to sustain such initiatives, while others may require stringent control over specific internal processes, such as security. In varying corporate cultures, such practices may give rise to politics, intrigue, coalitions, gossip, and ultimately lead to a decline in service quality and process efficiency. However, embracing, testing, and selectively implementing the best corporate practices are pivotal for development, motivation, and long-term success for any team.

Employees in internal service departments should always remember that if they lose a significant portion of their clients, insolvency may be imminent, similar to conventional competition among enterprises in the market. Consequently, if an internal service employee fails to be customer-oriented and efficient, the corporate culture and business practices of the enterprise should allow for the possibility of revising their scope of work or even their termination. To a large extent, such corporate culture and the establishment of a corresponding environment, or conversely, the refusal to create a competitive finance department, populism, and the protection of unscrupulous employees, are the direct responsibility and indeed the choice of the financial leader.

The Structure of the CFO’s Establishment

In practice, the structure of a finance department hinges on the functions and responsibilities overseen by the financial manager within each specific company. These internal organizational setups vary significantly from one shareholder to another, resulting in diverse roles for financial directors across different companies that differ greatly in scope, depth, and quality.

The traditional duties and authorities of financial managers also vary markedly based on geographical factors, varying from country to country. I have had the opportunity to live and work in several countries for over ten years, both as a banking specialist and as the head of corporate client divisions in banks in Russia and Europe, as well as managing companies in various European countries and the UAE. Early in my career, I directly interacted with financial directors of my corporate clients, and later I held that position myself. This experience allows me to compare approaches in the regions in which have worked, collaborated closely, and built businesses.

In Russia, the role of the financial leader is quite broad, encompassing responsibilities ranging from accountant to financial director, including:

1. Chief Accountant with certain CFO responsibilities.

2. Head of the Finance Department, focusing on data analysis and planning (even without overseeing accounting and payments);

3. CFO, making decisions on a wide range of accounting and financial-economic tasks, either as a classic CFO or as a Deputy General Director for economics and finance;

4. Financial-Operational director with a broad spectrum of tasks, not limited to financial and accounting matters but also encompassing responsibilities for the operational and administrative service units of the company.

In the latter case, in addition to purely financial teams such as the finance department, treasury, and accounting, the senior manager’s responsibilities include various compositions of the operational responsibilities, like human resources (such as payroll and HR document flow support, rather than recruiting or assessments), business analysis, automation and support of corporate IT systems, legal services, compliance and internal controls, and the administrative and economic functions.

In Western Europe, a CFO typically possesses a significant accounting and tax background, resembling more of a chief accountant with financial management functions. Therefore, a common requirement for such positions in Europe is to have the CPA (Chartered Public Accountant) certification.

In the operations of a European company’s finance department, considerable attention is paid to credit analysis, working with accounts receivable and accounts payable, tax accounting, and reporting. Career advancement for financial professionals in European companies often involves area-specific study, spending several years in each function. They rarely have wide coverage of tasks and processes within the responsibility area of one specialist or department, but rather increasing expertise and close hands-on focusing on a specific field. Financial specialists in European companies frequently focus on a single area of responsibility throughout their entire careers, gradually increasing their salary due to indexing and gaining greater autonomy in decision-making (e.g., in determining the size and terms of limits for accounts receivable).

In the CIS (Commonwealth of Independent States, former Soviet countries) and EU (European Union) countries, the primary functionalities of the so-called «classic» CFO include:

1. Financial analysis and planning, including project analysis (“ad hoc” tasks as requested), financial modeling, and budgeting.

2. Accounting and tax planning.

3. Management accounting and reporting.

4. Process automation and BI-reporting, supervision of financial IT-systems.

5. Treasury management, including liquidity management, payment processing, and maintaining a payment calendar.

Corporate IT systems usually fall within the CFO’s area of responsibility, and therefore they play a crucial role in selecting and enhancing not only financial systems, but also overall management and automation systems (ERP), customer relationship automation systems (CRM), working closely with heads of production and leaders of commercial departments. The Chief Technology Officer (CTO) is responsible for system support, data storage, cybersecurity, user system support, maintenance of computer and office equipment, and access organization.

In North and South America, a CFO serves as a general manager with broad responsibilities, including investor relations, corporate governance, reporting, liquidity control, risk management, and authority in representing the company and signing documents. In the United States, functional department heads are often referred to as Vice Presidents.

Notably, in the United States, when a company goes public, the CEO and CFO bear full legal responsibility (up to criminal liability with sentences exceeding 20 years) for the organization’s activities and the information provided to investors. It is not the business development director or CTO, nor the Vice President for legal matters, but rather the financial leader, who is also the Vice President for finance. The CFO and the CEO share full personal responsibility for the company’s activities and accurate representation of its affairs in public documents. Consequently, the CFO is essentially the second most important leader in the organization, with the same level of responsibility to shareholders as the CEO.

In the Asia-Pacific region, the functionalities of financial directors vary from country to country. Historically, European, American, Chinese, and Japanese style of management and business culture have had varying degrees of influence on the development of general management principles, or approaches, in different countries.

No matter what area of responsibility you take on as a CFO, you need to structure responsibilities, authorities, and resources within the various department. Consider the workload of line managers: every manager should have some unallocated time, free from current operational tasks and requests, to invest in process improvement, mentoring their team, and professional self-development. Also, remember the golden rule of management: the optimal number of direct subordinates for any manager does not exceed seven people, though this may vary based on functionality and tasks. Some leaders require an expert team of two or three assistants for maximum efficiency, while others may need a team of five to seven people.

Flexible Management and Planning

The contemporary world is too dynamic for rigid long-term plans. If predicting events a month ahead is challenging, making year-long or multi-year strategies futile, if not counterproductive. You’ve probably heard something similar. Perhaps you are also an advocate of adaptable management and, consequently, flexible planning.

In a world where «black swans» have become increasingly common in recent years, accurately forecasting the future becomes exceedingly difficult, as does constructing reliable forecasts.

This holds true, but only to an extent. We are indeed navigating periods of economic and geopolitical instability, alongside technological advancements that were unimaginable fifty years ago, accompanied by the rapid accumulation of information and methods for its processing.

At this juncture, to avoid potential disasters, our new pilots must swiftly orient themselves in the turbulent environment with limited visibility. They need to grasp which data is essential at the present moment, swiftly filtering the incoming stream of information, utilizing only the necessary instruments without being distracted by secondary tasks and data. Additionally, they must analyze the situation, pinpoint its primary threat, and ascertain which tasks should be genuinely prioritized.

In this evolving world, planning, forecasting, budgeting, and laying the groundwork for the future remain imperative. Without a systematic approach, filtering information overload, determining priorities, setting objectives, and fostering motivation within the team is impossible to achieve. A rational, systematic approach to forecasting and planning is crucial for building and developing a business, as well as navigating the challenges of growth. That is precisely the financial leader’s mission.

Here, we embrace the concept of future planning, organizing team motivation around a healthy desire for accomplishments and self-improvement, innovating, and overcoming external and internal constraints.

This concept of self-motivation, organizational goal setting, flexible planning and budgeting is precisely what interests me, and I’m eager to share it with you. In the forthcoming chapters, we will explore fundamental principles, techniques, and mechanisms for preparing oneself, the organization, and its processes, alongside key stakeholders, for adaptable goal setting, planning, and budgeting.

Need for Self-Realization

Prior to any action, there lies the determination and establishment of goals, the selection of paths, and methods for achieving these aims. To effectively plan outcomes, establish goals for employees, and choose motivating tools for organizational leaders, it’s imperative to identify individual responses to questions like, «How do we establish and achieve goals?» and «What motivates us?».

For effective responses, it’s crucial to initially pinpoint deep-seated goals and motivators: what holds significance for the organization; why the company exists, what issues it addresses for customers; why employees come to work, what they aspire to (aside from financial rewards); what stakeholder groups exist within the company and how their goals intersect. Ultimately, the goal is to seamlessly integrate all motivators and goals into a unified goal tree for the organization.

In the era of rapid technological advancement and the creative economy, a company’s primary competitive advantage is its well-motivated, efficient, and loyal employees. In this context, «appropriate» motivation entails fostering an environment in the company that fosters creativity, self-expression, continuous self-development of employees and, consequently, the organization’s advancement. Such an environment is unattainable within the strict hierarchical corporate structure of large 20th-century companies.

Many leaders hold the belief that streamlining decision-making processes, eliminating intermediate management layers, incorporating elements of discussion into decision-making, abandoning strict dress codes, and transitioning to flexible working hours all dampen employee morale, undermine discipline in the team, and ultimately lead to reduced manageability, anarchy, and the organization’s downfall. In reality, these traditionalists primarily fear losing authority and diminishing their own significance within the company, and perhaps even losing their jobs.

In contemporary science, the prevailing view is that what drives us in work, business and creative endeavors is the desire for self-realization, predominantly fueled by our own attitudes and internal aspirations. We often do this subconsciously, striving to engage in activities that bring us satisfaction. If we don’t find satisfaction in our daily work and goal fulfillment, achieving high-quality results becomes not just challenging, but potentially highly detrimental to mental and physical well-being.

Drawing from my experience, studying management practices of successful companies, insights from international consultants and researchers in the field of management and motivation, all indications suggest that a modern organization striving to remain effective must align its strategy and goals with those of its employees. Only content employees who are in suitable roles and engage in fulfilling work every day will enable a company to develop rapidly and adapt flexibly to rapidly changing external factors and the competitive landscape. Initially, this may appear utopian, but it’s the only viable approach to building a successful long-term business.

Incidentally, parallels can be drawn here with family dynamics. In recent years, child-rearing methods in modern society have undergone a similar transition – from strict hierarchy and authoritarianism towards younger generations (and women, incidentally) and negative reinforcement and motivation techniques to a nurturing environment fostering personal experience and free exploration of the world, empathy, openness, and discussions on sensitive issues, as well as collective decision-making that impacts the everyday lives, existence, and destinies of offspring.

It’s crucial to underscore that our strategic orientation in life must align with the company and its values. If you favor traditional authoritarian-hierarchical approaches, the laid-back atmosphere of a youthful startup will seem frivolous and incongruent with your work values and you, in turn, will be detrimental to the team. Conversely, a democratic leader who embraces flexible management and planning approaches won’t fare well in a company with aggressive management practices. Such mismatches, akin to personal relationships, result in suffering for both parties.

There’s an approach that meets the demands of our time. It’s called Objectives and Key Results (OKR) – a goal-setting framework utilized for systematic execution of strategy, increasing motivation, and directing employees towards what’s most crucial and valuable for the company. OKR didn’t materialize out of thin air – it’s a contemporary iteration and successor of goal-setting systems from the past century like MBOs, SMART goals, BSCs, KPIs, but with a modern em on people, decentralization, and adaptability.

The methodology was initially developed and implemented at Intel and later introduced by John Doerr to Google’s leadership in 1999, when Google was in its first year of operation and there were only 60 employees. As those Google employees migrated from one company to another, the OKR methodology gained traction and spread among technology corporations such as Oracle, Netscape, Amazon, Flipboard, Twitter, and Spotify. Now, even small (yet forward-thinking) companies and startups are integrating OKR into their management systems. The significant surge in the approach’s popularity was also bolstered by the renowned consultant Felipe Castro, the author of the book «The Beginner’s Guide to OKR».

In subsequent chapters, we will explore the practice of applying OKR with its primary techniques and approaches. I’ll delve into common mistakes made during its implementation. Furthermore, I’ll demonstrate how to implement goal-oriented management in the financial department and throughout the company, how to formulate individual goals and integrate them into the organization’s goal tree, and how to monitor progress and make adjustments. Ultimately, it’s imperative to connect individual goals, group plans, product metrics, development plans and budgeting into a cohesive system, facilitating long-term planning of quantitative and qualitative aspects, and the fulfillment of the company’s and its shareholders’ strategic objectives.

Company Culture and Decision-Making

When contemplating effective strategies for motivation and goal-setting within a company, it’s crucial to emphasize the role of management culture as pivotal in establishing regular business procedures. This aspect should be addressed early on in the business development phase.

It’s analogous to nurturing a child. If you believe you can neglect someone for ten years and then compensate for it a couple of years later, you’re mistaken. The same principle applies to an organization, its collective, and the processes within.

An organization, a business, is essentially a social construct – a community of individuals with ingrained patterns of behavior, internal cultural norms, rituals, and regulations. Failure to instill the correct culture of working with data, documents, assets, and people in the company from the outset, along with establishing necessary rituals for business development and encouraging (sometimes through negative reinforcement such as reprimands, fines or public dismissals) the right and responsible adult behavior among employees, then your organization, like a child, will grow up as it grows up, and changing its culture and business processes in the future becomes more difficult, sometimes rendering it impossible.

By analogy with raising a child: if decision-making authority isn’t gradually delegated to employees such as middle managers and top executives, then sudden delegation during a crisis due to the owner leaving the business or a shift from an authoritarian or micromanaging CEO will pose a significant challenge for the business and the entire management system. Such systems cannot be built on demand, just as they cannot swiftly transition from a directive, hierarchical management model to a flat, democratic structure with a consultative culture and distributed decision-making centers.

There may be readers who wish to point out inconsistencies between earlier statements (regarding flexible management, setting goals «bottom-up», and most importantly – motivation through positive reinforcement) and the advocacy for nurturing correct behavior occasionally by employing negative reinforcement. There’s no inherent contradiction. I am a staunch advocate of flexible and participatory management approaches. However, they’re effective only when there’s consensus within the team and adherence to certain values, such as intolerance of office politics and intrigue. Sometimes, shaping and instilling the right behavior necessitates firmly addressing an employee’s mistakes and disciplining them for repeating those errors.

To implement a flexible, participatory management system, an appropriate corporate culture, ideally self-organizing and endorsed by leaders within the company, is indispensable. The path to this end is arduous and, as is often the case, attaining the ideal is not always feasible, but one must strive for it to not only keep pace with competitors but to surpass them.

I trust this book will assist business owners and managers in reevaluating their existing management, motivation, and goal-setting processes from a different perspective – viewing them through the lens of constructing an independent and self-developing system. Primary attention should be paid to the attitude toward the formation and improvement of the employee training mechanism. If you look at what’s happening in business from the perspective of parents building a healthy and adaptable system that can autonomously navigate crises, renew itself, identify threats, and address challenges, not just enduring but actively shaping and evolving itself and the surrounding reality for many years and decades, the planning horizon extends significantly into the future, global objectives become clearer, and threats and risks are discerned with greater clarity.

Personal Goals

In the final weeks of the calendar year, I make an effort to bring all my affairs to a logical conclusion or to an intermediate stage, and pause to reflect: assessing what I’ve achieved, where I’ve fallen short, discerning why, and crafting a plan for the next year. This practice is both important and obligatory for me. At the start of the year, in line with the tradition of extended New Year holidays in Russia, I typically embark on a two-week hiatus, traveling to various destinations. During these journeys, I find the time to reflect, and my thoughts naturally gravitate towards scenario modeling and formulating strategic development objectives, both for my family and myself, as well as for departments and the company.

I recommend that CFOs – and not only them – kickstart each year with strategic initiatives. It’s paramount for each individual to contemplate and refine personal goals and life plans. I firmly believe that every person should formulate their own mission and vision for the future, akin to any business or non-profit endeavor, and articulate them clearly and directly. These formulations should not be vague and directed towards everyone and no one simultaneously, but precise and straightforward.

They should stem from personal reflection and analysis, grounded in individual experiences, an understanding of one’s strengths and weaknesses, current personal circumstances, trends, and prospects. You can pursue your goals independently or seek guidance from a mentor, coach, psychologist, or career advisor. Should you opt for external assistance, choose wisely, considering the alignment of values, experiences, current life situations, and aspirations.

A useful tool to employ is Simon Sinek’s well-known approach: the system of questions (visualized as concentric circles) «Why, How, What». The essence of the method echoes the principle I elucidated earlier: in any endeavor, it’s crucial to ascertain why you’re undertaking it (Why). This serves as the cornerstone of the motivation system, ranging from the mundane «Why do you brush your teeth?» to profound inquiries like «Why do I pursue my career?» or «What is my purpose in life?».

At first glance, the answers to these questions may appear self-evident and unworthy of attention. However, this isn’t the case. By sincerely and confidently questioning routine tasks and responding to them honestly and confidently, one can uncover numerous areas for process improvement, leading to an enhanced quality of life and satisfaction with completed tasks. It’s imperative not to overdo it, avoiding becoming fixated on self-improvement or pursuing efficiency blindly.

For example, answering the question «Why do I brush my teeth in the morning?» prompts more thorough oral hygiene practices (brushing correctly for two minutes), reconsideration of tools, and monitoring their condition (utilizing an electric toothbrush and replacing brush heads every three months). Reflecting on the question «Why do I pursue my career?» compels one to contemplate deeper motivations, transcending thoughts of income or ego gratification. This may involve pondering: «Why did I choose this profession, and is it the right fit?» or «What are my values and life aspirations?» or «Does my daily work align with my life objectives?».

After defining core goals for oneself, it’s essential to devise an action plan and proceed with its execution. Describe what needs to be done and how (How), establish deadlines (When), then outline the big picture (What) and prepare a detailed plan (roadmap) for implementation. In many respects, Why corresponds to what is often termed vision in business, How to the mission and strategic goals, and What to the five-year objectives and tasks, further broken down into specific objectives and key results (OKRs). The latter are delineated into clear tasks based on implementation parameters, assessed quantitatively or at the very least dichotomously (yes or no), and assigned deadlines for completion within a month, quarter, or year.

Incidentally, it’s beneficial to conduct a mid-year review of your goals and plans. The world around us and the business environment change rapidly, and so do our attitudes and values. Therefore, come the end of June, it’s imperative to reassess your annual and long-term goals, analyze achievements over the preceding six months, and undertake a plan-versus-actual analysis. You’ll likely identify areas necessitating adjustments, goals warranting refinement, and opportunities for acceleration.

Key Features of OKR

One significant deviation in utilizing Objectives and Key Results (OKR) from other systems of motivation founded on quantitative goals is that the set objective should not be inherently attainable within the designated timeframe. Achieving it at 75 % is deemed a complete success, while hitting 100 % suggests insufficient ambition for the stated target. In essence, to achieve exceptional results, an individual must step outside their «comfort zone». Simply put, when establishing OKRs, one should acknowledge beforehand that achieving them with current work methods is unattainable. Altering these methods should result in a breakthrough and exponential growth in target metrics.