From CFNo to CFGrow

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Does growth and CFO go together? Many would say no. CFOs have historically focused on optimizing profitability rather than growing the company. Some would even argue that CFOs have been detrimental to growth in many companies. They have been labeled “CFNo” focusing more on risk mitigation and cost-cutting rather than building the business.?

However, it’s time for CFOs to change their approach and earn the label “CFOGrow”. Why is that? It’s because at least 7 of the 10 levers we discussed last week in “More strategic leadership is needed from the CFO ” that drive value creation are related to growth. These are size of revenue, R&D investment, industry trend, geography trend, M&A program, capital expenditure, and differentiation improvement.?

CFOs may feel most comfortable in driving the remaining levers (debt capacity, resource re-allocation, and productivity improvement), however, why limit your remit in terms of driving value creation? This week we discuss tangible ways CFOs can contribute to the levers that drive growth.

Three lenses for CFOs to drive growth

Let’s start by framing the scope for CFOs in terms of driving growth. We’re not suggesting that CFOs should overtake the CEO’s or the commercial organization’s duties. These are more skilled and experienced in the first-level efforts of driving growth e.g., sales and marketing, building customer relationships, and understanding market and customer trends.?

CFOs are more likely to act as business partners to the stakeholders directly involved in realizing growth. CFOs and the finance organization need to enable these stakeholders with the right insights to make the best decisions and execute accordingly. For that purpose, we can consider three lenses for CFOs to drive growth.?

• The strategic lens – where and how should we grow?
• The operational lens – how well do we execute our growth choices?
• The financial lens – how are we creating value from our choices??

The next step is to overlay the three lenses to the seven levers related to growth. We will do this in three buckets, revenue and R&D, industry and geography trends, and M&A, capital expenditure, and differentiation. We do this since the first two are based on historical choices, the next two are external factors and the last three are internal and active future-oriented choices.?

The CFO's growth matrix?

Putting it all together leaves the CFO with a 3X3 matrix?where we can discuss what CFOs should do to drive growth.

Historical levers?

• Strategic lens: You can’t change the past; however, you can make more conscious choices about the company to become in the future. Size matters, however, since the threshold is close to USD 10bn in annual revenue most companies would find themselves on the outside looking in it may not even be feasible to pull this lever. Only if you’re already in or on the limit should you make the size a strategic consideration. Similarly, with R&D it depends on the type of business you are. In Pharma, it’s a must but in Consulting it may be considered irrelevant.
• Operational lens: CFOs should ensure to have transparent overviews of ongoing growth and R&D initiatives. There should be a plan and business case behind each that can be followed up on in a regular review cycle. Especially in R&D, it’s important to understand the progress at each stage of the process and the likelihood of a certain project passing on to the next stage. A lot of value can be derived from knowing when to step up investments and when to cancel projects.
• Financial lens: CFOs should ensure that feasibility studies are conducted to gauge if reaching the size threshold is even possible. They should also consider this from a relative perspective i.e. company size relative to the main competitors. Maybe you can’t reach the overall threshold but being number one or two in your industry will still give you significant competitive advantages. For R&D CFOS must make the financial value creation tangible throughout the project development process. If for very early stages, this is not possible it’s important to drive the right discussions at the management level about the appropriate investment level needed to feed the later stage pipeline.?

External levers?

• Strategic lens: Overall it’s important to understand the attractiveness of your industry and adjacent industries. No one wants to be the winner of a dying industry but it’s probably also impossible even in ten years to move completely into an unrelated industry. There are many recent examples of companies successfully moving into adjacent industries from dying ones though. Think of the move from print media to online media, from black energy to green energy, and from brick-and-mortar to online. It’s somewhat easier with your geographical footprint. It’s probably more straightforward to open a new office in a growth market than moving your business into a new industry.
• Operational lens: In a scenario where your company needs to change industries it’s a full-scope business transformation. This requires more than a simple and structured follow-up and rather a fully functioning transformation office. While this could be led by the CFO it’s more likely to be led by a business leader. Instead, the CFO should ensure to inject senior finance professionals into the transformation office to ensure a continuous alignment of strategic and financial objectives. For entering new markets, it also takes a structured approach. The CFO should drive the formation of a standard operating plan for what needs to be in place when starting or ramping up activities in a new market. This covers everything from systems and processes to goal setting.
• Financial lens: Neither of these trends are bound to deliver results immediately and may require significant investments before returns can be expected. CFOs need to facilitate the overall business plan/case for these types of initiatives. What needs to be delivered, by when, and with what resources? CFOs also need to keep different functions and teams accountable to deliver on the agreed-upon plans as there’s bound to be a lot of ambiguity between the start and finish line in large-scale projects like these.?

Internal levers?

• Strategic lens: These are the choices that strategy comes down to and we covered them extensively last week. Will you buy growth, invest in organic growth, or simply improve your existing business? Making these choices often comes down to existing capabilities and resource availability where CFOs should have a heavy voice in the discussion if not even leading it.
• Operational lens: Most success in M&A and capital expenditure comes down to your ability to execute. There’s a reason why McKinsey has identified that only if you take a programmatic approach to M&A will you succeed. That’s because you need to build the right capabilities to consistently derive value from your transactions. This is impossible if you only do one or two transactions over a few years. Similarly, if you want to invest or differentiate you also need to understand how this will be different from what you have tried in the past. Can the same organizational setup and people deliver this growth or will new capabilities and structures need to be built? CFOs should raise these questions and take an active part in building the needed capabilities.
• Financial lens: For every investment or transaction made the CFO should drive the value realization efforts. In larger companies, CFOs may even have teams dedicated to value realization from major initiatives. This is not to be an external entity that sanity checks and controls business initiatives but rather be deeply embedded into M&A transactions e.g., integration teams or business finance teams being close to the teams getting funding for new investments. These levers are where the most value can be created (or destroyed) so CFOs must make it their bread and butter to be close to these.?

This growth matrix should give CFOs and senior finance leaders an approach to how to drive growth. It’s clear that there’s a lot more granularity to the growth levers and lots of great literature and models exist. You can find great insights in Big 4 surveys and frequently released McKinsey perspectives. However, most of the tools available all have some flavors of the same thing. Hence, it’s the lenses that you apply to drive growth that will make the difference.?

Get on top of your growth efforts?

Practically all companies have growth plans and yours is no different. You’re likely not at the start of creating a new growth plan. Hence, to get practical about this growth matrix it starts by identifying your current state. What growth initiatives are ongoing and how has the value realization been from these initiatives so far? If they’re falling short of the business plan you need to understand why and drive appropriate action. Here are some good questions to ask.?

• Which growth initiatives are we currently running?
• What value has been realized from these projects so far?
• What growth levers are we not working on and why?
• What are our competitors doing?
• How can we make more resources available to fuel growth efforts?
• What role has the finance team played in the growth efforts?
• Are people being held accountable for the growth efforts they’re in charge of?

You can likely add a lot of other questions to the list. What’s important is that you conduct a thorough evaluation of your growth efforts to ensure that you’re on the right track. If you’re not you should flag it and trigger a strategy action planning session.?

Driving growth may just be the hardest task for CFOs and their finance team. Usually, finance professionals are much better at optimizing the existing business through e.g., cost reduction initiatives. There is a time and place for those, however, businesses are made or broken by their ability to grow and less by their ability to reduce costs. That’s why it’s critical to not be a CFNo but become a CFGrow! How is Finance involved in growth initiatives in your company?

This was the fourth blog post in our new series "The Top 10 Priorities for CFOs in 2024". Starting from this series we go even deeper into the issues, bring you candid perspectives from the frontlines, and share actionable advice on what the Office of the CFO should do to create more value. Read the previous articles in the series below.

The top 10 priorities of CFOs in 2024

How CFOs can manage the Next Normal

More strategic leadership is needed from the CFO

Catch the insights from our latest series "The Modern Finance Function" here.

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Anders Liu-Lindberg is the co-founder and a partner at Business Partnering Institute and the owner of the largest group dedicated to Finance Business Partnering on LinkedIn with more than 12,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk . I am the co-author of the book “Create Value as a Finance Business Partner ”, a long-time Finance Blogger, a LinkedIn Learning instructor , and a Top Voice on LinkedIn with 325,000+ followers.