In 2008, financial institutions sank like the Titanic, and businesses found themselves adrift, beset by unseen hazards on all sides and in need of a steady hand on the rudder. In the midst of what is now known as the Great Recession, firms began turning to underused members of their C-suites — their CFOs — for guidance. Although the role of the CFO had already begun to change following the passage of Sarbanes-Oxley in 2002, the financial crisis accelerated that process, and CFOs now do jobs radically different from those they did a decade ago.
Even just 10 years ago, the commonly held image of the CFO’s role was that of a glorified accountant charged with bookkeeping. CFOs were primarily focused on accounting, compliance, and general control of financial resources. The Wall Street Journal encapsulated the old view of CFOs as recently as February 2012: “The current view. . . sees finance officers as little more than number crunchers. They settle the books and look after regulatory compliance, without taking any bigger role in steering company strategy.” The article went on to call for companies to transition their CFOs into more strategic roles. Even at that time, the role of the CFO was evolving, although old perceptions of the position still lingered.
The lean years of the recession had firms seeking new methods to boost value and control risk. CEOs and boards turned to their CFOs and embraced their nascent ability to construct meaning out of seemingly meaningless noise and disparate data generated by business units outside of finance. The Great Recession made it clear that companies needed to improve not only the way they gathered information, but also how they analyzed data and converted it into something actionable.
“As the 2008 financial crisis hit, many teams and CFOs were actively engaged in their businesses and looking for ways to protect against risk, enhance liquidity, and really position the business for growth going forward,” says Tracey Travis ’86, who was CFO of Ralph Lauren during those turbulent times and is now CFO of Estée Lauder.
Just as C-suites began turning to CFOs for help with strategy and risk management, Big Data was becoming a disruptive phenomenon. Starting in the late 2000s, CFOs found they had access to vast amounts of previously uncapturable or un-synthesizable data produced by the explosion of complex business software, social networks, mobile marketing, and e-commerce, and they quickly put it to good use.
Research from Gartner indicates that the amount of information in the world is increasing 59 percent annually, a trend largely driven by Big Data, according to a research brief from Oracle. This data can provide enormous value if it’s analyzed correctly. But that kind of analysis requires a skill set that few possess.
Moreover, the McKinsey Global Institute found that “the United States alone faces a shortage of 140,000 to 190,000 people with deep analytical skills as well as 1.5 million managers and analysts to analyze Big Data and make decisions based on their findings.”
The most urgent need is for data scientists, “PhD-level experts who operate at the frontier of analytics, where data sets are so large and the data so messy that less-skilled analysts using traditional tools cannot make sense of them,” explains a 2013 report from the Accenture Institute for High Performance. It is estimated that in the United States alone “80 percent of new data-scientist jobs created between 2010 and 2011 have not been filled.”
This shortage of data specialists puts enormous pressure on CFOs to maximize the impact of technology. While it could be years before there are enough data scientists to meet demand, another solution has been presented by Accenture: divide and conquer by deploying team members with complementary skill sets that collectively add up to those of a team of data scientists.
According to Travis, organizations are seeking out CFOs who “can handle broader responsibilities from a management standpoint — in addition to having the financial acumen and discipline.” These new CFOs can be a “terrific strategic and operational partner to a CEO who is focused on leadership and vision and strategy.”
For Travis, Estée Lauder is just the latest stop in a career that has revolved around using complex data sets, math problems, and statistical challenges to ensure the integrity of some of the world’s best-known brands. After starting out as an engineer and then financial analyst at General Motors, she was a general manager and business unit CFO at PepsiCo and has served in a finance capacity at a number of companies. Prior to joining Estée Lauder in 2012, Travis served as CFO at Ralph Lauren, another respected, familyowned brand, for seven and a half years.
“I would not be satisfied with a very narrow finance role, just doing financial reporting and analysis, although I love reporting and love analysis,” Travis said, while still CFO of Ralph Lauren, in a 2012 report by Ernst and Young. “I think at this point in my career, I have the capability to do far more than that . . . . For a long time, my role has been broader in different organizations. That is a key part of my job satisfaction.” Her words echo those of the CFOs interviewed for this feature: satisfaction and success as a CFO come, in part, from working across silos and outside of purely financial duties.
The digital revolution has fundamentally altered the CFO’s job, according to Travis. Firms can now look not only at the demographics of who is buying their products (e.g., age, geographical location, gender, etc.), but also at the kind of product research consumers are doing before they buy and who influences their ultimate purchasing decisions. “The role of the CFO is evolving,” Travis says, to include making strategic inferences about business trends and growth drivers based on data analytics.
Travis in many ways exemplifies this new breed of CFO — although it’s arguable that CFOs have always been more than number crunchers. For instance, Travis oversees IT at Estée Lauder. This is becoming more the rule than the exception for CFOs. Many companies, including Estée Lauder, have made substantial investments in enterprise resource planning software, which helps measure and organize information across business units, and CFOs like Travis are now being called upon to draw insights from the data that software generates. This means they are also best positioned to implement IT systems in strategic, uniform ways.
“A common reporting structure is for CIOs [to report to] the CFO,” Travis says. “Information, insight, and data are critically important for business advisors who provide insight to the CEO and general managers.” The challenge, though, is that the sheer volume of data can be quite overwhelming. On top of that, there is an expectation that finance teams now deliver evolving reports rather than static snapshots of the company’s financial health. “It is a real transition for the finance team . . . to shift to having more flexible data, being able to mine that data, analyze the data, and quickly come up with insights and actually use the data to do predictive analytics,” Travis says.
Travis was grappling with how to maximize her team’s impact even when she was at Ralph Lauren. “The good thing about the CFO becoming a larger player in terms of influence within the organization and with the executive team is it allows other members of the finance organization to step up as well. So the controller or the SVP of finance, however you’re structured, gets the opportunity to play a broader role,” Travis told Ernst and Young.
Enterprise resource planning software, which can help CFOs cross-reference inventory against orders, future commitments, production capacity, and marketing spends,isn’t the only new font of information for CFOs to filter. Social networks, in combination with mobile innovations, have especially altered how companies measure consumer demand and market their products. In the context of Estée Lauder, the finance team now must constantly monitor which beauty products are trending, where, and why.
“We need to assess along with our marketing teams what [this data] means for our portfolio of brands from an advertising standpoint, from a messaging standpoint, from a product attribute standpoint. It informs how we think about our innovation pipeline. It informs many of the strategies that we’re focused on from a concept-tomarket perspective,” Travis explains.
Whereas consumer products companies in the past would launch a product and then have to wait to see how it did, companies now find themselves flooded with almost instantaneous feedback from customers. Nimble data analysis and quick response times can make or break a marketing campaign for a new product.
Travis always keeps her eye out for new ways that people are using technology. “More and more, the consumer is starting her journey shopping online,” Travis says. “My 17-year-old learned how to put on makeup online. She knows what’s popular, what’s trending in terms of products. She doesn’t watch television. She doesn’t read magazines. She consumes all of her information online, as do her friends.” Consequently, when her daughter goes into a store, Travis says, “she’s looking for a specific product because it has attracted her online or someone has recommended it online.”
A CFO can’t focus on data in a vacuum, though. While the current trend is for organizations to increase data gathering and improve their analytical abilities, CFOs like Travis will face additional challenges. In the case of Estée Lauder, which operates in more than 150 countries, globalization offers opportunity but also adds complexity. The company is “susceptible to the various business cycles and various macro events” unique to each geographic region, according to Travis.
Unifying all of these threads and drawing actionable conclusions from them is a constant challenge. Moreover, the correct move in the United States could be counterproductive in Pakistan, for instance. Globalization requires that CFOs and their teams hone analytic approaches that are appropriate for each market without forgetting the broader needs and priorities of the organization. Global trends and business cycles must be taken into account when making company-wide decisions or developing high-level strategy.
Macroeconomic trends — everything from savings rates to increasing industrial output in a country or region — affect companies in highly complex ways. High rates of student debt and low wage growth in the United States, for instance, are depressing the rate at which so-called Millennials buy homes and cars. Consequently, the longterm debt load for young households can be extremely important for automakers deciding how many cars to produce, but it can also be very difficult to model.
“We have not gotten as sophisticated as I would like in terms of predictive modeling of different trends in macro data,” Travis says. “But we certainly do utilize the macro data in some of our forecasting processes and in our business planning processes as well.” Modeling macroeconomic trends and then integrating them with localized data is the new frontier for CFOs. The CFO of the future may be able to reconcile information about the potential effects of quantitative easing in Europe with the distribution of particular products in Portugal, for instance.
Emerging markets, with their tendency towards volatility, are particularly challenging to incorporate into broad analyses and strategic plans. “Emerging markets, whether it’s Brazil or China or other parts of the world [like Russia], represent a lot of volatility to manage,” Travis explains. “We have a fairly sophisticated process in order to collect, monitor, and manage those risks, as well as identify other emerging risks.”
CFOs, particularly those working overseas, must understand the local political climate and whether resources have been over- or under-deployed in relation to what authorities and policy makers are likely to support in the future.
Many of the biggest challenges CFOs face are related to globalization, says Michael Vollmer ’09, former CFO of IBM’s Greater China division. CFOs in foreign offices are now often called upon to act as trusted operatives on the ground and are frequently tapped for insight about the management of different business units. Because finance is often in a separate silo from other operations, CFOs are uniquely positioned to pass along unbiased opinions about the productivity and effectiveness of other business units.
“I went from doing traditional planning and thinking to really helping think through our strategy for addressing political issues. I spent very little time actually on traditional finances in that environment,” Vollmer says of his time in China. “The people who were halfway around the world in the corporate hea dquarters didn’t understand [the situation on the ground]. If you had challenged the [Chinese staff] to work twice as hard, three times as hard, it didn’t matter — it wasn’t going to make a difference because when the Chinese government makes a decision, everybody lines up and obeys.”
These volatile developing markets offer huge opportunities and risks for companies like Estée Lauder. For instance, the company has been moving aggressively to introduce its MAC brand in sub-Saharan Africa. Consequently, MAC is often the first premium brand in many cities in the region, and the shopping experience is radically different from what has traditionally been available to consumers. This is all a calculated play encompassing several factors — the ongoing growth of the middle class in developing economies and a bet that the MAC brand can gain a loyal following, for instance.
But nothing is guaranteed. Infrastructure is lacking in many African countries. “Our target customer is the emerging middle class, the established middle class, and that affluent African consumer who’s probably extremely well traveled and very brand savvy,” Sue Fox, managing director for sub-Saharan Africa, told Reuters in 2013.
CFOs must now “manage through” volatility to mitigate risk and maximize potential value by making measured short-term adjustments without losing sight of the long-term play. One positive trend is the explosion of the middle class in emerging markets around the world, but to ride that wave, CFOs must manage a lot of shortterm risk. And in that regard, a CFO’s job is the same as it’s always been: Figure out what’s working and what’s not, and keep the ship pointed in the right direction— only now, rather than merely being navigators, they are captaining, too.
Howard Hochhauser ’04 has worked in mulitple industries. He started out as an equity analyst at First Boston and then moved to Bear Sterns, before joining Martha Stewart for a decade, eventually becoming CFO of the crafts and home goods empire. Now as the CFO and COO for Ancestry.com, the digital genealogy powerhouse, he is living proof of how the role of CFO has evolved over the years.
“I joined the company as CFO and from the beginning really was a partner with the CEO. We ultimately modified my title to reflect my role as CFO and COO,” Hochhauser says. “It’s not just a finance job. It is a valuecreation job, which includes strategy.”
Eight to 10 years ago, Hochhauser says, “it was about managing Wall Street — managing expectations.” The performance of the firm’s stock and audits were the highest priorities for CFOs. Now, though, the focus for CFOs is actually on creating shareholder value, rather than just monitoring it. “That’s not easy. It’s not about cost cutting. You have to grow the top line, and to do that it’s a partnership with the CEO.”
Building value often means figuring out how to expand internationally and launch new products, activities that require that the entire management team work collaboratively.
As other business units devise new projects, it falls to the CFO to figure out if the capital investment is worth it in the long run. Adjusting for risk and wait times for return on investment is “a mix of art and science,” Hochhauser says. “That’s not something that just comes from an Excel spreadsheet. It’s a combination of using data and experience to make key judgment calls.”
The evolution of the CFO role has been “fantastic” says Hochhauser. “Of course I’m biased, but I do think it has helped create more value for the company having the CEO and CFO debate key decisions and be aligned as a team.”
Michael Vollmer ’09 has been with IBM in various financial roles since 2000. Over the past four years he has been the CFO for IBM’s business unit in Japan and then the CFO overseeing the firm’s Greater China hardware division. He is now COO for IBM’s partnership with Apple.
“Usually finance’s job is to make sure the books are right, make sure you keep people out of jail, make sure you stay in compliance with laws and regulations,” Vollmer says. “But I think when the financial crisis came in 2008, which happened to be during the time I was enrolled in the EMBA program at Columbia, a lot of things changed.”
The biggest change is that CFOs are now asked to not only manage cash flow as in the past, but also to jump in to help general managers understand the dynamic nature of investment tradeoffs. “You aren’t just staying in your traditional finance lane; you are now really providing a lot of guidance in terms of go-to-market execution,” Vollmer explains. During the financial crisis, “all the signals were there, but nobody was particularly paying attention to them. Now [the CFO’s] job is to pay attention to those things.” CFOs are now called upon to actively manage, rather than just report.
Unlike many firms, IBM has had access to Big Data for a relatively long time because of its station in the tech sector, and its CFOs are expected to play the part of “chief integrator,” the person “who has access to all the data,” Vollmer says. “CFOs connect the dots on all that data because there is so much of it.” Companies now favor CFOs who understand how to find and connect disparate types of information, rather than strictly traditional finance and math wonks.
“I think, to me, the biggest point is that the role of the CFO today is not really about the numbers. The numbers are the end result,” Vollmer says. “It’s not just ‘here’s a spreadsheet on a piece of paper.’ It’s, ‘okay, here are patterns that we see, and here are recommendations’, so it’s really moving into what we at IBM call a ‘trusted business advisor’ type of role, someone who isn’t just providing data but is giving advice and counsel as an equal to the general managers who are running the business units.”
In most organizations, CFOs have access to more information than any other single person, which leaves them with the responsibility to translate and disseminate it in a useful and accessible way.
“Everything can be boiled down to handling information,” Ellen Taus ’82, CFO of the Rockefeller Foundation, says. “It’s obviously the financial information about what has happened at the organization . . . and our plans about what’s going to happen in the future.”
The modern CFO at a major nonprofit like the Rockefeller Foundation has to be the person who ensures all of the information in an organization is “gathered, vetted, prepared, [and] put together in a way that’s consistent, transparent, and complete,” Taus says.
When she started out, Taus says her focus was on traditional financial reporting. Now, though, technological innovation has altered the job. In the past, the main challenge CFOs faced was figuring out where to get information and how to process it quickly enough to create useful reports.
“Now, I think, the challenge is utilizing all the information that is generated — which is vast — and simplifying it in such a way as to make it accurate and complete, so that it actually tells you something and can help you make decisions,” Taus says.
Without the organizational skills of the CFO, the data generated by a firm can be “so overwhelming or disparate that there’s no story to it,” Taus explains. “I used to work in publishing organizations and would say, ‘There are reporters who write a story, and there’s a scale about how to tell a story — the who, what, where, when. We tell stories too. They’re in numbers a lot of the time, but you have to tell the story. What’s the story? It has to be clear what it is you’re saying.”
Illustrations by Peter Arkle