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— Industry Insight —
After the economic downpour of the past year, the new operational river running through the executive suite is dissolving the walls between the chief financial officer and chief operating officer offices. Today's successful CFOs must have a strong operational focus. Today's successful COOs must have a strong competency with numbers. And more and more frequently, businesses -- particularly those with revenues under $100 million -- are recognizing the cross-functional fluidity between these roles and moving to combine the CFO and COO positions, or adjusting each role to incorporate cross-functional attributes. A gradual shift toward this organizational dynamic has been under way for years, but the past year's economic uncertainty has expedited this movement -- forcing companies to take a fresh look not only at the individuals in the CFO and COO chairs, but at the job descriptions, behavior skill sets and technical know-how required to be successful. CFO and COO role shifts are most frequently on the rise at companies where there is a weakness in leadership at either position. The challenges of the current economic environment have exposed individuals who have reached the peak of their functional level competency and are unable to develop a broader skill set that extends across functions; these individuals are increasingly being terminated by boards and private equity firms in conjunction with overall talent upgrade initiatives to deal with tougher times.
Another driver behind the blending of the CFO and COO roles is businesses' heightened need for rapid and accurate decision-making, despite an environment that fosters fewer reliable, relevant facts. External competitive and economic pressures are resulting in increased financial and operational ambiguity, while, at the same time, mandating better executive judgment calls. In the sub-$100 million revenue world of the middle market, this decision-making must cross functional lines, thus further blurring the line between CFO and COO responsibilities. Furthermore, as outsourcing and partnering with suppliers and customers becomes more prevalent in the sub-$100 million environment, companies must have executives who are adept at addressing cross-functional issues that arise within these potentially not-so-forgiving relationships. As pricing pressures increase and lead times shrink, companies with executives who can cut across all organizational functions quickly and completely in order to resolve issues will ultimately win. CFO and COO role shifts are also occurring as entrepreneurs and family business owners increasingly realize they can't have a hand in every functional role within their organization. Founders typically extend their involvement beyond their chief executive role, actively collaborating with a management team of individuals who have "grown up with them" in the business and, in some instances, involving themselves in areas beyond their domain. However, many are learning in the face of arduous conditions that their CEO role is a full-time position in its own right, and that they require the support of a very strong, operationally oriented "number two." With an integrated CFO/COO in the "number two" role, the founder/CEO can more effectively leverage his or her time to focus on revenue growth and strategic direction, which in the current environment is critical to long-term success. Finally, today's economic conditions demand that C-level executives interpret information and course-correct during the current month -- not in the subsequent month when the final figures are in. This daily gathering and interpreting of field intelligence (versus simple end-of-the-month body counting) requires an executive to have one foot firmly grounded in operations and another firmly grounded in finance. Such a change in perspective, particularly for family business owners, can significantly impact the daily operating culture of the company. In some cases, owners and managers have fully embraced the 13-week rolling cash flow forecast discipline typical of private equity-backed, leveraged companies, utilizing it as the primary vehicle for maintaining a daily management and course-correction schedule. Business leaders often say the success of an organization is "all about the people." Today's changed operational requirements push this notion one step further, impacting how the "people" of the executive suite are organized and how their work is assembled and managed; both roles and the specific definitions of success within those roles are being redefined. In an environment where external forces shift frequently and decisions must be made with the collective, communicative input of a tightly integrated team, CEOs should consider the potential for improved executive-level team dynamics with one less person in the mix. For example, an internal management team comprised of three "A players" and one "B player" is likely significantly less effective than an internal team of just three "A players" that accesses the focused technical knowledge of the former "B player" team member via a consultant or other outside source. As the outside world grows ever more complicated, companies are seeking to simplify their inside worlds to ensure prompt, appropriate reaction to external changes. These simplification initiatives (that is, installing a new, nitrated information system with one data set used by sales, operations and finance) often cross over multiple functions, and CFOs or COOs who are too narrowly oriented may be unable to bring the simplification process to fruition. These individuals are likely able to articulate the concept in a PowerPoint presentation, but implementation in the office and on the floor generally proves to be beyond their capabilities. Another internal benefit to acquiring cross-functionally literate C-level executives is these leaders' propensity to develop cross-functionally literate teams below them. Daily, detailed decision-making is conducted at the middle-management level of sub-$100 million revenue companies -- and the middle-management operator (or sales professional) with a finance orientation or the middle-management finance professional with an operations (or sales) orientation are increasingly proving to be the necessary profiles for success. An organization with a CFO/COO who understands both the financial and operational implications of decision-making stands to gain substantial human resource management benefits. Because these executives know the importance of a flexible organizational design to a company's structural growth, they can more effectively deploy company resources to get the necessary work done. For instance, these individuals may pursue a more conservative investment in full-time employees and an increased use of contingent, part-time, temporary or outsourced workers (a notion similar to renting a residence versus buying a residence, or car-sharing versus purchasing a car). A CFO/COO's cross-functional perspective enables him/her to more readily capitalize on opportunities to "plug-and-play" the appropriate level of expertise for changing situations. Further, an ongoing use of interim talent creates a mechanism for controlled deployment of expertise that can fluctuate with internal and external workforce influences. COOs without financial acumen and CFOs without operational acumen lack the intellectual horsepower and breadth of experience to understand and implement these organizational changes, which if done properly can yield significant competitive advantages. Though the concept of organizational development has historically been the domain of larger, more bureaucratic companies in order to coordinate and control the masses of people they employ, it is also relevant to the middle market as these workforce changes are being implemented. "Demonstrating cross-functional expertise, along with a successful track record of scaling or 'turning around' a business, is part of the ticket for admission to getting interviews today at the senior level," said Joe Riggione, a partner at Heidrick & Struggles International Inc. "In order to meet ever-demanding job requirements, candidates must increasingly differentiate themselves from other candidates, and those with specific experience working in a cross-functional manner, along with demonstrable success navigating growth or challenges, are increasingly in demand. In an environment where there are fewer elite executive openings, you need to really separate yourself from the multitudes to get the attention of the hiring CEO or board." The river running through the executive suite is swift moving, and the intermittent rapids are particularly challenging. CFOs with operating skills and COOs with financial skills are increasingly the executives who, along with their CEOs, are making it downstream into calmer waters without capsizing. Thomas Bonney is the founder and managing director of CMF Associates. |
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