[ad_1]
When the CFO of a company takes the lead in improving financial acumen and other capabilities, they can raise both their leadership profile and the company’s strategies.
Today’s most successful CFOs identify which capabilities will create significant value, ensure that employees have foundational financial acumen (regardless of their tenure), support the company’s talent development efforts alongside the CEO and CHRO (chief human resources officer), and direct the right talent to the right parts of the company.
Here, the globally experienced divisional and group CFO Gary McGaghey discusses how CFOs can encourage capability building and talent development in their companies. He delves into the elements of strong performance and explains how CFOs can encourage this strong performance, allocate the right talent to the right roles, ensure all employees have basic financial knowledge, and dedicate more time and effort to capability building.
Elements of Strong Performance
Gary McGaghey explains that there are three elements of strong performance:
- Financial performance, which refers to meeting financial targets.
- Operational performance, which refers to how the leadership team runs the company.
- Capability building, which refers to the culture and health of the company and the skillsets of its employees. When CFOs adopt capability building as a strategic weapon, they can create competitive distance and materially enhance employee well-being.
How CFOs Can Encourage Strong Performance
The Covid-19 crisis has given many individuals the opportunity to reflect on how they spend their time in the workplace. When reflecting on their work lives, many people have realised how important it is that this time is full of purpose and meaning.
In particular, our relationships with our managers in the workplace are essential — we need mentors at all stages of our careers. But the broader economy and labour markets have seen many individuals find themselves in a crisis of purpose and, by extension, a crisis of management’s lack of ability or willingness to invest in their development. Such crises leave employees unhappy in their roles, which leads to low productivity, low morale, and various negative outcomes and disruptions.
However, when a company’s leaders help employees build their personal and professional capabilities, they cultivate a sense of purpose, meaning, and commitment. When managers invest in their teams’ capabilities, they shape healthier, engaged, energetic employees. To achieve this, CFOs can use data to pinpoint skill gaps and decide how to enhance capabilities. When a CFO puts effort into helping employees progress with their careers, these employees’ performance typically improves.
McKinsey has surveyed over 1,200 senior executives [CM1] to learn about their views on capability building. While 64% support employee capability building, only 40% said that senior executives in their companies are directly involved in creating opportunities for employees to apply new skills. To raise this number, executives could teach courses, lead by example in the broader programme, and link learning priorities to business outcomes.
How the CFO’s Role Is Evolving
As we emerge from the Covid-19 pandemic, there is now an opportunity to elevate the CFO’s role outside the finance function. Gary McGaghey notes that there are lots of ways to pursue this opportunity. One of the most notable is team building. Rather than focusing on how they can build capabilities in the finance team, the CFO can also consider how to cascade these capabilities throughout the company. Given their visibility, the CFO is an ideal person to leverage their team-building skills so the finance team sets the bar for all other functions and business units in the company.
Allocating the Right Talent to the Right Roles
McKinsey research [CM2] has found that reallocating talent is as important as reallocating capital. This research demonstrates that companies that reallocate financial capital more dynamically typically achieve a higher compound growth rate, and companies that reallocate human capital more dynamically tend to match the right people to the right skills and the right work, resulting in a 60% probability of having higher total shareholder returns than competitors.
As a well-positioned person to understand where value comes from, the CFO can match the right talent to the right roles by focusing on the critical roles that drive the company’s values. Gary McGaghey recommends expanding the Pareto principle of 80/20 to 70/30 or 50/50. CFOs can also keep in mind that transitioning individuals and resources between divisions can improve performance. If a CFO needs a value-creation initiative to work out to reach their goals, and if everyone’s compensation is based on the same success measures, it’s much easier to allocate the right talent to the right task regardless of the company hierarchy.
It’s important to allocate the best talent to the most value-contributing roles. When CFOs dig deep into their company, they can ensure that the right individuals are working on the most valuable initiatives, support cross-functional talent, and allow integration throughout the company. To capture value from these efforts, CFOs should measure objectives and key results (OKRs), outcomes, and goals at weekly, quarterly, and yearly intervals.
Ensuring All Employees Have Basic Financial Knowledge
Often, various individuals in a company don’t understand the company’s finances. This can lead to individuals throwing terms around interchangeably and causing confusion. For example, many people confuse profit per case and profit margin. But these drive different activities. The CFO can work with the CEO and CHRO to help individuals across the company understand key terms. Teaching this doesn’t require costly off-site training either. The CFO can engage members of the finance team to lead this training and form the link between finance and other functions.
Furthermore, the age of big training and capability building events is already behind us. Rather than arranging for all delegates to meet in one room, tech-enabled learning that delegates can follow when and where suits them is becoming far more popular. Virtual training has become even more prominent during the Covid-19 pandemic, and there are now many more training programmes on offer in virtually all fields.
It’s important to educate the wider company not only about basic finance but also about the skills they need and the levers they can pull to drive performance. All employees need to understand how their activities generate value, how to discuss that value, and the market in which their company operates. CFOs can enable this by providing business case training for employees throughout the company. Additionally, CFOs may create programmes that build and reinforce a cash culture and help employees focus on metrics beyond profit and loss.
Lots of executives are now allocating budgets for training. One survey [CM3] has revealed that one-third of company leaders have reported increased spend on capability building since 2020 despite other priorities that have emerged over the past two years.
Dedicating Time and Effort to Capability Building
A 2018 McKinsey survey [CM4] found that CFOs weren’t typically engaged in developing the company’s top talent for 20% of the time. And when CFOs were developing company talent, for two-thirds of that time, this activity was mostly within the finance function or ad hoc. On top of this, the amount of time that CFOs dedicated to developing finance capabilities dropped by nearly 30% from 2018. The results of this survey highlight the fact that, overall, CFOs aren’t as engaged as they need to be to reap the benefits of capability building.
Gary McGaghey explains that the CFO needs to act as a strategic value partner who steps outside the finance function and trains the wider company on what drives performance. To shape a company’s capability building direction, the CFO should amplify their voice across the company. They can achieve this by communicating often and openly discussing what they need, first by defining performance and enhancing all employees’ financial acumen.
CFOs should also make sure they’re strong role models for employees throughout the company. They should take their own training, set the agenda, and teach classes to accelerate capability building programs. Finally, CFOs can reserve 10-15% of each day or week to work with teams beyond the finance function and collaborate with other functional leaders.
About Gary McGaghey
Gary McGaghey is a chartered accountant in South Africa and a chartered management accountant in the UK. He studied at the University of Natal and the University of South Africa, completing a bachelor’s degree and a postgraduate honours degree in Commerce. He also holds a non-executive director diploma. Since then, Gary McGaghey has helped several private equity, privately owned, and listed companies achieve impressive organic and M&A-driven growth and has held leadership roles with companies like Unilever, Nelsons, and Robertsons.
In 2019, Williams Lea Tag named Gary McGaghey its Group CFO, making him responsible for driving transformation and value creation. Williams Lea Tag is a €1.3 billion end-to-end marketing production and business services group, which the private equity firm Advent International owns. As the Group CFO, Gary McGaghey manages the company’s balance sheet refinancing, cost restructuring, divestitures, working capital cash flow management, carve-outs, and mergers and acquisitions. He is also the non-executive director of the children’s fitness analysis and testing provider Fitmedia UK.
Learn more about Gary McGaghey.
[CM1]Source: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/in-conversation-the-cfos-role-in-talent-development
[CM2]Source: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/in-conversation-the-cfos-role-in-talent-development
[CM3]Source: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/in-conversation-the-cfos-role-in-talent-development
[CM4]Source: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/in-conversation-the-cfos-role-in-talent-development
[ad_2]
Source link
0 Comments