- Hardcover: 272 pages
- Publisher: Harvard Business Review Press (March 1, 2006)
- Language: English
- ISBN-10: 1591399459
- ISBN-13: 978-1591399452
- Product Dimensions: 8 x 1 x 9.3 inches
- Shipping Weight: 1.2 pounds (View shipping rates and policies)
- Average Customer Review: 4.3 out of 5 stars See all reviews (17 customer reviews)
- Amazon Best Sellers Rank: #247,604 in Books (See Top 100 in Books)
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Reinventing the CFO: How Financial Managers Can Transform Their Roles and Add Greater Value
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In this volume, Hope addresses with rigor and eloquence a number of key issues that the CFO and her or his finance team must accommodate to transform the finance operation. He suggests that the CFO be viewed in several different roles:
As a "freedom fighter" who liberates both finance and business managers from "huge amounts of detail and the proliferaion of complex systems that increase their workload and deny them time for reflection and analysis"
As "analyst and adviser" who, by breaking free from detail and complexity, "creates time for finance to provide the information that managers need to make effective decisions"
As "architect of adaptive management" who enables managers to be liberated by releasing them from "the chains of the detailed annual planning cycle" by replacing targets and budgets with "effective steering mechanisms, including continuous planning reviews and rolling forecasts, that enable managers to sense and respond more rapidly to unpredictable events and to changing markets and customers"
As "warrior against waste" who with her or his finance team is able to focus on "huge swathes of costs that have remained unchallenged for years"
As "master of measurement" who brings measurement back under control and provides clear guidance about its meaning to managers at every level who, with rare exception, only need six or seven measures
As "regulator of risk" who provides an effective framework for good governance and risk management "by using multiple levers of control that support corporate governance controls, internal controls, strategic controls, and feedback controls"
In the final chapter, Hope focuses on the CFO as "champion of change." He cites a number of exemplary CFOs who have transformed their finance operations, examining how they started, what vision or goals they set for themselves, how they got buy-in from key people, and how they implemented the changes. His case examples include American Express, Tomkins, and the World Bank.
Hope devotes a separate chapter to each of these "roles," explaining how the reinvention of the CFO inolves a multi-dimensional process of increased involvement in management at the highest level. To repeat, this will not happen unless and until the governning board and CEO insist upon and support, then sustain that process.
In this context, I am reminded of what Robert Kaplan and David Norton characterize as "the strategy-focused organization," one which is guided and informed by five core initiatives: translating strategy to operational terms, aligning the organization to the strategy, viewing strategy as everyone's job, making strategy a continual process, and mobilizing change through executive leadership. The first four principles focus on the Balanced Scorecard tool, framework, and supporting resources; the importance of the fifth principle is self-evident. "With a Balanced Scorecard that tells the story of the strategy, " Kaplan and Norton suggest, "we now have a reliable foundation for the design of a management system to create Strategy-Focused Organizations."
Hedre's a key question: When embarked on the reinvention process, how to gain the support of key people? In response, Hope stresses the importance of involving operating people in the change process, avoiding more complexity, showing some "early wins" (i.e. picking "low-hanging fruit"), and being patient while maintaining momentum. He makes a convincing case that financial managers really can "transform their roles and add greater value" but only if they are allowed to do so. Moreover, they must be actively involved in a process, a "journey," shared with others. Only then can everyone on the senior-management team, working effectively together, establish and then strengthen "a more adaptive, lean, and ethical organization."
That is a journey all senior-level executives in a given organization must complete together, with the active involvement and solid support of governing board members. Hope explains not only why that is imperative but also how to do it effectively, to the substantial benefit of all stakeholders.
Mr. Hope makes a very valid point. We do focus too much on detail and budgets are obsolete often before they are are written down the final time.
But in the end, I was also left very unfulfilled. The author tells us how we do things wrong and shares examples of organizations that have broken free. Yet specifics are more often than not never given. We are left with broad guidelines to figure out the rest for ourselves. This makes me wonder if the book is not just an advertisement for his beyond budgeting roundtable and himself as a consultant.
I gave it three stars anyway since it gives hope and perhaps I will figure out to actually do it real soon.
His advice however can be summed up in a few lines:
1) Skip budgets and go for rolling forecasts which can be updated monthly.
2) Eliminate much of the accounting detail and set it up in the same way you report.
3) Keep your internal and external reporting the same. Don't report twice.
Update: I also have "Beyond Budgeting" by the same author now. And this makes me reconsider this book. I love both books. But I do not see enough added value in his second book anymore. It seems to be a rehash with some added info. Not really worth an entire book.
For example, planning what to make/sell 12-18 months in advance doesn't make sense when markets are changing rapidly - managers need to know where they are right now (not eg. 7+ days after month's end) and what the next 6-12 months look like so they can influence them.
New, increased pressures include Sarbanes-Oxley, shareholder initiatives, reducing costs (eg. finance-related from about 3% to 1% of revenues), and handling greater detail and complexity (average large organization has 10 ledger systems, 12 budgeting, and 13 reporting systems - vs. best practice of a single platform). (One large U.K. company had over 5,000 general ledger accounts, but only 250 had over two entries in a year - the result was a trivial focus on meaningless variances and budget detail. Hope also points out that companies report an average 132 metrics to senior management every month - 83 financial, 49 operational - over 6 times the number recommended by Kaplan and Norton for a balanced scorecard; meanwhile, none of these usually assess customer value.
"Reinventing the CFO" asserts that senior executives should not use powerful IT systems to drill down to increasing levels of detail, demanding instant answers to irrelevant questions. Instead, the CFO must lead for less detail and creation of more time for reflection. Statistical process control evaluation of variations is one suggestion; another is transferring power to lower levels within agreed boundaries but without specific targets.
Example of a Simplified A/P System: A P.O. is entered into the data base - received goods either match, generated automatic payment, or they're sent back - nothing else.
Hope also believes pursuing market share can drive up costs and bring in unprofitable customers - in a large population 20% are likely to account for 225% of profits, while 80% "lose" 125%. (A clue - it helps if the customers focus on "value," not costs.) An important CFO role is identifying those customers that are profitable, and suggesting changes (eg. delivery, transaction costs) for those that are not.
Another key CFO role, per Hope, is ensuring that all activity adds value by focusing on processes and their improvement, rather than functions. Toyota has no standard cost accounting system - the only measures inside the plant are visual ones, some of which are kept on daily graphs.
Provides good insight regarding how typical CFOs typically spend their time, where it should instead by focused, and how to get there.