Published: June 01, 2012
For all the innovation in financial management over the past 20 years, it’s remarkable how little the process of hiring and developing finance talent has evolved. Many CFOs do so pretty much as they did a decade or two ago, recruiting talent from a largely homogenous pool of candidates, predominantly with accounting backgrounds or quantitative skill sets, and assigning most of them to budgeting and planning or to finance operations. Many believe that rotational assignments can create the breadth that finance function generalists—and future CFOs—need.
CFOs report a growing tension between demand for traditional finance operations and demand for finance support elsewhere.
Yet that approach isn’t likely to deliver the leadership profiles needed to manage increasingly complex finance organizations and to serve business leaders broadly in the modern era. Turnover is high. Few new hires with an accounting background ever get the kind of sustained business experience that would hone their strategic and top-management advisory skills. CFOs report a growing tension between demand for traditional finance operations and demand for finance support elsewhere —in planning and strategic analysis, reporting to shareholders and regulators, and coordinating activities across a complex web of outsourced and automated transaction providers.
One way to develop the skills that the modern finance function requires is to differentiate development paths for distinct roles: specialists to handle traditional finance domains; advisers to counsel senior executives in business units and functions; and experts to manage areas such as investor relations, risk management, treasury, or taxation. The recruiting pools and profiles for these segments would differ, as would their career development paths (through rotations or formal training), and the people in them would be evaluated and compensated differently.
The individuals who bear responsibility for traditional transactional tasks—managing financial processes (such as journal ledgers, accounts payable, and receivables) and basic reporting—hold roughly half of the management roles in most finance functions. Many of these activities are now handled by shared-services groups that can standardize processes and take advantage of scale benefits. Staff members in these roles often provide finance transaction support for internal and external customers. Their development goal should therefore be to get broad customer service expertise and skills, including the ability to ensure zero error rates, continuous cost and quality improvements, and legal compliance, as well as the project management savvy to run teams dispersed across a number of locations. Finally, these specialists should be adept at information technology, given the increasing use of enterprise-resource-planning (ERP) systems, and at building relationships with the third-party vendors that often support finance subprocesses.
Companies that aggregate these roles into a distinct professional track could not only recruit individuals for them beyond the typical pool of candidates with accounting degrees but also better define their career progression. For many people, a clear career path would make this track an attractive one by providing the kinds of skills—motivating teams, driving quality assurance, improving processes—that would prepare people for future roles running groups or projects that share similar management goals. A few companies have already adopted an approach along these lines. One leading transportation and logistics business, for example, has given the finance function a lean shared-services center that hires people with process rather than functional capabilities. Managers measure success by their ability to develop the organization’s service quality and process skills rather than functional knowledge alone, and it now boasts one of the industry’s lowest costs per transaction, high employee morale, and minimal turnover.
Much of the increasing demand on the finance function comes from business unit managers who want support for decisions that affect value creation and its recognition by equity markets. At the most senior level, CFOs spend most of their time in this role, but traditional hires as division finance directors are not always well prepared for it. The best candidates may hold advanced business and professional degrees, such as MBAs, or have experience in other parts of the business, for these people are more likely to have the technical, strategic, and competitive knowledge to integrate finance and strategic thinking. Depending on the industry, we estimate that the professionals in this track should account for around 25 percent of the management positions in the finance function.[[[PAGE]]]
Ideally, these advisers would develop the analyses and reports that executives rely on to make sound, value-creating decisions—for example, by explicitly illustrating the trade-offs among strategic options, such as the balance between internal and outsourced R&D. They would also participate more actively in individual M&A transactions (including quantifying and addressing revenue and cost synergies) and play a role in improving the competitive distinctiveness of the company’s M&A capabilities: the quality of the pipeline, the speed of decision making, and the creation of repeatable merger-management capabilities. (They would, for instance, understand the kind of innovative business and portfolio modeling that adjusts for a shifting landscape of competitors, macroeconomic environments, and customers.) Finally, the advisers would build leadership capabilities to coach line executives, challenge inertia and wishful thinking in the allocation of resources to existing businesses, speed up and improve decision making, and educate line leaders (for example, about how capital markets behave).
A number of companies already have such professional tracks. One large industrial conglomerate, for example, formally identifies and recruits people in different parts of the organization for finance leadership roles. It has a very aggressive, defined approach to rotations through different businesses, other functions (such as marketing), and line leaders who have different management styles. This breadth of exposure and on-the-job apprenticeship is coupled with an objective, stringent performance evaluation process ensuring that only people who combine technical expertise with top-management peer skills are retained.
Other companies take a less formal approach, identifying talent by word-of-mouth networks within the finance function. We also see companies using major capital projects, new-product introductions, or acquisitions as opportunities to build the generalist skills of finance leaders. Both approaches can succeed, though the formal one is rare and typically lacks institutional support, while the informal one works only if the CFO actively participates in recruiting, providing opportunities, and evaluating and mentoring.
Some professionals focus on specific, highly specialized work, such as investor relations, treasury, audit, risk management, or taxation. Although most of a controller’s direct reports are likely to be operational and financial-services specialists, the controllership itself should be considered a specialist finance function position.
If the finance function were separated into distinct career tracks, specialist roles would change relatively little.
If the finance function were separated into distinct career tracks, specialist roles would change relatively little. Many companies already define them clearly, and the experts performing them understand the expectations and likely career paths. Yet even companies that clearly define the roles often lack an element of formality in hiring and in career progression, which is often ad hoc and opportunistic. Such companies provide little encouragement or support for developing the external networks and reputations of finance function specialists—critical to help them stay current with legal and regulatory developments. Clearer formal definitions would allow managers to provide more structured reviews and more targeted training and professional-development opportunities for functional specialists, to hire and promote them more systematically, and to give them a more exciting and compelling career experience.
One global pharmaceutical company, for example, encourages its finance function specialists to develop relationships with academics and other professionals outside the company by attending symposia and conferences, as well as joining professional groups. The company also explicitly rewards people who develop an external reputation in the profession (for instance, through teaching assignments, membership in professional bodies, and mentoring affiliations). The result is a more motivated and excited professional staff—with the added benefit of bringing home outside ideas and evolving best practices. That’s also an advantage in recruiting, since the career tracks for many of these professionals should be part of a progression in a career started elsewhere, in similar roles at other companies or in major accounting firms.
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The traditional model of hiring, developing, and promoting talent can no longer deal with the expanding breadth of demands on the finance function. It’s time for HR leaders in finance to confront the new demands on it by creating next generation recruiting and development programs. Separating the roles of people within it to match the range of activities they perform is a logical starting point for change.
Ankur Agrawal ([email protected]) is an associate principal in McKinsey’s New York office, and Bill Huyett ([email protected]) is a partner in the Boston office.
This article was first published in McKinsey on Finance, No 42, Winter 2012. Copyright © 2012 McKinsey & Company. All rights reserved. Reprinted by permission.
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