Gary McGaghey Explains Why Capability Building Is Now a Fundamental Part of the CFO’s Role

As the role of the CFO evolves, finance leaders are dedicating more and more efforts to building new capabilities — the skills, mindsets, and behaviours that companies must embrace to reach and sustain their full potential. And, as CFOs spend more time on capability building, they can help their companies identify where and how to invest in their businesses so they can future-proof their operations.

The divisional and group CFO Gary McGaghey explains that the CFO’s focus on capability building is especially important now that companies are recovering from the health and economic effects of COVID-19. For example, the coronavirus has accelerated many companies’ adoption of automation, artificial intelligence, and other digital technologies to enhance and streamline business processes. The widespread implementation of these technologies is helping companies all over the world prepare for post-pandemic business.

In a period of such rapid change, Gary McGaghey explains that CFOs must step up to the challenge of capability building — an area in which many CFOs consider their experience underdeveloped and/or underutilised.

The Modern CFO’s Role

The last decade has seen the role of the CFO and the wider finance function grow to affect wider parts of the company: More functions now report to the CFO, who has more oversight of tasks that weren’t always part of their mandate. A 2018 McKinsey survey [CM1] concluded that four in ten CFOs create most of the value for their companies through their strategic leadership and performance management. However, fewer than half of the CFOs surveyed said they had time to focus on capability building, either within the finance team or across the wider company. It’s essential that companies give CFOs space and time to ensure business units get the resources they need to invest in organisational changes, talent, technologies, and infrastructure so they can flourish and model cross-functional behaviour and skillsets.

As members of the C-suite begin to realise the CFO’s growing responsibilities as a financial controller, strategic partner, and value manager, here, Gary McGaghey explores the ways that a CFO can build effective capabilities.

How the CFO’s Capability Building Efforts Can Help the Company

In the aftermath of the COVID-19 pandemic, many companies have found that the capabilities of their workforces no longer match the needs of their markets. For example, many restaurants, grocers, and retailers opened online ordering channels during the lockdowns, which meant that lots of these businesses had to reconsider their systems, processes, supply chains, technical capabilities, and skillsets. But at a time when business leaders need to double down on capability building, many businesses found that their efforts fell short. A 2020 McKinsey survey [CM2] found that only one-third of respondents reported that capability programmes usually or always achieved their objectives and business impact.

To improve their chances of success, companies can leverage the CFO’s expertise in:

1. Identifying opportunities to invest in capabilities that can create value.

2. Enhancing financial acumen at all levels.

3. Supporting the company’s talent-development efforts.

Identifying Opportunities to Invest in Capabilities That Create Value

Gary McGaghey emphasises that capability building and financial performance are intimately connected. Hiring good-fit employees can promote customer satisfaction, operational efficiency, and other elements that promote sales, revenue, profit, and other measures of performance. CFOs should have both the financial and operational data and the cross-functional understanding of the company to identify the capabilities that can help the business differentiate from its competitors.

However, CEOs and other C-suite leaders often expect investments in capability building to pay off immediately. In reality, the value that these investments tend to generate builds over time. Capability building is a long-term process, and it’s important to look for markers that indicate the company is moving in the right direction along the way. Such markers might include increased customer engagement and higher employee satisfaction scores. These markers might lead to more tangible measures, like sales, deposit growth, and loan-balance growth.

One of the biggest mistakes companies make in capability building is failing to connect learning and other development efforts to performance improvements. The CFO should guide other C-suite leaders through the short- and long-term trade-offs that come with investing in capability building and help them define the metrics used to measure progress towards performance goals.

Gary McGaghey uses the example of a food manufacturer’s CFO, who assigned financial analysts to work with the operations team to collect and interpret real-time data on consumer preferences. The CFO then used that data and cross-functional relationships to help C-suite leaders track the need for skills and capabilities in particular areas of the business.

He adds that CFOs can build a company’s finance capability by training relevant individuals to build robust business cases that support investment proposals. This is a key capability that the CFO is well-positioned to lead as they guide the education of the wider business. If the CFO trains others in this area, they should then receive stronger business case proposals to support investment decisions, which avoids them having to send these proposals back for rewriting.

Enhancing the Company’s Financial Acumen at All Levels

Often, many employees in a company use the same terms to refer to different things. For example, “profit” can refer to profit per unit, profit dollars, profit margins, or gross margin. And “costs” can refer to marketing investments, overhead costs, or capital. To minimise confusion and promote efficiency in communications and operations, CFOs can ensure that all leaders use common language to discuss financial matters. This way, CFOs can develop core functional capabilities for monitoring cash flows, establishing base and momentum cases, and employing various scenarios in decision-making. Each of these is essential to uncovering how a company can unlock more value.

Gary McGaghey refers to the example of a CFO of a consumer goods company who was concerned about the general lack of business acumen outside the finance group. So, they designed an internal mini-MBA programme and curriculum for high performers. The programme helped business unit leaders understand their divisions’ roles within the wider organisation, the function’s value-creating role within the division, the importance of each business unit leader’s role, and how key performance indicators (KPIs) were tied to the company’s operating model and strategic plan.

The CFO noted instances where teams benefitted from the programme. For example, some accepted fewer resources in the short term so the company could apply other resources to more pressing initiatives. The CFO also arranged frequent town halls and presentations that discussed the company’s strategy so all functions could learn about how the business model worked and understand their individual roles within the model. This way, the CFO encouraged the celebration of small wins and reinforced success behaviours and mindsets.

Gary McGaghey adds that it's important for the CFO and CEO to work together to help business unit leaders and other employees take responsibility for cash-related decisions. In light of the COVID-19 pandemic, cash preservation is of critical concern for most companies, especially in terms of how they manage receivables, payables, and inventory. To uphold and reinforce a cash culture, the CFO should reward the executives and teams who manage cash well.

Post-Pandemic Talent Development

Gary McGaghey explains that CFOs should leverage the critical post-pandemic opportunity to develop talent by reviewing the talent profile, identifying the skillsets that the company now needs, and collaborating with HR leaders to connect such skillsets with strategic and operating plans. For example, retailers that adopted a digital-ordering model during the pandemic may now require more programmers, data analysts, and other digital talent to uphold and develop new online capabilities.

In this case, the CFO and other senior leaders may draw up a skills matrix that details the new roles and responsibilities required given the new business context. This tool can enable managers to have frank conversations and performance reviews about the skills and mindsets now required in various parts of the company and understand the associated investments. Gary McGaghey notes that CFOs and other business leaders will need to refresh the skills matrix on an ongoing basis as talent needs continue to evolve.

How CFOs Can Improve Their Own Capabilities

CFOs should also complete capability programmes themselves, so they can role model the company’s desired mindset and behaviours. This way, they can also help business unit and C-suite leaders think about strategic imperatives as a cohesive whole, the skills required to execute the plans, and the effect of these plans on the company’s financial health. As CFOs take on wider sets of challenges, many benefit from reskilling in the following two areas before helping others reskill.

1. Improving Communication Skills

As most CFOs are already experienced in budgeting, forecasting, and planning, they probably don’t need to shape their finance skills. However, many benefit from honing their communication skills. It doesn’t matter how strong a CFO’s financial skills are if they can’t convey clear, strategic information to others.

Gary McGaghey refers to the example of the CFO and finance managers of a metals company. These individuals were the primary points of contact for transforming data generated by data scientists and the analytics team into specific actions that the company could take to advance its production-volume forecasts, factory usage, and pricing. The CFO was a clear communicator and gained the trust of the general managers. Together, they implemented the suggested changes, improving the company’s profitability. By leading from the front, the CFO proactively shaped the corporate agenda and managed traditional responsibilities like closing the books, generating end-of-month reports, and reconciling actuals to budget.

2. Monitoring Wider Contexts

CFOs may also step outside the finance silo to monitor the company’s operations, the wider industry, and the evolving global, economic, political contexts surrounding the company. This way, they can construct and reconstruct their worldview — their sense of how macro trends should inform micro decisions of the company — and understand:

· How each individual can best serve teams within the company.

· How each team can best serve the company.

· Where the company fits within the industry.

· Where the industry fits within national and global contexts.

When developing their worldview of the company, the CFO should also consider the company’s organisational dynamics, noting how teams thrive or flounder, the efficacy of the company’s strategic principles, and how the company creates returns for shareholders. When the CFO fully understands this information, they can help other C-suite leaders develop an effective vision.

Gary McGaghey gives the example of a high-growth company that faced threats such as new market entrants, fast-changing costs, and competitive pricing. The CFO and executive peers had a clear view of the shifting landscape. They compared the company’s business model against the models of new entrants, pinpointed its strengths and weaknesses, and adjusted the model to meet new demand. By drawing on data from the company’s analytics, they built an empirical case for change and highlighted opportunities for improvement. This way, they streamlined the company’s operations, generated more value from key assets, and boosted its return on investment (ROI) to new heights.

A Front Seat for Capability Building

Gary McGaghey concludes that capability building must take a front seat in any company’s preparations for post-pandemic business. This is especially important now that CFOs’ roles are expanding, often making them value managers and strategy partners. Now that cross-functional perspectives and access to data are becoming integral to the CFO’s role, these finance leaders play a critical role in helping companies develop the skills, mindsets, and behaviours that fuel long-term success.

Pick up more insights from Gary McGaghey.

About Gary McGaghey

Gary McGaghey is the Group CFO of Advent International’s €1.3 billion end-to-end marketing production and business services group Williams Lea Tag. He manages the private equity company’s divestitures, carve outs, working capital cash flow management, balance sheet refinancing, cost restructuring, and mergers and acquisitions. Before working for Williams Lea Tag, Gary McGaghey delivered organic and M&A-driven growth for several privately owned and listed companies, holding leadership roles for companies such as Unilever, Nelsons, and Robertsons. He is a chartered accountant in South Africa and a chartered management accountant in the UK.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes