“Michael Porter gave us the value chain but didn’t tell us how to value it.” And, “by ’10, the financial world will move towards global Generally Accepted Accounting Principles (GAAP) with industry-based standards.”Do these opinions sound radical enough? These opinions are of Cedric Read, a global financial management consultant and author of best sellers like CFO As Business Integrator and CFO Insights. Earlier, he led PricewaterhouseCoopers global finance cost management practice, where he was a strategy consultant for 25 years.
CFOs are the cynosure of most eyes in the business world. Post Enron and Parmalat, across the world, shareholders look to CFOs as the “conscience keepers” of organisations. Mr Read, as part of his work, met CFOs of companies across countries to get perspectives on changed roles and the business challenges CFOs face. In the last 18 months itself, he has interacted with around 1,000 CFOs across cities like Frankfurt, Oslo, New York, Moscow and other centres to understand the role they play in their respective organisations.
The role of CFOs has metamorphosised over the years, Mr Read said. In the ’80s and the ’90s, CFOs were mostly involved in such functions like decision support, specialist financial services and transaction processing. But, today, the CFO sits in the middle of these three financial functions strategising whether it needs be outsourced or not. So, “out” went most input processing and basic accounting activities, while strategy policy and business decisions stayed “in”. In his book CFO Insights, Mr Read has underscored the need for CFOs to focus on the “value creating core” and setting a stage for outsourcing and offshoring.
Enhancing shareholder value is a critical function of any CFO, said Mr Read, who has written books on the rise, fall and post-debacle phase of internet companies. It applied during the pre-internet period and is equally relevant today, he added. And, one of the parameters he suggests looking at is cash flow return on investment (CFROI). The reason: internet companies went kaput basically because of a faulty business model that didn’t focus on cash generation. “So, cleaner the cash on the books, better the shareholder value.”
The author of four books —
CFO Architect of Corporations’ Future, eCFO, CFO As Business Integrator and CFO Insights — written over the last seven years, is currently working on a new book titled Value Black Hole. It deals with the future financial disciplines that CFOs need to adhere in future, stressing on management of intangible assets of organisations. For instance, he said that it is important for a CFO to get a full-view of value chain economics — from one end of the value chain to the other. And that entails going beyond the Michael Porter model of just knowing the company value chain, and actually “valuing” them.
Mr Read cited the example of how valuation of products at various stages (say lead identification or drug development) of its R&D pipeline helped GlaxoSmithkline prudently align its products on the R&D pipeline. For a consumer company like Coca Cola, such valuations helped manage brands better, he said.
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