Being a Consulting CFO Is More Than Just Giving Advice

Each year management consultants, such as consulting CFOs in Canada receive more than $200,000,000 for their services. However, much of this money pays for impractical data and poorly implemented recommendations. To reduce this waste, clients need a better understanding of what a consulting CFO assignment can accomplish. They need to ask more from such advisers, who in turn must learn to satisfy higher expectations.

A Hierarchy of Purposes

Being a consulting CFO includes a broad range of activities, which are often defined quite differently. One way to categorize the activities is in terms of their individual focus, such as competitive analysis, corporate strategy, operations management, or human resources.  Another approach is to view the consulting process as a sequence of phases—entry, contracting, diagnosis, data collection, feedback, implementation, and so on.

A generally more useful way of analyzing the consulting process is to consider its purposes. Clarity about goals certainly influences an engagement’s success. A Consulting CFO’s eight fundamental objectives are listed below:

1. Providing information to a client.
2. Solving a client’s problems.
3. Making a diagnosis, which may necessitate redefinition of the problem.
4. Making recommendations based on the diagnosis.
5. Assisting with implementation of recommended solutions.
6. Building a consensus and commitment around corrective action.
7. Facilitating client learning—that is, teaching clients how to resolve similar problems in the future.
8. Permanently improving organizational effectiveness.

The lower-numbered purposes are better understood and also more requested by clients. Many consultants…including Canova Bancorp…aspire to achieve the ultimate goal identified in number 8.

Purposes 1 through 5 are generally considered the basic functions. Most clients are not likely to request purposes 6 through 8 but these latter goals are best considered by-products of earlier purposes, not additional objectives that become relevant only when the other purposes have been achieved. They are essential to effective consulting even if not recognized as explicit goals when the engagement begins. As a result good consultants…including Canova Bancorp…are beginning to approach lower-numbered purposes in ways that involve the other goals as well

1. Providing Information

The most common reason for a company to seek the assistance of a consulting CFO is to obtain information. Compiling that information may involve a number of undertakings for which a company may be unable to spare the time or have the resources to develop the data internally, but at the same time recognizes the need for that information to improve its chances of future success.

Often information is all a client wants, but many have never thought about how to properly use the information once they get it.  This is where the consulting CFO provides expertise to explore the client’s underlying needs. They must respond to requests for data in a way that allows them to decipher and address other needs as an accepted part of the engagement’s agenda.

2. Solving Problems

Managers often give a consulting CFO difficult problems to solve. A client might wish to know whether to buy or lease an asset, acquire or divest a line of business, or change a marketing strategy, or which financial policies to adopt, or what the most practical solution is for a problem in compensation, morale, efficiency, internal communication, control, management succession, or whatever.

Seeking solutions to problems of this sort is certainly a legitimate function. But the consulting CFO also has a professional responsibility to ask whether the problem as posed is what most needs solving. Very often the client needs help most in defining the real issue. Thus the consulting CFO’s first job is to explore the context of the problem. To do so, he or she might ask:

• Which solutions have been attempted in the past, with what results?
• What untried steps toward a solution does the client have in mind?
• Which related aspects of the client’s business are not going well?
• If the problem is “solved,” how will the solution be applied?
• What can be done to ensure that the solution wins wide acceptance?

A consulting CFO should neither reject nor accept the client’s initial description too readily. Suppose the problem is presented as low morale and poor performance in the hourly work force. The consultant who buys this definition on faith might spend a lot of time studying symptoms without ever uncovering causes. On the other hand, a consulting CFO who too quickly rejects this way of describing the problem will end a potentially useful consulting process before it begins.

When possible, the wiser course is to structure a proposal that focuses on the client’s stated concern at one level while it explores related factors—sometimes sensitive subjects the client is well aware of but has difficulty discussing with an outsider. As the two parties work together, the problem may be redefined. The question may switch from, say, “Why do we have poor hourly attitudes and performance?” to “Why do we have a poor process-scheduling system and low levels of trust within the management team?” or “How is the company financial situation causing some of the identified performance problems?”

Thus, a useful consulting process involves working with the problem as defined by the client in such a way that more useful definitions emerge naturally as the engagement proceeds. Since most clients—like people in general—are ambivalent about their need for help with their most important problems, the consulting CFO must skillfully respond to the client’s implicit needs. Client managers should understand a consultant’s need to explore a problem before setting out to solve it and should realize that the definition of the most important problem may well shift as the study proceeds. Even the most impatient client is likely to agree that neither a solution to the wrong problem nor a solution that won’t be implemented is helpful.

3. Effective Diagnosis

Much of a consulting CFO’s value lies in his or her expertise as a diagnostician. Nevertheless, the process by which an accurate diagnosis is formed sometimes strains the consultant-client relationship, since managers are often fearful of uncovering difficult situations for which they might be blamed. Competent diagnosis requires more than an examination of the external environment, the technology and economics of the business, and the behavior of non-managerial members of the organization. The consultant must also ask why executives made certain choices that now appear to be mistakes or ignored certain factors that now seem important.

Although the need for independent diagnosis is often cited as a reason for using outsiders, drawing members of the client company into the diagnostic process makes good sense. It is company employees who must do the detail work. The consulting CFO helps and steers things in the right direction – but the employees will do it.  The consulting CFO talks with the company President every day about the issues that are surfacing, and a full meeting will be held once a week.

In this way strategic problems are diagnosed in connection with organizational issues. Some sense of the skills of the key people is achieved —what they can do and how they work. When strategic and organizational recommendations are made, they are usually well accepted because they have been properly tested.

4. Recommending Actions

All engagements characteristically conclude with a written report or oral presentation that summarizes what the consulting CFO has learned and recommends what the client should do. The consulting CFO will devote a great deal of effort to designing reports so that information and analysis are clearly presented and the recommendations are convincingly relayed. The basic purpose of an engagement is fulfilled when the consulting CFO presents a consistent, logical action plan of steps designed to improve company performance. The consulting CFO recommends, and the client decides whether and how to implement.

Though this may sound eminently sensible, this arrangement is in many ways too simplistic and unsatisfactory. Many seemingly convincing reports have no real impact because the consulting CFO is not asked to create theoretically sound recommendations that can also be implemented. Management does not have the expertise to take things to the next step.

The result is generally a lot of finger-pointing. Reasons are given like “my client lacks the ability or courage to take the necessary steps” or “the consulting CFO did not help translate objectives into actions.” The goal of Canova Bancorp as consulting CFO is to make sure that company management plays an integral part of creating any solution to problems, participates to the extent of their abilities, and…above all…buys into any recommendations that are made. Formal recommendations should contain no surprises if the client helps develop them and the consulting CFO is concerned with their implementation.

5. Implementing Changes

The consulting CFO’s proper role in implementation is one the Canova Bancorp takes seriously.  Recommendations that are not implemented (or are implemented badly) are a waste of the client’s money and time. In the same way in which the client can participate in the process without diminishing the value of the consulting CFO’s role, there are many ways in which the consulting CFO can assist in implementation without usurping role of any company employee.

In any successful engagement, the consulting CFO continually strives to understand which actions, if recommended, are likely to be implemented If the assignment’s goals include building commitment, encouraging learning, and developing organizational effectiveness, there is little point in recommending actions that will not be taken.

6. Building Consensus & Commitment

Any engagement’s usefulness to a company depends on the degree to which members reach accord on the nature of problems and opportunities and on appropriate corrective actions. Otherwise, the diagnosis won’t be accepted, recommendations won’t be implemented, and valid data may be withheld. To provide sound and convincing recommendations, a consulting CFO must be persuasive and have finely tuned analytic skills. But more important is the ability to design and conduct a process for building an agreement about what steps are necessary and establishing the momentum to see these steps through.

Consulting CFO’s can gauge and develop a client’s readiness and commitment to change by considering the following questions.

• What information does the client readily accept or resist?
• What unexpressed motives might there be for seeking assistance?
• What kinds of data does this client resist supplying? Why?
• How willing are members of the company to work with us on solving these problems and diagnosing this situation?
• How can we shape the process and influence the relationship to increase the client’s readiness for needed corrective action?
• Are these executives willing to learn new management methods and practices?
• Do those at higher levels listen and how will top levels of management respond?
• To what extent will this client regard a contribution organizational effectiveness and adaptability as a legitimate and desirable objective?

Managers should expect that a consulting CFO will be concerned with issues of this kind during each phase of the engagement.

7. Facilitating Client Learning

A consulting CFO likes to leave behind something of lasting value. This means not only enhancing clients’ ability to deal with immediate issues but also helping them learn methods needed to cope with future challenges.

A consulting CFO facilitates learning by including members of the organization in the assignment’s processes.

With strong client involvement in the entire process, there will be many opportunities to help employees identify learning needs. Often a consulting CFO can suggest or help design opportunities for learning about work-planning methods, task force assignments, goal-setting processes, and so on.

8. Organizational Effectiveness

Sometimes successful implementation requires not only new management concepts and techniques but also different attitudes regarding management functions and prerogatives or even changes in how the basic purpose of the organization is defined and carried out. The term organizational effectiveness is used to imply the ability to adapt future strategy and behavior to environmental change and to optimize the contribution of the company’s human resources.

A consulting CFO who includes this purpose contributes to top management’s most important task—maintaining the company’s future viability in a changing world. This may seem too vast a goal for many engagements, but the true financial professional is concerned with the company as a whole even when the immediate assignment is limited.  This is the case with Canova Bancorp which strives to leave each assignment knowing that its client can progress properly and be competitive in the future.

A consulting CFO is not a crusader bent on reforming management styles and assumptions. But a professional diagnosis should include assessment of overall organizational effectiveness, and the consulting process should help lower whatever barriers to improvement are discovered. Good advisers are practitioners, but their practices are consistent with their beliefs. Canova Bancorp believes strongly that when its consulting process stimulates experiments with more effective ways of managing, it can make its most valuable contribution to its client.