Many companies are shaking up the C-suite and taking advantage of the cross-functional opportunities that a Chief Financial Officer-Chief Operations Officer (CFO-COO) hybrid role can bring to their organization. Whether you are developing more sophisticated operational and strategic goals as you mature, or you are well past that point, blending the talents of two different—but aligned—roles could be the key to unlocking additional potential within your ranks.
Why stray from the norm?
If you’re transitioning your current CFO into a CFO-COO role or onboarding a fractional CFO with COO capabilities, you are gaining a valuable asset that can align your finance and operational departments and reduce costly miscommunications between the two. Streamlining your C-suite allows your business to run lean, increase efficiency and keep a keen eye on the bottom line. This arrangement keeps your compensation in check while putting fewer decision makers between conception and execution.
Improved efficiency ultimately comes from several important overlaps between the two roles. For example, a CFO is highly focused on strategies for cutting costs and increasing cash flow. A COO works with directors and managers to eliminate wasteful activity and increase efficiency. When combined, a CFO with knowledge of how each operating division actually works, as well as what it takes to create a business’s products, has even greater insight into what can be done to increase cash flow and eliminate waste. In turn, by understanding all operational aspects of the business, a CFO can also create more accurate estimates and financial reports that better reflect the business divisions.
A CFO-COO can also benefit in major company transformations, like M&A transactions. A CFO will determine the risks and rewards of the deal, while a COO will be in charge of the integration process. However, an operational CFO has the perspective necessary to identify potential drawbacks and valuable opportunities in the integration process to increase value for your business.
Applying the analytical skill set to operations
CFOs are analytical by nature, traditionally looking at past performance to make future projections. That insight, when applied to operations, brings the context of ‘now’ into the equation. Operations focuses on keeping all moving parts aligned with corporate vision while striving toward revenue projections. That’s a pivot of the current CFO skill set, rather than one that a CFO must obtain.
An operational CFO role capitalizes on their ability to develop and track the right KPIs (key performance indicators) and apply that skill to non-financial metrics that gauge process efficiencies and effectiveness. The near-intuitive nature of applying formulas can streamline reaction time and decision making, quickly moving from issue identification to solution application. A joint CFO-COO provides an opportunity to exploit the inborn talents of a great CFO while enhancing operations with KPI know-how and a disciplined management approach to support the business’s strategic vision.
The trust factor between CEO and CFO
The Harvard Business Review cites a high level of trust between the CEO and COO as the most important factor in a successful partnership. The COO gains that trust by supporting the CEO’s corporate vision, maintaining checks and balances and exhibiting strong execution, coaching and coordination skills.
Similarly, a CFO develops a trusting relationship with the CEO by being a reliable problem solver and finding ways to execute their plan. The CEO can trust the CFO to abide by and respect accounting and compliance standards, which is a major focus of the CFO role or anyone who provides CFO services.
Companies may be hesitant, however, to give additional power to a CFO. Segregation of duties is a fundamental accounting concept. It limits the risks associated with giving one individual the power and unscrupulous sway to influence business results for their own personal gain. It is conceivable that a CFO-COO could process unnecessary accruals to hide unflattering performance results or skew revenue to meet a bonus target. That scenario, while unlikely, would often be exposed by internal controls or auditors. In addition, a study in the Journal of Management Accounting Research found that dual CFO-COO companies have not experienced poorer accrual quality but have experienced more accurate cash flow projections.
Recruitment and retention
In a tight labor market, retaining key talent is essential. Increasing your CFO’s range of responsibilities may be just what is needed to keep them interested and invigorated in their role within your organization. Making operational decisions that were previously out of their reach can be an exciting prospect.
Likewise, if you’re worried about the transition, bringing in a fractional CFO-COO allows you to have a second-in-command that already has the experience of both guiding and integrating strategic vision in a business. A fractional professional can provide support to smaller businesses as they need it, especially at critical junctures, so that they don’t run the financial risk of underutilization.
Finding the right talent
Many CFO-COOs begin with a CFO background and increase their COO duties over time. The scope of the COO role varies among companies. Overseeing a multi-disciplinary team may take some adjustment to someone who is unfamiliar with the business’s operations. That is where an understanding of the individual is important.
Your new CFO-COO should be adept at fostering corporate culture and hold a deep respect for each individual. Your CFO-COO should understand how they contribute to the success of the organization as well. Checking off all the boxes is less important than finding the right person who can adapt their critical thinking and problem solving skills to harvest the knowledge of the team they now have available to them.
Integrating the CFO-COO
Transitioning a new or existing CFO into a CFO-COO position will be similar to integrating other C-suite executives into your business. There may be a few missteps, but many can be avoided by providing clarity to your board members, C-suite and the team at large. Set expectations, define the chain of command, offer examples and go heavy on the introductions both internally and externally.
Give your new CFO-COO latitude to enhance their accounting team for their widened responsibilities so that the financial controller and other accounting team members accept more leadership and reporting responsibilities. Supplement the team if more bandwidth is needed.
Embrace your future possibilities
Business acumen, communication skills and strategic mindset are integral to both CFO and COO positions. The overlap can benefit lean, goal-oriented companies who are open to straying from the traditional path of separate, distinct roles. True executive leadership requires that we examine opportunities that make sense. Embracing a CFO-COO position within your C-suite may be just what it needs to become the maverick organization that you imagined.
If you are looking for strategic guidance that aligns your financial and operational goals, you can find fractional CFO and strategic advisory solutions to guide your business during a personnel transition or as long-term support as you continue to grow. Paro can match you with highly vetted financial professionals with the C-suite skills and experience you need to turn up the volume on your bottom line.
