Last updated on April 1st, 2024 at 08:36 am
The present nature of business has pushed a CFO’s role beyond the traditional management of the finance and cash of a company. A CFO is responsible for improving the figures, allocating resources, executing rational business practices, managing relationships with investors, and much more. However, the position of chief financial officer has different facets.
It is best to first understand the differences between operational and strategic CFOs that define different styles of financial leadership. An effective CFO course can help one understand the distinct styles of financial leadership and choose the one suited to a particular type of business.
Who is an operational CFO?
An operational CFO is a financial expert whose primary focus is to optimise company performance by combining functional and financial data. Such professionals must have a deep understanding of the procedures and operations of the company. An operational CFO knows about an organisation's operations inside out, which helps him/her better grasp the cash flow metrics of the organisation.
The leadership abilities of an operational CFO can make a big difference in the long run. Additionally, an operational CFO should possess sufficient knowledge and understanding of financial accounting, financial reporting, risks and other accounting-related aspects. Such professionals should focus on more than just getting better numbers and developing the business' overall operations.
Who is a strategic CFO?
Strategic CFOs are professionals who develop a thorough financial strategy and offer better insights that help facilitate positive changes in an organisation. These professionals are responsible for creating effective financial plans for the company. They, however, are aware of the company's operational performance but have other priorities.
Unlike an operational CFO, who analyses an organisation's past and present performance, a strategic CFO is concerned with the company's future. Hence, a strategic CFO must always be forward-looking and aware of the present economy and financial market structure.
Operational CFO v/s Strategic CFO
Certain distinct characteristics make the two approaches differ from each other.
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Purpose
The key objective of an operational CFO is to understand the company processes that will increase overall efficiency and reduce redundancy in an organisation. The operational and financial leadership approach allows a professional to examine every department within a firm meticulously and identify the areas that require elimination and cutting down wasteful spending, leading to overall improvement.
On the other hand, the main objective of a strategic CFO is to understand the company's financial health. A strategic CFO is responsible for analysing how a firm’s financial health affects its performance and growth. The approach of strategic financial leadership allows professionals to work closely with the management to establish long-term financial goals. Gathering and analysing information direct the business on the right path.
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Scope
Operational financial leaders concentrate on specific business departments or units. They specifically examine the finer points of a financial report. It may include the daily prices of raw materials, the performance of employees in a team over time, etc.
On the contrary, strategic financial leaders focus on the entire organisation and financial ways to improve its growth altogether and not concentrate on a particular sector. It is more concerned about reaching the company's annual targets rather than any specific unit. Hence, a strategic CFO has a much wider scope than an operational CFO.
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Focus area
Operational CFOs concentrate more on the financial aspects of an organisation's daily operations. It can include developing strategies to speed up the production process. For instance, categorising and delegating tasks accordingly to get speedy and quality results. Operational financial leadership also integrates procedures and tools for better outputs.
Strategic CFOs, however, concentrate on a company's overall financial strategy and position. They may create more lucrative product results by working with specific product designers to improve an existing product line. This, in turn, generates accurate results as this approach requires gathering information and analysing the market requirements to discover new opportunities for revenue growth.
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Time period
The work of an operational CFO covers a shorter time horizon. Generally, operational CFOs work on the data and information they gather over a few months or a maximum of a year.
However, the work of a strategic CFO is generally of a longer time horizon. Strategic CFOs look into the data and information gathered over a prolonged period stretching years. Strategic CFOs then accurately analyse this data and formulate strategies for the company's future growth.
Conclusion
The role of a CFO is crucial in any business whatsoever, be it operational or strategic. No matter the distinction, a CFO must possess leadership and communication skills.
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