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Collaborative Relationships, CFO-style

April 13, 2011

Beware a CFO bearing gifts.

That is one of the messages I take from a report produced by CFO magazine and presented at AribaLIVE by their  head of research. The study explored CFO views on ‘managing risk, working capital and supplier relationships during the economic recovery’.

Almost 60% of those participating state that their company is increasing its pursuit of strategic alliances. They confirm that the focus of business activity has moved from short-term cost-cutting and cash retention to strategies for growth and investment, with particular focus on global conditions. And the good news is, the CFO community recognizes the importance of external relationships to enable their company ‘to thrive in the recovery’.

Thus far, the results are probably no surprise and confirm broader trends in management sentiment. What I find interesting are the perspectives that are then revealed in terms of how CFOs perceive risk and what they see as ‘an alliance’. Many confess to having put tremendous pressure on their suppliers during the recession – they ‘extracted better prices and more favorable terms from their weaker suppliers’. But now the story has changed and they want partners who provide ‘sources of capital, process improvement and expertise with which they can share the risks and rewards of mining new and mutually beneficial ground’.

Only a few appeared to really understand what terms like ‘partner’ and ‘alliance’ actually mean. There was little evidence that many have thought about the evident inconsistencies between the recession-based behavior and their needs in a time of growth. It is evident that for many CFOs, relationships are extremely tactical and opportunistic – in fact, highly disposable -which may go a long way to explaining why they often achieve disappointing results.

A few of those interviewed showed understanding that deep external relationships require real commitment at executive levels, and demand an investment in skills, tools and systems. “Partners need to set strict rules of engagement, delineating day-t0-day interactions and setting boundaries around what information employees can and cannot share. The intensity can be exhausting”, commented one VP of Finance. 

Some CFOs show strong risk aversion – for example, while demanding growth, they are reluctant to enter emerging markets. “Countries with weak laws make enforcing contracts almost impossible”, said one, who seemingly failed to make the connection that growth will be extremely difficult to achive if it is restricted to established markets and ways of doing business. Few – if any – highlighted the need for new and better ways to deal with risk, perhaps through innovative forms of relationship or the development of new market entry partners. 

The message I take from this survey is that those of us in the commercial community are not doing a good job in advising and supporting the executives in Finance. We are failing to develop the business case for more flexible and sustainable external relationships; we have not succeeded in explaining how market risks can be better managed; we are not creating the business cases that support investment in building commercial and contractual capability, or generating the high-level relationship management resources and skills that business today requires.  

This survey suggests that CFOs appreciate the importance of increased external collaboration, but that most have little understanding of its implications. This provides an exciting opportunity for the contracts and procurement community to offer valuable insights to their CFOs and to make the case for new investments in commercial and relational capabilities. I hope that you will read the report and prepare the conversation; let me know if you would like some help.

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