Dave Kellogg of Host Analytics Provides Five Steps to Improving the Relationship Between Finance and the CEO.
“There are two big buzzwords we hear: Finance transformation and business partnership,” announced Kellogg at the beginning of his presentation at the 2016 Chief Financial Officer Leadership Forum in San Francisco on January 20. “When asked, finance often says it’s trying to be a better business partner, so we’re going to talk about how to become a partner to the CEO and driving the enterprise forward,” said Kellogg.
Kellogg asked the audience to consider which Star Trek character is the best role model for the business partner. “Many would say Commander Data—a completely rational being who has all the data at his fingertips,” said Kellogg. For him, however, Mr. Spock is more logical for a business partner because he’s very analytical and data-driven, yet he has human qualities like loyalty and the capacity to look ahead to options and scenarios. Spock serves as a sounding board for the CEO. “The CEO can be a pretty lonely job, so you need a trusted advisor,” Kellogg pointed out. “Any CEO would want a Mr. Spock as an advisor.”
“The CEO can be a pretty lonely job, so you need a trusted advisor,” Kellogg pointed out. “Any CEO would want a Mr. Spock as an advisor.”
"How do we improve the relationship between the finance organization and the CEO?" asked Kellogg. He suggested:
1. Free up time from drudgery, which only interferes with more strategic work.
2. Live in the future, not the past.
3. Think about and leverage big data.
4. Build agility into the organization.
5. Think like the board.
Regarding drudgery, Kellogg said, “What does CPA stand for? Copy, paste, attach. That’s what many CPAs do, using Excel to create board slides.” There are obvious drawbacks to this, the most important of which are the inevitable mistakes that occur as data is moved from spreadsheets to the board deck. “In almost every board meeting, there’s one board member who notices even the smallest error, which is often on the first slide,” lamented Kellogg. If there’s one mistake, the credibility of the entire set of financials is in question.
Living in the future addresses the difference in perspective between people working in finance (rooted in the past) and the CFO (future-focused). Most CEOs are looking out to at least next year, and often beyond, said Kellogg. Finance can support the CEO in looking forward, using tools like driver-based planning and scenario analysis. Most companies have a three- to five-year financial model. “We need to look at how much time we put into that model, how often we refer to it, and how tied it is to the current operating budget,” Kellogg advised. These models are key to living in the future.
As for leveraging big, non-financial data, Kellogg stated that data aren’t being used to defeat system gaming. “We’ve built a system that’s designed to be gamed,” he said. “Sales people have no incentive to provide an accurate forecast, so you end up with an earnings management problem.” A company can solve this problem by pulling data out of the sales force, combining this with financial data, and bringing in forecasts to use non-financial data to improve predictability of financial outcomes.
The fourth point is to build agility—to be able to react and change course quickly as situations arise.
The last point is to think like a board member, who, in the eyes of the CEO, has only one operational decision—to keep or fire the CEO.
“The buck stops in the board room, not with the CEO,” said Kellogg. “The more the CFO, as a business partner, is aware of that, the better business partner they’ll be.”
For the CEO, the budget means little until the board approves it. A true business partner not only helps create the budget but also helps socialize it with the board, anticipate board reaction, and sell it to the board. “The buck stops in the board room, not with the CEO,” said Kellogg. “The more the CFO, as a business partner, is aware of that, the better business partner they’ll be.”
ABOUT DAVE KELLOGG:
Dave Kellogg has more than 20 years of leadership experience at high-growth companies.
His experience includes being CEO of MarkLogic, CMO of Business Objects, and member of the Aster Data Board of Directors. Dave also served in advisory roles to MongoDB developer 10gen, Hadapt, and Tableau Software.
Prior to joining Host Analytics as CEO, Dave served as senior vice president and general manager for Service Cloud at salesforce.com, overseeing one of the company’s fastest growing businesses. Previously, he spent six years as CEO at MarkLogic, growing the company from zero in revenues to an $80M run-rate. Before that, Dave led Marketing at Business Objects for nearly a decade as the company grew from 250 to over 4,500 people and from $30M to over $1B in annual revenues.
A recognized industry thought leader on topics ranging from venture capital and Silicon Valley culture to cloud, big data, and social enterprise technologies, Kellogg authored a highly regarded blog for five years and remains active on Twitter @Kellblog.