13 Jul 2020
Why today’s successful CFO in Consulting requires a combination of two opposites
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As the CFO function in Consulting evolves, candidates must be able to handle growing demands, but still feel comfortable within the Partner-driven Consulting environment.
Michael Proft, Global Head of Business & Professional Services at Odgers Berndtson Frankfurt, discusses the development of the CFO role, and more, with Per Breuer, Partner and Global Head of HR at Roland Berger.
How exactly has Consulting changed in the past decade?
Michael Proft: In former times, consultancies charged a daily rate, and multiplied this by the number of days set out in the contract. Now that new digital tools have come into the picture, consultancies have adapted. For example, EY once had an advisory practice, but now offers consulting in technology. This means they deliver tools to their clients that do part of the work. Because they invested in software, it reduces the number of days they would charge to clients.
Risk management has changed. Consultancies have to control the work done for clients in a way that keeps track of progress and budget. They need to look if adjustments are needed and if they are still on the positive side of the balance sheet.
The regulatory aspect has increased in importance too. International consulting firms are sometimes affiliated with firms located in places that deal with embargos, or have anti-trust issues. They have to to keep serious track of situations like these, of course. This is highly demanding at the moment, because you have to create a department which tracks all regulatory aspects.
Per Breuer: The quality that consulting firms are providing was always high, but the development in terms of the level of insights and the degree of sophistication of methodology has accelerated in the last decade. Digital tools, be it analytics, technology application or consulting apps have accelerated this. Different consulting segments, like strategy, operations, technology and HR consulting, are getting more and more integrated. Large players are pushing into the market with the increasing demand for technological solutions. The market has thus become much more complex.
You can still go to a strategy firm if there is a strategic problem. But the same company can offer end-to-end digitalisation of your core processes.
So, in terms of impact, the value that clients are getting out of consulting has developed tremendously over the last decade.
What are the main pain points being felt by today’s Consulting CEO?
Michael: They need to build up a finance department with different kinds of finance people, more in line with the personalities of the Partners. This is a challenge.
This means CEOs need extroverts for introverted work, a combination of two opposites.
Per: In my opinion, Consulting CEOs have suffered relatively little pain in the last ten years. The market has been growing between 7% and 10% overall.
They are facing challenges as the market is getting more complex, especially if you're not a CEO of one of the Big Five firms. Then, you need to make sure that you have a unique positioning and can find a destinct place in the competitive landscape.
Many of our clients would be happy if they worked in a market which is growing by almost 10% over the last 10 years with good margins.
If you're able to prove that you are creating value for clients, they are still willing to pay for your services.
However, one thing which clearly is causing a pain is the talent angle. Generation Y and Z have benefitted from the strong economic period following the 2008 financial crisis, while startups have become a very, very aggressive competitor in terms of hiring. They have high expectations towards their employers, which all firms have to meet. The willingness to work long hours and travel a lot without a clear purpose is declining.
But this is still a relative decline. Consulting firms are coming from a quite comfortable position in terms of employer positioning.
How has this affected the CFO function?
Michael: The CFO agenda has become larger and the role has increased in importance. CFOs have to implement a lot of controlling instruments and make sure that Partners are not running into trouble because they don’t obey embargos, for example.
Per: Ten years ago, a CFO in a strategy consulting firm was a straight forward job. There were three KPIs to steer the company: the monthly order income, team utilization and billing rate. That's it. If you had your costs under control, you didn't need to do much. That’s over.
The regulatory and compliance angle of the CFO function has increased tremendously in the last years: The amount of processes and checks that you have to put in place have multiplied. There are the sanctions regimes, making sure that you comply with all necessary regulations, especially when working in capital market related fields, international tax compliance etc.
Also, pricing structures have become much more complex. Multiple rate cards, success based fee models, consulting for equity or venturing, steering this is getting more complex from a CFO perspective.
Nowadays, we're talking about large-scale assignments that are 100% success-based, which changes the financial risk position.
An additional field is M&A related. Many companies have acquired or created subsidiaries to extend their value chain. Very often, these M&A processes are on the plate of the CFO as well. This includes the deal side, but also integration efforts, starting from systems, to the people and business dimension. Of course, this has always been there, but its importance has been substantially growing over the last years.
Future-fit Consulting CFOs, who are they?
Michael: Definitely not introverted guys that deal with numbers and accounting work only. They have to be a partner in the organisation.
There's not a pool where you can find them, unfortunately. You have to pick out the right personalities: They have to be open, entrepreneurial, risk-accepting and extroverted.
Plus, they need to be on the same wavelength when communicating with Partners.
Per: It's not a position that you can fill easily with someone who only knows how to write a business plan. You need a CFO who masters the full range - from risk and compliance, accounting and controlling and M&A, and who can act in a partnership.
This opens up opportunities from a sourcing perspective. I would look into firms that are not too big, a medium-sized corporate with high complexity in terms of business footprint, because typically consulting firms operate in many markets. And an understanding of project-related business for sure helps.
Furthermore, you need to understand the dynamics of a Partnership and a Partner-driven consulting model.
Partners in large consulting firms are very strong individuals and don't like to be followers. The level of social skills that you need on top of your technical sophistication is therefore much higher than in a normal corporate.
What is executive search focusing on to identify good candidates?
Michael: Be very aware of requirements for the role. Have a good feeling of the consulting culture. Know the people, know how they work and what they have to do to be successful. Be a business insider, so you can abstract from these experiences. Have a feeling for personality and character, so you can pick out the right one who fits with the role.
And never put an introverted accounting guy into a consulting company.