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Wayne Spivak's headshot
Wayne Spivak President & CFO

How important is industry knowledge to the CFO?

Asked on Oct. 9, 2016

My thesis is that all businesses are about 90% the same. They all have cash flow issues, budgeting, products and/or services, ownership (of some type), taxes and compliance issues.

Yes, depending on the industry, sector or sub-sector there are differences (about 5-8%), but CFO's as smart, energetic individuals can solve those issues by either a) learning them or b) using SME's (which they will need regardless, since one can't be a CFO and a SME on all subjects).

The last 2-5% is company culture.

So, back to the question - how important is industry knowledge to the CFO?

I'l now throw a curve, let's classify the CFO as either Strategic OR Tactical.

Answers

EMERSON GALFO's headshot
EMERSON GALFO CFO • October 9, 2016

I will let my LinkedIn post a few years ago tell my thoughts on it....

https://www.linkedin.com/pulse/industry-experience-requirementmaybe-problem-emerson-galfo?trk=mp-reader-card

Let me know if the link does not work.

comment-icon 2
Christie Jahn's headshot
Christie Jahn CFO • July 27, 2017

Emerson, I love this LinkedIn post. I am about to switch industries and I was feeling a bit nervous, but this was exactly what I needed to read. Thank you!

EMERSON GALFO's headshot
EMERSON GALFO CFO • July 27, 2017

Glad it somehow helped you Christie. That being said, it is still an uphill battle.

Len Green's headshot
Len Green Performance Improvement Consultant and ERP Strategist • October 9, 2016

Wayne

I agree that many skills are transferable across industries.
What my experience last 5 years shows is that the 90% level you refer to above is likely lower. Why?

There are many new age industries emerging, high tech, data driven service companies, a move to subscription revenue models, etc. that have nuances that not everyone has encountered in their careers.

So in some cases I can see that the 90% level of commonality you refer to could be as low as 50-60%.

It's not a criticism of CFOs though, more an assertion that there are new industries that need new CFOs to become SMEs in those industries. Hiring managers need to adjust their criteria if they tare looking for a purple squirrel :)

What do others think?

Anders Liu-Lindberg's headshot
Anders Liu-Lindberg Regional Finance Business Partner • October 10, 2016

You don't have to have it, to begin with and you can certainly make improvements to a company's bottom-line from a purely financial perspective, however, if you want to provide strategic business support to the CEO you better show you understand the industry. Otherwise, (s)he'll send you back to the dungeon where you came from!

comment-icon 4
Wayne Spivak's headshot
Wayne Spivak President & CFO • October 10, 2016

I take the hey point is "understand".

How long does it take to "understand" vs be a SME?

My estimation is it shouldn't for an overwhelming majority of businesses more than a few weeks to "understand" the business/sector/industry.

Anders Liu-Lindberg's headshot
Anders Liu-Lindberg Regional Finance Business Partner • October 10, 2016

I doubt CFOs will ever be SMEs in their industry as that's what the operational functions are for. There are different levels of understanding though hence I'd say it's more like an in-depth understanding vs. a scratching the surface kind of understanding. Like I know container shipping is about shipping containers from A to B but is that enough to be a business partner? I doubt it...

Wayne Spivak's headshot
Wayne Spivak President & CFO • October 10, 2016

Anders we are agreeing - something is wrong :)

But the question remains - how long should that deeper vs surface understanding take?

Isabella Anderson's headshot
Isabella Anderson Finance Manager • October 11, 2016

I agree with Anders... Every business is different in it's operations and the CFO should know how the business works in order to help the CEO make positive decisions. You can not make the best decisions on numbers alone. Also, you can't expect to gain insight in a few weeks. You may be able to get an overview, depending on the size of the operation... But you can not expect a new CFO to have all the knowledge it takes to truly lead. You need to get to know your people, their strengths and weaknesses. You need to understand your product line and your market. I believe it should take a few weeks to get the basics down... But at least 1 year to have full confidence that the CFO is making the best decisions possible in every situation.

EMERSON GALFO's headshot
EMERSON GALFO CFO • October 10, 2016

There is a propensity to conflate industry and business model. IMO, What is important is to understand the business model. Industry knowledge is much more constraining for the company and business models are easier to change or refine.

Especially in the SaaS world (in Len's example) where subscription models/contracts vary widely, your revenue recognition knowledge from a different company may be useless (exaggeration) to the new company. You have to go back to the books (so to speak) to figure out what rules/guidelines are applicable for the new company.

I would even say that some companies do not even realize or are mistaken on what industry they are in. In the words of Mark Cuban, ..."We aren’t in the business of selling tickets – we are in the business of selling unique and shared experiences,"

In Ander's example, container shipping is not really just about shipping containers from a to B. If you view it as such, you will only view yourself as a shipping company. It really is a container product manufacturing industry with very physical production lines, product designs, raw materials and related production factors. (okay, I cheated, views were from David Rosen, a container service industry veteran and if I am not mistaken, also came from Maersk). But it was only done to prove a point.

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