Editor’s Note: We’re having an ongoing conversation about how to lead through inflation with bestselling author and advisor to boards and C-Suites Ram Charan, who has thought deeply about the subject for decades and who has agreed to teach a workshop for Chief Executive Group on inflation on March 24. As we work on the full project, we wanted to share some of his thoughts on how CFOs should be rethinking their roles and priorities. Here’s some of what he had to say.
On the boards where I serve, we’re asking the CFO and the CEO to lay out various scenarios for how the business might operate at various levels of inflation. When they do, look deeply at their assumptions, how they see consumer behavior changing. How will the end-to-end value chain need to change based on these changes? What would they recommend the company needs to do?
They’ve got to lead the development of different scenarios, different remedies, what the options might be in different situations. Meanwhile, they also have to have a handle on daily cash inflow, report what’s happening, manage the balance sheet, not incur too much debt. During a period of rising inflation, debt is a killer.
Finally, the CFO has got to show how the business model needs to change. A few essentials:
- The CFO must work closely with sales and marketing on pricing policy to understand how pricing will affect the entire value chain.
- The CFO must drill down to evaluate customer balance sheets and financial conditions to determine which ones are most likely to falter.
- The CFO should act as mediator between manufacturing and purchasing and sales and marketing. Help them guard the company against shortages or delays in delivery of supplies, while resisting the urge to build inventory, a sinkhole for cash.
- The CFO should help ensure that the entire senior management understands the changing priorities when budgets are being set.
- The CFO must keep the board and CEO informed on a real-time basis of any significant deviations from financial expectations, including such events as customer or supplier defaults.
For the CFO it is also essential that they are communicating constantly, taking initiative to show, persuade and get everyone educated on inflation—including the board—especially how different rates of inflation in the sector may change the conditions of the company. This is the time when the CFO cannot communicate enough: What are the facts? What are the numbers? Where are we advancing, where are we stumbling? They should be measuring how well people throughout the organization—and the board—understand all of this. Learn more about the March 24 workshop >