James Kavanaugh personifies the “new CFO”—so much so that IBM’s senior vice president remains the corporate chief transformation officer even as he continues to run the finance operation as he has since 2018. He spelled out the challenges and opportunities of this changing role for hundreds of his peers at our Strategic CFO Forum recently.
“Fundamentally, the challenges of today are the basic challenges of achieving competitive advantage, inflation, the supply chain, the war for talent,” Kavanaugh told the gathering. “That goes to the heart of the CFO position today and how that role has to change. We’re moving away from being just the traditional ‘guardian of stability’” and toward a truly new, more holistic and more interactive approach.
In his continuing role as chief transformation officer—which he began in 2015, after serving as IBM’s controller for seven years—Kavanaugh has found that helping to overhaul the company’s business model and operating system hasn’t been “the toughest part. The toughest part was cultural transformation: people, skills, values, purpose, leadership development. As we went through it, I kind of had to change my whole approach.”
IBM has evolved its market strategy over the last few decades with the changing world of digital technology and under a succession of CEOs, and Kavanaugh over the last several years has been tasked with enabling the company’s transformation to a data-driven “cognitive enterprise.” He was responsible for redesigning IBM’s operating model to align with the fundamental shifts in the market, and for driving new ways of working while incorporating speed and agility throughout the company.
At the Strategic CFO Forum, Kavanaugh identified some of the key skills that CFOs must develop and demonstrate in their fast-changing role.
First is strategic vision. “Understand your portfolio, business models, operating models, competitive advantage, client-centricity,” he said. Second is “organizational agility,” Kavanaugh said. “It’s about changing the business model and aligning the management system, but the toughest thing is culture, skills, talent and people processes.
“That is a muscle we as CFOs have to create. Being a data-based guy, I felt naturally that you address speed and efficiency in an organization by tackling processes, such as, ‘Pricing is too slow. Financial forecasting is too slow.’ But only 20% of it is how you do the work; the other 80% is how you’re organizationally designed.”
Kavanaugh said that IBM is “about 70%” through the transformation journey that he has been leading company-wide as well as in the financial sphere, at a company with more than 270,000 employees in 170 countries.
Here are ideas Kavanaugh shared about how CFOs can enter the transformational space where he has been a trailblazer:
Take a two-step start. CFOs should embrace a pair of priorities: building data-centricity and optimizing business processes.
“You must have a core foundation of data that’s allowing you to run your business: financial data, client data, marketing data” and other types, he said. “Organizational agility starts with data.”
Second, he said, reckon with “how work gets done across finance. We found that we were fragmented beyond belief. Look at marketing, HR, the supply chain, customer demand. We went not just for zero-based budgeting but at the core of activity-based costing and at the core of business-process optimization. How was work getting done?”
Embrace digitization. That may seem to be a superfluous lesson for someone helping run a company that essentially introduced the computer age, but Kavanaugh said it can’t be taken for granted anywhere.
“It’s a core strategic pillar of every company in every industry,” he said. “It’s required for survival and for lasting, sustainable relevance, and for how you pivot for competitive advantage.”
Go back to the future. As he assumed the role of chief transformation officer in 2015, Kavanaugh said, one of the first things he did was to go to IBM’s corporate museum and try to understand more about the company’s history and roots.
“I found one word that described it: ‘Change.’ There was a relentless cycle of innovation and commoditization” that had taken IBM from the eras of punch cards and founding the PC business through waves of reinvention that also included embracing the cloud and, most recently, emphases on social media, mobility and cybersecurity. “We were always getting out of something comfortable,” he said. “At different times, all of our businesses were good businesses, but then they didn’t fit our overall strategy.”
Listen down. “I kind of changed my whole approach,” Kavanaugh said. “Part of that was building leadership competencies and giving IBMers a voice. We were doing jams to get input; we were doing ask-me-anything sessions, an open forum for input on any facet of the business, because listening is important. For us to win, we need to engage a population and allow them to personalize what [success] means for them, and once you get to that, then you can mobilize for success.”
Among the outputs of this approach has been a new purpose statement that arose up through the ranks: IBM is the “catalyst that makes the world work better.” Kavanaugh said it reflects IBMers’ convictions about “leveraging innovation for good—changing industries, clients and reinventing companies, and imagining the art of the possible.”
Reckon with the “Great Re-evaluation.” The Great Resignation “is not reality. The reality is that people are making life choices and moving, but what’s really happening is it’s an era of the Great Re-evaluation. People are making choices that are challenging with the very purpose of business, the very purpose of leadership, and with what the company means. People are now making life choices and re-evaluating what, when, how and where, and what career and purpose is for themselves in life.”
Part of how IBM has approached this phenomenon is refining its career, leadership and skill-development processes to “create multiple educational tracks and follow a framework we call the ‘three e’s’: education, exposure and experiential. [Experiential] accounts for about 70% of retention.” So, for instance, IBM “allows people in finance to create skill-development tracks and provide a formula and foundation for exposure through shadowing, mentoring and different job experiences.”
Harness AI effectively. When artificial intelligence “really hit the market five or six years ago,” Kavanaugh said, “it had a very negative connotation, because people were thinking it was going to replace humans.” But what IBM has focused on is helping transform employees into “digital workers,” not replacing them—helping to leverage AI capabilities to “reinvent how you work.”
In finance, for example, Kavanaugh’s charges are using AI to “in essence re-skill themselves. They’re taking core technologies and infusing AI and learning the technology right alongside developing or redeveloping how work actually gets done. They’re becoming a knowledge worker going forward. We still have to invest a significant amount, and not everyone is going to make it.”