If the thought of transforming an organization seems challenging, how about transforming an entire industry?
That is the task being undertaken by energy-industry veteran Jens Madrian. His London-based company, Reactive Technologies, is working to decarbonize and decentralize the energy industry globally by using technology from the telecommunications sector to create new value.
“I spent a lot of time looking backwards, dealing mostly with legacy challenges,” Madrian says. “And now my key focus is looking forward and trying to shape the energy agenda to cost-effectively enable the transition to a greener and truly sustainable future through digitalization.”
As both chief financial officer and chief commercial officer for Reactive Technologies, Madrian is responsible for what he describes as the more backward-looking function of finance, as well as the forward-looking requirements of driving strategic, financial, and commercial performance and growth.
The fact that he is able to perform both roles is testimony to a realization he had some time ago: For finance to ensure its future relevancy, it too must be a forward-looking function.
Getting onto the pitch
Madrian likens parts of the old role of finance to the commentators’ role at a football match – sitting alongside the pitch and commenting on the play, but never actually getting their boots muddy.
“In a world where digitalization is becoming increasingly important, and the speed of change in business models is disrupting various key industries, I don’t think you have the luxury as a CFO of just looking back,” Madrian says. “I want my finance team to be very much involved in the action. It is a very different philosophy and a very different culture.”
Madrian earned his stripes working as the chief financial officer and commercial managing director with one of the UK’s largest energy companies, having previously held large operational roles across Europe. He holds an MBA and a PhD in business administration from the University of Muenster, Germany.
During his life as a CFO, Madrian has worked hard to lead the required cultural change by driving transformation in his teams, often by sending finance professionals into the business and organizing succession planning based around team members’ qualities as business partners. This has led to a higher degree of connectivity between the finance function and the rest of the business, with greater understanding and mutual respect.
“The role I took on was almost one of a mentor to my core team, rather than just being their manager,” Madrian says. “I allowed them to explore, but you can only do that if you have hired a good team because they need to overcome a number of hurdles.”
“Finance people are generally technically astute and thus not too different to their colleagues in commercial functions. They both have a good understanding of models, and they both usually have a strong analytical background. The problem I sometimes find is that finance people are missing part of the business context and don’t have a firm grasp of the operational execution of the business strategy.”
Hence his efforts in bringing finance closer to the business units while enabling finance to maintain its objectivity and independence.
Madrian says this transformation is made easier by equipping finance professionals with the analytical tools that enable them to take that forward perspective. Traditionally, finance predominantly focused on so-called lagging indicators relating to performance, but these describe only the outcomes of what has happened and give little insight into what has been driving these results.
While the tools to understand these leading indicators already exist, they have usually been in the hands of other functions, such as the commercial and operational side of the business – and particularly within sales and marketing. Hence, Madrian says a key requirement is for finance professionals to step outside of their comfort zone and begin working more closely with their colleagues in those other functions, rather than being trapped in a finance bubble.
“The more interesting thing to understand is what the leading indicators are to make better revenue forecasts,” Madrian says. “In order to do that, it is vital to have an in-depth understanding of key operational and commercial drivers and the effect of social media – all of which impact, for example, customer behavior.”
“This sidestep broadens your view substantially and it makes you a more holistic finance professional. That is one of the critical roles the CFO has to give to the business – this ability to not just be curious, but also to break with tradition and allow their team to culturally transform in a way that enables the business to keep pace with rapid digital and societal change and to meet the evolving needs of their customers.”
That also means the CFO needs to step up and protect team members, should they encounter problems along the way.
“When the going gets tough, you shouldn’t be surprised to see an even stronger retreat to the sidelines,” Madrian says. “Instead, finance should be seen to be taking part on the pitch. For the CFO, you are at the top of the pyramid, so if you don’t change the culture, who will?”
The inevitability of change
Madrian believes a requirement will always remain for finance professionals who can carry out traditional finance work. But if a finance professional’s ambition is to rise up the ranks and not to seek his or her future in a specialist role, not many are going to be commended on process and governance work alone, he says.
“What chairmen want to see in their CFO is someone who can support the CEO, not just on the financial side, but equally around strategy, business growth, and pushing digitalization, and together with the CEO form a dynamic team,” Madrian says.
“You need to earn your seat at the table. In the past, finance could show up pretty much everywhere, and was involved in everything, but didn’t necessarily leave the impression of having added a whole lot of value from a business perspective. You need to earn your stripes, which doesn’t mean saying yes to everything the business wants to do, but by being a challenging friend or sparring partner. And in three out of four cases where I have seen this implemented, it has turned into an absolute success story.”
While this sounds like a significant change in perspective and skill set, Madrian is convinced that for a number of finance professionals, the transition shouldn’t be difficult, as many will find they already possess the skills required to accomplish it.
“The difference between the commercial and finance disciplines isn’t that huge,” Madrian says. “You look at the same thing, just from a slightly different angle. Because the driver for both roles should always be, ‘How do you turn this business into the biggest success on the planet?’”
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Blog originally posted on Tech Fest 2018 website.