How to Grow Your Next Generation of Finance Leaders

The talent wars are back. Many companies are experiencing shortages in their leadership pipelines. A recent survey reported business leaders anticipating shortages in executive leadership in the coming year, with one of four executives anticipating severe shortages of senior and emerging leaders. This is certainly true for finance organizations, especially as the technical skill set required of finance executives continues to expand to meet the business challenges of increased globalization and financial regulation.

Developing and growing finance talent is likely to become even more critical in the coming years. A Deloitte survey of finance executives completed during the fourth quarter of last year reveals that the demand for skilled finance talent is outstripping the supply. While 43% of the executives surveyed are actively recruiting new talent, 37% report they can't find leaders with the skills required.

Additionally, the usual complications of organizational assimilation apply. By some estimates, new hires lose a third of their potential value in their first year due to their lack of familiarity with the culture and relationships within the new company. Not only is it difficult for finance organizations to find and assimilate qualified talent, it's difficult to develop and retain qualified talent.

Developing leaders internally offers important advantages over recruiting. A major benefit is risk reduction: rather than be dependent on what's available, organizations can focus on their own ability to attract, develop, and keep financial professionals with the skills they require at each level. Another important benefit is cost savings: the average cost to replace an employee is one and a half times average salary; recruiting costs average $1,415 for every $10,000 of compensation; and retaining and developing existing employees can save a company between three and ten times the cost of replacing employees. Companies with strategies for developing and keeping finance leaders within their organization have a distinct advantage over those that don't.

Here, in broad strokes, are the three important steps to developing a program for growing finance leaders.

Anticipate What You Need: The Familiar and the New

The first step in developing and growing finance leaders is to identify the direction in which the overall organization is moving. Is the five-year plan to stay the strategic course or change direction?

Understanding the organization's direction can enable the organization to identify and develop the type of finance talent it may require. Is the focus on new products and innovation? Emerging markets? Cost effectiveness? All of the above? Different business strategies and priorities will require different profiles and types of finance specialists, managers and leaders.

Today's CFO is expected to play four diverse and challenging roles. The two "familiar" roles are steward, to protect and preserve the assets of the organization by minimizing risk and making sure the books are correct, and operator, to run a finance operation that's efficient and effective. Given the rapidly changing business environment, however, it's become increasingly important for the CFO also to be a strategist to help shape the organization's overall strategy and direction, as well as a catalyst that stimulates the mindset and behaviors throughout the organization to achieve strategic and financial objectives.

In brief, align your finance leadership requirements with your evolving business direction. And, bear in mind that these "familiar" and "new" roles make a CFO's job—and the job of finance leaders generally—more complex than ever.

Assess What You Have

Understanding what talent the finance organization has—and needs—involves assessment, which requires a competency model. A finance competency model assesses for the range of functional, behavioral, and managerial competencies at each level. Functional competencies of finance professionals, from entry to officer and above, include financial analysis, controls, budgeting and planning, systems, and accounting. Behavioral and managerial competencies begin with problem solving, a drive for results, the ability to learn on the fly and deal with ambiguity, and a customer focus.

Further, with each successive level come new requirements, including the perspective and the skills necessary to manage projects, teams, and divisions; the ability to motivate and delegate to others and manage conflict; and the senior executive capability to provide strategic and organizational insight. A finance competency model sets the standards for identifying and growing finance leaders. Its creation entails obtaining input from the business and finance environment and strategy; identifying finance competency leading practices obtained from interviews with finance business collaborators and finance leadership; and finding the competencies that are most effective for your business and finance team.

What's important here is that the finance organization own and play a major role in this effort, in collaboration with HR, to make reasonably certain that the model is specific to the qualities required of the company's finance professionals and leaders.

Develop What You Need: Leadership Development in Action

A finance leader competency model is a framework for the combination of finance and managerial skills, and experiences your professionals and leaders need at each level. The next step is reviewing both the performance and potential of your finance managers and emerging leaders on a regular basis. These performance and potential reviews, which should be led by the CFO and his/her most senior team, are an important tool in finance departments that excel at growing leaders.

A second ingredient is combining job rotations (within finance and business units), critical projects, mentoring, and formal training. This is often referred to as the 70/20/10 model for growing leaders (70% on the job, involved in assignments, participating in projects; 20% mentoring and networking; and 10% formal training).

Additionally, as business grows increasingly complex and global, companies are developing finance leaders through management rotational development programs; formal and informal mentoring/coaching programs; international assignments and exchange programs; stretch assignments to develop functional and behavioral competencies; and leadership programs and membership in professional associations. Career development is very important to keeping future leaders.

Top companies recognize the role of their finance leaders in both preserving their current status and achieving their desired outcomes. To increase the likelihood of their company's ability to meet the challenges of an increasingly complex and global business environment, smart finance executive teams are including growing finance leaders among their top priorities. Providing opportunities for growth and advancement are an important strategy for retaining high quality talent and cultivating tomorrow's leaders.

See Jeff Schwartz ' article The Shift from the Corporate Ladder to Lattice and his Business Finance interview Q&A: Deloitte's Jeff Schwartz on the Finance Talent Crunch

Jeff Schwartz is a principal with Deloitte Consulting LLP's Human Capital practice. He is a regular monthly contributor to Business Finance, sharing his perspective on executive talent development, where the next generation of finance leaders will come from and some of the best practices organizations are applying in addressing these issues.