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The Oil Crisis and the Role of Financial Managers

By Dr. E. Ted Prince

15 June, 2008

The Oil Crisis Represents Disruptive Change

Crises the size and extent of the current oil crisis do not occur often. When they do they disrupt existing business models of many if not most companies, as is happening now. These changes will result in many companies failing. Many will founder. Some will figure out how to address the crisis because they have seen it as an opportunity.

What is the role of financial managers and executives in this crisis?
How can financial managers deal with the crisis so that they are seen as more than technical players? How can they show that they can help create new business models as distinct from accounting for existing ones?

Financial managers must have a high degree of financial literacy and learning to pursue their discipline. However this is not the same as financial or business acumen. Indeed, there is some evidence to suggest that high financial literacy can sometimes get in the way of business acumen, as indeed we have seen in the current US credit crisis.

The answer to the current crisis will not come from having financial literacy, although financial literacy may be necessary to understand it. The creation of new business models will come from managers who have high business acumen and put in place the organizational environments and events to leverage that business acumen to create new business models.

Strategies for Developing New Business Models

Thus the role of financial managers in helping create new business models should encompass the following components and activities:

1.    Pressing the organization to assess, develop and leverage managers with high business acumen, who may or may not reside within the financial function
2.    Redesigning both the financial and the broader organization to leverage organizational assets - financial and otherwise but including human capital assets - to have the most immediate impact on supporting the enhancement and creation of new business models
3.    Providing the data and financial insights which underpin the creation of new business models
4.    Specifically focusing on the financial organization to develop and enhance business acumen and to use it in the development of new business models

Some Specific Recommendations

1. Financial organizations need to develop an oil-focused financial action plan on the implications of the oil crisis for their company's business model and key actions to be taken to address them

The plan should cover financial models and forecasts, financial techniques and the competencies and capabilities used to create them; the aim is to contrast what is happening at present and the areas that need to be changed in order to meet the challenges posed by the oil crisis.

2. They need to improve their financial organization's capability to respond to the oil crisis, through developing and implementing a business acumen assessment and development program for financial managers and executives

The program should focus specifically on assessment of business acumen and on its development to prepare managers and executives for the new financial and value creation challenges posed by the oil crisis. These challenges are radically different to what they normally face.

3. They need to develop a talent management plan for the new types of skills and capabilities in new recruits and promotions to enhance their capability to develop new business models

Succession plans and planning should be reviewed and reworked to stress business capabilities that will have greatest impact on the company's ability to increase its capacity to address the crisis and to choose those managers most suited to confront these issues.

Broader Strategies for Confronting the Crisis

We could also make some additional suggestions which could be applicable to some companies in the current situation:

Strategic Issues

Prepare a financial impact statement for the company Develop new forecasts based on possible scenarios and business models Redesign recruitment criteria for new financial hires and promotionsEnhance and redesign onboarding programs for financial hires

 

Development

Run a business simulation on an aspect of the oil crisisIntroduce business acumen approaches integrated with oil issues into leadership development programs Organize an oil crisis human capital workshop in the financial areaPress for development of business acumen courses in corporate universities aimed specifically at the oil crisis and addressing it creatively Organize an "oil literacy" seminar for financial and other leaders

Organization

Establish a financial crisis team to address the oil crisis issue Redesign financial organizational structures to enhance organizational capability to deal with the crisis Prepare recommendations for changes to types of financial management to address crisis Hire some people with a background and understanding of oil industry in certain key positions maybe in the financial function

 

The Opportunity for Financial Managers

Financial managers are often viewed as technical experts who do not usually generate business insights. The oil crisis is an opportunity for financial managers and executives to demonstrate how they can create value as well as simply account for it. By adopting some of the recommendations above, financial managers can help their companies address the crisis in a constructive manner and at the same time advance the professional respect and interests of their profession.

About the Authors

Founder and CEO
Perth Leadership Institute