My blog this week is the first in a series of posts focused on driving high performing finance organizations for expansion stage technology companies.   You may recall one of my posts a few weeks ago "Are You Driving Extraordinary Execution?", which was focused on our recently published case study about our Capability Maturity Model for Finance Workshop.  I'd like to describe a little bit more about the theory we have behind the power of the CMM.

Can the Chief Financial Officer and the CFO’s Organization Really Make a Competitive Difference?

In 2006, Accenture found a 70% correlation between mastery of finance capability & those companies that consistently outperform their industry peers over multiple economic cycles. These companies were not always the largest companies, but they were companies in over 30 industries that outpaced their peers over 3-, 5-, 7- and 15-year timeframes measured by total returns to shareholders, revenue growth, and spread between return on invested capital less weighted average cost of capital.

CFOs and their organizations in high performing companies all exhibit some common characteristics. 

• Their delivery of business support is integrated with overall company strategy
• The CFO plays a critical role in strategy, leadership and execution
• They are proactive rather than reactive, and influence results rather than being influenced by them.

Great finance teams like these were not built over night. One other characteristic is common to all of them.  Each one of them had to master baseline capabilities before progressing on to becoming a high-performing organization.   OpenView Venture Partners feels that a structured capability model is a powerful tool by which an organization can assess their current state, as well as map out a roadmap for improvement.

Capability Maturity Models

Capability Maturity Models (CMMs) were developed by a group of experts from industry, government, and the Software Engineering Institute (SEI) at Carnegie Mellon University in the 1980s. CMMs were originally developed as a tool for objectively assessing ability of government contractors' processes to perform a contracted software project. The concept has evolved for use in areas such as system engineering, project management, information technology, professional services and human capital management.

Not only does the CMM provide a framework for assessing capability and process maturity, but it also is a roadmap to an environment in which practices are repeatable, best practices can be transferred rapidly across groups, variations in performing best practices are reduced, and practices are continuously improved to enhance their capability. An important premise is that sophisticated practices should not be attempted until foundation of practices required to support them has been implemented. This staging of maturity levels provides much of the framework’s power for improving organizations.

Levels of Capability Maturity

• Level 1:  Non-existent, ad hoc.  
• Level 2:  Repeatable, developing
• Level 3:  Baseline, defined.
• Level 4:  Managed, advanced.
• Level 5:  Optimized, leading. 

OpenView Venture Partners' focus on Level 3 is to ensure the right capability, with the right resources, expending the right amount of effort, providing the most value, and at the right time in the company’s development to support the high performance required for a successful expansion stage company. For this reason, while Level 2 might be ‘good enough’ for an early-stage startup, the functional capabilities at this level are typically not adequate to support growth to expansion stage. Conversely, while Level 4 might be right for your company once it reaches pre-IPO or latter stage development, the level of predictability, integration, sophistication and automation required fundamentally do not align with most expansion-stage companies’ strategic priorities.

Next week...how we align the CMM with strategy maps.