see below

Business leaders are required to have a keen understanding of all facets of their organizations. There are several areas of expertise in any given organization, including but not limited to accounting, finance, economics, marketing/sales and technology. Each of these functional areas has a different impact on the firm's business, and practitioners of each area bring different skills sets to the CEO role.

As the leader of the organization, the CEO's job is to direct the executive team. In order to do this effectively, the CEO must not only have strong leadership skills, but must also demonstrate sufficient competency in all of these functional areas. In order to successfully direct the CFO, for example, the CEO must have a sound grasp on what the role of the CFO is within the organization. Overall objectives must be communicated within the context of that role. Moreover, communication must also be effective in the other direction. The information that the CFO or another functional manager gives the CEO must be synthesized effectively into an overall strategy. That requires strong functional knowledge of each key area.

This paper will examine four of the key roles - finance, economics, accounting and marketing/sales - in terms of the skill sets that are required in each of these disciplines. From this will flow an analysis of how each of these skills sets can be applied to the leadership function. An analysis will also be conducted of the weaknesses of each of these functional areas. To conclude, the single most important factor will be identified, and an explanation given as to why this factor is more important than each of the others, on average.

There will always be exceptions. There are near limitless ways for firms to derive competitive advantage. For some firms, the key drivers of success are technology or research. In these firms, most important function for the senior executive to have is in the technology or research function. For the purposes of this report, we will assume the senior executive already possesses significant strength in such functional areas. This will allow us to look beyond that, to see what basic, underlying skill sets provide the strongest contribution to executive-level management.

Finance

The finance function has become one of the most valued in organizations today. As a result of an increasingly complex financial environment, the CFO position has moved from a largely functional staff position to a grooming ground for CEO post. Several key skills sets are cultivated within the finance function.

Financial managers have a keen understanding of how each strategic decision affects the bottom line. For the most part, the bottom line is how they evaluate decisions, in terms of net present value and rates of return. They have to understand and be able to quantify the risk factors that the firm faces, and how each strategic decision affects these risk factors. They know the cost of capital for the firm, both equity and debt.

Moreover, finance managers are experts are structuring deals. For many deals, the manner in which the financing is structured is key to the deal's profitability. The use of different instruments and structures for raising capital has become a much more complex field in the past couple of decades. This has resulted in a rise in importance for this function.

These skill sets translate to the executive role because of the way in which the finance manager understands views and understands corporate strategy. It is assumed that, for the most part, the objective of management is to enhance shareholder value. The chief executive officer's role is to guide strategy. Chief executives from a financial background are in the best position to evaluate each strategic option on the basis of bottom line impacts.

Another way in which the finance role helps build leadership skills is in evaluating the type of broad-based capital structure decisions that directly impact shareholder value. For example, the company's strategic decisions, and the financing methods used to fund them will impact the company's debt-asset mix. Executives who have little comprehension of how such macro-level considerations affect shareholder value are in a weaker position than an executive with a strong financial background.

Such executives are also in a position to better evaluate mergers and acquisitions. In recent years these have become an increasingly important part of the competitive landscape. The decision to engage in such transactions is made at the highest level. There are a myriad of considerations, both strategic and financial. A leader with a strong financial background is able to weigh the relative advantages and disadvantages of each, rather than merely looking at strategic potential.

There are disadvantages to having a finance background, however. Because such executives have only recently come under serious consideration for the top job, many are not properly groomed for the role. The CEO role, for example, requires a degree of vision and the CFO is more of a problem-solver than a visionary. Such visionary outlook often needs to be cultivated but because finance people are not always considered potential leadership candidates, they are not groomed towards this attribute.

Additionally, their discipline is focused so strictly on numbers as a means to understand alternatives and decisions that broader economic and strategic factors are not always considered or understood. The field is somewhat removed from broad economic analysis, for example, or strong legal or technological knowledge.

In other words, the skill sets of the finance manager, while useful in the executive suite, may not be related in any way to the areas from which the organization derives its competitive advantage.

Economics

The economic environment is an often overlooked factor in a company's fortunes. The focus is often put on the ability of the firm to adapt to the environment, which is valid, but that requires a keen understanding of the economic environment itself.

To take a leadership role in an organization requires vision, and this makes forward-looking outlook of economics professionals highly valuable.

Chief amongst the skills economics professionals bring to a leadership role is their understanding of the economic environment. Understanding the macroeconomic environment allows firms to develop a better sense of the opportunities that exist. They can understand how these factors affect their business, and predict changes to these factors. An understanding of microeconomics is valuable in developing marketing strategy, as the outlook is essentially the same, evaluating the cumulative affect of small-scale decisions.

Another skill economics professionals bring is the ability to read and respond to external factors. An example would be the way that the economic slump stemming from higher fuel prices has affected a bellwether firm like FedEx. The company's lack of response to impending economic changes has resulted in lousy financial performance and dim prospects for the near future. Yet even subtle changes in the economic environment can result in significant impacts to a firm's business model or its ability to enhance shareholder value. Being able to translate such changes into these impacts allows the executive to make better strategic decisions, since sound understanding of economics can allow for better prediction of these changes.

Moreover, an understanding of economics can allow the executive to better identify market opportunities. Shifting economic factors typically eliminate some existing opportunities while simultaneously creating new ones. The better the executive understands the economic environment, the more able he or she will be to position the firm to take advantage of these opportunities, and to exit businesses before they become unprofitable.

These skill sets translate to a leadership role in that they better enable the leader to forge visions that are viable. Timing, for example, is key as first movers often gain advantages in the marketplace. Firms have often succeeded simply by being in the right place at the right time. Japanese automakers, for example, were entering the U.S. market with their fuel-efficient cars just as the first oil price shocks hit North America, allowing them to gain a foothold right away. This process could have taken decades longer had these shocks not occurred.

Another way in which the economic skill sets translate to a leadership position is that the manager can develop a better sense of threats. The bane of any executive's existence is a sudden, sharp downturn in business due to economic factors. While those factors are largely out of control of the firm, the executive can mitigate the damage through shrewd strategic decision-making. Vision doesn't just apply to positives; sage vision involved seeing negative trends before they happen and making the right decisions to avoid or minimize the damage they cause and subsequent erosion of shareholder value.

There are pitfalls, as well. The economics function is essentially base knowledge. The leader must still be able to directly apply the economic knowledge to the industry and competitive environment. Moreover, such a broad field of study often preclude the executive from building a strong functional knowledge. Identifying trends is one thing, translating them to action that consistently builds shareholder value is another. Without a strong understanding of the business itself, the economic knowledge is just knowledge without application, and ultimately not the strongest way to build a leadership candidate.

Accounting

Accounting professionals are not often thought of as leadership material, at least until they build a strong background in finance or another discipline. They possess valuable skills, but those skills are viewed more as a staff function, nice to have but not essential to developing competitive advantage and building shareholder value.

The accounting skill sets include the ability to monitor and manage costs; in-depth knowledge of the regulatory environment; and the ability to deconstruct the firm's operations down in order to better identify areas of weakness.

Cost control is critical because profit depends on margins, and keeping fixed costs low. Without adequate cost control, sales gains are eroded, and can even be damaging. The accounting function is vital to maintaining profitability.

The accountants are able to deconstruct the firm's operations in order to not only control costs, but to increase efficiency. Each firm has areas where their performance is relatively weak. Proper accounting can help management better understand these areas of weakness, so that strategies and tactics can be devised in order to make improvements. Unprofitable products or markets can be dropped, and product mixes altered on the basis of the accounting function.

Understanding of the regulatory environment has become more important in the past decade. The accounting scandals at the end of the 90s and the beginning of the 00s have highlighted the need for top executives to have an acute understanding of the regulatory environment. While the risks are relatively low compared with other damaging potentialities, the costs be high. Enron is a prime example where poor accounting practice can erode shareholder value entirely. The response to such scandals has been an increase in legislation, in particular the burdensome Sarbanes-Oxley Act. This increase in regulation, combined with the high cost in terms of shareholder value to adhere to such regulations, has made strong accounting knowledge a much more valuable feature in the executive chair in recent years.

The main drawback, however, is that aside from mitigating this rather significant risk, there are few advantages to having strong accounting acumen in a leadership position. While accounting is typically consulted, their findings are seldom the main basis for strategic decision-making.

Marketing

Another key function is marketing and sales. This function's unique skill set includes the ability to identify and attract customers. This flows from a keen understanding of the product, and the needs that the product meets.

The marketing function also deconstructs the customer base, allowing the firm to gain a better understanding of the source of their income. This has a significant, if understated, positive affect on shareholder value.

These skills are valuable for a leader in that without an understanding of the marketplace a leader cannot effectively reach it. Profit is generated as much by the art of marketing as it is by any other means. For a leader, being tapped into the market also allows for the development of strategies that exploit new opportunities. It can be said that such new opportunities arise from the economic environment, but that is more to do with identifying them; exploiting them is the concern of marketing.

In this regard, the marketing function is much more of a line function than a staff one.

The drawback is that selling cannot be done at any cost. The cost controls of the accountant and the cost of capital utilized by the finance professional are key to extracting value in opportunities. The economic function identifies those opportunities. Marketing plays its role in exploiting the opportunity but it is not an all-encompassing discipline and as such has limited contribution to the overall strategic direction of the firm.

Conclusion

The functions listed above each have a distinct benefit to the organization. They all have their own way of contributing to the enhancement of shareholder value. Any leader should have a solid grounding in the basic concepts and principles of each. Yet in the course of evaluating each of them in terms of their value to an organizational leader, it becomes apparent that the nature of leadership must also be understood.