Can CFOs step up to the plate?

Financial directors and their departments need to fire on all cylinders to succeed as second-in-command

 

The role of the CFO seems to be stretching beyond recognition. And while there is a consensus regarding the need to reinvent the role for the digital era, the direction of change mapped out by experts is often conflicting.

 

One indicator of the number of new hats the CFO is expected to juggle is the increase in the number of functions answerable to them – which, according to a McKinsey report, had doubled by 2019.

 

The shift itself is not about replacing old hats with new ones but rather expanding the collection. CFOs won’t cease to be number-crunchers at heart, and accounting, reporting and compliance are here to stay. But even some of their traditional responsibilities will need to be carried out with a new mindset.

 

Annual budgeting horizons are often criticised as unfit for purpose on two opposing accounts. One charge against them is short-termism. Digital transformation projects often span more than three years and will show their true ROI only in the long run as the individual transformation projects in the business’s portfolio mature. Until then, they tend to look more like budgetary sinkholes, the archenemies of financial planning.

 

Seen from an agile perspective, however, the annual budgeting and funding timeline is way too long. Digital transformation should be iterative in nature, as is agile project management, one of its most effective methodologies, and many argue that succeeding at it requires the ability to fail from time to time. While planning isn’t eliminated from the agile process, being responsive to changes, tweaking and re-planning override adherence to set targets. Therefore, the agile approach to managing transformation calls for a flexible finance function that’s aware of the volatility of disrupted markets.

 

The traditional image of the CFO as a frugal naysayer that heads of department must coax into sponsoring their projects was perhaps first reevaluated during the 2010s, with the rise of the dual CFO-COO (Chief Operating Officer). This involved the head of the financial function taking on day-to-day operational and administrative responsibilities, as well as becoming a strategic partner to the CEO.

 

A study published by the American Accounting Association last year found that merging the two roles doesn’t affect the efficacy. To the contrary, the CFO’s more in-depth knowledge of how the company operates resulted in more precise accounting estimates and improved communication between the finance department and other business units. But can the role bear any further expansion without bursting at the seams?

 

As digital transformation is increasingly putting data and advanced analytics at the centre of businesses, these areas need to be represented in the C-suite too. The fact that the financial function is the most attuned to working with data and statistics makes it the most natural candidate for the role. But data analysis today means much more than deciphering figures from the company’s past. CFOs also need to be able to read the present and predict the future, as well as translate the information they’ve gleaned into layperson’s terms.

 

Are there any more items on the skillset checklist for the CFO that we haven’t touched on yet?  Although requiring CFOs to be technologists may sound like stretching it too far, if they act as arbiters of which technological investments should go ahead, a considerable amount of tech-savviness obviously won’t hurt. Moreover, excellent communication skills are definitely an asset if you serve as the CEO’s evangelist when it comes to the need to digitally transform…

 

New technologies, techniques and teams coming to the rescue of the CFO

 

Luckily for heads of finance, there is a formidable toolkit and a range of experts to rely on. First of all, the digitalisation of their own role frees them from the more mundane and repetitious aspects of their jobs, enabling more strategic thinking. Rolling budgets – the idea that a new month is added to the budget period every time one has passed – remove the countdown syndrome and the short-termism between annual budgets. SAFe, or the Scaled Agile Framework, can lend an agile quality to strategic planning by enabling a move from traditional, project-based resource allocation to a leaner, faster and more decentralised financial management model. Meanwhile, new KPIs are being invented that offer a more nuanced picture of digital projects’ progress than ROI.

 

Keeping data at the heart of digital businesses implies that information is no longer stored in departmental silos but on a unified platform, most of which anyone in the company can access without the finance department acting as gatekeeper. Also, business intelligence (BI) software and analytics tools provide tremendous help with investment evaluation and turning raw data into insights that any line of the business can understand and act upon.

 

Last but not least, further new roles are being created, such as the CDO (Chief Digital Officer or Chief Data Officer) or the CDTO (Chief Digital Transformation Officer), who can bring the kind of deep expertise and insight to the CFO’s table they could only realistically expect to have if they were they superhuman.

 

From the outside, the ideal digital CFO of the future will look like the mighty master of the company, second only to the CEO. But their success will hinge upon how successfully they can orchestrate the tools and expertise at their disposal.