The Evolving Role of the Chief Financial Officer in the Digital Age
CFOs must become savvy in new tools, including automation, data visualization, and predictive analytics. They must also be adept at mining information from new technologies and understanding how to communicate the findings pragmatically to their broader management teams and board members.
Today, CEOs expect their finance chiefs to help them navigate economic volatility and drive long-term business growth. This requires a shift in priorities and a different perspective on business evolution.
CFO’s Role: Past vs Present
Before widespread digitization, CFOs were often expected to focus on traditional financial management tasks like financial reporting, budgeting, and forecasting. They also had a heavy load of duties related to managing a company’s capital, ensuring regulatory compliance, and identifying and mitigating risks.
The CFO’s role has evolved a lot since those days. Today, CFOs are often tasked with acting as strategic business partners. This is due primarily to technological advances that have created a more dynamic business environment.
As such, it’s become more critical for finance teams to leverage data to support commercial decision-making and meet strategic goals. CFOs can no longer rely on dated technologies to meet these objectives, and they must ensure their departments are open to implementing new solutions as they emerge. They must identify which technologies will likely improve their department’s efficiency and provide those solutions that align with the company’s overall goals. Those who do this can stay ahead of the curve and make the most of the opportunities presented by their organizations’ digital transformation.
CFO’s Impact on Business Evolution
As the world evolves around us, CFOs are expected to be an influencer and a counterpoint to the business. This becomes especially clear when it comes to being a steward and preserving the company’s assets, property, and records in an era of digitalization.
This means that finance teams must be able to anticipate the future and not just analyze past performance. In addition, it’s essential for the team to be able to work across functional boundaries, particularly when it comes to working with other departments and C-suite leaders to drive business transformation.
Our survey shows that the pace of change in the CFO role is rapid. For example, on average, today’s CFOs have six discrete functions that report to them. This is up significantly from two years ago, which highlights how the responsibilities of the CFO are expanding. But with all these new responsibilities come many challenges. For one, it’s difficult to keep up with the fast-changing landscape of technology and how it impacts the finance function.
The Modern CFO: A Closer Look
While traditional tasks such as books and records management, financial reporting, and statutory compliance remain critical to the finance function, CFOs now need more skills. This includes leadership of business processes and leveraging emerging technology to enable digital finance.
For example, a sound investment in cloud-based ERP can support the development of CFOs with new capabilities to accelerate business performance. This is achieved through real-time, predictive analytics that assists finance professionals in making quick and fact-based decisions.
Scenario analysis is another vital CFO task, allowing them to guide their human teams in understanding and planning for the impacts of various economic conditions on incoming revenues and outgoing payments. The result is a more resilient and flexible organization ready to adapt to the changing economy.
A well-rounded CFO also champions strategic change, ensuring that commercial and operations functions are aligned on cross-functional goals that will drive business growth. This is done by addressing board feedback and offering proactive business guidance.
CFOs and Digital Transformation
As a steward, the finance chief’s role is safeguarding an organization’s assets by minimizing risk and successfully managing the books. In addition, he or she is responsible for internal auditing and running a tight, efficient, practical financial function.
Providing strategic insight is an essential element of the CFO’s role. Finance leaders can leverage their deep expertise and financial acumen to drive innovation within the business and support growth opportunities.
In addition, finance executives are often tasked with leading financial digital transformation. They are expected to use digital tools and technologies, like the CCH Tagetik Corporate Performance Management expert solution from Wolters Kluwer, to streamline financial processes and enable greater accuracy in reporting. Finance chiefs are increasingly tasked with using data analytics to identify opportunities and enhance revenue strategies. As a result, they require data governance solutions that provide a single version of the truth. This will allow them to make operational decisions based on accurate and timely information. It will also ensure the company can adapt quickly to changing business conditions.
The CFO’s Role in Financial Sustainability
The finance department is not only responsible for meeting revenue goals and controlling expenses; it also needs to be a catalyst that cultivates an overall business approach and mindset. This means the CFO must be able to identify and nurture financial opportunities and act as a strategic C-suite partner to help other departments drive the company’s strategy.
Before digitalization, the finance department ran the numbers and let other company areas handle soft issues such as sustainability and corporate social responsibility. However, the emergence of data-driven business processes has seen the role of the CFO evolve into one that manages and drives financial performance while creating long-term value.
This includes taking a riskier, less traditional approach to innovation and embracing digital tools such as Accounts Payable automation software that help companies streamline the procure-to-payment process. However, this will require the entire finance team’s support to ensure the initiative’s success. The CFO has a big role and must convince the team to use this new working method.
CFO’s Influence on Financial Decisions
The CFO is a critical leader for an organization and must be open to new technologies that will help them grow and thrive in the future. Whether it’s the pandemic, global economic uncertainty or business diversification, the finance department must be able to make quick and accurate decisions based on data.
The essential job responsibilities of the CFO include analyzing revenue streams, driving insights for increasing profitability, and providing recommendations on cost-cutting strategies. The CFO must also be able to explore the risks and opportunities of strategic decisions, such as launching a new product, expanding into new markets, or purchasing additional equipment.
A CFO must also be able to manage the treasury aspect of the role, which includes managing a company’s assets, debts, and liquidity. This requires a strong understanding of financial principles, including the ability to calculate risk and forecast in real time. It also requires a keen eye for quality control and compliance. CFOs must also be able to collaborate with leaders in other departments to ensure nimble decision-making and performance improvements.
CFOs and Corporate Governance
In the past, CFOs were regarded as guardians of accounts books and records, crunching numbers and ensuring legislative compliance. Today, a modern CFO deals with company-wide concerns and needs to be a value integrator.
Governing boards of companies are more in need than ever of the sharp, fact-based counsel that a CFO can provide. With market forces driving broad digital disruption, systemic threats arising from cybersecurity, and geopolitical shifts, even the best-positioned directors need dispassionate information to understand how these events can affect business performance.
Moreover, it’s increasingly important for a CFO to be involved in a board’s discussion and to attend every meeting. This allows him or her to anticipate and answer questions before they occur. It also enables the CFO to understand the board’s dynamics in-depth and engage more productively with other members. As a result, our research shows that the more a CFO interacts with a board, the better they are at providing valuable insight and support. This helps them build a stronger relationship with the CEO and strengthen their ability to drive innovation.
The Future of CFO Roles
For CFOs, this new role requires energy, a learning mindset, and the ability to work across departments. It also necessitates a high level of digital savvy to manage and drive this change.
CFOs will need to embrace technologies and tools that can deliver real-time data to help their organizations be more agile, and they’ll have to be able to communicate what this data means to stakeholders beyond the finance department. This will require a strong partnership with the CIO.
As more and more companies move their sales online, they’ll need to improve customer experience and optimize the efficiency of their processes. This is where CFOs can play a crucial role by helping to implement innovative solutions, such as automated receivables management that significantly reduces days sales outstanding and bad debt.
CFOs who’ve held roles in critical business functions outside of finance, such as marketing and sales, will have much more robust insight into how these changes impact the more comprehensive organization – which is an advantage when driving strategic decisions.