The anatomy of the CFO of Tomorrow

Today, the role of the Chief Financial Officer (CFO) is under greater scrutiny, internally and externally. CFOs face never ending pressure to cut costs, grow revenue, and ensure control. Economic uncertainty, increased regulatory requirements, financial restatements, and increased investor scrutiny have forced them into the spotlight. Given these factors, CFO turnover is on the rise. The number of functions reporting to CFOs is on the rise. Also increasing is the share of CFOs overseeing their companies’ digital activities and resolving issues outside the finance function. This leads us to this millennial question: How can future CFOs harness their increasing responsibilities and traditional finance expertise to drive the C-suite agenda and lead substantive change for their companies (see the image above)?

The CFO role is such a pivotal role in driving change at companies. The spectrum of roles that reported into the CFO role has dramatically increased. On average, approximately six discrete roles are reporting to the CFO today. Those roles range from procurement to investor relations, which, in some companies, tend to be very finance specific. Two years ago, that average was around four. You can see the pace of change. The interesting insight out of the future CFO role is the cross-functional nature of the role, which is driving transformations and playing a more proactive role in influencing change in the company. The soft side of the CFO leadership comes out really strongly, and CFOs are becoming more like generalist C-suite leaders. They should be. They, obviously, are playing that role, but it is becoming very clear that that’s what the business leaders expect them to do. CFOs are expected to drive long-term performance and be the stewards of the resources of the company. The technological evolution of finance function can be categorized to: automation, analytics, robotic processes, or data visualization. . Dr. Ilya Strebulaev, a professor of finance at Stanford University, argues that CFOs should form close partnerships with Chief Information Officers (CIOs), if your company has one. Remember also that the finance functions have to focus and put in place KPIs [key performance indicators] and metrics that talk about the long-term value creation. It is one of the imperatives for the CFO of the future: to be the value architect for the long term. It’s one of the very important aspects of how CFOs will be measured in the future. The changing trends indicate that there’s a huge opportunity for CFOs to lead the charge on transformation to ensure that they’re not just leading traditional finance activities but also being change agents and leading transformations across the organization. The CFOs of the future have to flex different muscles. The modern CFOs have been very good in driving performance. There’s an opportunity to even step up the way that performance is measured in the context of transformation, which tends to be very messy. But, clearly, CFOs are expected to be the change agents, which means that they have to be motivational. They have to be inspirational. They have to lead by example. They have to be cross-functional. They have to drive the talent agenda. It’s a very different muscle, and the CFOs have had less of an opportunity to really leverage that muscle in the past. The energy and charismatic leadership from the CFO will be the requirement of the future.

The future CFOs need to foster talent and leverage the trifecta to attract, retain, and drive talent going forward. On talent development within the finance function, a few types of actions—and these are not new actions—done very purposefully can have significant outsize outcome. One is job rotations: How do you make sure that 40 to 50 percent of your finance function is moving out of the traditional finance role, going out in the business, learning new skills? And that becomes a way where you cultivate and nurture new skills within the finance function. You do it very purposefully, without the fear that you will lose that person. If you lose that person, that’s fine as well. That is one tried-and-tested approach. And some companies including ours have made that a part of the talent-management system. The second is special projects. And again, it sounds simple, but it’s hard to execute. This is making this a part of every finance-function executive’s role, whether it’s a pricing project or a large capex [capital-expenditure] and system project implementation. Things like that. Getting the finance function outside of their comfort zone: That’s certainly a must-have. And the third would be there is value in exposing finance-function staff to new skills and creating a curriculum, which is very deliberate. I think technology’s changing so rapidly. So exposing the finance function to newer technologies, newer ways of working, and collaboration tools: those are the things I would highlight as ways to nurture finance talent. 

The CFO of the future will need to be equally adept communicating with both internal and external stakeholders. In a number of organizations very often, finance folks spend a large chunk of their time trying to work on ad hoc requests that they get from the other parts of the business. A big opportunity here is in how the finance function ensures that the rest of the non-finance part has some basic understanding of finance to make them more self-sufficient, to ensure that they are not coming to the finance function with every single question. What this does is it ensures that the rest of the organization has the finance skills to ensure that they’re making the right decisions, using financial tools. And secondly, it also significantly frees up the way that the finance organization itself spends its time. If they spend a few hours less working on these ad hoc requests, they can invest their time in thinking about strategy, in thinking about how the finance function can improve the decision making. That’s a huge sort of benefit that future CFOs can capitalize  just by upscaling their non-finance workforce to equip them with the financial skills to ensure that the finance team is spending time on its most high-value activity.

There are four distinct kinds of technologies or tools that finance teams, specifically, could use in enabling their digital journey and transformation. CFOs have way too much on their plates right now. What this essentially means is that they need to invest time and a lot of their thinking into some of these newer, more strategic areas while ensuring that they keep the lights on in the traditional finance activities. The biggest tool that will enable them to keep the lights on as well as add value in this new expanded role is to take advantage of automation, as well as some of the newer digital technologies that we see. There are basically four types of digital stages that we see as finance functions start to evolve. One is using automation, which is typically the first step. For example, “How do I move from an Excel-based system to Mzizi, Sage, SAP or Oracle? How do I move from a manual transactional system to something that’s more automated, where my finance teams don’t have to invest time, but it happens in the background with accuracy?” That’s step one. The second thing that we see as a result of this is you have a lot of data-visualization tools that are being used. This is very helpful, especially when you think about the role of FP&A [financial planning and analysis]. “How does my FP&A team ensure that the company makes better decisions? How do I use a visualization software to get different views of my data to ensure that I’m making the right decisions?” The third one is, “How do I use analytics within finance? How do I use analytics to draw insights from the data that I might have missed otherwise?” This could be something in forecasting. This could be something in planning. But this could also be something that’s used when you compare your budget or your forecast. Your analytics could really help draw out drivers of why there’s a variance. And fourthly is, “How do I then integrate this advanced-analytics philosophy across the rest of the company?” What this means is, “How do I integrate my finance and traditional ERP [enterprise-resource-planning] systems with the pricing system, with the operations, and supply-chain-management system? How do I integrate my finance systems with my CRM [customer relationship management]?” Again, the focus is on ensuring that the whole database is not this large, clunky system but an agile system that ensures you draw out some insights. In some companies, the technology functions used to report to CFOs. There are cases where CFOs have formally or even informally taken over the mandate of a chief digital officer. You don’t necessarily need to have a formal reporting role to be a digital leader in the company. CFOs, of course, have an important role in vetting expenses and vetting the investments the companies are making. That said, CFOs have this cross-functional visibility of the entire business, which makes them very well suited to being the digital officers. In some cases, CFOs have stepped up and played that more formal role.

Finally all that I’ll say is that these are very, very exciting times for the role of the future CFO. A lot of things are changing. But you can’t evolve unless you have your fundamentals right. This is a very exciting time, where CFOs can have the freedom to envision, create, and chart their own legacy and then move to a leadership and influencer role and truly be a change agent in addition to doing their traditional finance functions, such as resource allocation, your planning, and all of the other functions as well. But I definitely do think that these are very exciting times for finance organizations. There are lots of changes, and the evolutionary curve is moving upward very quickly. Cheers