Evolving role of CFO

Soothsayer. Transaction specialist. Business value architect. Technology maven. Ask a dozen people to define the role of the chief financial officer in today's economy, and you'll likely get at least a dozen different answers… probably a lot more. Tasked with the responsibilities of managing costs throughout the recession and its aftermath, while keeping their companies positioned for growth opportunities, CFOs have evolved into whatever type of expert their companies need them to be. And that transformation hasn't necessarily been an easy one.

Just a decade ago and amongst the C- suite executives, sought after roles continued to be a combination of Sales, Finance, Marketing and Operations. However currently, the most sought after role is that of a CFO. Both CEO and CFO now have to work in an extremely coordinated manner and act as clear business partners. The landscape and KRA’s of CFO have changed and they have expanded their horizons significantly. Age old concepts are getting discarded and new concepts are coming up the curve.

1.     Bottom-line derivation/reporting has been replaced by driving the same in a strategic manner-

CFO’s have traditionally thought of only reporting, accounting and the derived bottom-line. Nowadays they take appropriate pricing, product and sales decisions to drive and improve bottom-line. Short term growth strategies are getting replaced by medium and long term visions. CFO’s are now willing to accept an annual loss for few years if the overall business potential can generate a positive CAGR over a medium and long term. Decision making by them has tremendously increased since last decade or so.

2.     Sales/Business Development and Revenue planning-

Technological advancements, dynamic customer needs and significant competition have disrupted the revenue models at many companies. CFO’s are now being required to evaluate these aspects as well before making a decision and not just bank on the financial computations and excel. In many companies, CFO’s are now doing a front facing role. They are meeting their clients, distributors to understand the risk horizon, economic landscape and interdependency aspects and then taking sales, pricing, product construct and technological decisions in order to support top-line growth as well.

3. Lead multi-functions and non-finance teams-

CFO’s have now become strategic thinkers and doers than in past years. Their role has diversified and has extended beyond the traditional remit of accounting, reporting & taxation. Now, they have sub-functional groups of controllers supervising these sub-functions which they review and finalize. They are now devoting around 40% of their time on other non-financial areas such as IT, HR, Operations and Sales. They are at times leading these non-financial groups. It is not rare to see a CFO nowadays leading Payroll, Sig Sigma Operational, Pricing functions and managing cross-functional teams

4. Automation initiatives-

Current economic environment is no longer a numbers game. It is an endurance race wherein companies who are behind the curve lose the race. The dynamic scenario requires automation and being up to the speed of the competitors. Administrative tasks requires automation and the management needs to focus on the strategic work. CFO’s needs to master this change and do an appropriate cost benefit analysis to bank on AI, BI and other analytical tools. The CFO’s of the current age does not simply require technical competence but they also need to be a master of the digital world.

“From integrating advanced analytics tools to aligning strategy and risk, the CFO must have the capacity to lead if their companies are to deliver value.”

5. Forecasting the future-

Accurate forecasting and planning are the next key attributes where CFO’s need to partner with the CEO. Ability of the CFO to forecast accurately and ensuring that the actual results follow the same pattern creates the difference for the organization. Earlier, the forecasts had to be done with major references to historical trends. The new age CFO’s does not need to just focus on historical trends but also evaluate and forecast the future business scenario, market analysis, penetration of the company’s product positioning and then create the forecast.

6. Not just number crunching-

Role of the CFO is no longer restricted to number and data crunching. It is changing and evolving in three key ways- (a) Integration of operational and financial information (b) CFO’s have been the single source of fact in the organization for key decision making (c) Product expertise and pricing model expertise

7. Perform a more generalist role and not just be a specialist-

As explained earlier, the CFO’s of the current era are expected to spend more time holistically across the different functions and not just be a financial functional expert. Need to be a generalist is the key as that is the most important ingredient in order to be an effective business partner

8. Resource allocation principles-

A good CFO of the current era needs to be a master of understanding and executing an organization’s spend culture. Understanding the intricacies of a supply chain, procurement and operations along with the organization ethos plays a key role in transforming the future of the organization. CFO’s need to master this area and perform this role effectively

9. Liquidity and Fund raising-

The current era is an era of start-ups, associated equity infusion, venture capitalist, M&A’s etc. If there is one person in the organization who is at the helm of affairs in all these areas, it is the CFO. CFO’s need to understand the liquidity situation of the company, the industry sentiment to go either aggressive or defensive and accordingly take fund management decisions. Ability to assess the potential of the company and to convince investors to get funding if the in-house cash position is not strong enough requires effective commercial acumen which does not come easy and through text books.

10. Disrupt The Status Quo-

All the companies need to go through a journey of upside, stability and downside. Ability to assess the economic conditions, sector analysis, industry analysis and align it with the company’s profile helps stepping the company’s growth charter. The current era CFO’s needs to manage this activity, have strategic vision and implement industry change every few years, instead of maintaining the status quo

11. Risk management and Legal/Compliance culture-

With the increased financial crimes, frauds and other unethical practices, the environment in many countries have also become extremely regulated in order to cope with it. The role of the CFO’s are also evolving as a result of this environmental change. They need to act along with the Legal/Compliance head and work hand-in-hand to safeguard the company’s brand image, safeguard directors and safeguard the company against any potential legal risk. Risk management is one attribute which is very critical for the current era CFO

Looking ahead, the role and influence of the CFO only will grow in the coming years. Already, many CFOs have assumed some of the responsibilities previously held by chief operating officers (COO), for example. In many large, complex businesses, the CEO and CFO roles are becoming almost interchangeable. “Commercial mindedness, strategic delivery, delivery of complex transformation, people, processes, systems and structure are all increasingly on the characteristic checklist as businesses seek to remain competitive and grow but with minimal risk. Adding this to the expanding role of the CFO makes for the need to strike a balance of skill, will, proven ability and talent. CFOs with a breadth of cross-discipline coverage, including control, tax advisory, treasury, financial planning and analysis (FP&A), transformation and risk, have a distinct advantage.”

The coming years will present new challenges and complexity with rising international competition, social and political changes, and increasing government regulation.

As CFOs become more central to companies’ strategies and their sphere of influence continues to grow, the lines will blur between the CFO and other C-suite members, as functions ultimately converge and leaders assume enhanced responsibilities. CFOs need to show companies the way forward and help generate opportunities, while overseeing some of the company’s more mundane tasks. They must protect and preserve the company’s critical assets and ensure that reporting is accurate. They must also provide financial leadership in determining the organisation’s overall direction and create a risk-intelligent culture with a positive impact on employees.

Key references- Industry week, Accenture feed and other key articles....