A New Era of CFOs – Balancing Core Duties and Expanded Roles

In today's fast-moving market, increasing competition, changing customer needs, and geopolitical crises are creating substantial challenges for supply chains and financial planning. Consequently, the role of CFOs is also evolving. Understanding these developments is crucial and the ability to adapt and pivot quickly is critical for success. CFOs face an extraordinary number of decisions to make on compressed timelines, each carrying cascading consequences in a constantly shifting world.

Consequently, the CFO's role is evolving. Some McKinsey publications highlight the increasing scope of CFO functions, with investor relations, mergers and acquisitions, strategy, and digital transformation on the rise.

Given their increasing responsibilities, CFOs must decide where to concentrate their efforts. As ideal candidates to spearhead change, drive digitalization, and develop the skills needed for large-scale change both within and outside of finance, they should carefully choose which initiatives to champion to avoid being overwhelmed by transformation efforts. In addition to their core responsibilities, I believe the following are strategic areas for CFOs to thrive in their roles:

Strategic Planning and Leadership in Investment

Modern CFOs now have a central role in shaping portfolio decisions, ensuring financial resilience amidst market volatility. This expanded scope requires a unique blend of skills and leadership, making the CFO a key strategic partner to the CEO and other business leaders.

A modern CFO must carefully balance investments, liquidity, and capital structure to achieve both immediate results and sustainable growth. They must also improve transparency and increase the frequency of reporting to meet the needs of regulators and internal and external stakeholders, such as investors and board members. Effective communication of financial performance is key to establishing credibility with respect to the company's strategic vision.

Data Technology and AI – New Drivers for Performance and Reporting

Leveraging data technology and AI provides real-time insights into business performance, facilitating strategic decision-making and risk management. Despite significant investments in digitization across all industries, I think there is still considerable potential for further technological improvements. A McKinsey survey conducted in July 2024 found that while 98% of finance functions have invested in digitization and automation, a significant number of CFOs report that only 25% or less of their processes are currently digitized or automated.

At Siemens Energy, we are also on a digitalization and automation journey, leveraging these technologies to increase productivity and successfully drive our transformation. One of our big data projects aims to gradually consolidate our enterprise resource planning (ERP) systems from around 20 different systems to just two. We are leveraging Robotic Process Automation (RPA) to handle repetitive tasks, allowing our teams to focus on more strategic endeavors. We are using AI for contract analysis to streamline and improve accuracy in our legal processes and AI-supported forecasting and scenario planning are two key projects we are currently working on.

Advanced technologies come with both opportunities and risks. A key risk for organizations deploying AI is the lack of robust governance. While AI, particularly Large Language Models (LLMs), can increase capabilities and efficiencies, it also poses significant challenges and risks, including bias, data privacy concerns, cybersecurity threats, and accountability issues.

At Siemens Energy, we have implemented an AI Governance Policy that embeds principles of human rights, ethics, privacy, security, and other safety controls into the company's AI lifecycles and processes by default. The policy ensures that we use AI responsibly, comply with data privacy laws, use anonymous data whenever possible, and organize awareness and training sessions to effectively address AI risks.

Talent Management

Digital finance requires new skills, making talent management a key responsibility for CFOs. This includes strategic workforce planning, upskilling and defining the next generation of finance jobs. CFOs work closely with leaders across the organization and within the finance organization to develop talent, which includes job rotations, special projects, and continuous learning.

At Siemens Energy, we have created a learning platform tailored to the finance community to guide their professional development. It provides information on required skills and related training for all finance roles and enables individuals to effectively manage their own development plans. This responsibility extends beyond a company's finance community. There is a strong need to ‘demystify finance’ and spread knowledge throughout the organization.

A Balancing Act in a Dynamic and Fast-Paced Environment

In conclusion, the modern CFO must navigate a complex and evolving landscape, balancing core financial responsibilities with expanded roles. By leveraging advanced technologies and maintaining a strong governance mindset, CFOs can drive business growth, ensure financial resilience, and uphold ethical standards in an increasingly digital world. Given this expanded range of roles and responsibilities, CFOs are under increasing pressure and face the challenge of delivering on a wide range of performance that go beyond financial metrics.

CFOs collaborate with a diverse group of individuals that extends beyond traditional finance roles, including leaders focused on strategy, growth, digital transformation and talent development.

The role of a CFO continues to evolve, making it an increasingly compelling career path. Therefore, it is imperative that we collectively develop our talent and teams, ensuring they understand the future trajectory and skills required of the finance profession and the CFO role.

Check out Fortune's article on the discussions at the MPW Summit 2024.