P&L statements that add up correctly. Annual reports that present the right numbers. Once upon a time, it was up to chief financial officers to focus purely on the bottom line. In a best-case scenario, a CFO aided the board in achieving a more sophisticated and successful financial strategy.
Then along came digital.
“Digital technology is disrupting the role of the CFO. It is fundamentally changing the way organizations approach finances and how they interact with customers,” explained David Axson, managing director at Accenture Strategy.
Make no mistake: Digital technology rewires financial connection points. It also changes–and sometimes complicates–the route to top-line and bottom-line growth for an organization. As technologies such as the Internet of Things (IoT), augmented and virtual reality (AR/VR), and artificial intelligence (AI) filter into business, investments and returns on investment take on new and often challenging dimensions.
“CFOs increasingly struggle with figuring out how digital technologies impact the finance function and the organization as a whole,” said Michael Shebab, tax, technology, and process leader for PwC.
What do digital leaders need to know about the person who truly controls the purse strings? What must CFOs deal with in today’s business and IT environment? And how has the CFO role evolved in recent years?
According to John Murphy, executive vice president and chief financial officer at Adobe (CMO.com is owned by Adobe): “Emerging technologies require today’s CFOs to engage deeply with the business operations leaders, the CTO, and CIO to understand the benefits of these new capabilities, the use cases, the investments required, and, of course, how to measure the value created. The CFO does not need to be a tech strategist per se, but the CFO must master fundamentals of tech trends both in the marketplace and in the workplace.”
Beyond The Spreadsheet
It’s apparent by now that digital technology is changing every role in an organization. However, it’s easy to overlook the profound impact digital technology has on the CFO, who must coordinate budgets and balance both complementary and competing interests from different factions inside and outside the enterprise.
However, according to Accenture’s “CFO Reimagined” report, 79% of CFOs said that their role is changing as a result of digital technology. In addition, 81% said they are targeting and identifying areas of new value across the enterprise, and 75% said finance is best positioned to help the business drive the model underpinning new technology investments.
“Historically, the CFO was the financial approver for other executives in the business,” Murphy told CMO.com. “The CFO role has moved beyond just finance and accounting. It’s a much more multifaceted role that includes the strategic use of technology to drive business growth and operating velocity.”
All of this translates into a need for line-of-business executives–from marketing, operations, research and development, human resources, and other departments and domains–to present a more focused business case when they interact with the CFO and seek funding for digital projects. There’s also a need to engage the CFO earlier than in the past. Although conventional metrics and measures haven’t changed dramatically, an array of new data sources and metrics has entered the picture. This includes Web analytics, mobile app usage information, social media data, operational data, and factors such as how many people abandon shopping carts and click through rates on e-mails.
These data frameworks may extend to employees, partners, customers, and stockholders and encompass strategic factors such as customer lifetime value, customer acquisition costs, marketing costs versus ROI, and customer retention benefits. A clear line of site about investments and returns is critical. For example, according to the Accenture report, 57% of executives rely on live data to identify risks and opportunities that direct business decisions, including investments.
“In an environment where there is greater transparency about competitive pricing and how customers behave, it’s necessary to understand how they interact with your business but also the broader ecosystem,” Axson told CMO.com. This data, along with market data, supply chain data, and more, offers a “goldmine” that CFOs and other financial executives can unlock, he added.
At the center of everything is an important concept: CFOs introduce a quantitative framework along with a level of financial rigor that can prove transformative. They can spot new opportunities and new profit centers based on factors such as expense per dollar of sales or expense per employee and where optimal staffing and automation levels lie. They can identify groups of employees who deliver greater value. This approach to modeling can also deliver earlier and deeper insight into projected revenues and shifting business trends. In the end, an enterprise can guide technology decisions by assigning costs and value to specific tasks and technologies as they become more or less prominent.
Yet, PwC’s Shehab pointed out that an organization’s ability to achieve a quantum leap in digital proficiency–a.k.a. digital disruption–also requires a different mindset and approach from CFOs. It’s more than a numbers game.
“The CFO function is becoming more complicated. It’s no longer about only interpreting and following accounting rules, payroll rules, and treasury rules,” he told CMO.com. “There’s a need for CFOs to have a much broader and deeper understanding of technology. Today, they must become experts in efficiency, productivity, and automation.” This quest can span technologies as diverse as AI, blockchain, robotics, virtual reality, 3D printing, and IoT.
On The Money
Organizations that rewire and reinvent the CFO function are far better positioned to identify opportunities and reduce digital risks. Shehab said that broader and deeper insights tied to financial data deliver greater agility, flexibility, and, in the end, improved financial performance. An often-overlooked aspect of this equation, he added, is that the modern CFO must function partly like a CIO but also understand when and where to hand off tasks.
It is the job of a CIO to address specific technology choices and functions, “but the CFO must understand data visualizations, data transformation, and how to use analytics, AI, and other technologies to achieve enterprise goals,” Shehab explained.
There’s also a need for a basic understanding of data science and new models for monetizing data. It’s no news flash that many companies now offer free apps that provide benefits to consumers in exchange for data that has value. Accenture’s Axson said that CFOs must be conversant in how these new business and financial models work. This includes investment opportunities in startups, incubators, and open innovation frameworks that may touch universities and even competitors. It also encompasses new funding models, short sprints that compress value cycles into weeks or months rather than years, and a fast-fail culture.
Increasingly, Axson said, digital organizations are defined by their partners and the entire ecosystem in which they operate. This translates into a CFO adopting a broader view–and deeper vision–of business partners and customers. It’s impossible to achieve an expansive digital view when a CFO’s head is buried in spreadsheets and traditional thinking.
“An organization and a CFO have to free up capacity to engage in strategic digital transformation,” he explained. “Without insight, it’s impossible to drive growth and value creation.”
Adobe’s Murphy said CFOs must focus on three primary areas: participating earlier in the decision-making cycle; developing teams that support strategic finance; and partnering with other business leaders, particularly in areas that touch consumers, such as marketing, sales, and support. He has focused on addressing collaboration around multiple innovation vectors, including products and services, customer engagement, and operations. Today, cross-functional teams evaluate opportunities and present the most promising concepts and opportunities to the executive team for consideration.
Murphy has embraced this concept by creating a Finance Tech Council that identifies, selects, and prioritizes processes that benefit from digital technologies, including bots, analytics, and artificial intelligence.
“We target manually intensive processes to free our employees to focus on more value-adding work,” he explained. This helps keep the enterprise at the forefront of innovation.
“Companies must be aware of new technology that can propel the business forward in today’s ultra-competitive environment,” Murphy added. “But it’s also crucial to create a safe environment where the merits of deployment can be openly debated to drive the best opportunities to create value.”