In the past, the role of the CFO was about ensuring accounting and reporting of past activities and booking transactions appropriately so they could report on what had transpired in the last period (month, quarter, year). Today’s CFOs are more focused on shaping a robust strategic and financial future than on accounting for what happened yesterday.
Corporate boards expect their CFOs to be more analytical, strategic and have broader insights about the future of the organization. Therefore, the tools CFOs need should enable them to connect to data sources across the organization and generate dashboards of actionable insights, with the ability to drill down into key performance indicators.
The CFO’S role
|Developing and defining the overall strategy||Representing an organization’s progress on strategic goals to stakeholders||Ensuring business decisions are grounded in sound financial criteria||Providing insight and analysis to support the CEO and other executives||Leading key initiatives that support overall strategic goals||Funding, enabling and executing strategy set by the CEO|
Adapted from McKinsey Global Survey
CFOs and digital transformation
Digital transformation refers to using technology and data to remake processes, not just converting them into digital versions but improving or revolutionizing them. However, CFOs can be inhibited from digital transformation by the innovator’s dilemma – unwillingness to innovate because it may interrupt or threaten key revenue streams. The COVID pandemic has removed that dilemma from many CFOs. Either their CEOs have initiated a digital transformation agenda or competitors are forcing them to digitalize the business. The impact this has on CFOs will change the tools they use, pressure them to fund IT projects, and perhaps change the business model. Because of their role and influence within the organization, CFOs should be leading the transformation project. Depending on skills or competency, this can be solely or in conjunction with the CTO.
What benefits should they be looking for?
A survey in 2020 by research company IDC reported what companies expected benefits from digital transformation:
- Productivity improvements – 55%
- New and expanded revenue streams – 39%
- Cost efficiencies – 29%
- Process improvement – 25%
CFOs and technology decisions
The responsibilities of a CFO cover several areas from financial information and reporting, to CAPEX decisions, compliancy, controlling costs, and reporting on efficiency and performance. Ernst and Young has noted (DNA of the CFO, 2019) that two of the four forces that are reshaping the role of the CFO are digital and data (the other two are risk and stakeholder scrutiny). Considering these factors, CFOs ought to be playing a major role in technology decisions.
The CFO should embrace technological innovations that improve effectiveness, increase efficiency, and enhance insight. New technologies, such as cloud computing, analytics, artificial intelligence, and process automation, offer them an opportunity to reimagine how the business should look. To benefit from new technologies CFOs will also need to manage the risks in each technological innovation.
As many CFOs have CIOs reporting to them, the oversight that the CFO has over IT should embrace two levels, according to Deloitte (Evaluating IT: A CFO’s perspective): i) strategic for long-term IT initiatives, and ii) individual projects.
- Strategic governance includes issues such as determining IT priorities, how current applications support business processes, how efficiently IT is being used, and expenditure and ROI of major projects. This is the traditional steering role of CFOs but focusing on only this level means that CFOs may miss the chance to provide valuable input on day-to-day decisions.
- The second level, individual projects, involves CFOs helping to lead design and requirements decisions and being the key decision-maker in some areas. Of course, this may require spending a lot more time on a project. Getting too involved though can make the CFO a decision-making bottleneck, so this has to be managed carefully.
CFOs and software to manage the enterprise
The right enterprise software offers opportunities for organizations to transform existing products and introduce new business and delivery models. The data that enterprise software can deliver enables CFOs to have the management information and analytics that are critical for them to perform their function properly, navigate the business in the future, and provide what the board needs.
According to the Ernst and Young study, nearly 60% of CFOs say that standardizing, improving and automating processes, and building agility and quality into processes will be a priority.
Companies have increasingly implemented enterprise resource planning (ERP) systems to achieve greater process effectiveness and efficiencies and have the availability and use of information to make decisions. An ERP application is the foundation of the operations of a business. For a CFO, it gives the capability to:
- track and report on all business transactions,
- have visibility over all key aspects of the business,
- analyze information in real-time,
- ensure governance and compliance,
- increasingly make use of artificial intelligence to enhance oversight and decision making.
Therefore, you need to be very sure your ERP application will deliver what the business requires, and what was promised. CFOs will be well aware of other companies that made a mistake in the ERP solution they selected and how it was implemented, and what that cost the business. We have discussed the twenty questions that CFOs should ask before embarking on an ERP project
A CFO needs an ERP system that will:
- Bust disparate systems and data silos and be the single source of truth to enable data-driven decisions.
- Make data actionable by providing full visibility into all relevant data, giving the CFO a dashboard of information to make decisions, and drill-down capability to identify issues.
- Unleash process improvement and productivity by providing cross-organizational visibility that allows people to make adjustments and change plans depending on what the data shows.
- Monitor how the organization is meeting its compliance obligations.
- Give customers excellent service by tracking orders from supplier, through production and shipment, to final fulfilment.
- Handle products that give problems and need to the repaired or returned to suppliers.
How CFOs can guide technology decisions
The CFO’s role in manufacturing and distribution organizations is to help their organizations find IT solutions with capabilities that save time, money, resources, and that scale cost-effectively.
CFOs can help companies successfully deliver on the full potential of their software investments. Without the CFO’s leadership, certain key elements of a software project are likely to run into problems: benchmarks of performance may be confused, managers may focus on more visible projects rather than those of high value, and expected benefits may not make it to the bottom line.