In today’s shifting and highly globalized world economy, proper financial leadership and a well-organized finance function are proving extremely valuable to business longevity and success. The pace of change is rapid. Companies are growing into more complex entities, and CFOs (Chief Financial Officers) are finding themselves in more and more unfamiliar situations. Today’s CFOs want to increase effectiveness at taking the financial risks required to achieve long-term sustainable growth and meet the CEO’s expectations on financial performance.
Many CFOs today believe that a chunk of their time is improperly used. Great CFOs spend more time on analyzing and communicating value and less time on finance function activities. It is important that they become more customer-oriented, more closely involved with the business, apply financial leadership principles to time management, and build constructive relationships with the board of directors and CEO.
Take a look at our director’s guide to financial leadership to understand the CFO role and their key tasks to determine how a financial leader can help you transform your finance team and achieve maximum impact. This comprehensive guide for CFOs is filled with pragmatic insights on the state of financial leadership and future expectations.
The Expanding Role of the CFO
The role of the Chief Financial Officer may encompass a wide range of functions and responsibilities, which include the administration and management of financial, accounting, and internal control issues, in addition to acting as an external interface to the investors and different governmental agencies.
In a 2019 survey by CFO Research, about 90% of those surveyed said that their company’s CFO plays a vital role in talent development, technology strategy, performance management, and supporting operations. Most CFOs today are well-positioned to take more responsibilities and a broader role in managing company performance, and they are not content with mere reporting on business performance. They have the capacities to influence business outcomes and need a bigger role in providing data, insight, and guidance, implementing key initiatives, and shaping corporate financial strategy. CFOs need to be seen as a catalyst of change.
The role of the CFO is continuously examined because it is pivotal in driving transformation. The pace of change in the role is shockingly fast, and about 6 discrete roles are reporting to the CFO today. Those vary from Financial Planning & Analysis to Procurement and Risk Management, which tend to be quite finance-specific.
The nature of the CFO is cross-functional, which is why these financial leaders are playing a more proactive role when it comes to influencing change in the enterprise. What also influences the CFO is the pace of change of technology – according to McKinsey, more than 50% of the CFO functions are at the forefront of corporate digitization, whether it’s data visualization, robotic processes, analytics, and automation.
The CFO role was traditionally focused on financial transactions, compliance, and statutory and non-statutory reporting. But thanks to tech advances, the scope of their duties has increased, and CFOs can now access huge amounts of data on their company’s financial and operational performance. Armed with data analytics and the ability to read the numbers, CFOs can forecast performance, predict headwinds, and make data-based decisions across departments. Financial leaders can demonstrate their expanded role in several ways:
- Develop talent and staff capabilities across the enterprise. CFOs have begun to extend their reach into the HR and increase their value through building talent. However, there’s still much room for growth. CFOs can develop top talent across the company, teach financial topics to non-finance C-suite executives, and build capabilities during transformations.
- Head up transformations. In the finance function alone, CFOs tend to initiate the most transformations. However, non-finance executives are less likely to perceive them when it comes to making strategic contributions. To change those perceptions, CFOs can lead transformations across the whole enterprise, as well as communicate their strategic value by being included in setting high-level goals.
- Leading the way towards automation and digitization. Few enterprises have initiated the shift towards automation and digitization in a substantial way, but the payoff is worth the effort. Companies that have gone through this type of change report modest-to-substantial ROI.
Non-finance professionals still believe that CFOs deliver the most value by dealing with traditional finance activities, while CFOs say that the most value they create is through strategic leadership. This shows that there’s a certain split that needs to be addressed to unleash the true potential of a modern CFO.
What Makes a Financial Leader?
Since CFO functions have developed (and continue to do so), it means that CFOs have had to supplement their skills to a new kind of finance leader to get the best out of them. These are some of the most important traits of a great CFO.
Today’s CFOs have their eyes on the future and know how to instill their vision into their employees. That way, they ensure they always work towards solidifying the organization’s long-term vision and producing an ROI better than the company’s cost of capital. It is vital that financial planning is thorough, along with accurate budgets and forecasts, because the finance function is deeply embedded within the strategic efforts of an enterprise.
For finance leaders, it is vital to be excellent communicators because they’re expected to help mold the company’s vision (not just to communicate within the finance department). This includes building a trusted and open relationship between the CFO and the organization’s stakeholders, then keeping them up-to-date with the financial health of the organization.
Also, CFOs should be equally comfortable when dealing with the marketing department as they are with sales. They immerse themselves in the operations of the enterprise, which allows them to understand the financial operations of the business, as well as how each particular department fits in with the organization as a whole and with the finance department.
Just like any other leader, the best CFOs are confident. They know how to inspire confidence in their employees and address problems in a confident way. CFOs don’t want their staff to be risk-averse, but they also don’t want them to be making unnecessary risks. It means that they should be able to instill confidence in their employees to guarantee they’re performing to the best of their abilities.
Although most finance leaders are result-driven by default, they also understand the importance of the targets being achievable and measurable. CFOs should be apt at setting targets, as well as meeting them. That is what the board of directors expects, so it’s essential that CFOs have enough motivation to really lead the finance team towards those goals.
CFOs should be comfortable with numbers, know how to read them, and leverage important insights and proactive strategies from them. It is about how they can look at the vast amounts of data and pinpoint it to specific issues within the company.
Artificial intelligence, data analytics, and big data (amongst others) are technologies that have hit the mainstream, and finance leaders have to know how to leverage them to keep their organizations competitive in the market. They stay on top of new technologies, recognize their importance, master their use, and oversee their integration. These new technologies produce valuable data that allow CFOs to improve their decision-making. CFOs must remain vigilant, especially with regard to cybersecurity, to know how to minimize the potential damage breaches may cause.
Financial vs. Strategic vs. Operational CFO
Financial CFO has a vital role in the overall function of the company. This is the most traditional type of CFO, and they are responsible for cost-benefit analysis, financial planning, managing risk, forecasting, and management of increasing acquisitions and government regulations. Armed with data, financial CFOs can leverage their knowledge and experience in analyzing and monitoring financial and non-financial data to identify new business opportunities.
The strategic CFO always works to provide insight and strategic value for the company based on collected data. They can understand the financial performance of each business sector and provide guidance on the best ways of moving forward. When it comes to mergers and acquisitions and government regulations, they can advise when to move forward, as well as when to say no. Strategic CFOs also deal with hiring the best people to meet the needs of their staff and provide transparency, integrity, and teaching mentality to the entire organization (not just the finance department).
Operational CFOs have a clear understanding of all company’s operations and finances. They typically work with the ERP, systems management, and IT function of the organization. Their operational intelligence and financial industry knowledge can provide key information when developing or making decisions on new technology within the business. For many companies, operations and finance go hand-in-hand, which is why many operational CFOs are filling the gap for COO (Chief Operating Officer) roles.
Top Priorities for CFOs in 2020
In 2020, finance leaders will focus on finance business strategy and structure; finance analytics; and finance technology optimization. The prime enterprise-level objective in 2020 will be growing the business, along with executing business transportation and improving operational excellence. These three key initiatives come as a result of the three most critical challenges finance leaders must overcome. Analyses and reports don’t contain enough forward-looking information, and the organization structure limits responsiveness to changing business needs, while tech investments have long payback periods for realizing their ROI.
1. Finance organization and technology strategy and structure
Companies’ expectations from finance are changing due to new service delivery models, matrixed decision making, and digitalization. Successful financial leaders know how and where to employ proactive strategies to take advantage of current industry trends, as well as how to structure finance to make the most of a limited annual budget. Progressive CFOs aim to provide coordinated support to the company, pay attention to reduce duplication of effort, and break down organizational structures that constrain the strengths of a digital finance function.
2. Finance analytics
Despite the drastic increase in the share of finance spent on analytics in recent years, just a few organizations have attained the level of maturity to implement advanced analytics capabilities. Current operating models prevent the effective utilization of advanced analytics resources, and it’s difficult to assess the ROI or impact of finance’s advanced analytics reports. Instead of making large-scale technology-led analytics investments, leaders should first consider pilots. When individual projects show success, financial leaders can pursue advanced analytics projects with confidence.
3. Finance technology optimization
Finance tech optimization is concerned with getting more value from ERP (enterprise resource planning) and accounting systems while adopting digital tech to improve efficiency, mitigate risks, and streamline finance processes. Finance technology implementations take too long because the technology literacy in finance is still in its infancy (which leads to an expensive dependence on consultants or an internal IT function). New technologies promise capabilities that can improve the ability of finance to deliver real-time, actionable business intelligence, and capture new process efficiencies. To capture the benefits of new technology, finance leaders should be able to identify their potential and justify the costs of new tech solutions.
Financial Leaders – Strengthening Creativity and Innovation
The need for creativity and innovation is a relatively recent revolution of the CFO’s role. They are now being asked to find innovative solutions to business issues, such as designing and delivering digital business models at a time when the need for proactive enterprise risk management and regulatory scrutiny is on the increase. For CFOs, achieving the right balance between risk and reward has become less distinct, yet more delicate, as they have become more involved in driving growth and financial strategy development.
Financial leaders also need to be more adaptable and imaginative in how they manage their careers. They need to identify, welcome, and leverage various perspectives from outside their function (across sectors and globally) to be able to take more calculated risks. Successful financial leaders question decisions and raise issues, and by doing so, they make their organizations profitable and productive. Raising questions can help senior executives think differently about the business and put themselves in the investors’ shoes.
Measuring the Strategic Effectiveness of Your CFO
Your CFO is a person in charge of your enterprise’s financial health, which makes him or her vitally important. Also, that’s why you need to measure their effectiveness to see how they add value to your organization, and how to tell if they’re helping it achieve and maintain financial success.
- Do you value your CFO’s input on key strategic decisions? Has their opinion had any influence on your business decisions?
- When it comes to forecasting, does your CFO engage with the managers, or do they communicate only with financial managers?
- Is the relationship of the CFO with your board of directors, investors, banks, and other business partners in good condition?
- Does your CFO analyze financial data based on business strategy or based on their personal fascinations?
- Will your CFO be confident to present to potential investors?
Does your CFO collaborate with the rest of your financial team, as well as with leadership teams, executives, and managers from other departments? To figure out whether your CFO is helping everything run smoothly, you should examine your whole operation – from management to supply chain to sales reps. According to The New CFO Financial Leadership Manual, 3rd Edition, written by Steven M. Bragg and published by Wiley Corporate F&A. The CFO needs to develop and follow a list of KPIs (key performance indicators) to track and key tasks to complete when first entering the position.
The CFO must be actively involved with top-level management and make substantial contributions to your organization’s growth and profits. Use these CFO financial metrics and ask these questions to determine if your CFO is performing as required.
Financial Leadership – A Look into the Future
Environmental changes continue to put pressure on business systems, societies are undergoing fundamental and rapid adjustments, and the global economy is in a state of uncertainty and volatility. At the same time, the global financial leadership profession is undergoing dramatic changes that are driven by both internal demands and wider pressures of the business world. To make sense of continuing turbulence and disruption, it’s essential that finance leaders are armed with the tools they need to navigate such landscapes. Understanding the drivers for change that are affecting the profession is also crucial to this. From there, it’s possible to recognize the opportunities and challenges facing the profession, business, and society.
Scenario planning can be a challenge, even in a stable economy, but in today’s environment (where new challenges are being added to the mix almost daily), how can a strategic CFO develop projections that accurately capture every element in the equation? They do it by relying on a combination of insights from big data, analytics, and scenario planning to explore their options, optimize performance, and visualize the impact of their decisions. According to a recent global survey of almost 400 CFOs, it was found that CFOs are confident about their forecasting capabilities, although they are worried about market volatility. They see scenario planning as essential to navigating uncertain and turbulent economic waters.
There’s a new opportunity to transform both the interpretative and operational elements of finance by using predictive analytics, data mining, and intelligent systems to exploit the data that companies are collecting. Furthermore, there are increasing expectations that financial function should play a greater role in business – in everything from the design of new revenue models to strategic decision-making.
In the future, financial teams and leaders will have to “flex different muscles.” Today, an increasing number of CEOs expect these teams to be the agents of change, and that trend will continue in the future. When entering the position, CFOs have to be inspirational, motivational, cross-functional, and they have to lead by example. These are all very different but interconnected leadership skills, meaning that charismatic financial leadership will be the requirement.
Consero and Finance-as-a-Service (FaaS)
When it comes to financial planning, finance analysts want to answer questions like:
- Where does my enterprise have the most opportunity for growth?
- What are the market trends in my industry, and how can we use it to our advantage?
- Where is my company not operating as cost-effectively as possible? How can we improve that?
- How has our organization traditionally performed financially, and why?
To answer these questions, Financial Planning and Analysis (FP&A) includes an in-depth financial analysis of an organization’s financial health and position in order to lay out an effective growth plan. Accurate data is necessary for CEOs and CFOs to make financially informed decisions regarding the company. To help you answer these questions, Consero will work with your internal finance teams to analyze all available data (both past and present) and look at your company’s ROI, cash flow statement, income statements, overall financial health, market trends, and more. But more importantly, we will help you develop forward looking KPI’s so you can know what the future looks like and what changes you can make to improve your performance.
We can help you guide your organization’s financial growth. We have a history of developing successful growth strategies, which is born out of a genuine desire to see your company grow, as well as from our expert understanding of accounting and finance, bookkeeping, capital budgeting, and market trends. With our FaaS (Finance-as-a-Service), enterprise-level finance & accounting software stack, and our customized, transparent approach to business growth, we take a few steps further from providing mere consulting services or basic back-office finance and accounting services.
Aside from this comprehensive guide for CFOs, you can also contact Consero to get more information on what you can expect from us as a business partner. We can answer any questions you may have, walk you through our processes, and schedule a free demo.