Digitalization and the role of the CFO
The massive migration to digitalization among organizations globally has pervasively changed the role of the CFO.
Digitalization is having a profound impact on the role of the Chief Financial Officer (CFO), as much or arguably more than the vast majority of roles within organizations. I had the honor of speaking on this very topic recently at an industry event hosted by the Institute of Management Accountants.
In this brief paper, I discuss the main points and takeaways from my event presentation:
- A high level view: How digitalization and the pandemic are changing the role of the CFO
- Data-driven customer experience is the key driver
- Becoming a principal business strategist
- The CFO of tomorrow: Challenges and going beyond technological transformation
How digitalization and the pandemic are changing the role of the CFO
The massive migration to digitalization among organizations globally has pervasively changed the role of the CFO. Gone are the days when the finance department was only responsible for bookkeeping, tax, and financial planning, among other such tasks. Organizations now expect their finance teams to drive overall business strategy too. In this way, the CFO’s role has evolved from being primarily operational to both operational and strategic. This requires a whole new set of skills to achieve optimal strategic performance.
Strategy requires vision, proactive execution, business acumen, a deep understanding of a company’s product and their buyer persona(s), and in a digitalized world, it of course necessitates digital savviness. Traditional workflow crutches such as email and excel sheets are increasingly giving way to more modern, powerful, and agile tools. But it isn’t just the role of the CFO that must adapt to drive this transformation across their department. For instance, the role of treasury has, like the CFO’s role, become more complex and strategic. However, it is the CFO who is ultimately responsible for implementing and driving this strategic side to the finance department as a whole.
The pandemic has accelerated CFO change
To the way customers make purchases to the rise of remote and now hybrid working, and from intelligent product design to lifestyle, the pandemic has had an enormous effect on the world. The CFO’s role, and more broadly the - finance department, have had to adapt to these sea changes at speed. Thanks largely to digital technologies, business continuity was made possible. Indeed, the pandemic accelerated migration to automated, digital business processes by years and possibly even decades.
Q2 2020 witnessed a year-on-year 44.4% increase in ecommerce sales. And indicating that the shift to ecommerce sales is here to stay, it grew 9.3% in Q2 2021 compared to the same period in 2020 .This change has a profound impact on how organizations strategize in terms of marketing and sales. As a result, it also directly impacts the CFO, not only in terms of business development and customer acquisition investment strategy, but also in provisioning of key financial data-driven insights for critical C-suite decisions.
Data-driven customer experience is the key driver
To be truly digital, organizations must be able to collect, store, analyze, and interpret massive tranches of data in an efficient, continuous manner. For the CFO, this is also increasingly true for finance department. After all, the finance teams are uniquely positioned to detect revenue and profit patterns, customer transactional history, and return on investments made across different departments and individual client-facing campaigns.
Effective harnessing of finance data is driving powerful insights for the most successful digitalized organizations and it’s the jurisdiction of the CFO to achieve this or indeed, to fail trying. With this in mind, the responsibility to drive business success on the CFO’s shoulders is considerably greater than it was in the past.
As a result, the CFO now has a crucial role to play in virtually all aspects of a business, including recruitment of new-age talent, resilient operating models, effective cost controls, prioritized investments and real-time industry intelligence. What this means practically is a rise in importance of investment calculations, forecasting in real time, risk management, and environmental, social, and corporate governance (ESG).
The relatively nascent technologies like robotic process automation, process mining, blockchain, AI, and quantum computing are evolving rapidly.
While continuing to address these issues, the most successful data-driven organizations also aim to circumvent their impact. In this way, they have developed methods of going beyond a reliance on technological transformation to drive key insights with a three-pronged approach of talent, culture, and data.
The ability to drive meaningful outcomes even when working with less than perfect data.
Navigating the barriers that slow the adoption of data-based decisioning and new ways of working.
Sustainably building a new “analytics” muscle across the organization, using each department and their specific processes to proactively search for and identify data patterns and takeaways.
The relatively nascent technologies like robotic process automation, process mining, blockchain, AI, and quantum computing are evolving rapidly. New competencies in finance professions such as data science skills are also advancing, but not as fast as the aforementioned technologies. CFOs must focus on speeding up the pace of upskilling in data science, analytics, visualization, and strategy to leverage these new technologies and reap the business rewards that doing so can bring.
An unprecedented period for the CFO
The last decade has seen the role of the CFO change substantially. It is no longer a primarily operational role, but also highly strategic. The finance department is uniquely placed to generate all manner of key data-driven insights, the kind of which no other department can produce. In a relatively short space of time, the role of CFO has changed from that of reactive to proactive, charged with driving business strategy and, ultimately, sustained organizational success. The CFO must now wear many proverbial hats - they are bookkeeper, people manager, and strategist all in one.
They must oversee changes in the roles of their employees within the finance and accounting team to incorporate strategyfocused roles. Finance departments will have to demonstrate strong communication skills for interdepartmental relations and reporting to the C-suite and board. Moreover, the CFO can address difficulties associated with becoming data-driven by searching for alternative solutions and expediting upskilling within the finance and accounting teams to take full advantage of powerful advanced technologies.