The Chief Financial Officer (“CFO”) in 2018

What’s their focus?

In a recent study conducted by KPMG, 85% of CEOs said that their CFOs ability to gather and analyse data is the surest road to profitable growth...

We all know that the digital revolution and the rise of big data has changed how we do business; simplifying processes, facilitating communications and providing us with a wealth of information at our fingertips. Running a business couldn’t be easier, right?

Well, not exactly. While digital transformation and globalisation present several opportunities for businesses, it’s critical for business leaders to be proactive in identifying and minimising the key risks that come alongside them.

As business has changed, so too has the role and the influence of the CFO. Traditional responsibilities of the CFO entailed supervising and managing the work of the financial controller, credit manager and insurance manager as well as managing investments, analysing expenses and keeping abreast of regulatory change.

However, in today’s digitally driven economy, the scope of the CFO role has naturally evolved to encompass greater responsibility and greater influence on corporate strategy. The remit of the CFO has escalated to include everything from business development and brand strategy to cybersecurity and risk management. No longer does the CFO solely “count the beans” or “balance the books”; instead, their key focus areas include driving innovation, ensuring adherence to GRC regulations, increasing profitability and promoting overall company growth.

The CFOs evolution into the role of a strategic financial influencer is a significant shift, but not an unnatural one. Equipped with a background in finance, CFOs possess a unique ability to apply a systemic and logical lens to business operations. However, faced with economic uncertainty, mounting pressures and digital disruption, the challenge that the CFO takes on today is by no means an easy one. As the position morphs to align more closely with other C-Suite leaders, which areas must a CFO focus on in order to reap the rewards of the digital landscape and dodge the threats it presents?

Compliance & Regulation

Though keeping track of key regulatory changes is not a new concern for the CFO, assessing the impact that new legislation has on the business’ bottom line remains of critical importance. The regulatory environment is an ever-changing landscape and the consequences for a lack of awareness can be severe.

The upcoming GDPR and the Criminal Finances Act 2017 are only two of the many examples of how regulatory change can threaten a company’s finances when there is no plan in place. To ride the wave of uncertainty, finance leaders must play a key role in implementing a future-proof GRC framework to protect their organisation from the consequences.

An integrated framework
In 2018, a closely knit GRC structure will be crucial in ensuring a business’ systems, policies and procedures facilitate a culture of ethics, integrity and control across the organisation. Rather than viewing governance, risk and compliance as separate functions, businesses should seek to integrate these 3 components to provide a clearer view of the risk environment ahead. The integrated approach to GRC promotes a framework that is aligned with the core strategy of the business by providing management with the unified information necessary to make good decisions and achieve strategic objectives. No longer can compliance remain a board-level only issue. The success of an integrated GRC framework will rely on the C-Suite to create a culture of compliance within the organisation.

In turn, the CFO may find themselves driving a cross-functional committee aimed at establishing a common understanding of risk to ensure it’s properly addressed at an operational level.

Compliance & Regulation as a competitive advantage
While compliance may seem like a chore, a checklist or – at best – a necessary evil; a precise and well-planned risk and compliance framework can become a competitive advantage, especially when competing against other companies that have failed to make compliance a priority. Working with other senior executives to develop a robust GRC framework can support other areas of the business and create a new way to increase profit and secure future success.

Protection of the organisational brand can support potential investment opportunities and increase the stability of the business. Market value can increase as well as customer engagement and longevity of the sales relationship leading to reduced attrition rates.

The dissemination of information internally & externally

Effectively disseminating strategic information on corporate culture, intelligence and policy to an entire staff-base, as well as investors and the market in general is task heavy. Likewise, translating the numbers from a stack of reports into a persuasive corporate narrative that is based on actuals and not estimates, can prove difficult. Employee knowledge of how their input affects the business is also key. Changing the mind-set of employees to understand their role and the impact of it on the business is critical.

CFOs that create transparency in communications with boards, investors and employees alike will drive value – but this is easier said than done. In this era of smart technology and big data, the sheer volume of information that businesses produce has increased dramatically. CFOs must not only be able to make sense of the data; they must then use it to identify and craft a compelling, succinct story that is tailored to a myriad of audiences.

If that wasn’t enough, the expectations from the audience have been shaped by the new digital habits we have adopted in the last decade: today, boards and investors expect to receive relevant information regarding finances in real time, and they expect these updates to be concise. In order to communicate the value of the company, its products or services and its employees, CFOs must be able to align financial metrics with relevant business goals in a clear and precise way.

So, the question is …how?

Establishing trust through transparency

People look to CFOs for the unvarnished truth regarding the value of the company. Maintaining this reputation with employees and shareholders alike is vital in promoting integrity on a personal and company-wide level. To inspire trust within the business as a whole, CFOs need to be responsive, succinct and transparent in communicating valuable insights gained from detailed reports.

Creating a communications strategy

Effective communication isn’t just a recital of facts: it’s a compelling story told in the right way, with the right evidence that drives an audience to act. A CFO must therefore determine a communications strategy to define how key financial information will be communicated to different audiences effectively. When creating this strategy, consider your audience-specific objectives: how do you want a specific audience to respond to your message? Identifying your intent and goals with each audience will assist you in communicating information effectively.

Mastering digital agility

Communication has been drastically facilitated by the development of digital platforms: social media channels, messaging apps and cloud-based collaboration tools are just the beginning. Some of the new digital tools available to finance focus specifically on updating core systems and existing capabilities. CFOs would be wise to take advantage of technology to better communicate with each key audience

Forecasting/Projection & Reporting

Successful CFOs must have the ability to plan, budget, forecast, and provide critical business intelligence based on extensive monitoring and reading of the data available to them. In a recent study conducted by KPMG, 85% of CEOs said that their CFOs ability to gather and analyse data is the surest road to profitable growth.

Unfortunately for many CFOs, a lack of necessary reporting tools has caused a block in that road, preventing CFOs from having the data necessary to support a decision. In a jointly produced survey by CFO Publishing Corporation and Geac, 61% of CFOs claimed they need “more or new technology to buttress their decision-making capabilities.” A further 44% respondents claimed to still use spreadsheets and manual processes to manage corporate performance.

In 2018, the underequipped CFO could seriously suffer from a lack of accurate insights into overall business performance. With the role of the CFO shifting to hold more strategic influence, efficient reporting tools are essential in demonstrating value and influencing smart, data-driven decisions. CFOs of 2018 should explore the potential that certain new tools, technologies and techniques hold, such as:

Predictive analytics

Predictive analytics uses many techniques from data mining, statistics, modeling, machine learning, and AI to make predictions about the future. Through the power of predictive analytics, a CFO can take historic data trends and use them to identify the potential outcomes of key decisions with varying risk profiles. For example, revenue predictions can be based on customer experience profiles and actual current demand instead of basing them on results from the previous year.

Cognitive analytics

Although similar to predictive analytics, cognitive analytics incorporates elements of machine learning and natural language processing to better identify potential outcomes and simplify access to information. The result? Much larger volumes of data can be analysed efficiently and used to support organisational decision making.

Technology

Harnessing the power of emerging technologies could be the key to unlocking new opportunities for the CFO in 2018. Take blockchain technology, for example. In the same way that the internet revolutionised commerce twenty years ago, blockchain technology has the potential to completely transform our day-to-day business operations once again. For those new to the concept, blockchain is a shared, distributed ledger that holds a continuously growing list of encrypted data records in real time. Due to its ‘unhackable’ security, blockchain is already known for promoting a greater sense of trust and transparency between people involved in a transaction.

This could potentially lead to the creation of an environment in which third-party transactions are shared on a public, private, or semi-private blockchain and “confirmed” (verified) for integrity. Furthermore, blockchain technology could even assist a CFO in communicating to the board how the business is performing by creating an environment in which every transaction could be verified in real-time, providing consistent, accurate, and up-to-date reporting.

While it could be a few years until we see blockchain entering the workplace, CFOs of today would be wise to explore the potential this technology holds in overcoming some of the major challenges that the future will present.

Other technologies that have the potential to merge communication processes and reporting include:

Cognitive computing

As the role of the CFO has developed to become more strategically focused, cognitive computing and Artificial Intelligence (AI) technologies have evolved to complement the finance function by fulfilling process-driven tasks through basic automation. By 2020, Tier One jobs such as Collection Clerk and Accounts Payable are expected to be predominantly automated. However, with research and development into AI showing no signs of slowing down, it’s likely that cognitive computing will play a pivotal role in key business decisions by quickly extracting value from overwhelming amounts of data.

In-memory computing

In-memory computing is the storage of information in the main random access memory (RAM) of dedicated servers to get faster response times. By adopting in-memory computing, CFOs are able to exponentially improve data processing times, meaning that real-time reporting and processing could be an achievable reality.

Today’s fast-paced business environment requires an unprecedented amount of agility, skill and experience from the Chief Financial Officer. As the role evolves to become more multi-faceted with each passing day, finance leaders should embrace new tools, technologies and techniques that can assist in paving a clearer path to value. In an increasingly competitive landscape, the CFO of tomorrow must grow to become a key influencer in the C-suite, driving profit and growth in the face of change.