Part 3 in a series
Technology is putting tremendous pressure on finance to operate in real time. As a result, the way finance has always been done may well become obsolete. As the leader of the finance function, the CFO now faces the tough decision: change or risk being left behind.
How, then, must the CFO transform finance operations to keep pace with the demands of the present – and the future? This was the focus of a panel of experts on the Nov. 18, 2015 episode of Coffee Break with Game-Changers, a program presented by SAP on The Voice America Business Channel.
The program was moderated Bonnie D. Graham, with a panel comprising David Axson, managing director, Accenture Strategy; Bob Parker, vice president, IDC Research; and Birgit Starmanns, senior director for Product Marketing, SAP. The following is an excerpt from the episode.
Bonnie: How will the job description of CFOs change in the future, say in 2020?
Bob: The CFO, to a certain extent, is the chief learning officer for the organization. This is because CFOs clearly see all the past activities and their outcomes. They become the fuel for innovation because they see the learning from these activities. Innovation comes from learning 90% of the time, not from sitting in a dark room, waiting for inspiration to strike.
Bonnie: Wow! The CFO becomes the CLO. I like that. That’s very, very important.
Bob: Well, I think the function still remains. CFOs still have to appropriate capital. But now we talk about putting in more time for analysis, which is the productive work. There’s portfolio analysis that is used to allocate resources. There’s scenario analysis that is used to mitigate risk. There’s value analysis that is used to optimize outcomes, and then there’s situational analysis that helps determine the next best action.
I think in the future, CFOs are going to be much more involved the decision-making process across the business. The depth of responsibility gets much deeper. As someone who’s been in finance and gotten out, I think it’s a much more exciting proposition than it was before.
Bonnie: Birgit, let’s talk about Bob’s idea about the changing role of CFOs. What do you observe?
Birgit: I totally agree with Bob. CFOs shouldn’t only do reporting on the back end. It’s really looking at the financial implications of certain decisions like budgeting, planning, and forecasting. If, for example, I have the opportunity to acquire two companies, am I going to acquire Company A or Company B? Am I going to build the product myself instead? Is this going to cannibalize my current product line?
Those are a couple of different scenarios in the past where finance would generate the numbers manually. They would preselect a couple of those options because they just didn’t have the bandwidth to evaluate them all. Now that finance is getting more comfortable with technology, they can actually evaluate all of those different scenarios, looking at the drivers and the financial implications of every decision. So finance is more in a position to work more closely with operations. Whether it is the sales and marketing aspect and demand planning, or whether it’s production planning and capacity, what can we actually deliver, considering the financial implications? Because everything that a company does ultimately has a financial impact – even looking at risk and potential fees and fines if you’re not following all the regulations.
Finance is taking a larger seat at the table. We’re seeing more organizations where folks like the CIO are reporting to the CFO, where the CFO is part of the boardroom conversations about, for example, the financial implication of going with option A, B, or C. And it’s really important for finance not to have to take a month and then the quarter and year-end closing to come up with that information, but to be able to do that as quickly as possible. Ideally, they can do it in real time – looking at all these different drivers that are important to the company to maximize profits, to minimize risks. You probably never completely eliminate the risk, but you should be able to put a financial value on it.
Bonnie: Thank you, Birgit. I want to circle back to David at Accenture. Agree or disagree with the details that Bob and Birgit shared with us?
David: Just referring to what Bob said about the CFO being a coach, I’d go a little bit further. A coach stays on the sidelines and directs the play. The CFO is in the middle of the field.
A company today has to be a well-oiled machine where individuals don’t just understand their own role, but also the roles of the other individuals who make up the team, and how that team collectively performs to deliver high performance.
The financial outcome of any business event is the last thing that happens. By the time it hits the P&L, it’s a little too late to do something about it. I’m increasingly seeing CFOs want to get ahead of that game. They’re beginning to tap into the increasingly rich data set that is now available within the organization. CFOs are also beginning to understand what data is relevant, when it is relevant, and how they can use that data to make better business decisions.
That’s an incredibly liberating role, one that many CFOs have not traditionally had the time, the capability, or the infrastructure necessary to be able to pursue. But those are the conversations I am having on a regular basis. The tasks that the finance function needs to do still remain. You have to close the books. You have to be able to produce your statutory statements in an accurate fashion. However, this will be 20% to 30% of the role of finance in the future. The remaining majority is making a financial statement look better. How do we make it look better? By making better business decisions that create value not just for our customers, but for our shareholders and other stakeholders in the business.
This is increasingly the role the CFO has to play: on the field, outside the touchline directing the place of others.
Bonnie: Thank you. That’s profound. Bob, do you want to comment on that?
Bob: I don’t want to split semantic hairs over a metaphor, but when I think about a coach, a coach teaches the fundamentals to the players. For example, in supply chain we’re moving from sales and operations planning to integrated business planning. This brings a financial view into supply chain planning as opposed to operating in parallel.
I think the role of the finance function is to teach the fundamentals to the supply chain executives so they can do better integrated business planning. I don’t think CFOs are going to do sales, operations, and product portfolio planning. They are going to be much more actively involved by giving their functional constituents a much better understanding of the fundamentals so that they can make good business decisions.
This excerpt from “Coffee Break with Game-Changers: Finance 2020 – Life or Death by Digital” on the Voice America talk radio network was adapted for the Digitalist Magazine. It is available on demand. Read Part 1: Will Digital Transformation Kill Finance? and Part 2: Role Of The CFO – Scorekeeper or Coach? Upcoming topics in this series:
- What is the impact of hyperconnectivity?
- What’s really going to happen in the next four to five years?
To learn more about how finance executives can empower themselves with the right tools and play a vital role in business innovation and value chain, review the finance content hub, which offers additional research and valuable insights.