Traditionally, finance leaders came from accountancy backgrounds and were prized for their knowledge of cost management or financial reporting. Today, though, a breadth of strategic business expertise is more important to this role than a background as an auditor or an accounting technician. In the modern business world, where being able to extract strategic insight from data and put it into the hands of operational decision-makers is a key differentiator of business success, CFOs need to rise above the traditional accounting role, often focused around providing book-keeping support to the CEO, and concentrate instead on using their insight to shape the strategic direction of the company.
It is a message that is starting to get through to businesses. 81% of CFOs polled for the 2020 EY DNA of the CFO survey, which examined the views of more than 800 CFOs, finance directors and other senior finance executives worldwide, said they envisage major involvement for CFOs in strategy development and execution over the next three years.
Yet, even today, finance leaders often spend too much time working on spreadsheets that have very little clear link to the business’s overall goals. Boardroom colleagues are uncomfortable with data delivered in this way, and struggle to pinpoint what statistics deliver real business insight.
It is time for change. Businesses can’t afford to continue working like this if they want to remain competitive. Ultimately, the finance function has multiple core functions to perform. It is the guardian of profitability and the enabler of revenue growth, of course. Beyond this though, it has a key role to perform as the custodian of the company’s capital structure and financing, and the gatekeeper to all key stakeholders, including but not limited to shareholders and debt holders, and also a vital function in managing inorganic growth through mergers and acquisitions. To deliver on all these core objectives, the business needs insights. And CFOs, therefore, need to step up to the mark and start to filter out data and distil it into true intelligence that helps drive the business forward.
To achieve this, they need to become data translators and interpreters, focused on converting technical numbers into carefully-selected business-centric (rather than finance-centric), key performance indicators (KPIs), which can then be used by the leadership team to shape business strategy. Finance leaders should really be spending 90% of their time translating the data for the CEO and the board and, more crucially, guiding their business decisions, rather than just producing and crunching numbers at the leadership team’s behest.
A strategic CFO’s interpretation of data needs to be both tightly focused and carefully targeted. They need to have a detailed understanding of the business in order to concentrate on the metrics that matter to the board and the business not just today but also into the future.
To deliver this, they need access to the relevant data, of course, but then it’s having the ability to structure and frame it and also communicate it and present it to the board in a consistent and meaningful manner, accompanied by guidance about where the business is today and where it needs to head in the future. A vital key in delivering this is the business having a CFO that understands how the business works and what its key drivers really are.
None of this is easy of course. Speaking from personal experience, taking on the role of the strategic CFO is hard work and can be messy and difficult but also rewarding and fulfilling at the same time. Mentors can have a key role to play here in setting expectations of what is ahead - but having a broad background in business as well as finance is essential.
That’s why experience in operational lead roles can be just as important as accountancy experience. It helps finance directors and CFOs understand more clearly how the business works and what drives its growth. That’s why I took the opportunity to spend a year in the role of head of business operations when I first joined the company. The experience I gained was invaluable in giving me the insight and understanding I needed to help drive the business forward.
Taking this focus a step further, CFOs also need to make sure they are applying their expertise and understanding to protecting the bottom line. That means that they need to provide the insights required to ensure that business leaders are acting on the information they are providing and that they are using the intelligence to shape and drive go-to-market strategies. This then needs to filter down into day-to-day business activities to optimise profitability and deliver competitive edge. The first part of the equation is achieving rapid time to insight into how the organisation is performing: primarily through data analytics.
The second part relies on having the agility to react quickly to change. This has been especially key during the pandemic, through which many businesses have lost confidence in their ability to achieve sustained profitability or predict revenue growth. When I joined the business pre-pandemic, we could state at the beginning of the quarter, with a 90% level of probability, exactly where we would land at the end of it. But the macro-economic conditions of the past year and a half have eliminated that confidence and driven businesses to become more agile out of necessity. The pandemic reminded everyone in finance that cash flow is critically important and while the business may need a different approach, they must find a way of sustaining profitability and liquidity.
In this context, the ability to understand KPIs and use data analytics to track and predict performance against them is again key for strategic CFOs and the businesses they serve as they seek to navigate uncertainty. That is not sufficient in itself, however. CFOs also need to be dynamically connected to every board member and have visibility of the business holistically. That real-time insight will help them migrate from just looking in the mirror at what’s already behind the business to getting on the front foot and guiding and directing a business’s future performance.
Looking to the future, the only way to consistently maintain growth is to have a strategic finance department, led by a strategic CFO. The challenge is often around how the business scales without adding too high a headcount into the finance team. No business wants to end up with a finance function that has tripled in size.
That’s where technology can play a key role in doing the heavy lifting. Single platform enterprise-wide systems, available on the market today enable businesses to maintain an agile and lean finance function while giving the granular and strategic insight into the data that finance teams need to act quickly and pivot their approach to meet rapidly evolving market conditions.
Ultimately though technology is an enabler, not the complete answer to these challenges. It can provide the critical insights that can support dynamic business growth but it needs the finance lead working in tandem with the business, to make the decisions that deliver operational agility and lead to long-term revenue growth. Any CFO that is essentially a bookkeeper and purely in a support role to the CEO, will struggle to deliver the necessary insight to guide the organisation on the right path and achieve business success. This is why the time is now right for the strategic CFO.