Digital transformation and major world events are driving changes that are enabling well-positioned financial leaders to grow, scale and adapt their businesses better than ever before. Whilst finance groups may previously have been in the background of these changes, a new breed of CFO is now leading from the front. In this short series of articles we look at the detailed transformations happening in specific areas of business and identify the practical tips that are helping businesses to successfully effect change.
Increasingly, growing businesses have a financial function led by someone we might call the ‘digital CFO’.
The digital CFO has emerged from the wider digital changes experienced over the last decade, though this new breed of ‘tomorrow’s CFO’ did not arrive overnight, nor as part of the first wave of digital transformation.
During those first transformations, when new agile businesses disrupted several markets and incumbent enterprises struggled to pivot to digital, financial leaders may have felt somewhat left behind.
By necessity, financial functions often move slowly relative to other areas of the business (product, for example). They are not necessarily tasked with innovation and may instead be involved only at the point when a large-scale transformation reaches budget assignment. Understandably this led to three outcomes;
This landscape is now changing and the digital CFO is emerging at the forefront of business growth and change. A recent Gartner survey found that CFOs are more concerned with growth than CEOs. Increasingly, it’s now the finance department’s time to shine. How is the new breed of CFO achieving this agile turnaround?
Nowcasting
The idea of nowcasting relates primarily to wider economic data, but its origins and current evolution perfectly align with what’s happening in modern finance departments.
Nowcasting emerged as a response to the 2008 financial crisis, where organisations felt they were acting on out-of-date data. The lag in the data they had meant that they could not pivot operations in an agile way in response to current events; they were always behind the curve and, as a result, not agile in nature. As McKinsey tell us;
“Nowcasting resulted from overreliance… on typical economic data—often subject to publication lags of up to six months—which exposed many organisations to both missed opportunities and potential risks.”
To frame this another way: if you are looking at a report that details last quarter, then you are already looking at data which is up to three months old and probably more so, taking into account the time to prepare the reporting. This periodic reporting in a real time world increasingly seems outdated. In fact, a recent report looking at the future of finance suggested that we would see financial reporting “[go] real time. Periodic reporting will no longer drive operations and decisions”.
The aim of nowcasting and the foundations of the digital CFO’s approach are generally aligned. Put simply, the digital CFO looks at the finance function of the business with the following broad aims;
Areas of focus (the agile secrets)
In order to achieve this there are some practical steps that digital CFOs pursue, to one degree or another.
Tools. It is unlikely that the required level of agility will be achieved if the underlying systems do not allow for the kind of agile activity required. Tools like IBM’s Planning Analytics with Watson, for example, allows reporting across silos, with a consistent view of data and creation of budgets, forecasts and other mission critical data.
Silos. Not only do the tools deployed need to look across business data silos, but finance has a key role to play in breaking down practical silos that may hinder progress. HBR consider digital transformation to “require that executives, managers, and frontline employees work together to rethink how every aspect of the business should operate”. This cannot happen in a silo. The financial leader of the business has a key role to play in making this happen. With fewer silos, finance can more effectively utilise their tools to proactively assist every area of the business.
Marginal gains. The marginal gains approach looks for any advantage, no matter how small. The digital CFO, with the ability to utilise a wide range of tools, an agile approach and a proactive philosophy, should come across these gains on a regular basis. Ensuring delivery of these gains to the wider business and in core financial reports and responsibilities, will be crucial to the agility of the department.
Simplification. There are multiple evidence points which consistently show then businesses grow when they simplify and prioritise. To know how to simplify and what to prioritise, you need clear data, which can model what may happen tomorrow and suggest where you should focus. CFOs who can show companies how, when and what to simplify are likely to be able to deliver growth, even in underperforming companies.
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