Mastering change: The new CFO mandate

Mastering change: The new CFO mandate

By Matt Dallisson, 28/10/2021

One trend about CFOs that we’ve confirmed after years of research: the finance leader’s role is ever evolving. That has never been more true than it is today, during an era of dramatic change—with, for instance, the COVID-19 pandemic, increased attention being paid to social and environmental issues, and the accelerated adoption of technology to address myriad business and social problems. All these trends are triggering fundamental shifts in how people and businesses get work done. According to the latest McKinsey Global Survey on the role of the CFO, 1 finance leaders are deeply involved in determining how businesses adapt to these trends—particularly in those places where digital and finance intersect.

The newest survey results show that in the throes of the pandemic, the CFO’s focus has shifted toward crisis management and away from longer-term responsibilities such as strategic leadership, organizational change, and finance capabilities. But the results also point to a way forward for CFOs and their companies, as more industries and economies move toward recovery—suggesting the degree to which finance leaders can have more impact in key areas of the business, and how companies can take advantage of missed opportunities to leverage the CFO’s insights and leadership.

Finance leaders are deeply involved in determining how businesses adapt to significant changes in how work gets done—particularly in places where digital and finance intersect.

In recent years, the CFO’s responsibilities have grown in a few important areas—particularly in digital. Between 2016 and 2021, the share of finance leaders who say that they are responsible for their companies’ digital activities has more than tripled. Investor relations has also grown dramatically as an area of focus for CFOs. Nearly two-thirds of finance leaders say that they are responsible for these activities, up from 44 percent in 2016.

Across the entire finance function, the survey results suggest that digital adoption is on the rise. The share of finance-function respondents reporting the use of robotics and artificial-intelligence (AI) tools has more than tripled since our 2018 survey, while the share saying that they use advanced analytics for finance tasks has almost doubled. What’s more, respondents say that their companies’ IT and digital investments have paid off. Nearly six in ten report either a positive or very positive ROI from investments made in the past year.

Additionally, the survey results suggest that increasing technology adoption in finance could have lasting effects on a company’s overall resilience. Respondents who describe their companies as significantly more prepared for future crises because of their response to the COVID-19 pandemic also report greater use of digital and automation technologies within the finance function. Among the companies that are best prepared, most are using advanced analytics for business operations.

Yet for all digital technology’s promise, the outlook for further adoption remains mixed. According to respondents, the most common obstacles to adopting new technologies are familiar ones: the high up-front costs, a lack of skills or capabilities needed to build and implement the technologies, and cultural and organizational resistance to changing existing processes. Still, no single reason is cited by much more than one-quarter of respondents, for either overall finance processes or planning, budgeting, and forecasting.

For finance organizations in the early days of digital adoption, where to start? The results suggest looking at those activities where increased use of digital technologies would add the most value—namely, revenue forecasting, cash-flow forecasting, and scenario management. Yet only 24 to 36 percent of finance respondents say that their companies currently use digital in these activities.

The survey highlights clear opportunities for the CFO to reengage with the CEO. When asked about the interactions CFOs have had with their CEOs on critical activities during the pandemic, both digital and environmental, social, and governance (ESG) topics took a back seat to the 11 other topics we asked about. That could change, however: with the increasing prevalence of digital technologies in finance’s day-to-day work and an increasing CFO focus on relations with investors (whose interest in ESG has only grown over time), the CFO and CEO will likely need to communicate more directly on these issues.

Indeed, CFOs have a meaningful role to play in their companies’ ESG programs—especially now, as finance leaders and CEOs report that investor interest in these issues has increased dramatically during the pandemic. For all three areas related to environmental, social, and governance programs, CFO involvement also seems to support greater alignment between these programs and the company’s strategic and financial objectives.

By contrast, CFO and CEO interactions on organizational transformation have increased significantly during the COVID-19 crisis, and the data show that CFOs’ leadership in this area adds significant value. Respondents say that they are pursuing transformations for a range of reasons, particularly in support of performance improvement and digital initiatives.

A transformation initiated by the CFO is just as likely to succeed as one started by the CEO, even though it is much more common for the CEO to initiate such an effort. What’s more, finance leaders view their own role and contribution in a transformation more expansively than do their fellow executives. CFOs say that their time on transformations would be best spent on role-modeling new mindsets and behaviors, setting high-level goals, and communicating the transformation’s results—when, in practice, they are most often charged with traditional finance-oriented responsibilities.

Looking ahead

It’s no surprise, perhaps, that CFOs have been at the forefront of addressing the many challenges that the global COVID-19 pandemic has wrought across industries and geographies. Many of them have had to focus on their business’s shorter-term needs and have closely monitored performance, costs, and productivity. But the longer-term implications of many critical business trends—digital, transformation, and ESG among them—are now apparent and require the CFO’s leadership as well. Given the CFO’s focus on the kind of value creation that relies on their deep understanding of the economics of the company’s business model, their strategic perspective on sector-shaping trends, and their role as thought partner with the CEO and the board, they are best qualified to drive these changes.

CFOs are uniquely qualified to drive changes in how their companies experiment with new technologies, evaluate ESG risks and opportunities, and execute transformations.

In particular, CFOs can continue to experiment with new tools and technologies, digitize their own functions, and, with that experience, help spread digitization throughout the organization. They can lead the way in evaluating ESG risks and opportunities by factoring ESG-related criteria into the company’s investment objectives and decision making. CFOs can also take on a bigger role in executing transformations, beyond just traditional financial tasks, since they control most of the key business levers that determine a transformation’s success.

This content was originally published here.

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