The Digital CFO: From Back-Office Leader to a Strategic Partner

Introduction

The rapid shift toward digital transformation is underway. It has made a significant impact in finance, which led to a massive change in a Chief Financial Officer’s (CFO) role. CFOs are the financial experts who manage numerous responsibilities in an organization, starting from overseeing the financial statements, data interpretation, compliance, regulations, financial report analysis, and much more. Traditionally, the CFOs and the finance team used to work in silos, which led to delay in operations due to lack of communication and visibility across the organization. Their tasks used to be time-consuming and were prone to human errors. But with the advent of technology, embracing digital tools has enabled the CFO to transform into a ‘Digital CFO.’ They are now a strategic partner to the CEO, with a long-term vision focusing on minimizing the risk and accurately forecasting cash flow. They also measure the impact of ESG (Economic, Social, Governance) factors in real-time, predict the future cash position, and analyze potential business threats.

Finance 4.0: Digital transformation in finance

It is essential to anticipate change in today’s world, adapt to fluctuations, market demands, and quickly react to global trends. Technologies such as Robotics Process Automation, Artificial Intelligence, Machine Learning, and the Internet of Things drive the industrial revolution, industry 4.0. These technologies are also transforming the finance industry. Finance 4.0 is all about successfully leveraging the new technologies to transform the finance function by improving the efficacy of standard finance tasks. 92% of finance leaders across 89 large organizations have started their journey to introduce digital interventions in finance, as per EY. However, only 11% believe they are at an advanced stage. The report also reveals that finance leaders are focusing on transforming their functions and have started their journeys towards Finance 4.0.

Rise of the digital CFO

Previously, a traditional CFO had a clear direction on where to navigate and had a set of conventional financial planning and analysis duties. With the evolving innovation and automation underway, finance leaders have plenty of data and countless digital tools at their fingertips that can improve the performance and efficiency of the organization’s economic engine.

Financial organizations must adapt to the latest technological advancements in finance to avoid the risk of becoming obsolete. 85% of CFOs are planning to increase their investment in the cloud, while over a third expect the investment to grow by more than 25% in two years, according to Accenture’s research.

Questions digital CFOs should ponder on:

1. Have a tactical vision

CFOs must be able to spot the disruptive technologies impacting finance function.

• How will these affect your current business model and future business?
• How will industry drivers shape your market needs?
• Do you have the capabilities to manage your technology base strategically?

2. Disrupt or be disrupted

To guard against burnout, CFOs must set the priorities straight.

• Help your team understand how technology is imperative for process improvement
• Face, and not avoid, “Fear of the Unknown” associated with new technologies

3. Keep an eye on the execution

Executives need to be biased towards execution. Here’s how!

• Define measurable KPIs and success metrics for each milestone
• Ensure that you are achieving the desired goals within the stipulated time frame
• Always be ready with a Business Continuity Plan
• Incorporate suggestions and feedback from all stakeholders, beginning day one

Accounts receivables: An essential function in digital transformation

For decades, receivables management has been a crucial function for finance departments and embracing new technologies to automate the Accounts Receivable (A/R) process is vital for CFOs. Automated receivables management improves forecasting and predicts the future cash flows as it improves Days Sales Outstanding (DSO) and reduces bad debt. The CFO also establishes the credit policy and the company’s position on granting and collecting credit to minimize risk by monitoring the customers’ credit rating in real-time.

A successful A/R transformation initiative is essential as most companies survive the pain of cost and schedule overruns. IT projects run 45% over budget and deliver 56% less value than predicted, as per McKinsey. Gartner predicts that by 2022, 85% of AI projects will fail due to bias in data, algorithms, or the teams responsible for managing them. Similarly, Harvard Business Review had reported that the failure of IT projects costs the U.S economy about $50-$150 billion annually.

Finding the right partner

An organization needs a partner that not only deploys technology but also commits to deliver real business value. In order to automate, go through the following steps to select the right vendor for your digital transformation journey:

1. Initiate an RFP process to access the vendor’s understanding of the Order-to-Cash domain
2. Evaluate and choose the vendor based on RFP response and demo
3. Identify if the vendor can fulfill the custom requirements of the users
4. Create a statement of work and identify key KPIs and milestones to monitor the progress
5. Negotiate the pricing, timelines, deliverables, resources, and other legal requirements
6. Have a clear understanding of what business outcomes are expected out of the digital transformation initiatives and what KPIs need to be tracked.
7. Take the final decision and start working with the team

The finance function is in its golden age of undergoing a rapid digital transformation; the key to success is to create an impact by strategizing with the help of technology. Forward-looking CFOs have already started their journey as Digital CFOs in managing and future-proofing the business effectively.