The transformation of the CFO of the future

What are the implications of ongoing change and increasing demands on the role and strategic orientation of the CFO organization of the future? Economic and geopolitical volatility on the one hand, and digital change on the other hand, are altering the role of CFOs and their organization. The consultants at Horváth & Partners and Klaus Werner, CFO and member of the management of Telekom Deutschland GmbH, have looked at the transformation of the finance organization as part of a joint project.

The demands on the CFO organization of the future

During the age of rapid technological change and Industry 4.0, the ambitions and growth expectations of companies are on the rise. This also involves greater demands on the CFO organization. Even in today’s set-up, the CFO organization no longer consists of mere maths experts, reactive and analytical accountants and internal or external reporting. The new requirements placed on the finance function of the future result in changes at various levels. A finance department’s past roles and competence profiles are turned inside out. Increasingly, data scientists are joining the familiar controller profiles. This new direction has a proactive, predictive focus of generating new business potential side by side with the technical departments. The opportunities offered by new digital networks and digitization are opening up new paths towards leaner and more efficient processes. Finance processes necessarily require software solutions. The activities in the value chain of a finance department are basically predestined for the use of digital and automated software solutions. And this change also affects company management. Increasingly, the use of advanced/predictive analytics is becoming a game changer in the controlling logic of KPIs and in company decision-making processes. This is based on increasingly varied, large data volumes available in improved quality. By now, the change is focused as much on work methods as on process transformation. Being agile, thinking and working in an agile way, is becoming increasingly important in finance. Especially where stakeholders are also jumping on the digital bandwagon.

The art of striking a balance

Every era faces special challenges. Their role requires CFOs to not just guarantee finance excellence but also to meet growing demands as strategic business partners and enablers. Companies increasingly need fast, reliable information as a basis for their decision-making. While the CFO organization faces the constantly changing requirements of accounting standards as well as legal uncertainty and rising compliance risks, it must also maintain the performance and efficiency of its finance function at the same time. At first glance, achieving finance excellence while taking into account all stakeholders may not seem to be new. But our era is also subject to profound process changes. We are facing a paradigm shift, the leap into the next industrial era. The tensions encountered by CFOs and their organization are becoming ever more complex. In order to redress this, its strategic orientation must take into account a high level of automation and digitization.

On the road to a successful transformation, the focus is on four core areas.

1. Finance excellence

The provision and interpretation of relevant control data for all of company management continues to be one of the most important core functions for CFOs. This offers vast potential for automation. The value chain of the CFO organization consists of many rule-based processes and repetitive manual tasks, which are ideal for the use of disruptive technologies. Robotics, analytics and even AI applications are suitable.

2. Digital finance transformation

The findings of the digital agenda of the Finance Department at Telekom Deutschland, and the current findings of the CFO study conducted by Horváth & Partners, identify four major drivers of digital transformation. The data resulting from the increasing digitization of value chain processes, are becoming ever more diverse. Since a finance organization is able to gain a holistic view of a company’s business data, it is in the best position to take over central, comprehensive coordination. To do so, in addition to controllers, it now needs new or extended competence profiles such as data scientists. Good data quality ultimately determines the successful use of new digital technologies. “The vast data volumes e.g. Help us to better support sales. Based on the data situation and on sales measures, we are able to plan better and to predict customer behavior and desires. In addition, they also help us in the finance area with investment decisions for infrastructure expansions.
Telekom Deutschland is more strongly focusing on becoming a so-called data driven company. Our decisions are more strongly based on the integration of linked data sources. Algorithms help us to process large data volumes quickly and efficiently and to understand connections,” says Klaus Werner. The use of advanced analytics forms another part of intelligent company management. By using predictive models, the finance specialists of the future can move away from reactive, analytical management towards proactive, predictive management.

3. Business partners

While cost management, profitability, cash flow and capital retention continue to have top priority for many CFOs, the CFO of the future is moving in a macroeconomic environment. The times when business forecasts were created based on past data belong to the past. The profile of the finance expert of the future is more strategic, more analytical, more agile. They will identify business potential and discuss strategic and entrepreneurial matters on a par with the technical departments. And they will always carry with them their digital toolkit of tools and data which turn them into a pioneer in decision-making processes. They are thus able to reconcile financial engineering with the achievement of a company’s growth ambitious. “CFOs must step more out of the shadows of CEOs to take up their key role. They must become Chief Force Officers in company management. Their repertoire of digital tools can make them the architect and driving force for achieving ambitious company objectives,” says Marc Renner.

4. Leadership and communication

Leadership is undergoing a transformation. Triggered by the new digital tools and methods in cooperation, the role of managers – be it in finance or elsewhere – is increasingly that of enabler and supporter of their employees. Top-down is the past. The CFO organization of the future is agile and works remotely and across departments. At the latest since CEOs started their personal profiles on social networks to communicate company objectives and activities, it has been clear that the communication strategy is of key importance. The developments in communication marketing of company successes show how important, and reasonable, it is for CFOs to also establish a proactive, clear line of communication for internal and external communication. This is less about posting a string of contributions on social media platforms and instead about a proactive, high-value, transparent information strategy. Change processes driven by digital change must be made transparent in the organization.

Success factors on the road to transformation

Currently, the digital transformation strategy of finance departments still consists too much of a collection of fragmented individual use cases. The success of the transformation will significantly depend on developing and implementing a holistic digital strategy. The new technologies will only deliver the right added value if they are used in a targeted way. Investment in new technologies tends to be high and only depreciates in the medium term. One part of a successful transformation – regardless
of the area – is to ensure that employees and their competences are also transformed. The development of new skills, competences, work methods and the right mindsets are the basis for implementing digital change in the first place and for its acceptance by the organization.

Authors: Renner, M. / Werner, K. (Telekom Deutschland GmbH)

Note: This text is an English translation of “ Die Transformation des CFO der Zukunft“, published by Handelsblatt Journal, Ausgabe September 2020