Summary: For the past decades digitalisation has continuously been on the rise bringing obvious change to the business sector. As new opportunities and threats arise from this technological transition not only common business models are facing alterations. The traditional roles of C-Suite representatives are bound to be renewed for good giving way to candidates with an all-round set of skills.
Throughout the corporate world it has become inevitable that digitalisation is a vital feature to generating an organisation’s long-term existence. As CFOs across all industries are getting increasingly aware of the value going digital creates, the fates of their positions are irremissibly interwoven with their organisations’ successful adoption of technology.[1] The CFO, generally in charge of handling several responsibilities at once, now also finds himself or herself leading the technology oversight by handling investments and adapting the cash flow from a product-oriented to a service-based business model. But it becomes more and more clear that many organisations are lacking the appropriate technology knowledge on the C-Level. It is essential though, that the monitoring of critical technology initiatives and the prediction of threats and opportunities, is handled by competent board members. Thus, understanding the financial impact of the transformation will cause one of the most important changes to the role of the CFO in the near future.[2]
The new CFO drives competitiveness and increases business value through innovation by actively keeping the company focused on transformation projects and making the most of the company’s investment.[3] For CFOs, who own the capital-allocation process — or at least have a material role in it — it is important to revisit and assess capital allocation if it taps into the broader value shift. Financial data alone is no longer sufficient to convey the value that the new digital business model creates, as evidence that more than 80% of today’s corporate value is generated by intangible and unreported “assets” shows.[4] The CFO himself or herself must therefore become a strategist of digital business model innovations, utilizing the value shift to bring the company’s investment portfolio back into balance. He or she must distribute capital in new directions to create measurable intellectual property in the shape of “big data“, which refers to the information gathered on everything from customer transactions to inventory levels, often in real time, and in quantities previously unimaginable — patents, trademarks and copyrights.[5]
The challenge of this data is to paint the most precise picture of reality so that predictions of revenue and current demand no longer have to be based only on previous results and trends. Instead the data should produce accurate revenue forecast based on highly predictive analytical information. The revenue related importance of data may sound like old news but the real challenge for the CFO here is to transform this data into the most valuable and comprehensible insights. The more digitally sophisticated and tech-oriented an organisation is set up across the C-Level, the more likely an organisation will be to overcome this challenge and create a functional system of most predictive analytics.[6] The CFO should be fully aware of the company’s issues, s/he should lead the way to making data more manageable and should know what is important to extend a team’s set of skills. In order to implement this strategic move, organisations are in need of a new type of CFO. S/he must be tech-savvy and demonstrate internalised digital knowledge to lead technological innovation. S/he must execute business strategies on data-driven insights and know how to work with regulatory compliance. Lastly the new CFO must stay flexible to manage unforeseen risks.[7]
In order to implement this strategy the CFO must cooperate with leaders of the business unit, who need to transform the business portfolio in the first place. On a more traditional level – e.g. while creating the balance sheet, P&L, or monitoring compliance rules – the CFO and the business unit must also work together on enhancing their cooperation to meet new digital standards.
Also, the CFO should be prepared to execute his or her important role by actively communicating the financial impacts of the digitalisation change project to internal and external stakeholders. Regular communication channels with the supervisory board, works councils, shareholder meetings, external auditors and last but not least analysts and the investment community are often well-established and must be used to clearly convey intentions in means of progress, fundraising goals and financial viability in support of the initiative. Once a company crosses the digital divide, how it measures, manages, and communicates its value to investor-relations professionals and to analysts may change.[8] After all, if you are providing more value, you want it to be recognized. It is not always a linear path, however. On one side language has to change and new key performance indicators (KPIs) fueled by big data need to be developed to reflect the value added. On the other side audiences, namely investors, have to change. For many CFOs, this means that companies can manage and report only what they measure and investors follow suit. So to receive the benefit of today’s high valuations, CFOs must measure what is valuable, report it to their management team and board, and allocate capital to tangibles/intangibles to get investor buy-in and support.
Adding a well-rounded CFO to the C-Suite equips an organisation with new skills and fresh ideas to better handle technological issues, opportunities and risks deriving from the digital transformation process. Also an organisation will be able to monitor its complex digital transformation and not to forget its technology investments more comprehensibly.[9]
Until recently CFOs have been leading IT through a rather cost-centric management. But this is about to change as the CFO depends on IT to meet respective goals. A close relationship between finance and IT does not only come in handy when calculating technology expenses. It will also be crucial to manage technology risks such as data security in times of increased corporate vulnerability and cyber attacks. As important as managing technological risks is, the ultimate goal for many CFOs is to lead their organisation through a transformation for finance by developing a long-term vision and ability to generate an accurate value-added analysis.[10]
It is also important to note that the CFO doesn’t stand alone in his or her new role. With the CEO as a collaborative partner on the strategic level and the CDO as an operational partner, together they can bridge the gap between the company and its external constituents interested in the financial wellbeing of the organisation. Strong bonds within the C-Suite are vital to a company’s success.
The new CFO will continue to execute the traditional role of managing an organisation’s finances, reducing costs, and implementing appropriate controls, but his or her new and essential skill of strategic thinking will become more and more important as it greatly contributes to the organisation’s competitive advantage with the much-needed business foresight.
About the author: After his studies in economics Dieter Timmermann worked in executive management positions as CIO and CFO for more than 30 years. He led major transformation initiatives for Kraft General Foods, Braun AG, Gillette, Bombardier Transportation, and Zurich Financial Services. Alongside those change initiatives, he conducted process standardisation and implemented off-the-shelf software solutions. Just recently Dieter contributed to digital-cookbook.com as a guest author and advisor.
Literature:
[1] Schmidt, C. (2017): The Road to Finance Transformation
[2] Kark, K., Lewris, J., Brown, C. (2017): Bridging the boardroom’s technology gap
[3] Behrendt, S. (2017): The CFO as Transformation Agent
[4] Ocean Tomo (2017): Investments
[5] Deloitte (2017): The value shift: Why CFOs should lead the charge in the Digital Age
[6] Friedman, F. (2015): What will the CFO Role look like in 2020?
[7] ibid.
[8] Deloitte (2017): The value shift: Why CFOs should lead the charge in the Digital Age
[9] Kark, K., Lewris, J., Brown, C. (2017): Bridging the boardroom’s technology gap
[10] Schmidt, C. (2017): The Road to Finance Transformation
