Becoming a “New Age” CFO

The Evolution from Hunch to Hypothesis

Excerpt from Deep Finance: Corporate Finance in the Information Age

Becoming a “New Age” CFO

Embracing digitization to increase efficiency and data availability is crucial to shifting the old school finance mindset. Historically, CFOs have stayed away from technological developments in operations, but letting this separation occur in the age of analytics can slow a company down more than a member of the finance team using paper ledgers or old-school calculators.

Embracing new technology does come with understanding and accepting new roles within the company. In addition to FP&A, audit, compliance, and treasury management, CFOs must also manage many of the roles assigned to data scientists.

This evolution has strengthened the role of the CFO. Think of this transition as going from hunch to hypothesis. The longer a CFO has been in the business world, the more they have seen happen. CFOs attain their position because they have a grasp on the history of their industry, their company, and business in general. History has always been a guide for how CFOs see their company and how they make decisions. They have seen where players on the chessboard have moved in previous games, and they know which moves have failed and which have succeeded.

But we are in the age where computers consistently beat humans at chess. So, what happens when we work with the computers instead of against them? Through proper analysis of data, we can see which moves are riskier and what will affect a company’s bottom line. CFOs no longer have to rely on a hunch and lie in bed at night second-guessing how that hunch will affect the future of their company. In the age of analytics, they can sleep soundly knowing that their decision is backed by data. CFOs no longer have to look backward to make a decision about moving forward; they can focus their mindset and vision on innovation, with data right by their side. In fact, this is necessary. Dwelling on the past is a hindrance to forward motion. As the CFO looks backward and waits for trends to appear, CFOs with a more innovative mindset will spring ahead of them.

Archetype Consulting emphasizes this message in It is Possible to do More with Less and Create Greater Value

When many CFOs hear that they need to embrace digitization, they may take a pause. They spent their entire career honing a specific set of skills, and now they must learn something from scratch? Don’t let these fears hold you back from stepping into a digital transformation with the rest of your company. CFOs are in an exciting position to combine their business operations knowledge with financial insights. They must lead a team, which now includes a data scientist, to find trends, patterns, and meaning in numbers. Yes, they still will rely on solid financials to report on how the business is doing. But a CFO who has embraced the age of analytics will also have access to data and make predictions in real time, anytime.

If a CFO embraces analytics and understands data, they don’t have to worry about falling behind, losing out to competition, or even being replaced by a robot. We’re still very far from a time where algorithms are just going to replace people and leaders. Humans still have to make decisions about what to do with all of the data that has been processed. Those decisions, with assistance from the data scientist or the whole team, are often made by the CFO.

Learn more about the Three A’s – Analytics, Automation and AI here.

One example of algorithmic recommendations we can all relate to is the predictive text that comes up when we type an email in Google or an iMessage on our phones. Gmail and Siri offer possible words and phrases that you can choose from instead of typing out entire words. The computer doesn’t always know what your intentions are, so letting it generate all your messaging on its own could be unproductive (or even disastrous). Think of leaders in data-driven companies as the person looking at the prompts and moving forward with the best choices. Algorithms offer time saving options, but the human must still monitor and guide the computer to reach the optimal output.

The proliferation and availability of business data has changed the way companies of all sizes evaluate business processes, opportunities, and threats. While solid financials will always be the ultimate yardstick on which a business is measured, there is a growing expectation that CFOs take on the role of data scientist, providing real time valuable and predictive information between monthly close reports.

Leading the Charge

The agile CFO must shift focus to where the company is going—not where it has been. Too much time looking backward at lagging indicators opens the door for more nimble, forward-looking organizations to gain competitive advantage.

With access to and understanding of consolidated data, the CFO is able to collaborate with other departments to establish and guide Key Performance Indicators (KPIs) and metrics to connect data to core business issues. By establishing a data-driven corporate culture, the CFO can effectively drive results by leading an organization that is intelligent and responsive to data, which is used not only as a predictive tool, but as a key measurement of business success.

In this CFO Talk with Bernie Smith, founder of Made to Measure KPIs, The CFOs Guide to Great KPIs, Bernie outlines the 7 steps to KPI bliss, KPI trees and where CFOs can make an impact on these critical metrics.

Effective use of big data to develop meaningful business analytics programs requires stakeholders to embrace the technologies of data science. The most valuable CFOs are those who adopt and cultivate their new supplemental role as “Chief Data Officer,” taking responsibility for using data and analytics to define key metrics and provide thoughtful interpretations of data from across departments and industry.

To implement a successful business analytics program, finance departments must understand the extent of data available to the business across disparate systems, work with IT to make data available across all departments, establish data analytics and visualization techniques, and ultimately deliver actionable information to key decision makers.

The good news is CFOs are not being asked to do more with less. They are being asked to do more with more. Smart CFOs embrace technology to shift the focus of their team from transactions and reports to strategic thinking. To achieve this new level of business intelligence, CFOs must embrace digitization to increase efficiency and data visibility.

Use of Technology to Expand CFO Role

Becoming a “New Age” CFO

The first step in establishing a data-driven culture is to increase automation to let software handle back-office transactional jobs; this will allow greater human focus on strategic initiatives and advanced analytics. Upgrades to the company’s accounting and finance software may be required. It is time to move away from legacy systems and a reliance on spreadsheets by adopting new automation technology that makes the accounting process as effective as possible.

The benefits of finance automation include the reduction or elimination of manual business processes, reduction of data entry errors, the removal of human bias from analysis, and a move toward continuous accounting, which allows organizations to run most financial closing tasks in real time.

Not only does the CFO have to understand how this process works, but she also has to train other departments on how it works and how to properly interpret data. The CFO should be so familiar with data that it’s treated as if it’s just another component of the decision-making process—another member of their team. The CFO’s job is not going anywhere. CFOs will only be at risk in the future if they fail to understand how data can be used and how to interpret it to make the best decisions for their business.

When all of this is understood and considered, CFOs can bridge the gap between finance and operations. With this bridge (built by an effective leader) comes the two-way transport of data to measure and predict performance. Better decisions are made, roles are elevated, and the company faces a reduced risk of being outpaced by innovators and disruptors in the industry.

Putting It All Together

Regardless of how big the business is, this bridge can be built, and the CFO can use data science to improve the company’s bottom line. The right team already exists—the CFO just needs to tap into their existing roles and offer the right tools to shift mindsets and build a data-driven company culture.

To read more, check out Deep Finance on Amazon.

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