An ever-growing amount of responsibilities and advances in technology is forcing many CFOs to adapt to a significant number of changes. A recent McKinsey Global Survey focused on how CFO and finance leaders manage their new demands, whether it’s digitally transforming essential business activities, managing cybersecurity threats, or even handling traditional finance duties. All of these new responsibilities present an excellent opportunity for finance leaders to stand out as they create a future version of the office they hold. Yet, many of these CFOs don’t feel that their organization is prepared to handle the challenges and opportunities this represents.
Many CFOs understand that following the traditional role is no longer enough. Instead, CFOs need to focus on delivering value while keeping up with their ever-evolving financial duties. Maintaining a more active role in leadership and building additional skills in other aspects of the company is critical to success. Identifying new investment opportunities and rethinking their typical approach to handling external pressures are essential skills that CFOs need in today’s ever-evolving work environment.
Survey Finds Up to 5 Functions Defining the Future Office
Typically, a CFO is in charge of at least five functions other than finance in the workplace. For example, over half of CFOs are in charge of risk management, regulatory compliance, and M&A transactions, according to the McKinsey Global Survey. Additionally, 38% of CFOs remain responsible for IT management. Even some of the CFOs in the survey manage digitization and cybersecurity, which only further highlights the diverse office that many CFOs are now leading.
These CFOs understand that their responsibilities will continue to evolve as they realize the importance of remaining flexible and creating harmony with other executives in their duties. Nearly four in ten CFOs spent most of their time on various roles besides traditional finance within the past year. These other roles often focused on organizational transformation, performance management, and strategic leadership.
CFOs believe they can create value in a variety of ways without focusing strictly on traditional duties. For example, 46% of CFOs believe they created the most value through strategic leadership, while only 18% felt they provided the best value through traditional finance work. These trends will only likely continue in the future, as more CFOs would rather spend less time on handling traditional finance activities while focusing more on strategic leadership, organizational transformation activities, performance management, and big data analytics.
These non-finance responsibilities are putting many CFOs on high alert, as less than a third believe their businesses have the necessary capabilities to remain competitive in their company’s digitization. Less than half feel their business is well-prepared to stay competitive in cybersecurity.
The Importance of Strategic CFO Leadership
Many top executives recognize the importance of finance chiefs and the value they provide to their companies. CFOs are often highly involved members of the executive committee, if not the board, as they start to map the connection between LOB, Operations, and IT to define business models and predict business outcomes. The Future office of the CFO will continue to change, as expectations from these other business and discipline leaders within the company evolve.
The data from the survey highlights how some CFOs perceive their contributions differently than some of their peers. The majority of C-suite executives and CFOs agree that the role of a CFO is to bring additional financial expertise to meetings while also focusing on ways to create financial value within these discussions and serve as the executive team’s public face to the financial stakeholders. However, the survey shows a large gap between the leadership of current CFOs and the expectations of other business leaders. For example, 72% of CFOs believe that they are highly involved in allocating financial resources, while only 29% of other C-level executives feel the same way about CFOs.
Many CFOs rate their performance of finance functions much differently compared to other executives. According to the survey, 87% of CFOs believe their finance functions are effective, while only 56% of the other C-level executives feel the same way. These groups also differ on the challenges impacting finance functions. CFOs are most likely to cite a lack of resources or skills to maintain effective finance functions, while other executives focus more on a lack of innovative mindsets.
Decision-Making Mandate with a Lack of Innovation
Overall, CFOs understand the need to go beyond traditional practices. However, only a few believe that their companies use innovative methods for making decisions. Approximately two in three CFOs believe that their businesses don’t have the capabilities for making quick decisions, scenario planning, or decentralizing the decision-making process to remain competitive in the future.
Similarly, many believe that their organizations only use basic financial controls for making decisions, as only a few reports using advanced practices. The majority of CFOs agree that their businesses create capital-expenditure budgets by using comparable metrics at the project level while tracking the results of these projects. All of these practices further support the use of a robust capital allocation process. However, fewer CFOs report using tactics for developing innovation or learning. Only 30% of CFOs formally review past investments that happened three to five years ago, while 25% say they use new methods for finding funding opportunities.
Competing in the Acceleration Economy: Our Top Three Takeaways
- Develop Proactive and Strategic Leadership
The results of the survey show that CFOs often perceive their contributions differently compared to other C-suite executives. One main difference is the level of involvement of CFO’s in making strategic decisions. The survey shows that finance leaders may have more freedom in leveraging their influence and expertise. These finance leaders can begin to take a more prominent role in making decisions, which can improve the engagement of the entire executive team.
- Maintain an Investor’s Mindset
Many of the CFOs understand the interests of financial stakeholders, but less than half of these CFO’s feel that their organizations keep cash scarce, which is often a sign for investors that the company will remain disciplined in all of its investments. These findings show the importance of maintaining capital discipline by having a mindset of an investor in handling day-to-day management. This mindset can also mean implementing innovative processes for finance, such as moving away from an annual budget toward a more flexible budget for making quick decisions while also using a performance-management system. Keeping an investor mindset can help limit any misunderstandings that might draw the attention of any activist investors, as many CFOs believe that their organization isn’t well-prepared to handle these situations.
- Embrace (Fall in love with) Advances in Technology
New trends in technology can significantly impact the role of a CFO by making it easier for finance leaders to understand complex business activities. CFOs can choose from various tools to help them use big data and transform finance processes through digitization. For example, software programs are now available for automatically managing repeatable and standard tasks, whether integrating data for additional business insights or processing transactions. CFOs can easily use these tools for handling complex planning efforts for enterprise resources or any other challenges.
The finance world is quickly evolving and this Future Office of the CFO emerges, it is incumbent upon the finance leader to keep pace with these changes; subscribe to our newsletter to ensure you don’t miss a beat! Subscribe Here!