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How Influential Is the CFO in Digital Transformation

CFO Role in Digital Finance

Across industries and organizations, digital technology is disrupting and transforming job functions and responsibilities. Though the specifics of these digital transformations differ, the goal is nearly always the same: to unlock more efficient, more intelligent, and more productive operations and processes. This is as true in the boardroom as it is in the data center. However, while digital transformation is often discussed in terms of the data center, it’s the boardroom that must understand, drive, and successfully adapt to a more digital-first world.

But who is responsible for advancing an organization’s digital strategy? Conventional wisdom holds that it’s the Chief Operations Officer, Chief Information Officer, or even the Chief Human Resources Officer. But increasingly, the C-suite member most responsible for digital transformation is instead the Chief Financial Officer.

CFOs are perhaps the perfect advocate for change because finance operations are increasingly being transformed by intelligent automation. These technology breakthroughs allow CFOs’ attention to focus on high-value tasks such as data-driven forecasting and decision making based on real-time insights. Here, we’ll explore the evolving role of the CFO and its impact on both the finance function and broader organization.

The Changing Role of the CFO

Yesterday’s CFO directed financial planning and analysis, accounting for past results and forecasting for the future on a regular cadence. They rarely looked for innovation opportunities, instead falling into the familiar, if reductive, accounting stereotype. Today’s top CFOs, however, share little with their staid predecessors and are instead more akin to chief futurists and digital finance officers.

As part of this new role, CFOs lead automation and digitization initiatives, act as an evangelist for digitally-enabled business models, and directly support business unit strategy and performance. Most importantly, they act as a strategic partner to the CEO by providing real-time, data-driven insights in support of key decisions.

 

CFO Role in Digital Finance

The ability to provide these big data insights increasingly separates top digital finance leaders from their less proficient peers, enabling them to advance both strategic and operational initiatives. On a strategic level, CFOs guide their organizations’ digital roadmap by using advanced analytics to evaluate the profit potential of various digital technologies. This allows the CFO and their team to “invest” in and encourage the right digital business models and transformation initiatives. On a day-to-day level, CFOs improve operational decision-making by analyzing performance in real-time and based on current conditions, not solely on past performance. With such a broad mandate and potential for impact, the CFO’s role now includes being a data interpreter, technology expert, contemporary strategist, and critically, digital transformation advocate.

However, finding this caliber of digital finance leader is difficult. Research from the 2019 Gartner CFO and Finance Executive Conference found that just 22% of CFOs are personally effective, measured by the extent to which they drive efficient growth and perform against CEO expectations. Meanwhile, 47% of CFOs believe their current finance function is unequipped to meet the demands the future will place upon it, according to EY’s 2019 DNA of the CFO report. While the CFO who is both a digital finance and transformation leader is currently more the exception than the norm, that will change as the finance function evolves and the benefits of digitization become clear.  


Why Digital Transformation Matters in Finance

The following benefits explain why a digital finance department is so advantageous to the modern business:


Automation

In recent years, automation has advanced beyond simple rule-based functions. By combining machine learning with robotic process automation, digital finance departments now automate complex yet relatively low-skill and labor-intensive tasks, with huge impacts on order-to-cash, procure-to-pay, and record-to-report processes and transactions. In fact, research from the McKinsey Global Institute found that 42% of finance activities can be fully automated while another 19% can be mostly automated. Intelligent automation software, for example, processes invoices, pulls information for audits, prepares tax documents, and aggregates financial information from disparate sources. It also answers low-level financial inquiries from various business units and completes each of the above tasks with greater speed and accuracy than possible by even the best human employee. That speed and accuracy pays real dividends; Deloitte reports that companies who release their earnings faster may have a higher price-to-earnings multiplier, outperform industry average EBITDA, or enjoy a significant cost gap advantage. Likewise, a 2010 study from Columbia Business School identified accounting quality as one of four key drivers of valuation within the insurance industry.  

 

Additionally, by improving accuracy and speed, automation frees employees to focus on higher-level, strategic activities that create a more productive, cost-effective workforce. For example, Sutherland worked with one leading oil and gas company to improve productivity by 50% through the automation of key activities. Similarly, healthcare organizations deploy intelligent automation to consolidate patient payment data from disparate sources and provide comprehensive risk analysis, which finance employees scrutinize to reduce delinquent debt and total days outstanding.

 

Data and Analytics
The ability to effectively mine big data is a core requirement for today’s digital finance department and the most cited number one priority among CFOs surveyed as part of EY’s 2019 DNA of the CFO report. It’s easy to understand why. With real-time information via prescriptive analytics, CFOs receive continuous visibility into the financial strength of their business, allowing them to monitor day-to-day operations as well as spot missed payments and duplicate expenses.

Meanwhile, advanced analytics improves everything from demand forecasting to product pricing and risk mitigation. Powered by machine learning and other artificial intelligence algorithms, these platforms pinpoint relationships between seemingly unrelated variables and crunch vast amounts of data to draw insights that would otherwise remain invisible to humans.

Car companies, for example, combine historical sales data with aggregated web search/sentiment data to improve demand forecasting accuracy. Recognizing that people undertake a significant amount of online research before purchase, this approach improved prediction accuracy by 40% for vehicle makes with relatively small market shares. Although the effect was smaller for the most popular models on a national scale, even a small increase in accuracy helps organizations cut costs by employing a just-in-time inventory model. In another sales-related example, a consumer goods company built a forecasting tool that predicts the impact of price changes on sales volume for a given product. The tool analyzes a variety of data including macroeconomic, geographic, and demographic factors to arrive at the optimal price.

Of course, automation and analytics are inextricably linked within the digital finance department. By automating time-consuming yet critical processes, including the structuring of data for analysis, automation enables an emphasis on data and analytics. Conversely, analytics boosts automation initiatives by showing the clear benefit of digitization. This positive feedback loop helps explain the gap between digitized organizations and their analog competitors. CFOs, therefore, must pursue digital transformation in order to optimize the present while anticipating the future.

The Sutherland Approach
All too often, however, companies fail to move beyond strategy into real-world efficiency, process improvement, and measurable results. The Sutherland approach is designed to overcome just this barrier. It combines design thinking with automation and artificial intelligence capabilities to improve performance in sales and operations planning, order to cash, and source to pay. The goal is a true digital finance department linked closely to its organization’s overarching business strategy.

Ultimately, alignment between the business and its finance team is the “true north” towards which CFOs must steer their teams and the reason they must advocate for digital transformation initiatives. To learn more about how digital finance departments can act as a strategic advisor to their business, get in touch with our digital finance experts today. 

 

Transform Finance Into a Strategic Business Partner