Over the past decade, the role of Chief Finance Officer (CFO) has evolved. Once simply recognised as the head of a specialist team of finance professionals, the position is now regarded as one of business leadership – often considered second only to the CEO. Armed with hard data and able to exploit insights to yield competitive advantage, today’s CFOs are driving business strategy.
Beyond the numbers
Although the role of CFO has always been the highest rank within the finance team, it has not always had the same influence as other positions within the C-Suite. Historically, CFOs were viewed as head bookkeepers – akin to primary accountants – rather than as business leaders in their own right. Dr Ilya Strebulaev, Professor of Finance at Stanford University, explains:
CFOs were either accountants or grew up through the finance office, and there really wasn’t a need to have strategic or business vision.”
In this capacity, the remit of the CFO was limited to controlling cash-flow, collating financial data and safeguarding profits. However, in terms of strategy, the reins remained firmly in the hands of the CEO.
Yet, the insights of the finance office bring focus to decision-making. Equipped with hard data, legislative awareness and an empirical outlook, CFOs bring a lot to the boardroom table. As a result, over the past decade the role of CFO has shifted firmly from the back office to the C-Suite – and from protecting value to creating it.
Now, strategic decisions are informed by the CFO’s financial forecasts, price models, performance metrics and legal considerations. This transition is summarised by Noel Tagoe, former Vice President of Education at the Chartered Institute of Management Accountants (CIMA):
Today an organisation’s CFO is often considered a co-pilot to the CEO, with the two-working side-by-side to create and protect value.”
A shifting remit
To gauge the importance of finance in decision-making, consider the last time you planned a holiday, viewed a house or made a significant purchase; you most likely considered your finances before committing to a course of action. The same applies to business decision . Considering the financial pros and cons helps businesses make informed decisions that achieve better value and reap more sustainable results.
Indeed, the Association of Chartered Certified Accountants (ACCA) describes how CFOs are now responsible for ‘applying the finance lens on decision making.’ The department now presides over the company’s growth, using insights and data-driven analysis to set financial goals and track the company’s progress towards them. As a result, the team has a stake in all investment decisions.
Despite stereotypes, modern finance teams are not in the business of blocking spend. Yes, containing costs and identifying savings are still high on the finance agenda. However, today’s CFOs recognise that sometimes cost leads to growth; for instance investment in growth opportunities. So, finance leaders are looking beyond traditional cost cutting to more strategic cost management: aligning costs to business priorities.
Finance leaders increasingly seek to align their organisation’s cost base to ‘good costs’ that support the company’s strategic goals. That way, ‘bad costs’ can be cut and the savings redirected to encourage growth.
As a result, the role of the CFO is no longer considered a numbers-only occupation. Their remit has extended beyond finance and accounting to include the strategic management of the company’s resources. Consequently, in just three years 85% of CFOs have taken responsibility for additional departments – commonly central business functions such as IT and HR.
Harnessing the potential of data
Technology has accelerated finance’s expanding remit. In today’s connected world, finance teams have access to increased volumes of data – and capturing, interrogating and modelling that data is easier than ever before. From real-time graphs depicting performance results and trends, through to detailed profit and cash forecasts, today’s finance teams have access to rich streams of business intelligence.
Theresa Tucker, CEO of finance software provider BlackLine, describes how CFOs armed with greater control and visibility of data are “enhancing business intelligence, developing more accurate forecasts, and tightening internal controls to assure accurate financial reporting and proper compliance.” These data-driven insights can lead to competitive advantage. Indeed, companies who leverage cutting-edge data analytics are 38% more likely to lead the field in terms of commercial performance.
Used correctly, the data available to today’s finance teams can help identify market trends, enhance customer experience and monitor the impact of change programmes – and much more – providing a vehicle for growth planning. No wonder CEOs are increasingly turning to finance leaders for analytics and insights to inform business decisions.
Indeed, the importance of financial data is so ubiquitous, it is now being used to set key performance indicators for departments outside of finance – particularly sales targets, which are integral to a company achieving its financial goals.
The financial filter CFOs apply to business challenges and strategies – complete with their data-driven insights and pragmatic outlook – have generated value beyond traditional control and cutting of costs. Now, the CFO is a flowing source of astute business intelligence that can drive competitive advantage. No wonder CEOs are keeping their CFOs close at hand.