The lineage of the CFO can actually be traced back to a specific year in corporate history, namely, 1976 when the SEC (Securities and Exchange Commission) introduced brand new, never-before-seen accounting standards that 1000 of the largest companies in the USA needed to use for reporting assets. The legal ambiguities involved therein prompted several companies to open the official position of CFO.
In the world of today, there is a similar watershed event that has been initiated and continues to signal the need for revolution within the financial intricacies of corporate management. For some, this watershed moment is the introduction of the Cloud, for others, it is the blossoming of e-commerce platforms, and for the more traditional ones among us, it is the very birth of the Internet itself.
In essence, digitalization has changed the way organizations behave, especially in terms of financial aspects. In such an age, the role of the CFO has expanded much farther than what was initially envisioned as an individual of merit who can help corporations navigate the intricacies of the legal maze surrounding accounting standards.
Today, the maze is much larger and more intricate than ever, namely the maze of digital transformation.
The Financial Perspective of Digital Transformation
Before we can dive into the role of the CFO in digital transformation, it is necessary to clarify what exactly this term means, especially from the standpoint of economics and finance. Fundamentally, digital transformation is defined as the use of technology for three core purposes within an organization:
- Improving the efficiency of operations
- Refining financial targeting and business partnering
- Transforming value chain proficiency and productivity
Four fundamental trends on a macro-level have driven this definition of digital transformation within the financial purview, namely (a) emergence of digital native corporate landscapes, (b) decentralization of processing power through digital systems (c) rise of importance of mobile-based services and interactions, and (d) rise of on-demand information, making it almost as valuable as a form of currency.
Each one of these trends has pushed businesses further than they ever had to go before when it came to convincing consumers to buy a specific product or opt for a certain service. The medium of interaction, the branding language, the type of product/service, as well as the very functioning of the organization has undergone revolutionary changes at a pace that far outweighs any other transition that has occurred throughout the course of corporate history.
Such a dizzying pace of development and integration on an organizational level can lead to confusion and the sudden death of enterprises that are unable to adapt and thrive. This is where the CFO comes into the picture.
The CFO as an Enabler of Innovation
Innovation is a key driver of digital transformation. Without adapting internal and external mechanisms of an organizational function to the ever-changing digital landscape and the new opportunities as well as challenges it brings, transformation is impossible. Of course, innovation does not come cheap, and managing your finance in order to focus on specific avenues of innovative growth is a necessity that cannot be ignored. To do so, organizations require the steady yet courageous hand of an individual who can help develop a culture that embraces innovation even with the fear of risky investments looming above them.
Traditionally, CFOs have been described as being risk-averse, specifically due to their bottom-line focused attitudes and conservative approach to organizational growth. However, due to being the “master of the coin”, the CFO essentially decides what “failure” and “success” look like within the scope of the organizational culture. By taking periodically calculated risks at mobilizing different organizational units to “think outside the box” and investing in new ideas, CFOs can effectively increase the pace and robustness of digital transformation.
Moreover, wherever pitfalls and challenges appear, instead of labeling risky investments as failures and rather portraying them as opportunities, the CFO can increase the “innovation appetite” of an organization. Coined by the author “M. Pilar Opazo”, innovation appetite essentially indicates the ability of an organization to foster a culture that appreciates and encourages new ideas, which in case of low risk, meager investments on anything other than legacy systems upkeep tends to be difficult to nurture.
The CFO as a Key Strategy Craftsman
A core function of the CFO since the beginning has been overseeing budget management in an organization. This essentially means that the CFO is responsible for the allocation and utilization of resources for specific purposes, which directly puts aspects such as enterprise IT strategy and other technological aspects under the purview of this particular position.
A CFO who understands the importance and the future implications of embracing new technology, either in the form of an ERP system, or a Cloud-based customer management system, or any of the other myriad new instrumental paradigms, is essentially playing a fundamental role in the strategic development of the organization.
By including technology and digital awareness in budget and analytics meetings, the CFO can ultimately influence decisions pertaining to strategic movements to everything from platform-related questions (how much can we invest in e-commerce or social media management) to actual product/service-level considerations (should we release an NFT or accept Bitcoin payments). In essence, these decisions go a long way in transforming a company from a legacy system-based old-school corporation to a digitally aware organization of the modern world.
The CFO as a Myth-Buster and Value Creator
The digital world is a vast ocean of potential choices and opportunities. This might seem like a good thing but in fact, there are a considerable amount of pitfalls that the unaware and misinformed will come across while traversing this landscape. As new technologies arise and fall in record speed, organizations that are not able to gauge the potential long-term effects of clinging on to a specific trend can lose big without a reliable myth-buster on their side.
The CFO can appraise this very crucial role, specifically by ensuring that the choices made by the organization are informed, educated and financially secured through ardent research and a deep understanding of market dynamics.
Over the past decade, several potentially viable technological gadgets, platforms, and customer-brand interfaces are risen and fallen, taking with them those companies who were short-sighted enough to bank on them. The Apple Watch, Microsoft Band, Google+, Samsung Bixby, a host of mobile wallets and several platforms, have all bitten the metaphorical dust in just the last decade.
Other than merely busting myths regarding potential new investments in digital, the CFO can also create value in certain specific areas by dispelling uncertainties borne out of lack of awareness, especially within the organization. For instance, migration to Cloud environments comes with a lot of fear for several business owners, specifically due to the perceived increase in expenses when it comes to maintenance and security. By being informed of the intricacies and doing adequate research, CFOs can clear the air about genuine investments like the Cloud, such as through the introduction of a “pay-as-you-go” model. The value thus created can help organization take calculated risks while avoiding potential losses in the long term.
The CFO as a Trend-Setter in the Digital World
An organization that is able to sustain a trend requires the knowledge and always the aware mind of a CFO who is confident and informed in his decision-making. The financial market itself is a definitive place to learn about the inner dynamics and machinations of trends, specifically how they develop, are reinforced, and vanish.
In the financial market, expectations and speculations are the core drivers of trends and thereby, prices and the flow of money in general. Gauging of expectations and speculations usually take the form of sentiment analysis and other similar techniques, all of which are equally applicable to the digital world at large. A CFO who is able to learn from financial markets and apply them in the digital corporate landscape as a whole has a lot to offer to an organization.
Moreover, by driving idea mobilization and attitudes towards failure and success within an organization, the CFO also holds the power to set cultural trends within the organization. Through his/her decisions and approach towards budget allocation, opportunity assessment, resource mobilization, and risk-taking, the CFO can essentially shape the way employees engage with novel situations and confront challenges in everyday life.
Availing the services of a CFO goes beyond mere legal obligations and financial semantics. A CFO can provide the required assistance that an organization requires from within the scope of digital transformation. From advice on potential investments that can sky-rocket productivity and efficiency to the ability to navigate pathways towards new and untapped opportunities within the realm of consumer interaction and brand development, a CFO is a definitive wellspring of potential. Choosing the right individual, or outsourcing services to a professional agency that can appraise the role of the CFO for your organization is a powerful way to prepare for the many uncertainties as well as possibilities that are an indelible part of the digital world of today.