CFOs are frequently asked to predict the future. Where do you think the market, your industry, the function will be in 5, 10, 15 years? We’re going to take a wild guess: Nobody got 2020 quite right.
Now, that doesn’t mean predictions are pointless. In fact, quite the opposite. More than what they indicate about some uncertain future, predictions are actually informative about the trends that are starting to take shape now. CFO predictions shine a light on functional and financial currents at their inception (or at least shortly thereafter).
And that is why Accordion invited a (virtual) roomful of private equity-backed CFOs to watch a curated panel of their peers discuss the evolving role of the CFO and what it will look like ten years from now. Those panelists included: Brian Gladden, an operating partner at Bain Capital; Tom Dowling, CFO of Banner Solutions; Bill Ingram, former CFO of Avalara; and Mario Ramos, CFO and CRO of Edelman Financial Engines.
Most of what we learned about the role of the CFO, today and tomorrow, can be summed up in one word: technology.
Transforming Through Technology
Unpacking that one word is a little more complex.
When asked about creating value across the next decade, the plurality of CFO webinar attendees (44%) believed that “driving tech transformation” will be the function’s most critical role going forward. What they meant by that was not a singular software solution. Instead, it’s a whole host of tech-centric concerns and tech-enabling insights, most of which start and end with data.
“Ten years ago,” said Dowling. “the availability of data was probably the key issue. Now, it’s gone completely the other way. There is a massive amount of available data. How do you herd those massive amounts in a meaningful way?”
Added Gladden, “More and more, the CFO’s role will be about mastering data management.”
Panelists agreed that as data systems explode across the organization, it is critical that the CFO be the entity to govern data interactions.
“My pitch to the CFO is this,” said Dowling. “The data your salespeople need is different from the data your accounts payable people need and that’s different from the data your engineering people need. The CFO must own data governance. It can’t be the wild, wild, West. It’s not to restrict. It’s just to get the right data into the hands of the people at the right level. It’s a way to distribute data to run the business effectively.”
“We have to go to our customers and suppliers and request data. We have to look at their data and use it as a leading indicator of what’s to come for us in the future.”
Of course, it’s not only about data control, it’s also about data content. “It can’t only be internal data anymore,” continued Dowling. “We have to go to our customers and suppliers and request data. We have to look at their data and use it as a leading indicator of what’s to come for us in the future.”
And once those data sets are defined, the CFO needs to understand how to leverage them in order to become a business predictor, instead of just a business recorder. They must understand how to turn data into insights, not just canned reports.
Said Ingram, “Historically, CFOs have reported on results. That’s still going to be critical and not going away. But, we need to produce forward-looking metrics and share those metrics [with] additional stakeholders within the business. That’s the future of the CFO function.”
Those forward-looking, data-driven metrics, while critical to the evolution of the role, will not, however, be the only way CFOs leverage technology to drive value creation. The future of the function will also be about understanding emerging technologies and identifying where, how, and when to invest in them (and when not to).
“Let’s talk about machine learning and [artificial intelligence],” said Ingram. “My advice to CFOs is: Use it but don’t go after all the bells and whistles. Use it to go after some mundane, repeatable, and in-the-trenches requirement specific to the company.”
Ingram provides the example of real-time sales tax calculations for a grocery store business. Here is a business where the combination of SKUs and jurisdictions is astronomical, and the work required to maintain current data and records relevant to those SKUs is overwhelming.
“We were frustrated how this critical function unique to our company — that very few people in the world care about — that we just could not get through it. We simply did not have all the rates and product definitions for every item ever sold in a grocery store. And it was critical to our business. So, we acquired about two dozen engineers for the sole purpose of applying an AI/ML process to our SKU and jurisdiction problem. The results of applying machine learning to that issue were transformative for us.”
Partnering with the Business
While the plurality of CFO attendees believed driving tech transformation would be most important to CFO-led value creation across the next decade, many also focused on the criticality of shifting the function “from supporting to leading corporate strategy” and on “strengthening internal business partnerships.”
Both can occur, argued Ingram, when the CFO prioritizes providing insights to all different stakeholders within the organization. “I started giving financial overviews to different departments, not just around the executive table. I’d take different departments through our income statement, balance sheet, and cash flow. I’d say, look, this is the financial result of the decisions we made: we invested here, we didn’t spend here. I would do these via conference calls or Zoom. Initially, I thought I’d get 30 or 40 people to dial in, but very quickly I had 800 employees from all over the world.”
According to Ramos, the idea of bringing additional stakeholders along on the finance ride is key, not only to the growth of the function but to the fortunes of the organization.
“I think it’s going to be very important to democratize the detailed drivers of the business so that all of the people looking at the data understand the decisions at play and how to make them. That’s what really impacts the bottom line and that’s what really makes the CFO play a key role in the strategy and outcomes of the organization.”
Embracing New Talent Paradigms
Beyond tech and inter-departmental relationships, a number of CFO respondents focused on how “talent strategy” would be critical to future CFO value creation. That strategy has never been more relevant than now, in the COVID-19 economy, as the nature and expectations of how people work, and from where they work, have changed dramatically.
Ingram argued the importance of embracing those changes in the search for tomorrow’s talent: “I think it’s not going to be an all or nothing model in regard to working from the office or working from home. I envision a hub scenario: you’ll have a centralized office, but the employees will hub and spoke back and forth from home to the office to get what they need to be able to do their jobs. It’s a very different model than the fixed locations where we have planted people up until now. It’s a different cultural model and for the CFO, it’s a different financial model.”
Preparing for the Next Black Swan
If 2020 has taught us anything it’s the certainty of uncertainty. Given the expectation of more perfect storms and business disruptions, the question is, How can the CFO of the future best navigate a company through the unknown?
“In a word,” said Ingram, “cash. I’m a big believer in cash on the balance sheet. If you’ve got a rock-solid balance sheet, it buys you time to understand the new market landscape and respond effectively.”
And while cash is king, we would argue that, across all of our clients, those CFOs that were best able to weather this storm are the very same CFOs who really represent the future of the function. They are the ones who are close to the data. They are the CFOs who, because of that visibility and proximity, were able to quickly extrapolate changes in customer behavior, were able to monitor leading indicators in real-time, and were able to immediately offer viable alternatives for organizational cost structure.
These data-literate CFOs were the ones who were ready for this crisis. They will be the CFOs who can best navigate the next inevitable one. And, they are the current finance function leaders that best represent the CFO of tomorrow, today.
Hal Polley is managing director, San Francisco office lead & co-head of the western region at Accordion, the private equity-focused financial consulting and technology firm.