COVID-19 has changed everything for businesses, and chief financial officers and their teams have been heads down since the pandemic began. After ensuring the physical safety of their people and establishing remote working arrangements, the CFOs’ top priority has been managing liquidity in a wildly volatile environment.
Several months into the crisis, almost every company has rationalized operating expenses, secured financing sources, and taken a hard look at planned capital expenditures. Some are exploring government assistance while others have pivoted rapidly into new lines of business.
We have had many conversations with CFOs since the crisis began, and we have heard many variations on the same theme: If and when we get out of this, we are going to do things differently. That’s easier said than done.
Even before the pandemic, there was a growing recognition that many traditional elements of the CFO’s role, including planning, transacting, accounting, compliance, control, reporting, analysis, and advising, needed to change. Many such activities are strong candidates for automation, although only slightly more than a third of finance activities are automated today. Accenture’s global CFO research identified the opportunity to automate as much as 80% of these activities.
Before the crisis hit, the big question was growth and where to find it. With their understanding of key data — such as business-line revenue, return on investment, margins, and other key performance indicators — and knowledge of how to deploy capital, CFOs found themselves uniquely well-positioned to help their organizations get on the growth track. But, for the most part, they had not made the transition to focus on the organization’s future. Most finance organizations were spending their time trying to develop insights from past performance rather than looking ahead.
The pandemic is changing all that. Boards and management teams, along with CFOs, now see the importance of an adaptable, agile finance function that operates in near-real time. As they work to repair the damage from the crisis and establish a new foundation for doing business in a post-crisis environment, we have observed that many of the CFOs we work with are guided by five key lessons learned.
1. Automate that which can be automated. Crises can expose gaps and identify organizational cracks. With teams stretched to the limit, finance functions found that they should have automated activities including routine transaction processing, compliance, controls, and reporting. There is no shortage of good solutions, and implementation can free up resources for higher value-added tasks including planning, analytics, and decision support to the business.
2. Digital organizations are resilient organizations. Finance functions that moved quickly to set up virtual operations when the pandemic hit — relying in most cases upon a strong digital and technological framework — have found it easier to maintain business continuity and will, we believe, be in a better position to bounce back in a post-crisis environment.
3. Relationships are everything. From banks and other financing sources to major customers and suppliers, firms found out quickly whom they could and could not count on when the going got tough. CFOs will likely be putting more effort into reinforcing key relationships and into making their own organizations into dependable customers, suppliers, and borrowers. Another aspect of relationship management is building and maintaining employee trust and confidence. As one CFO told us, “Nothing gets done without a strong team.”
4. It might be time to re-think leverage. Economic growth coupled with low interest rates made leverage attractive for many companies. But the crisis has underscored the fact that leverage is a form of risk. Many CFOs we have talked to want to de-risk by borrowing less, or to restructure their entire borrowing framework once things return to a semblance of normality. To do this, they are looking at ways to generate more cash from operations — for example, by working more closely with customers to accelerate the payment cycle by actively monitoring payment terms.
5. “Black swans” may not be so unusual after all. After years of extreme volatility following the global financial crisis, some CFOs may have thought that things had returned to “normal.” It seems, instead, that this time the “new normal” should be thought of as the “never normal” — a state of affairs in which agility, alertness, and the ability to shift directions on short notice will be essential, first for survival, and then for growth. Companies will need scenario modeling techniques, rapid simulation, data-driven forecasts, and other tools to assess variables and establish a path forward.
Adjustments to this new environment will play out in different ways for different companies and different industries. Some companies, for example, may want to reconstruct their supply chains to reduce their reliance upon a small number of vendors. Others may want to focus more on distribution and marketing and less on manufacturing, turning some operations over to third parties. Some may seek to decentralize activities so that disruption in one geographic region has less global impact, or, create greater variability within the cost structure.
What is clear, however, is that the CFO and the finance function will be central to operating effectively in the post-crisis environment. CFOs have been on the frontline in the crisis, and their importance will increase, not diminish. By automating transactional activities and harnessing data, analytics, artificial intelligence and other technologies to develop better and deeper insights, a CFO can manage short-term liquidity issues while helping to guide the company toward a future marked by profitable growth.
David Davidson is a senior managing director and leads the CFO & enterprise value group in North America at Accenture. Aneel Delawalla is a managing director and leads Accenture’s enterprise value targeting group globally.