How will chief financial officers (CFO) confront the challenges and opportunities posed by digital disruption? That disruption is transformational and rapid, which means that the CFO of tomorrow is needed today—a CFO who is an agile leader, capable of keeping their organization on the path to sustainable growth throughout an era of unprecedented uncertainty and volatility.
Our research, based on the recently released 2020 CFO Study, reveals how CFOs across a range of industries are repurposing their roles—and shaping the direction of the wider enterprise—to rise to that challenge. We spoke to more than 500 CFOs and senior finance leaders around the world, and found that they are focusing their efforts on four key pillars:
1. Leadership and skills:
Finance-led frameworks for growth
2. Cultural transformation:
Change through a culture of collaboration
3. Agile finance:
Modeling a digital future
4. Technology and data innovation:
Embracing emerging technologies
About the research
To understand how finance leaders are tackling the challenges and leading the transition to a real-time business, we sought the views of more than 500 CFOs and senior finance leaders in Europe (the UK, Germany, and the Netherlands) and North America.
These CFOs work across 11 sectors and represent organizations generating at least $1 billion in annual revenues; 12% are from companies with annual revenues of $10 billion plus.
To validate the quantitative findings, we also conducted a series of in-depth interviews with CFOs and finance leaders at global organizations.
Agile leaders show the way
Some CFOs are adapting more quickly than others. On both sides of the Atlantic, our research has identified small groups of “agile leaders” who are able to access and exploit 90-100% of key operational and financial performance data, driving their organizations forward according to the insight they gain. These agile leaders provide important learnings to others and we provide comparisons throughout, but to see how the different regions stack up against them in more detail, read the TCS 2020 CFO Study.
Leadership and skills
CFOs in this research are determined to play a vital role in repositioning their organizations for growth in the digital age. But the focus of their leadership varies by industry—not least because some sectors have made more progress on transformation than others.
For example, the most commonly cited leadership priority for CFOs in this research is driving technology-enabled business model evolution. But leaders in industries such as financial services and retail, which have already seen significant digital disruption, are less likely to cite this priority than those in less digitally mature sectors such as consumer packaged goods (CPG). In CPG, half of CEOs see business model change as a priority.
Question: In which aspects of company leadership do you expect the CFO to be playing a critical role in five years’ time?
By contrast, insurance CFOs are now more focused on what they can do to drive talent management across the business; in retail, meanwhile, the biggest priority is enterprise-wide analytics governance. “Data quality is a constant issue,” says one retail CFO.
Reskilling to get ahead
To fulfil their leadership ambitions, CFOs will need to ensure they are equipped with new types of skills and capabilities. In every sector, finance leaders are now focusing on developing their long-term strategic planning skills, but this is far more likely to be a priority for the less digitally mature industries—50% of CPG CFOs, for instance.
"One of the lessons I learned early on in my career is that you can’t just look week to week, quarter to quarter. You’ve got to keep pushing yourself out into that horizon to make sure you’re making the right big bets."
— Sandip Thakrar
Finance Director, Major and Public Sector at BT
By contrast, financial services businesses and technology companies are now moving on to other practical demands. In these sectors, finance leaders are more likely to pick out the need for skills development in areas including data modeling, analytics, and understanding advanced technologies such as blockchain (insurance).
More content with their ability to lead the business strategically, these CFOs are now keen to acquire the very specific digital capabilities that support such work. At Nokia IT, for example, Head of Finance Rajiv Subramanian says that developing these skills is now a priority. “There is a huge shortage of people who can really understand the business and connect it with the numbers.”
Transforming at pace
Some sectors are especially focused on increasing the speed of finance’s execution. Overall, our research suggests that speed is one crucial area where agile leaders are potentially gaining competitive advantage. Nearly nine in 10 (89%) are happy with how quickly they can free up cash for growth, compared with the insurance sector which lags behind here: only 48% of insurance CFOs are able to say the same. CPG and financial services (FS) CFOs also score themselves poorly, which underlines the demand for speed and agility in these industries. Unsurprisingly, the technology sector, where young businesses have been digital from the start, leads on satisfaction with speed.
Question: What skills and capabilities are your priority for development?
For CFOs to be key leaders of enterprise-wide change, they will have to look beyond the finance function. In our research, 58% of CFOs overall say they now take responsibility for digitalization across the business, but that figure rises to 67% in the financial services sector, where advanced technologies are having an operational impact.
But CFOs face challenges. In CPG, for example, 69% of finance leaders worry that their change management strategies are not delivering the significant cultural change required for transformation. Seven in ten insurance CFOs, meanwhile, believe that current ways of working make it impossible to develop beneficial partnerships with external businesses.
Question: To what extent do you agree or disagree with these statements?
In the financial services sector, 56% of CFOs complain that finance lacks the skills required to maximize value over the next five years. For businesses in an industry with highly competitive salaries to struggle with securing expertise suggests that the skills shortage is a pervasive problem. However, other sectors may provide useful role models here. In retail, for example, one CFO emphasizes the potential of using new remuneration structures to drive change. “The notion that an executive’s compensation is based on their cooperation in getting this process changed or that technology landed can have real impact,” he suggests.
Strategies for change
So how can CFOs confront the cultural and skills difficulties they face? The research suggests that the agile leaders are well ahead of the pack when it comes to implementing several strategies for driving change. They are much likely to have put new performance metrics in place to measure progress on new ways of working, to have established cross-enterprise key performance indicators, and to have empowered internal teams to take responsibility for digital change.
Comparing their progress against sectors reveals that the tech industry is most aligned. Respondents in this sector are far more likely than other industries to have put new performance metrics in place to measure progress on new ways of working; established cross-enterprise key performance indicators; and worked with the wider enterprise at all levels to take responsibility for digital change (see Figure 4). “We need to push accountability down to individual line manager level,” says Nokia IT’s Rajiv Subramanian, acknowledging this idea of responsibility at all levels.
In the lagging industries, finance leaders have some catching up to do. While CFOs are keen to drive transformation throughout the business, in some industries only a minority of firms have identified how to achieve it and have put in place metrics to measure their progress.
Not that standalone metrics are enough, according to one banking CFO—collaboration with other functions is also crucial. “There’s a real demand for better communication skills in finance now,” he says. “You have to build strong relationships even with those functions you don’t often work with.”
Question: To what extent are each of these cultural change initiatives fully implemented across your enterprise?
As finance leaders seek to steer their organizations through transformation, they will need a multi-layered view of what the future holds. Their ability to anticipate change and respond accordingly will make all the difference.
The CFOs in this research understand how important it is that they can forecast technology evolution and financing and capital needs. As things stand, however, they are not sure that their forecasting abilities are up to the job.
In retail, for example, 57% of CFOs say that technology evolution forecasts will be especially important to their organizations, but more than a quarter (27%) believe that this is the most challenging type of forecast to master. “We are going to have to learn this skillset,” says one retail CFO. “That is, how to to challenge technology proposals without strangling them.”
And in financial services, 52% of CFOs point to the need for high-quality finance and capital forecasts; again, however, one in four (26%) has concerns about their abilities in this area. CPG companies are more likely than any others to see the need for product lifecycle forecasts (38%), but one in five (19%) cites this kind of forecasting as particularly difficult.
What stands in the way of higher-quality forecasting? As the research shows, CFOs across the industries are worried that their organizations simply lack the skills required to forecast accurately. And in some cases, there is significant concern about resistance from employees to new ways of working. Strikingly, these are issues that are also felt acutely by the agile leaders in our research, at 40% for both—indicating that it is imperative that CFOs tackle these workforce issues now or face more trouble down the line.
Question: Those who are confident that the above technologies could have a positive impact on FP&A capabilities
There are other challenges, too. In the insurance sector, 40% of CFOs worry that the data on which their forecasting is based is inconsistent—or even inaccurate. In a related area, 36% of financial services CFOs are worried about their ability to model and analyze future business scenarios.
The challenge now is to develop more agile financial planning and analysis (FP&A) capabilities, which will enable organizations to confront these challenges. In retail, 34% of CFOs say that a more agile operation would encourage collaboration across the enterprise, which might help to break down some of the resistance to new ways of working. Across the board, CFOs think that FP&A agility will help them to pinpoint specific skills shortages and, in some cases, support recruitment.
New technologies will also have a role to play in improving forecasting. Naturally, the technology sector leads here: more than 80% of tech CFOs think each of blockchain technology, the Internet of Things (IoT), artificial intelligence (AI) and advanced analytics has a role to play in improving their FP&A capabilities. But other industries are excited by these technologies too. In CPG, 79% of CFOs point to the potential of AI and machine learning; in financial services, 71% are excited by what the IoT has to offer; and 77% of retailers are looking to advanced analytics.
New technologies could be transformative. “Blockchain gives you the opportunity to complete something in a single shot,” says the CFO of a leading investment bank. “You can house all the data you need in a single chain.”
Technology and data innovation
CFOs are seeking to take the lead in driving business model transformation and embracing innovative new technologies, but their success will depend on the quality of the information available to them. For many, that is a big problem.
Improving that information means both seeking out more (and better quality) data and enhancing the ability to secure insight from that data. Simple solutions can work well, says Nokia IT’s Rajiv Subramanian. “We’ve pulled together data to create a very simple view and a rudimentary Excel tool,” he explains. “It works beautifully, because people can spend just five minutes going through it and they know what questions to ask.”
Some sectors face significant challenges. For example, while nearly all technology companies (97%) say they rely on enterprise data in their decision-making at least on an ad hoc basis—which is on par with the agile leaders in this research—only 77% of CPG and insurance CFOs say the same, and this falls to 75% for retailers. On broader-based data sets, even bigger gaps start to appear. Nearly one in four insurance industry CFOs (23%), for instance, rarely use ecosystem data that brings in external sources of information to inform decisions.
Part of the challenge is to clean up the data, which is one reason why CFOs need to play a more significant role in the technology choices made by their organizations—both in establishing an architecture that delivers higher-quality data, and in acquiring the tools to then make better use of that data. “This will enable quicker decision-making,” says BT’s Sandip Thakrar. “You have a thought, you want to make a decision, so you run the analytics to determine the answer.”
CFOs in some sectors feel ill-equipped to take this role. While 89% of technology CFOs are confident that they have a good ability to forecast investment requirements for new technologies over the next three to seven years, just 33% of CPG CFOs say the same, falling to 32% amongst insurers. Even in sectors where confidence is higher, there is doubt about the long-term: only 54% of retail CFOs and 47% of financial services CFOs feel capable of looking more than seven years out, against 86% in the technology sector.
Question: How confident are you in your ability to forecast investment requirements for new technologies across the enterprise, for the following timeframes?
Closing these gaps through greater collaboration between the finance and technology functions is vital: without that partnership, the finance function will struggle to become more agile.
Right now, most CFOs say that their chief technology officers (CTOs) or chief information officers (CIOs) take the lead in identifying the technologies the organization will need in three years’ time. Even in the technology sector, where CFOs are stronger on forecasting future needs, 83% say this is the case. In the future, the finance function that supports technology investment decisions will be integral in creating a data-based decision-making culture—and driving enterprise-wide transformation.
"Having the technology and strategy teams under the CFO will give finance a more prominent role in the future of the company."
Conclusion: CFO as agile strategist
How will CFOs create a finance function that operates as strategic partner to the whole of the enterprise? The agile leaders in this study provide the others with a blueprint:
■ Define the ambitions of finance
In more digitally mature sectors, such as technology and financial services, the priority must be to augment skills. For other industries that have yet to establish a clear strategy, more fundamental imperatives, such as establishing a path for business model change, are now critical.
■ Operate as an enabler of cultural transformation
Slower-moving sectors should follow the lead of tech and retail, which are incentivizing the enterprise to embrace digitalization and finding new ways to measure success.
■ Underpin agility with a richer view of the future
CFOs have identified where enhanced forecasting abilities will drive most value, focused on their shortfalls in this regard, and identified the new tools and technologies they need to catch up.
■ Improve data-driven decision-making
The technology sector’s use of data in decision-making now provides a gold standard to which other industries must aspire.