Driven by data – the strategic CFO

Constance Minc

Guest post by Constance Minc                                                            

CFOs increasingly recognise they must play a major role in shaping the strategic direction of the organisation they work for.

The evidence comes from everyday experience and research such as the 2020 EY DNA of the CFO worldwide survey which found that more than eight-in-ten of the 800 polled envisaged major involvement in strategy development and execution over the next three years.

Yet to elevate their role in this way, ambitious CFOs need far more strings to their bows than expertise in cost management or financial reporting. Alongside traditional accountancy skills in support of the CEO, CFOs need the ability to extract insight from data and present it in a meaningful way for consumption across the business.

In the modern business world, being able to put telling data insights into the hands of operational decision-makers is what drives business success.

It is time to move on from presenting spreadsheet data that often leaves colleagues with little understanding of what the figures mean. Businesses can no longer afford to continue working like this if they want to remain competitive.

The finance function has to interpret data more meaningfully for its full range of demanding stakeholders across all its diverse responsibilities, including shareholders and debt holders. From capital structure and financing to management of mergers and acquisitions, the finance department needs to be on top of the data, mining out those nuggets of insight that make decisions clearer and help deliver on core objectives.

Businesses have become more agile out of necessity as the pandemic reminded everyone in finance that cash flow is critically important

Strategic business requirements in a data-driven world pretty much demand that CFOs become data translators, converting technical numbers into carefully selected, completely business-centred KPIs, shared between leadership teams.

Finance leaders should be spending 90 per cent of their time translating the data to guide the board’s business decisions.

The central role of data analytics and rapid time-to-insight

To deliver critical metrics, CFOs need access to timely data and the ability to frame their insights and present them in a consistent and meaningful manner, supplying guidance about where the business is today and where it needs to head in the future.

Rapid time-to-insight is essential to see how the organisation is performing: primarily through data analytics. CFOs should employ this technology to provide intelligence that gives business leaders the confidence to shape and drive go-to-market strategies.

This then needs to filter down into day-to-day business activities to optimise profitability and deliver a competitive edge. This is how the CFO applies their expertise and understanding to protect the bottom line.

But they must also have the agility to react quickly to change. This has been especially vital during the pandemic, through which many businesses have lost confidence in their ability to achieve sustained profitability or predict revenue growth.

When I joined the business pre-pandemic, we could state at the beginning of the quarter, with a 90 per cent level of probability, exactly where we would land at the end of it. The macro-economic conditions of the past year and a half have eliminated that level of confidence.

Businesses have become more agile out of necessity as the pandemic reminded everyone in finance that cash flow is critically important. While the business may need a different approach in changed conditions, it must still find a way of sustaining profitability and liquidity.

I took the opportunity to spend a year in the role of head of business operations when I first joined the company

In this context, the ability to understand KPIs and use data analytics to track and predict performance against them is again a vital capability for strategic CFOs and the businesses they serve, as they seek to navigate uncertainty.

They must also be dynamically connected to every board member and have visibility of the business holistically. That real-time insight will help them migrate from just looking in the rear-view mirror at what’s already behind the business to accelerating forward, guiding and directing a business’s future performance.   

However, although data insight and KPIs are keystones of strategic success, they are not sufficient on their own. Without fully understanding the business, how it works and its key drivers, the CFO has few chances of becoming more than a finance expert.

Speaking from personal experience, taking on the role of the strategic CFO is hard work and can be messy and difficult but also rewarding and fulfilling at the same time. Mentors can have a key role to play in setting expectations of what is ahead – but having a broad background in business as well as finance is essential.

That’s why experience in operational leadership roles can be just as important as accountancy experience. It helps finance directors and CFOs understand more clearly how the business works and what drives its growth.

In my case, I took the opportunity to spend a year in the role of head of business operations when I first joined the company. The experience was invaluable in giving me the insight and understanding I needed to help drive the business forward.  

Forging ahead with the strategic finance department

Looking further ahead, it has become clear that the only way to achieve consistent growth is to have a strategic finance department, led by a strategic CFO. Growth brings its own challenges in finance, often around how the business scales without adding too high a headcount into the finance team. No business wants to end up with a finance function that has tripled in size.

Again, this is an area where technology can play a central role in doing the heavy lifting, relieving hard-pressed teams of many tasks. Single platform enterprise-wide systems, available on the market today enable businesses to maintain an agile and lean finance function while supplying the right level of detailed, strategic insight into the data that finance teams need to act quickly so they can switch their approach in line with rapidly evolving market conditions.  

Although technology has become utterly essential to fulfilling strategic aims, it is an enabler and not the complete answer to these challenges.

It can provide the critical insights that support dynamic business growth but it needs the finance lead to work closely with the business, making the decisions that deliver operational agility and lead to long-term revenue growth.

CFOs have a substantial array of skills that technology must augment so they can move from a role in support of the CEO and quickly evolve into an indispensable source of insight and strategic guidance. It is this guidance and expertise that stimulates higher performance and better decision-making across the business. This is why the time for the strategic CFO is now.

Constance Minc is Chief Financial Officer of IFS