Economic uncertainty, tighter regulations and greater investor scrutiny have put the CFOs in the spotlight today. The historical ‘bean counter’ accounting function, CFOs previously had, is history. They are now becoming bean growers, playing a critical role in giving organizations a direction, while also acting as catalysts instilling a financial mindset throughout the business units.
Here are the important roles that the CFOs are playing in the business world:
In the popular management book – Good to Great, author Jim Collins underscores the need to understand the brutal facts confronting an organization if it is to be successful. CFO with his or her numerical prowess brings in hard data and empirical mindset to the table. Analysis of statistics relating to market trends, competitive position and supplier’s finances amongst others facilitates strategic planning.
While CFOs are already financial leaders, the modern ones are expanding their role by lending their support in forecasting trends and by building strategic capabilities.
Companies are today exposed to a complex array of risks and uncertainties than ever before. Emerging technologies such as Blockchain, the Internet of Things, Artificial Intelligence and then cybersecurity threats and data privacy concerns to grapple with on the technology front.
Often, businesses have more data than they perceive. For instance, if it needs to evaluate the risk of hiring a supplier, specialized data sources do allow checking its credit quality and financial situation which in turn facilitate their onboarding. Similarly, due diligence helps evaluate the creditworthiness of customers. CFOs with their financial prowess are best placed to analyze all such critical data (internal as well as external) and turn it into insights for risk mitigation and monitoring.
Financial strategy and control
CFOs also play a vital role in establishing a clear financial baseline for business transformations to happen. At the simpler level, last year’s financials become the baseline for making forecasts and allocating budgets. But business is much more complicated and therefore the need to adjust data with necessary one-time events or market aberrations. For instance, forecasting a sales target without reflecting on the decline in market prices and demand as compared to a year before could result in unrealistically set transformation targets.
Organizational initiatives like reducing costs also need a balance between control and empowerment. Too much of financial control, for instance, by drastically reducing the threshold for purchase approval, could hurt productivity and employee morale. CFO plays a vital part here by resorting to fine balancing.
In the traditional business setting, the CEO champions organizational transformation while the COO assumes operational control and individual business heads take the lead for their own performance. CFO in turn is left on the sidelines providing auditing and transactional support.
The new-age CFO today however becomes an important line of defense in a high-pressure transformation environment. For instance, overemphasis on accounting quarterly profits in a high-pressure work environment could result in a negative effect on cash flow. CFO being numerically savvy can raise the flag, while also highlighting if incremental profit has come on the back of a drop in credit quality. By comparing the creditworthiness of customers as well as that of its competitors, one gets an insight into it, which in turn could avoid probable NPA and losses in the long run.
Similarly, by setting formal budget commitments, CFOs can facilitate organizational transformation and ensure turnaround initiatives actually get to the bottom line.
Modern CFOs go beyond the usual financial responsibilities by playing a larger role in organizational transformation. By bringing hard data and empirical mindset to the table, they are assisting strategic planning.
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