The role of the chief financial officer (CFO) is undergoing a significant transformation. These changes have largely been driven by the increasing complexity of business, the need for companies to be more agile and responsive, and the recognition that financial metrics alone are not enough to drive long-term business success. In this article, we'll explore four key skills that CFOs need to develop in order to meet the demands of their changing role.
The evolution of the CFO role
Traditionally, the role of the CFO was primarily focused on financial reporting, accounting, and cash flow management. However, since the early 2000's and especially after the financial crisis, finance leaders have had to wear the strategic business partner hat. Many CFOs worked directly with CEOs and across departments to refocus their companies and contribute to financial and operational successes—proving themselves to be trusted advisors with strong business acumen.
That trend has continued today, CFOs are expected to drive value and take on a more strategic and forward-thinking role. With the increase in digital technologies, disruptions caused by the COVID-19 pandemic, geopolitical and economic uncertainties, CFOs are being relied upon to step up in a crisis to drive strategic agendas and lead sustainable transformations. Additionally, as organizations are increasingly expected to report on non-financial and value-centric aspects of their operations, they call upon CFOs to fill this role and provide a more holistic view of the organization's financial health. This has required CFOs to add value acumen and other key skills their toolbox.
Four skills CFOs need to become more value-centric:
What is value acumen and why is it an important skillset? At the core of a modern CFO's skillset lies value acumen: the ability to identify and prioritize resources and capital that are key to driving performance and value.
How do we define value? The Chief Value Officer: The important evolution of the CFO, a BDO global report prepared in consultation with nearly 100 finance leaders from across the world, concluded that there is no uniform definition of “value” as it’s highly contextual for each organization, its industry, size, and location.
Instead of a uniform definition, the report highlights some fundamentals that can be included in a model of value:
- The enablers – The facets of the organization that represent the assets used to create value, including financial, intellectual, human, social, and relationship factors.
- The converters – The process of converting enablers into value through performance management and measurement systems, including operations and processes, data, and technology.
- The recipients – Value is received by stakeholders such as investors, customers, employees, communities, and regulators. Value is cyclical so there is a process of return of value from recipients to the enablers.
To evolve as a value-centric CFO, it is crucial to track various perspectives of value and performance, extending beyond the traditional accounting viewpoint captured in the balance sheet. This includes understanding business value from society's and investors' perspectives. For the modern CFO, helping their organization achieve strategic goals that embrace economic, environmental, and social equity is a fundamental part of their evolving role.
To enhance their value acumen skillset, CFOs should venture beyond the conventional finance career path. This involves seeking mentorship, actively networking, embracing continuous learning, and gaining diverse workplace experiences. These elements are essential for performance-driven CFOs dedicated to unlocking value and driving sustained success in today's challenging business landscape.
In the modern finance landscape, data analysis has become an essential skill for CFOs. The ability to extract meaningful insights from complex financial and non-financial data is crucial for informed decision-making and driving value. CFOs must develop proficiency in using advanced analytical tools and techniques to unlock valuable insights hidden within the vast amounts of data and financial information at their disposal. By effectively analyzing and understanding this data, CFOs can identify trends, patterns, and opportunities that would otherwise go unnoticed. This ability enables them to make more accurate forecasts, optimize resource allocation, and drive strategic initiatives that create value in an increasingly data-driven landscape.
Additionally, the BDO Global report highlights that CFOs are taking on the crucial task of managing data across the organization to ensure its integrity, particularly for non-financial data used in external reporting. Finance leaders are reporting that this responsibility has been shouldered by their teams due to their expertise in controlling and maintaining data integrity.
The rise of digitalization has transformed the finance function, and CFOs play a pivotal role in driving this transformation. The ability to adapt to new technologies and leverage them for the organization's benefit is crucial for a value-centric CFO. By embracing emerging technologies such as cloud computing, artificial intelligence, and robotics, CFOs can automate repetitive tasks, streamline financial processes, and drive operational efficiencies. This not only frees up valuable time for CFOs to focus on more strategic initiatives but also enables them to create value for the organization.
As CFOs become more involved in digital transformation across the organization, it is crucial that they have a clear understanding of the current and changing technological landscape. Because this landscape is evolving rapidly, it's important to regularly reassess the digital strategy. By doing so, CFOs can identify and seize potential opportunities and solutions without falling behind.
Effective communication and collaboration skills are essential for today’s CFOs. To shape value conversations, CFOs must establish collaborative and trust-based relationships with the board, the CEO, and management across the organization. This includes building their own credibility and integrity, as they are increasingly in the spotlight for creating and driving value.
Evolving the corporate mindset from short-term shareholder value to longer-term stakeholder value requires CFOs to effectively communicate how their organization creates and protects value now and in the future. CFOs need to be able to communicate complex financial information clearly and concisely to diverse stakeholders including executives, board members, investors, and employees. CFOs can help drive understanding and alignment around the organization's financial goals by telling the story behind the numbers in a way that stakeholders can easily comprehend, focusing on what matters most to them. Crafting the right story has the power to drive the right behaviors and ultimately deliver the desired results.
Modern CFOs have a unique opportunity to shape the future of their organizations by embracing a value-centric approach. As finance teams are increasingly asked to take on a broader role, CFOs must adapt and become more forward-looking, incorporating operational performance measures and delivering decision support. This shift reflects the growing accountability of organizations beyond profit generation. Failure to seize this opportunity could marginalize both the function and the individual CFO. However, by developing key skills such as data analysis, digital transformation, communication, collaboration, and value acumen, today's CFOs can lead their organizations to new heights. BDO is here to support CFOs in becoming more agile and guiding their teams in today's volatile business environment. Reach out to us to discover how our Services for CFOs can help you drive enduring business success.