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UK CFOs, Finance Making Progress into More Strategic Roles, Research Finds

Posted by Thomas Sutter, Global Solutions Centre of Excellence

The oft-repeated phrase “CFO’s must become more strategic” that has permeated finance stories for what seems like decades may now be becoming a reality.

And it’s not just the position of the CFO itself. Throughout the finance department, people are taking a more strategic role in the business.

One clear signal of the shift is the reporting hierarchy in today’s businesses. According to McKinsey, on average, five functions other than finance now report to the CFO. These include risk, regulatory compliance and M&A functions, as well as IT and digitalisation. And almost four in ten CFOs said they spent the majority of their time over the past year on strategic leadership, organisational transformation and performance management.

It’s not just regulatory pressures forcing CFOs into taking a strategic role either. Technologies such as automation, AI, and cloud-based planning and reporting tools are giving the finance team the opportunity to take on decision-making. Real-time reporting and easier, faster financial close, two historically manual and cumbersome processes are now becoming increasingly automated. And, these tools, that once may have been under the purview of IT, are being controlled and managed by the finance department, leading to a more strategic leadership role.

Of course, accountants have been working with business units to provide support and analysis to improve operational and management performance for decades. But now the business case for finance to assume even more of a commercial and strategic role is being backed by research. According to a PwC study, organisations that spend considerably more time on business partnering (23 percent) outperform their counterparts. And that applies across all industries, maturity level and size of organisation.

The study also found a link between the best performing financial teams and those open to new and changing technological developments, such as the use of smart data analysis tools.

Bringing insight and analysis from the CFO and finance team is particularly critical for startups and high-growth organisations, where a clear understanding of the financial implications of strategic and operational decisions is vital to the success and continued expansion of the company. With a clear understanding of finances and the potential impact of decisions, finance can often act as a ‘level head’ in what is often a highly dynamic and stressful environment.

For example, with traditional finance tasks such as planning, budgeting and forecasting, real-time data and cloud-based reporting tools can help organisations stay agile and embrace a continuous forecasting model that can react to volatile and fast-changing market conditions. In fact, a KPMG and ACCA survey found that more than three-quarters (77 percent) of executives believe the planning, budgeting and forecasting process must be a partnership-based approach driven jointly by the business and finance and that takes into account enterprise-wide risks. Indeed, budgeting was once a tick-box enterprise, often done just once a year. As it’s become more strategic and ongoing, other departments are forced to work more closely with finance, leading to other opportunities for the finance department to provide strategic value. And, as the cloud has given even small companies access to sophisticated planning and budgeting tools, more companies are seeing the value.

It’s an approach BUPA UK, a health insurance provider is taking.

“I believe finance is a commercial function as well as transactional. Finance has the key to good data and information and as such has a responsibility to provide insight, direction and options,” General Manager Wayne Close said in an interview with Financial Director. “A strong, commercially-led finance team is an incredible asset to a business and its CEO. Some of the important characteristics we seek are a high quality of data and the ability of the team to analyse that data to gain powerful insights.”

This evolution to become a true business partner also has implications for the future skills of the CFO and the finance department. As traditional accounting tasks are automated, the CFO and finance department will need to leverage new skills. There will be greater emphasis on data analysis and performance management, and it will be crucial for the finance team to develop strong communication and commercial skills.

The ICAEW says that as business partners with finance, organisations need to guard against the possibility that finance will get too close to the business and lose its objectivity. Finance needs to be actively involved in developing systems and processes across the organisation.

Fortunately, finance is uniquely positioned to challenge the business, former Alstom CFO Nicolas Tissot argued at a McKinsey CFO Forum event in London:

“They are independent from operations and they are the only ones, apart from the CEO, who have a comprehensive vision of the company. The role of a CFO who goes beyond being a bean counter is clearly not only to be a business partner but also to be a business challenger. This is not the easiest part of the job, but it is definitely a part of the modern CFO role.”

As technology automates many of the time-consuming processes in the finance department like verifying data, the finance team can provide deeper advisory services throughout the rest of the business.

Yet, for these relationships to function properly, there needs to be a strong foundation of reliable, timely and appropriate data. In the past, legacy systems with complex integrations and the need to reconcile data in spreadsheets have held these initiatives back. Modern, cloud-based finance and ERP systems now provide the proper foundation.

For more on business partnering, download the paper A Finance Director’s Guide to Business Partnering in Growing Organisations.