Information Technology

Defining the digital CFO

By Alice Allegrini, prevero UK
Information Technology
Published: 10 January 2018

From CPM systems to business intelligence, information technology is reshaping the role of the chief financial officer. But what makes a CFO truly ‘digital’?

The rapid evolution of information technology has been transforming what senior financial executives do for more than a decade, re-shaping their working lives while fuelling demands for the office of finance to add more value.

In an increasingly digital world, IT has become so deeply integrated with the finance function, one could argue that they are no longer separate items. Finance is IT, and vice versa.

But how well adapted are today’s CFOs and FDs for the new digital reality? It’s a question worth asking. If integrated poorly, technology wastes budget and effort, obscures visibility of business risks, and makes the company less nimble than competitors. When integrated properly, IT connects finance with other corporate functions, improves transparency and collaboration, and provides insights that inform strategic decisions.

What makes a CFO digital?
The digital CFO needs to stay curious and continually keep abreast of the latest advances in finance and related technologies like business intelligence and artificial intelligence.

With IT strategy now a core component of growth, any successful office of finance is going to find itself measured on how well it applies technologies like automation, predictive analytics, and data visualisation. The expectation that finance teams should identify emerging business opportunities, drive cost efficiencies, and raise the red flag when a business risk rears its head is only going to rise.

Using predictive analytics, for example, an insurance website’s finance team can forecast online sales results by modelling probable outcomes with real-time information, rather than relying on historical data. That means more accurate revenue predictions based on today’s changing variables and indicators of current demand, instead of previous results or prior-year trends.

Digital means data-driven
Becoming a Digital CFO also means becoming a data scientist. Finance teams already have shedloads of data at their fingertips. Now they must apply their skills of due diligence to selecting amongst the growing tools and techniques for collecting, storing, and analysing it.

The challenge is to transform business data into actionable insights that can help shape their organisation’s response to emerging business models, and a more digitally oriented economy. A truly digital CFO will also assume the leadership role in mapping the issues that executives want technologies like big data and analytics to address. They then have to decide how to gather and warehouse the data in a manner that allows it to be used across multiple applications, and shared across the organisation as a single source of truth.

The benefits of going digital
Many CFOs are employing ERP and CPM technology to automate core business processes like the monthly close. These and other powerful digital tools can reduce close times and improve finance’s ability to capture contextual information that affect results.
Other benefits of going digital include:

  • Deeper insights. Digital tools such as predictive analytics, dashboards and AI can surface information about how the business can improve results or lower costs. Given the rising demand for CFOs to become proactive advisors to the business, this is arguably the area where going digital will have the greatest impact.
  • Improved planning, budgeting and forecasting. In a shifting business and geopolitical environment, plans and forecasts can be obsolete as soon as they’re approved. Digital tools can provide the flexibility and responsiveness needed to revise and make course corrections as soon as new information arises.
  • Error-free data entry. Machines are less error-prone than humans and they don’t need sleep. Automation and machine learning can reduce error rates associated with rules-based tasks, and reduce the amount of manual work required.
  • Data-driven decision making. With access to real-time data, finance teams can analyse patterns and respond more quickly to changes in the marketplace. Predictive analytics and machine learning can reveal new or unexpected drivers affecting business performance.

Driving a new finance skills agenda
Another area defining the digital CFO is his or her ability to help actualise company strategy based on data-driven insights. Boards are already calling on CFOs and FDs to get beyond the role of chief bean counter and add value as a strategic adviser, helping to grow the organization. As that expectation intensifies, CFOs will need to demonstrate substantive technological nous as they invest in and utilise digital tools.

From a career development standpoint, that means recruiting and professional development priorities that aim for more than accounting and finance qualifications and experience. Familiarity with the latest software tools like corporate performance management and business intelligence, and an understanding of how data can underpin business decisions, must become job requirements rather than nice-to-have’s.
As business becomes more digital, CFOs can expect their role to do the same. Understanding how IT can be applied to make their organisations more efficient and responsive to market changes is becoming essential.

The tipping point for mass adoption of digital finance tools and data-driven decision making has arrived. It’s time for today’s finance leaders to take a hard look at their digital capabilities and start charting the digital course for their careers.

Alice Allegrini is UK Managing Director of prevero