How CFOs can drive business transformation

Feb 10, 2020
Jens Gladikowski explains why finance leaders need to lead more than the finance function.

In today’s business environment, the role of finance leaders is more demanding than ever. They are required to run their function at low cost, create incisive insights from a complex pool of data, support risk and control governance, and manage a variety of stakeholders. They also play an increasingly critical role in business transformations – initiatives that aim to change the competitive position of an entire enterprise.
By addressing five critical tasks, finance leaders can play an essential part in helping such transformations succeed.

1. Identifying value

Perhaps surprisingly, a significant number of transformations do not have a comprehensive case for change that lays out their scope, rationale and benefits. For example, business cases often centre on cost-cutting to improve profit. A more thorough analysis might suggest re-directing savings into strategic areas of investment, which may yield higher returns in years to come.

Finance leaders are well-placed to identify and balance competing options for the transformation scope and help set targets. That requires a holistic view of the organisation and an understanding of how value is generated and measured. In the case of one Irish consumer goods company, the CFO led an initiative that comprehensively aligned the organisation’s value drivers with corporate targets. Key performance indicators (KPIs) and performance measures (such as outbound delivery accuracy, for example) were then linked to those drivers. The impact of the company’s transformation can be associated with those KPIs, benefits owners assigned, and success measured.

2. Shaping the organisation of the future

The future operating model is formed during a transformation. Here, finance leaders can influence critical decisions in several ways. For example:
  • The overall business model may change with new products, services and markets introduced. Through financial modelling, scenario analysis and risk-based assessments, finance leaders can influence these decisions and help business leaders make the right choices.
  • Operating models define responsibilities and the relationships between organisational units. Finance leaders bring a pan-organisational view and can ‘broker’ the best outcomes from an enterprise-wide perspective. Recently, a global fast-moving consumer goods (FMCG) company assessed the relationship between its manufacturing and sales units. This required an evaluation of the impact of profit margin on transfer pricing and external reporting – the consequences of which were not fully understood outside finance.
  • Technology enablement is at the core of many, if not all, business transformations. Finance leaders often have responsibility for IT budgets and, in conjunction with chief information officers (CIOs), need to shape the technology roadmap. This is best done up-front by assessing current, and agreeing future, capabilities.

3. Keeping stakeholders honest 

It can be challenging for executives to establish the exact status of in-flight transformations. Here, finance leaders can use their analytical skills and professional scepticism to provide clarity and challenge. For example, cost-benefit projections should be adjusted as new information becomes available.

Frequently, only the cost impact is assessed – and often with delays – and the effect on benefits is not always easy to evaluate. In the case of a large automation programme for an insurance company, benefits were still discovered post-go-live. The processes were deemed too complex to gain the full picture earlier, but a more rigorous financial analysis might have addressed that.

There can also be a tendency among benefits owners to be conservative in their commitment to transformation targets. This may be down to a lack of buy-in or to avoid falling short of expectations, especially where they are linked to incentives. Here, finance has a role to play as a critical partner to drive ambitious, yet achievable, benefits targets.

4. Coaxing, connecting and communicating

Significant research has been conducted into the future of finance. There is consensus that, generally, roles are changing from traditional scorekeepers to pro-active business advisors and (co-) owners of business decisions.

Finance leaders in many organisations are already defining their purpose as influencers, business navigators and drivers of change. They often stay longer in the role and understand their organisations more deeply than other executives. The average tenure of a CFO in a FTSE 100 company is around ten years – twice that of a typical CEO.

Finance leaders, with their informed view of the business, can connect different interest groups, communicate key messages and guide an organisation towards expected outcomes.

5. Leading by example

A critical factor in successful transformations is aligned and robust leadership. This creates an opportunity for finance leaders to make a positive example of their function, for instance, by:

  • Articulating a vision for finance that is aligned to the transformation objectives. Importantly, leaders must promote and live up to the values associated with that vision. Finance can influence wider cultural and organisational changes. At a national broadcaster, finance pioneered structures and performance measures that were replicated across other functions.
  • Creating early success is essential in any project and realising quick wins is often possible in finance. One could, for example, review how reports produced by finance are used and eliminate those that don’t support decision-making. 
  • Freeing up the best resources for the transformation. In practice, this is often a challenge – not many finance teams can release their ‘go-to’ people. Yet having precisely these people on projects is arguably the most critical driver of success.
Finance leaders have an essential role to play in business transformations. Aside from bringing financial understanding and business insights, their primary purpose is to support and lead on the structural, cultural and behavioural changes that are critical to successful business transformations. To do them well, finance leaders must, therefore, lead on a lot more than finance.

Technology: Easier than ever?

A key challenge in a transformation is selecting the right enabling technologies and implementing them successfully. The technology landscape has changed dramatically during recent years: many businesses deploy cloud applications, automation tools are increasingly used, next-generation enterprise resource planning solutions have entered the market, and more end-user reporting tools are available. These developments can enable more insight from data, drive process standardisation and provide greater focus on business value, rather than IT. Yet in practice, many challenges remain and the promises of more value, more quickly, do not always materialise. Why?

Most of the success factors of technology deployment are similar to what they were a decade ago. Enabling technology will not be successful if requirements are not precise and aligned with the transformation objectives, if the underlying data are of poor quality, and if change management is not addressed adequately. Typical examples for the first point are implementations where reporting requirements are simply a re-statement of the ‘as-is’, and consequently, opportunities are missed to create greater insight. Other challenges have emerged for newer technologies. Below are a few lessons from process automation: 

  • The deployment of automation tools should not happen at the expense of process improvements (i.e. don’t automate a bad process);
  • Implementation is relatively easy, and business-led innovation can be managed differently to traditional technology; and
  • Software robots often need user rights to access transactions. Controls must, therefore, be adjusted.
Technology choices can be bewildering, and their implications are a challenge for many finance leaders who are expected to understand the options and help govern and deliver transformations. Technology today is neither harder nor easier than it was – but it is different. Finance leaders need to work closely with their IT function and vendors to identify the value of technology and steer the organisation successfully through transformations.
Jens Gladikowski is a Director at PwC Consulting.