Expert view on the changing role of the finance function in the digital era

Traditionally, the finance sector in any organization was programmed to optimize available, limited financial resources. This limits the scope of the finance department to obtain funds to reach organizational goals. 

With time events such as liquidation, mergers, acquisitions, and consolidation have become a crucial component of the finance function. This is the episodic role of finance. 

Followed by the stock market crash and the Great Depression, the field was prime for compliance, cost, and control. Industrialization, technological advancements, intense competition, and government interference have led to a sharpened focus on the maximized use of financial resources. This has moved the role of finance from episodic to a managerial position, igniting finance’s perspective as a function.

Role of Finance Today

Modern finance leverages technology such as AI, big data, and the cloud across primary accounting and finance processes, enhancing performance. This has resulted in finance occupying a broader range of responsibilities such as 

• Profitability planning
• Determining the asset mix
• Risk analysis
• Optimizing capital structure
• Financing
• Investment and dividend decisions
• Direction of business growth.

This has led to evolution across finance as a function from simply crunching numbers to analyzing, structuring, optimizing, and enabling. With dashboards, end-to-end visibility, and streamlined processing, finance is now technology-driven, automating traditional book-keeping tasks with accurate forecasting.

The above changes significantly impact redefining finance leaders’ role as a strategic partner to the CEO. Tasked with making informed decisions based on data, they align work in alignment with other departments to drive growth and mitigate potential risks. This includes cybersecurity, governmental compliance, and data governance. 

Reimagining Finance for a digital world

Agility

Within the digital landscape, finance needs to understand the business’s nuance to design the optimal pricing and business models considering risk management. An agile framework would enable end-to-end visibility over business spends and customer activities on social platforms.

This would further lead to new opportunities for existing customers. Customers today expect personalization at every level, which requires understanding the target demographic to ensure customer retention.

With a high degree of customer retention comes the need to ensure risk management to secure the topline and bottom line. Operating from within an agile framework is quickly becoming an indispensable finance role. 

Predictive Analysis

Finance today needs to work by bringing together enterprise and finance data in concert with unstructured data. The latter is generated from call centers, social campaigns, websites with the potential to provide actionable insights to drive strategy.

AI and Big Data form the basis of predictive analysis. While automating is necessary at this stage of the industrial revolution, it is also imperative to audit the technologies to ensure organizational goals are reached. The system is consistently optimized.

With cybersecurity and data governance playing a pivotal role in compliance, excellent data governance and ownership need to be established and enforced. Combative measures and strategies for cybersecurity to prevent cyber-attacks are essential. All of this would fall under the role of Chief Data Officer that would emerge as part of the CFO organization.

Innovation

FinTech is leading the innovation game, with start-ups gradually becoming disruptors. Partnering with a revenue-sharing arrangement that works for both parties is necessary to stay relevant. UI/UX, employee productivity, and vendor efficiencies can now be tracked and streamlined through conversational interfaces like chatbots.

Customizing ERP to provide insights to employees would be highly useful. Innovation should be fostered within the organization to encourage growth. Innovation will allow employees and customers to be consistently engaged with product improvements. By and large, this is evolving to be a pivotal role of finance capable of influencing business and strategy.

The Role of the CFO

Over the last several years, the CFO’s role has grown in ways that are here to stay. In today’s landscape, when the organization’s financial health determines growth and evolution, stakeholders expect the CFO to be involved in critical company decisions.

• Strategy

• Creating a structural framework that enables optimized resource allocation to deliver long-term value.
• Ensuring at every stage that the financial plans are fully aligned with the future expansion with well-planned, far-reaching strategies

• Performance management

We are moving past antiquated, legacy financial metrics to focusing on key performance indicators based on the current strategy and keeping organizational goals in mind.

• Collaboration

• Working in concert with other departments to build and nurture healthy relationships to understand operational challenges faced on various fronts
• Encourage the department leaders to seek out the CFO’s advice on building value and tuning in to organizational goals.

The Final Word

The CFO’s role was initially one that was never apparent but used to track performance and growth. Today, the CFO needs to take on a more active part within the current paradigms, shape the business model, and ensure the organization scales-up. 

Strategy and driving growth in new markets are becoming increasingly significant components of the role. However, with a focus on compliance, high pressure from regulators and stakeholders, risk management has risen to the top of the CFOs agenda. 

The CFO of today needs to be outward-facing, capable of handling stakeholders, collaborating with investors, and, if it comes down to it, manage external communications to the press and customers.