How CFOs can support the transformation to a digital business model

New research into the evolving relationship between the CFO and the CEO reveals that the partnership is becoming increasingly collaborative and CFOs are playing a more prominent role in strategy. However, many CFOs have yet to realise the significance of the shift to a digital business model for their organisation, or the role that they can play in supporting that transformation.

An EY study gathered the views of more than 650 CFOs around the world, with 64% reporting that the degree of collaboration with their CEO had increased over the last three years.

The most common drivers of this collaboration were new growth opportunities, cited by 34% of respondents, changes in strategy (33%), and new products and services (27%).

In keeping with these objectives, 76% of CFOs report greater involvement in corporate strategy.  

However, at present, strategic concerns are not the top of the finance leaders’ priority list. The study found that 43% of CFOs still consider cost management to be their main focus, as well as their most valuable contribution. In contrast, more strategic tasks, such as setting the agenda for change and ensuring value realisation were identified by 21% and 20%, respectively.

What CFOs perceive to be their most valuable contribution to strategic priorities

The authors of the report suggest that CFOs could make a greater contribution to their businesses by acting as growth-focused strategists, with a view to enabling the organisation to respond more effectively to potential disruption from technological, economic, and competitive forces.

This evolution is the joint responsibility of both the CFO and the CEO. Finance leaders must develop the strategic skills and mindset necessary to fulfil that role, and build a finance function with the right balance of skills to enable the chief to step away from the detail. Likewise, chief executives must break down the organisational boundaries that CFOs feel are standing in the way of this development, as well as reconsidering the contribution they expect from their CFOs.

Strengthening the partnership between CEO and CFO

The report refers to an effective partnership between CFO and CEO as “one of the defining characteristics of a well-run, market-leading organisation.” Though the survey suggests that the relationship between CEO and CFO has become more collaborative in the last three years, there is still work to be done to strengthen the partnership, as some barriers to a more fruitful relationship remain. Organisational boundaries are the biggest obstacle, cited by 39% of those surveyed, followed by lack of demand from the CEO for insight into strategic issues from finance (33%).

The lack of effective data analytics with which to provide business insight and lack of resources on the finance team to dedicate to strategic issues each proved problematic for 30% of respondents. Further obstacles experienced by finance leaders include geographical boundaries (29%) and a lack of appropriate tools and processes (28%). Just 12% of those polled said they did not perceive any boundaries to their partnership with the chief executive.

Confronting the digital business model

A significant challenge this partnership will have to tackle together is the transformation to the digital business model. The report describes this as one of the most disruptive forces organisations are facing today, and reveals that many CFOs appear to have underestimated its significance. Just 50% of the CFOs polled consider it a high or very high priority in the next three years, and 49% believe they will make a significant or very significant contribution to the shift.

The report underlines the critical role CFOs can play in confronting this challenge and outlines steps CFOs can take to champion and embed digital in their organisation:

• Understand new digital business models and how they can be applied to the sector and organisation, and explore new ways of raising capital and financing such models.
• Leverage digital technologies within the finance function to improve data processing and reporting.
• CFOs in low-tech industries should re-evaluate the organisation’s corporate portfolio and consider acquiring start-ups or high-tech organisations to fill gaps in the organisation’s capabilities.
• Ensure that their finance team includes “digital natives”, who have a detailed understanding of the potential of such technologies.
• Use divergent sets of internal and external historic data to inform business strategy decisions, allocate capital for investments, and improve the accuracy of financial forecasts.
• Work closely with other leaders across the business to ensure that digital investments are co-ordinated to support the organisation’s strategy and do not expose the organisation to unmanaged risk.
• Monitor the changing tax, legal, and regulatory landscapes as they evolve to catch up with the digital world.
• Work with their board to develop a cyber-security strategy that is consistent with the organisation’s overall risk tolerance and protects the most valuable assets.

CFOs should also ensure they are working with the CEO in the following areas:

• Develop a business strategy that is fit for a digital world, and make the disruptive investment calls required.
• Use data analytics to anticipate digital disruption, measure performance, and respond quickly.
• Create a governance and oversight framework that puts digital technology at the heart of the business.
• Manage the tax, legal, and regulatory risks of digital, and support digital growth plans.

—Samantha White (swhite@aicpa.org) is a CGMA Magazine senior editor.