The Digital Revolution and the CFO

bdailyOnly a few years ago, had anyone thought to ask which of the corporate functions would be the least likely to go digital, the response would most likely have been finance. It was not uncommon to find CFOs mulling over the size of the technology bill. In their eyes technology was something akin to real estate or office furniture; something the organisation needed, a tactical resource, certainly not strategic.

Yet in a short space of time CFOs were having to come to terms with a host of new challenges and opportunities the digital era was throwing up. From raising e-capital to evaluating e-security and knowledge assets, they also had to take e-procurement and etaxation in their stride.

No position in the C-Suite is ever static, but it is the role of the CFO that has changed more succinctly and more rapidly than any other. Today, organisations – both in the public and private sector – are increasingly realising that in order to embrace the digital world they need to lead with finance. Quite a turn around, and one which is still on-going. In fact, it would be true to say that as ‘digital’ permeates just about every activity engaged in by an organisation, the conventional mores of corporate finance are being overturned.

Across a broad range of industries, CFOs now require an in-depth understanding of technology, in addition to sound digital knowledge, in order to integrate new business strategies aimed at capitalising on potential market opportunities. Formal training and experience in accounting, financial reporting and risk-management are still important, but there is a growing emphasis on candidates with a much wider field of expertise.

Particularly with emerging social media and digital technology companies, CEOs and boards are looking to recruit highly versatile finance directors. The speed at which markets are changing, combined with ever-increasing global uncertainty, has resulted in Chief Financial Officers playing an increasingly more important role in the executive decision-making process. Their CEOs expect them to fully analyse the financial impact of the company’s objectives and strategies while they’re still in the planning stages, not after the moves have been made.

Yet, accurately evaluating the Return on Investment (ROI) of social media, for example, becomes very challenging since multiple data points are thrown up; metrics such as retweets, likes, follows, comments, shares, website visits, and others. Increasingly, CFOs need to look beyond financial metrics when evaluating digital capabilities. More than ever their focus needs to be on a strong business case rather than ROI alone. This changing financial landscape is opening up avenues for visionary CFOs, and whilst much has been written about the changing role of the CFO, the exact nature of that change and how it relates specifically to the impact of digital is where we start seeing a new breed of CFO emerging.

This new generation of CFO acknowledges that many benefits delivered by digital are not easily measured in terms of “pounds and pence”. Avoiding traditional ROI-based performance and adopting a broader view of business opportunities means viewing digital investments as part of long-term corporate growth strategy rather than pure digital contributions in the short term.

Timely and accurate financial data are always a priority, but over-emphasis on financial issues can lead to an unbalanced position with regard to other corporate perspectives.

The Balanced Scorecard (BSC), a strategy performance management tool developed by Kaplan and Norton in the early 1990s, is an approach that smart CFOs are using to avoid narrow ROI-based performance. It takes into account four aspects: Financial, Customer, Business Processes, and Learning & Growth. The BSC is a framework that presents a mixture of financial and non-financial measures that CFOs can compare with a predefined value. By providing a comprehensive set of indicators that are tied to performance requirements, CFOs can align all business activities with the organisation’s objectives.

Good communication across all sectors of the organisation is essential if CFOs are to achieve the business value digital can bring to their company. Everyone from sales and marketing, HR, R&D, production and logistics will be able to provide valuable input into the digital discussion. The financial perspective should include ROI and ROO (return on objectives) on the digital investment, percentage increase in sales, reduced cost of attrition and recruitment, increased margin on innovation, and more. The numbers are determined by the organisational strategy and the metrics which the organisation chooses to report on.

Fully capitalising on the digital era will be a defining point for most organisations as global markets recover from the current economic difficulties. CFOs who have the ability to take a lateral view of digital investments will be best placed to lead their companies in achieving sustained growth and profitability.

Written by David Chancellor, who leads Tyzack Partners’ Financial Officer practice which crosses all industry sectors and focuses on all aspects of Finance including Audit, Tax and Treasury as well as Chief Financial Officers and Divisional Finance Directors.

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