*Originally posted on CFO Magazine. You can access the article here.
Heard about the “digital CFO?” Of course you have. Hot on consultants’ lips and dripping from every whitepaper aimed at a corporate finance audience, the term “digital CFO” is supposed to foretell an era in which finance chiefs finally harness the power of promising digital tools and transform the enterprise. Armed with these tools, posit the “experts,” CFOs will become true enterprise-wide strategists and leaders of innovation, utilizing technology to both scan the bigger picture and quickly respond to real-time business changes.
Would that it were as easy as vendors and consultants claim. The truth is the digital transformation of both the finance function and the enterprise occurs in fits and starts, hampered by the obstacles to implementing new, imperfect systems and by the people doing the implementing. That notion might be disappointing to the salespeople and marketers hawking the latest must-have software, but to most CFOs it’s no surprise. As we discovered in this year’s CFO IT Survey, many finance chiefs have a very level-headed view of technology: they’re fully aware that it often raises as many problems as it solves.
CFO’s fourth annual IT survey, conducted in early January by CFO Research, garnered responses from 203 finance executives. Almost 30% of respondents were chief financial officers. Another 25% were controllers and 16% directors of finance; 9% were either a managing director, president or CEO.
How does this population feel about technology? Finance executives don’t have their heads in the sand. In the survey, about 77% “agreed” or “strongly agreed” with the statement that, currently, their “organization’s IT strategy is an essential component of [its] growth strategy.” Only 22% disagreed with that statement.
At the same time, most finance chiefs aren’t ready to swallow vendors’ promises hook, line, and sinker. When asked to complete the phrase, “For most CFOs, technology is …” finance executives gave a wide range of responses, not all positive. They ranged from “a chance to differentiate” to “a necessary evil.” Some executives echoed what consultants and vendors have been preaching for years: technology is essential to staying competitive and that “every CFO should stay current on technology; if you don’t your business will suffer.”
But many finance executives are leerier, viewing technology as “a never-ending learning curve in that both hardware and software [are] constantly being upgraded at significant expense,” as one respondent put it. Or, in a more traditional finance view, technology is “a difficult cost to manage effectively,” said one CFO.
As skeptical as many finance chiefs might be, they have a clear-eyed view on the requisite technology know-how for future CFOs. About 90% “agreed” or “strongly agreed” that the CFO of the future will require a much stronger technology skill set than is presently required of CFOs. However, only about half of respondents took any specific actions to upgrade their technology expertise in 2017 (slightly more, 57%, plan to do so in 2018).
That lack of initiative to upgrade skills was consistent with the way most CFOs characterized their personal relationship with technology. About 10% of the survey respondents labeled themselves as “enthusiast/geek” and 17% as “early adopter.” On the other side of the spectrum, 16% said they were either “a generation behind” or “a few generations behind” in their familiarity with the latest enterprise technologies. In the middle were 57% of finance executives who said they were “staying current.”
Finance executives judged their enterprise’s use of technology to fall along similar lines. Although a greater percentage deemed their companies to be “leaders” or “fast followers” (31%) relative to other companies in their industry, 56% said their organizations were merely “staying current.”
A Potential for Loss
Is it enough for a CFO or an enterprise just to stay current with the latest technologies? Jeff Thomson, CEO of the Institute of Management Accountants, falls in the camp that thinks CFOs should be thinking more innovatively. If finance and accounting teams “don’t step up to advanced analytical competencies, in data science and things of that sort, 10 or 20 years out they could easily lose their relevance in the modern enterprise,” says Thomson.
“You have to have your sensors up, whether it’s cloud computing or robotic process automation or blockchain … you have to be looking for every competitive edge, and technology is one way to that edge,” Thomson says. “There needs to be a balance of running the business and anticipating the future of the business. ‘Staying current’ is very reactive.”
On the other hand, CFOs do not have to be “tech enthusiasts.” They don’t have to know how to code or be conversant in “the bits and bytes” of hardware protocols, says Thomson. Nor does the CFO have to know “how to take hundreds of datasets on customer behavior patterns, correlate them, and come out with a conjoint analysis,” he adds. “But he or she does have to know that data analysis can be used to unearth or unleash opportunities that the human eye can’t see.”
Inside the Organization
One common perception is that the digital CFO should be providing management oversight of his or her organization’s enterprise IT strategy. For the finance executives in the survey, control over the IT department seemed less important. About 54% of respondents said they would be comfortable in that kind of role, that is, with the chief information officer reporting to them. But 46% disagreed or strongly disagreed that they would embrace such a position. (See Figure 1, above.)
Whether or not they oversee the IT department or the CIO, finance executives still have perhaps the toughest job related to technology: assessing the risks of adopting new technologies. We asked finance executives about the biggest risks organizations assume from automating processes and adopting new technologies. Their answers included the standard concerns of “compliance,” “cybersecurity,” and “unexpected costs and project bottlenecks.”
But there was another risk that this group of finance executives was acutely aware of: technology adoption’s effect on those in the trenches. In some ways, this may be connected to many of these CFOs’ personal orientations toward IT: tech enthusiasts rarely have full recognition of the human costs of digital disruption. Many of the CFOs surveyed, in contrast, were fully aware that getting users (finance staff and others) on board with change is of paramount importance.
One finance executive, for instance, listed as the top risk “concern regarding how well the staff will adapt,” and another cited the “employee turnover from those who resist the change.” A commonly cited risk was “implementation and training” for staff, especially, as one finance executive put it, given “a flat organizational structure and minimal resources.”
Full Steam Ahead
Despite the risks, both human and technological, according to the survey a majority of survey respondents’ organizations are diving into IT projects. A larger percentage of many finance department budgets will be devoted to technology in 2018, respondents indicated. About 10% of respondents said the portion of finance’s total budget earmarked for tech would “substantially increase” in 2018 and 49% said the increase would be “modest.”
In addition, the finance executives surveyed had high expectations of their technology investments this year. Inside of finance, they expect the largest positive impacts in the areas of process efficiency (38%), followed closely by cost reduction (35%), reporting accuracy (34%), and data/analytics availability (34%). Compliance effectiveness and error reduction fell further down the list.
Process efficiency and cost reduction are what Thomson calls “table stakes” for today’s CFO. “Those are things that organizations are expected to have honed by now,” he says. However, the reality is that organizations are burdened with legacy systems, and can’t just “flip a switch” and be migrated to the latest tools and software that provide cutting-edge process automation, he notes.
Outside of finance, CFOs should be looking for tech investments that are competitive differentiators, explains Thomson. What differentiates CFOs and companies is investing in “activities that could be a little bit of a bet, but could actually propel the organization’s growth beyond its run rate,” he says.
When asked which enterprise technology investments outside of finance they expected would have the largest positive impact this year, finance executives chose “customer experience,” followed by “financial analysis/modeling,” “strategic direction-setting,” and “competitive differentiation.” Further down the list were “business unit decision-support” and “board decision-support.”
Thomson says it is particularly heartening to see market-facing investments at the top of the list. “Customer experiences, websites, portals—knowing more about customer purchase patterns than [the customers] do—that is the future.”
Finance chiefs may be a few years away from achieving the dream of the digital CFO, but that may be OK if their organizations are investing in the tools that will be needed in the digital era. Companies need leaders of innovation, for sure, but they also need executive team members that ensure tech investments deliver value.
Vincent Ryan is Editor-in-Chief of CFO.