[IMGCAP(1)]Company executives are constantly asking themselves the same question: How can I drive a profitable and growth-oriented future for my business?
For CFOs, the answer to this question is particularly difficult. The rapidly evolving role of the financial executive has presented a new set of challenges. As data becomes more readily available, it also becomes more difficult for leaders to explore, protect, and leverage it. In addition, due to access to valuable insights within this data, financial executives are expected to educate their C-suite peers on the best way to mine these insights and even lead key strategy initiatives.
Finance leaders who adapt and thrive in spite of these new burdens and responsibilities take their companies to new heights. Those who struggle with common challenges and can’t find a way to overcome them quickly fall behind.
Here are the top five challenges CFOs face today and how to overcome them for sustainable long-term financial success:
Challenge #1: Minimizing Risk
Mitigating risk is one of the most critical responsibilities of the CFO, and it’s not going to fall to anyone else anytime soon. In fact, according to research from EY, 57 percent of finance leaders believe that risk management will be a critical capability in the future.
Unfortunately, risk analysis often focuses on immediate problems. It doesn’t forecast potential issues one, three or five years down the road based on the current climate, growth strategy and market conditions. This issue stems from a disconnect during the FP&A process.
To minimize risk in the long term, CFOs must bridge strategy planning and risk management. Each process should support one another. Leading CFOs rally their teams to ask questions such as:
1. What are our biggest challenges to achieve our goals?
2. What are the smallest challenges?
3. What is the likelihood for these challenges to occur?
4. What is the best way to completely prevent these challenges?
CFOs can use their FP&A capabilities to create worst-case scenarios and then work backward to mitigate risk and define red flags.
For best results and a well-rounded assessment, finance executives must open up this process to all departments and teams. By outlining risk boundaries and thresholds early with other executives and team members, CFOs are more prepared to recognize and avoid early warning signs.
Challenge #2: Finding Growth Opportunities
Helping their companies sustainably grow profits is another difficult responsibility of the CFO. They’re expected to find actionable insights no one else can uncover within their wealth of data to help skyrocket margins and profitability. It’s a lot of pressure and requires a lot of work.
To help CFOs analyze the increasing amounts of data available to them, the analytics software industry has exploded with options. Deploying and using these applications to their full potential has become the next big hurdle for finance executives to jump. According to Deloitte, 96 percent of business leaders within leading companies feel that analytics will become more important to their organizations in the next three years but also feel that a great deal of their data is still going unused.
That last part is important. A huge bulk of data isn’t even being leveraged. That means insights are going undiscovered. CFOs must not only harness innovative technology but also launch functionality allowing them to visualize and understand all of their data. If pieces of the puzzle are missing, CFOs can’t possibly build a profitable future for their companies.
Finding the best option and not just choosing the first solution they come across is crucial, though. KPMG research shows that 70 percent of CEOs at top-performing organizations think leveraging cloud-based ERP systems should be a top priority. Unfortunately, this study also points out that only half of these CEOs think their CFOs are doing a good job of implementing the best technology for their businesses. Financial leaders have a responsibility to research, test and implement the best solutions for their businesses.
Challenge #3: Leveraging Qualitative Data
CFOs are the executives who deal with numbers. Everyone knows that. But as the role of financial leader evolves, so do their responsibilities. Qualitative data is making a big emergence. Research from PwC found that 62 percent of high-performing CFOs incorporate non-financial information in their data analysis for better, well-rounded insights.
Numbers are easy to deal with, but quantitative data doesn’t tell the entire story. It lacks context, and CFOs are the leaders tasked with filling in the holes. Successful financial executives track the following qualitative information to bolster their financial state analysis:
1. Trends or changes in relevant industries, markets and supply chain channels;
2. Evolving sales and marketing technologies and strategies;
3. Competitor product innovation and pricing changes;
4. Cost changes across business segments; and
5. Stakeholder sentiment and needs.
Qualitative, non-financial data is also crucial, because past performance is no guarantee of future results. Data and predictive analytics can help map out the future, but that doesn’t make predictions fool-proof.
Challenge #4: Reporting Inaccuracy
Bad data can make a CFO’s life very difficult very quickly. Many, if not most, companies these days face mounting data problems as their databases grow. Data arrives in analysts’ hands unclean, unorganized and filled with errors. In fact, according to a study from Blue Hill Research, analysts spend 40 to 60 percent of their time preparing their data, not actually analyzing it. What a waste of time.
If CFOs want their teams to get their reporting right the first time and save time for their teams overall, they have to start by getting everyone in the company committed to clean, organized data. Finance executives should start by assembling all business leaders and creating a data template. This master document serves as the guide to formatting all data for a company, and executives must take great care in its development.
Once created, company leaders should shift all database structure and reporting to fit this template. This ensures that data borrowed from another team is always in a correct, aligned format. All executives must hold their employees responsible for keeping their data clean, error-free and in the structure the template outlines. They must set a high standard and hold their teams to it to create a data-driven culture for their companies.
To streamline reporting, leaders should also focus on making data readily available to all team members who need it. Tracking down the right data creates jams in many businesses. The problem only gets bigger as the company does. Businesses must create a secure environment and make sure all employees have access to the levels of data they need. These systems and processes should avoid versioning problems, a common side effect of shared data.
CFOs without the authority and power to create a data-driven culture for their companies are at a huge disadvantage. Those who haven’t accomplished this for their business should make it a top priority within the next year to remain competitive.
Challenge #5: Finding the Time to Do It All
The CFO role is in a huge stage of expansion. No one is arguing that. Within the last decade, financial leaders’ responsibilities have ballooned. Unfortunately, there’s still only one CFO, and that person can only delegate so much work.
To give themselves more time, CFOs must focus on automating as many processes as possible. Many ERP systems and data analytics software offer alerts functionalities to ensure leaders don’t miss new developments within their data. Custom alerts provide extra, detailed support. CFOs can consider options notification options such as:
1. Critical, highly profitable accounts trending down more than 5 percent (an indication of churn);
2. Low-performing products by month;
3. Low margins by market or customer segments within a specific time period; and
4. Invoice prices below 10 percent of a target price.
If CFOs want to lead their business through new growth opportunities, they’ve got to be willing to strategically take on these new responsibilities. Financial executives must tackle their new role as strategy leaders by leveraging both qualitative and quantitative data, bridging risk management with their annual planning, and putting their data to work for their teams. By encouraging data-driven growth and leveraging new technologies in a timely manner, CFOs can help their businesses outpace the competition and secure a profitable future for their companies.
As founder and CEO of The Kini Group, Dev Tandon has led his team’s development of KiniMetrix, an award-winning cloud-based business analytics SaaS helping companies better identify drivers of margin variation and find sustainable margin improvement opportunities.
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