CFO to CFO: The Changing Role of the CFO

SF: What are the most important ways that the CFO role is changing?

Cuzick: One thing that comes to mind is a shift toward enterprise risk management. It’s clearly no longer just enough to think about financial compliance and whether you’re talking about [Sarbanes-Oxley Act (SOX) Section] 404 or your compliance to internal policies, but you have to think more broadly about risk in the CFO role today. In many ways, it means thinking about the risks that are outside of the company, whether those are geopolitical or economic, and they could even be risks that are inherent and internal but outside of finance. It’s a focus on being able to, as a CFO, comprehend all of the risks facing the organization.

The role of the CFO is sort of a portfolio manager. Many of the decisions that I find myself spending a lot of time on these days are where to put that next dollar of investment or where to take that current dollar of investment and redirect it toward higher-growth opportunities. More time is spent thinking about shifts in allocation and how often it should be done and by how much. Sometimes these resource allocation decisions are very small, and sometimes they can be major changes, such as acquisitions or divestitures.

Lastly, the CFO is a lot more involved with decisions on technology these days. You have to spend a lot of time making sure you understand where technology is going, you have to stay up-to-speed in terms of not just what’s happening with your ERP [enterprise resource planning] and technology that you might be integrating with your ERP but also new technology that’s going on top of the data sets that you have or the ways that you’re thinking of bringing your data together. When you’re making decisions, you tend to have a blend of both financial and nonfinancial data, and the challenge is always understanding how you bring these data sets and information together to make a recommendation that’s informed not just by one data source.

Bradbury: I divide the CFO role into four pillars or sections. One is the finance function’s day-to-day processes—call it order-to-cash, purchase-to-pay, record-to-report, or control administration. In the last few years, it’s evolved in terms of offshoring, outsourcing, and the centralization of ERP systems.

Then you have the typical internal and external regulatory compliance. It depends on each company—the CFO was reporting to the actual CEO, so finance was only a bit independent, but after Enron and all those other scandals, now the CFO of a subsidiary reports to a higher-level CFO.

Another one is proactive management, reporting to the business, analysis, and getting into customer relationships, not only payment terms and the back office, but also the allocation of investments.

The last area is [the CFO] evolving more to be a full board member. Together with the other board members, we shape and influence the direction of the business. With technology, you aren’t just the back office or the person who keeps the accounts or allocates the cash, but [you’re] also looking at financial and nonfinancial data and making decisions for the future of the company.

SF: How does the rapid evolution of technology force CFOs to adapt?

Bradbury: You need to be involved from the beginning in an initiative involving technological change. You don’t want to find yourself in a situation where, for example, a new technology is implemented for customer touch points and finance is the last to know and has to stop the initiative due to problems with back-end systems or regulatory issues. I’ve found myself in various situations where the business is going one way, the technology is advancing, finance is involved late, and then we stop the program.

It’s good business practice to have finance always present in customer committees, IT incubators, and change management teams. As a CFO in a board meeting participating in discussions about the way forward, maybe 10 to 15 years ago you said, “Okay, I know what the numbers are as of last month, and that’s it.” Now the areas you have to be most aware of are technology changes—make sure you aren’t the last one to weigh in.

Cuzick: Technology changes all the time. It seems like every time we turn around, we’ve got something new that we could be investing in and spending money on. The hard part is trying to figure out what’s interesting vs. what’s truly important for your business. At least in the finance function, there are going to be areas where technology fits for what we’re doing, whether that’s RPA [robotic process automation] or data visualization.

The area that you need to stay close to is AI, which is moving very quickly and has applications all over the place in business, inside and outside of finance. These things are expensive and never easy to put into play, so learn what you can and then invest and experiment in AI.

SF: How should CFOs gauge the potential impact of robotic process automation (RPA)?

Cuzick: It isn’t about whether you like the technology or don’t like the technology. It’s more about “where does it fit?” It starts with identifying the work that’s right for that technology, whether it be intercompany transactions or something else that’s highly repeatable with very little customization and a very light human touch to it. If there’s something like that going on in your organization all the time and your teams are spending a lot of time just matching intercompany receivables with intercompany payables, and there isn’t a lot of variation, that’s a good opportunity for this technology.

Where it starts to have diminishing returns is when you try to use it in more of the tasks or those jobs that from time to time need to be revisited or customized, such as sales reporting. If you aren’t adding in new products or taking out old products, and if there isn’t a lot of variation and your business seems to be very consistent, it might be an opportunity for you.

But if you are dynamic in any way, like if you’re acquiring new businesses, you’ve got to go back and reprogram what has been created. That’s very costly. It’s normally done by folks who aren’t in finance—we don’t tend to be the ones who build out the robotic processes. You tend to use IT resources for that, or folks who know the coding of it. And what we’ve found is that when you’re evaluating RPA, you need to look at how much customization will be required in the process.

Bradbury: Being in a business that’s highly transactional, we use a lot of RPA now. We’ve been using it for the last two or three years. You have to do it in those processes that are very standard. We’re now also looking at RPA with the customer regarding inquiries, including phone calls we get, to see if we can “robotize” it a bit. Now you can spend your time more on the customized processes.

When you weigh the pros and cons, it leads to efficiency, and normally you have to redeploy people into other roles. Or if the business isn’t growing enough, it might end in some redundancy. That’s a downfall.

But I think if you explain it to people, you sell the ideas—it’s great for the repetitive stuff that doesn’t change or is transactional. If you start implementing it in other processes that change a lot, you’ll find yourself with a big IT bill, hiring IT consultants who are just reprogramming it, and maybe it’s less efficient than it was before. But for us so far, it has worked and paid off a lot, not only in finance processes. In our case, we’re in the shipping industry, so you can imagine the opportunity in customs and customer service. In places like that, we’ve seen it have a big impact because we’re very people-intensive with a lot of standard processes, so RPA has helped quite a lot.

SF: Has the way that the finance function collaborates with the rest of the organization evolved?

Cuzick: When I think about how the finance function fits and collaborates with the rest of the organization, first is recognizing that finance is that trusted source of information. So there’s always that core role that we play in the organization, which is the one place that the business goes to measure the performance to the plan, provide accurate data, whether you’re pulling together something for external reporting for the investors, or even if it’s an internal group. I feel like we are that function that most other groups look to for trusted information.

But a lot has changed in terms of an emphasis on how we think and how we work with the rest of the organization. Now there’s more on framing and communicating the information as well as influencing with the information. If you’ve got a really slick ERP and some really great visualization technologies, you can drive a lot of great decision making, but you have to be proactive as a function and not just waiting for the commercial organization, supply chain, or even investor relations to seek you out for the answers. It means being more proactive about taking, let’s say, the last month, the last quarter, the last year, comparing what’s happened, and being more forward in terms of what that might mean to the future of your business, your strategic plan, and your long-range financial plan.

So it’s changing in the sense that we have that opportunity to pivot. It’s less about explaining why things are the way that they are. Whether we’ve got the business coming to us and talking about, “Okay, we just closed the month, how were sales, expenses, and income?” Thinking about, “What does this mean in the context of where we’re headed and what we can expect given what we’re learning from last month’s, or last quarter’s, results?” There’s more power in that for the finance function going forward than there has been historically. More and more, as we move to a function that’s decision enabling and providing more foresight to the business, the more valued we are as the finance function and collaborating with the rest of the functions.

Bradbury: I’m also seeing how to blend financial information, call it P&L by cost and payroll info, with nonfinancial information, customer satisfaction, and sales lines. And that’s where finance is starting to add value. When finance starts linking with other things and proposing actions for the future and a change of direction, it isn’t always easy to help all the finance functions to move into that direction. There are other questions coming in, but change management is sometimes an issue, especially for seasoned finance professionals that tend to go to their comfort zone—reporting—instead of being a bit more forward-thinking.

Cuzick: When I think about change management with communication and how we get out there, a lot of the organization and functions that work with finance are always looking for the reason why we need to move in one direction or another. Being more comfortable with understanding what levels of communication you need to get folks through change is so important and becoming even more important.