Long gone are the days when it was enough for a Chief Financial Officer to know how to read and manage a balance sheet, track the ratios and run a company’s accounting department.
Technology has rapidly transformed the role of the CFO and the expectations the fellow C-suite executives have of the position. With access to significant and almost real-time data, many of the traditional expectations for CFOs — producing monthly financials or compiling budgets in thickly bound books (or the digital equivalent, spreadsheets) — are no longer sufficient. The CFO was historically characterized as the secret custodian of financial information and, in most circumstances, information not accessible to the rest of the organization.
Before taking on my current role at Xero, I held several CFO positions in airlines and media organizations. Over the years, with the plethora of analytical tools available, dashboards and other elegant presentation formats, the CFO role has evolved to incorporate the role of the Chief Performance Officer. CFOs with access to such rich data are usually more equipped to join the dots between customers, revenue, key indicators and the financial performance of the business. A modern CFO connects numbers with a company’s business strategy to help drive and communicate performance.
Here are some of the ways access to real-time data and analytical tools are changing the role of the CFO.
Connecting Strategy With Performance: Telling The Story Behind The Numbers
The CFO’s responsibility is to provide sound financial advice to the business that improves shareholder returns. In the past, a financial professional would rely on historical information to determine a company’s position. With the time lag in data availability, the guidance we would provide was steeped in what had previously happened, not what’s currently going on in an operation. Massive disruptions in economic models in the current AI-driven age has changed all of that.
Real-time flows of financial data improve a CFO or accountant’s ability to detect patterns and predict behavior. Data, or lead indicators, help identify risk, inform decision-making and influence advice. This has become the lifeblood of every finance department.
Last year, our platform processed more than $1.4 trillion worth of incoming and outgoing transactions. With such a large amount of real-time data and pattern recognition tools now available, predictive diagnostics can be provided in real time through smartphones, as opposed to well after the event to perform post-mortems. Such tools should enable finance leaders to close the feedback loop with other senior management members and enable the company to course correct well ahead of historical practices. This is particularly relevant in a global organization, where often the leadership team is dispersed across multiple time zones. Real-time access to information, analysis and course corrections are a major competitive advantage.
Avoiding Data Overload: Separating Signals From Noise
One of the biggest challenges in this age of instant communication and feedback is a tendency to drown in the noise and fail to detect signals before it is too late. An early mentor of mine taught me that one common pitfall of senior managers in not being able to separate signals from noise.
Nowhere is this trend more apparent than within cyclical industries in the midst of structural change like traditional media. Economic downturns exaggerate structural shifts to more cost-effective and technically advanced solutions. Unfortunately, when the economy rebounds, the revenues don’t return to the disrupted industry; they stay behind with the more cost-effective solutions. With the advent of intelligent, analytical solutions we are now more able to correlate external events to internal revenue trends and isolate more distracting incorrect and value-destroying hypotheses. It is a CFO’s fundamental responsibility to help identify these early trends and to alert colleagues and the board with solutions to address these challenges before it is too late. Wholesale destruction of traditional business models can be avoided.
Small business desktop accounting software is another business model in the midst of major structural change brought on by the prevalence of cloud technology, improved computing power and the rise of mobility.
Protecting Information And Ensuring Its Accuracy
The growing importance of real-time data in businesses of all sizes means protecting accuracy and integrity is vital for a company to mitigate financial risk.
It also means CFOs and financial professionals have a growing role to play in the protection of company data. A recent Grant Thornton survey found that a company’s CFO and CIO are usually responsible for the company’s cybersecurity program.
Data breaches have the potential to be costly and can jeopardize a business of any size. According to an IBM and Ponemon Institute study, the average cost of a data breach in 2015 was $3.79 million. While an IT department would be responsible for the day-to-day protection of data and in charge of maintaining integrity, the CFO needs to assess data risk, ensuring that the data is safe, secure and reliable. Managing data risk is an integral component of every financial audit program these days. And with such a huge cost attached to losing data integrity, it is essential to invest in systems and processes that prevent a data fallout, rather than paying to clean up the mess afterward.
As a leader in a company, the modern CFO needs to propel a culture of security. No longer is our job just about revenue, costs and budgets. There is a strong emphasis on managing risk, driving performance and ensuring the integrity and accuracy of company information. And now, with so much data available and powerful tools to analyze it, forecasting outcomes and altering strategies to improve operating performance is increasingly driving the agility of businesses globally.
About the Author
Sankar Narayan is the Chief Financial and Operating Officer at Xero, the global cloud accounting platform.