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CFOs the world over are out of their comfort zone. That the CFO role has changed from bean counter to revenue generator is common knowledge, ramping up expectations. Now the CFO must be all things to all people – change manager, brander, IT guru. The weight of the digital revolution and big data sits heavy on their shoulders. Do they stick, do they twist… when is the right moment to invest in technology that is moving so fast, especially when the worst thing of all may be to do nothing? CFOs wake up each day in a world where they are forced to readdress their approach to risk, because the finance department’s traditional role of reducing it may, ironically, cost them commercial advantage. The job has never been tougher. Or more exciting.
How does today’s CFO adapt his/her mindset to be able to thrive in such fast-moving times? By tackling the hardest elements head on, argues award-winning writer and brand strategist Scott Perry.
1. Embrace uncertainty
No CFO has the luxury of putting his/her head in the sand. Change will keep on coming and embracing this is simply far less painful. Develop an appetite for it, accept it as part of the landscape, learn to enjoy it. Automation is radically altering the makeup and psyche of finance departments, many of which already outsource the heavy lifting, leaving nimble, questioning minds to do the ‘real’ work: getting value from data through analytics. Surround yourself with people who are inspired by the change.
Israr Khan, co-founder of Aprila Bank, which launched in April 2018, likens the shift in mentality caused by big data to a latter-day industrial revolution. “A lot of CFOs devote all of their time and effort to just understanding what’s going on in the present, when they should be using their minds to drive the business forward,” he says. Finally, technology is freeing up time for new thinking. And there’s certainly room in finance for new thinking and different outlooks. “We have a great CFO at Aprila,” says Khan. “Interestingly, though, his academic background is in engineering.”
“A lot of CFOs devote all of their time and effort just understanding what’s going on in the present, when they should be using their minds to drive the business forward”
2. Break down silos
It’s a company’s worst nightmare. Time, money and skill invested by the marketing department generates new business – which is then turned away automatically by the credit department. One multinational office supply company CFO only learned that his own credit department had routinely rejected orders over EUR 5,000 when the company embarked on an automated decisioning system. Getting everyone to share a company’s bigger vision is fundamental, and the CFO is perfectly placed to drive that.
The fact is that as a CFO you can be as forward thinking as you like, but if you don’t bring your people with you, you’re going nowhere. Crossing the boundaries between functions can be a highly effective tool in changing mindsets and getting your organization to move forward. That this can only happen in smaller companies is a myth. At Norway’s biggest bank, DNB, Khan witnessed an incredibly vibrant culture of 10,000 people. The secret? “The bank was not afraid to reorganize. They mixed and matched people from sales, marketing, IT. They tore down silos, and that developed understanding. People could never settle, and this probably caused a bit of frustration when you are in the midst of it, but this also created flexibility which in turn was key to their success. It all started from the top down.”
Carl-Åke Nilson, who co-founded the challenger bank SevenDay in Sweden in 2007 and is currently CRO at BNP-owned Express Bank, has a similar outlook. “I have been in risk for some 20 years and I see that finance, marketing, HR tend to form their own islands,” he says. “But you need to cooperate. Marketing and risk are two sides of the same coin, we do the same job.” SevenDay broke the mold in Sweden by introducing risk-based pricing to consumer loans. Key to success was cooperation between operations and sales, because a completely new approach called for it.
3. Change your attitude to risk
Data analysis allows the modern CFO to take a different attitude to risk, allowing him/her to see things they could never see before. Nilson’s success with SevenDay was based on it, and he was in no doubt that it would succeed. “The data shows you’re going in the right direction,” he says. “You can say that risk is about prevention, how to say no. For me risk is about seeing opportunities to do business.” Effective data analysis allowed him to open up the market through the development of innovative scorecards. A skillful and informed approach to risk allows businesses to say ‘yes’ more often, generating revenue. Gaining the insight that even, say, 1% of people or organizations previously deemed uncreditworthy are in fact safe to trade with can make a massive difference to the bottom line.
Per Stubberud Lieng’s building supplies company Gausdal Landhandleri has a vast customer base, meaning one of its highest risks is credit. But better use of data has allowed Gausdal Landhandleri to develop a proactive approach that has seen it launch automated instant credit online, giving the company 24-hour sales and bringing them closer to their customers. “The big shift is from what you think is the truth to what really is the truth,” he says. The company is the leading user of data in its industry, and Stubberud Lieng is another advocate of bringing influence to bear across functions, with data analytics in logistics and marketing as well as risk allowing Gausdal Landhandleri to differentiate itself in a highly competitive market.
4. Break down big tasks
Stubberud Lieng worked with Bisnode to create the automated credit decisioning tool that answered his business need. By starting small-scale, the stress and risk of change was easily handled. Now they are working on a business-to-business tool. Breaking things down into specific modules also helped him to redefine and evolve the roles of his workforce. Though the company has grown enormously, it has not needed to hire more employees – instead the existing employees have just worked smarter. IT support has been outsourced, so the IT department itself concentrates solely on development, thriving on the responsibility. The credit department no longer punches numbers, but has developed analytical skills instead, making for more interesting work and better morale.
With artificial intelligence (AI), the current perception is of massive investment up front leading to unclear outcomes. How does a CFO approach this? One of the leading authorities on AI in the UK, Andrew Burgess, author of The Executive Guide to Artificial Intelligence, says: “The most common question is ‘How can we use AI in our business?’ Of course, that’s really the wrong question to ask. A better question is ‘What are your business objectives and challenges and is AI an appropriate solution to any of those?’ You can’t have a solution looking for a problem, you have to start with the problem. Then you work out how you can address it. Often with a company you can identify 10 or 20 different applications, but most are very specific. This makes the leap of faith easier. We can build an AI strategy across the whole business, but it needn’t be all at once.”
5. Look further ahead
“Understanding what happened yesterday alone does not create value, does not drive the bottom line or revenue,” says Israr Khan. “You need to find a way to look forward.” Skillful use of data is doing just that, allowing CFOs to be far more proactive than they’ve ever been by being able to peer into the future with more confidence. It allows conventional thinking to be challenged from much more solid ground.
“We teach organisations not to fix prices with commodities.”
Tom Lawrence, of commodity risk consultants Flow and Ebb, educates CFOs on how to uncover options they never had before. Again, it’s all a question of mindset. “Most data looks backward,” he says. “You want to be looking forward. Budgets are an example. They seem to look forward, but they don’t. Say a function has a budget of EUR100m. The next year when the budget round comes along, all the EUR100m has been spent, regardless of need, and the department asks for more, 110m, say, because of inflation. Because they’re based on the last year, budgets only ever go up. It’s bonkers. You should be asking what are you trying to do as a function, what are your objectives as a business, and understand that nothing is ever constant or stays the same. We teach organizations not to fix prices with commodities. Far better to be flexible and take advantage of falling markets, and step back when markets are rising. By doing that we can give a CFO a three-year view on the cost base with a particular commodity, making a significant difference to the bottom line.”
Lawrence also points out the importance of cross-functional cooperation. “For it to work optimally, you need your sales team to provide a forward view of what sales will be. The CFO is the lynchpin to getting the operational and sales sides operating as one.”
Tim Wakeford, ex UK CFO for multinational real estate firm Cushman & Wakefield, says: “You have to get out of that finance room and engage with the business.” He is in no doubt that data is the key to looking forward, but that creating the resources to get the most from it may very will mean robustly addressing other areas of the business.
6. Be brave to help create the resources for change
As a UK board member of Cushman and Wakefield, Wakeford helped oversee the company’s move to EPR giant Workday’s cloud-based platform, which allowed operations to be standardized and harmonized globally. The value it provided inspired him to make a huge career change. He’s now VP product strategy, financials in EMEA at Workday.
“Workday’s product gave us the ability to be agile, to link financial information to non-financial information, all that forward-looking stuff – but critically not at the expense of control, compliance and stewardship. We got the best of both worlds. The epiphany for me personally came when I could get my hands on data, interpret and find meaning in it, then be able to recommend certain courses of action to the business which stood up to scrutiny. Suddenly, for example, I was able to start telling people who had worked in real estate for 20 years things that they didn’t know. Insights for competitive advantage. And when I was able to do that, it had a snowball effect. They started coming to me with requests. The quality of the data changed the financial department’s ability both to tell the story and to prove it. It released the frustrations of people bogged down uniting spreadsheets, people who were working at 50% of their potential. They were freed to do what they really wanted to do. And when I look back at my meetings with my chief exec, what did he really want from me? To see the future, so he could make better decisions all around the business. And I could do that.
“To get there I think you have to pass through three phases. You’re not going to be given additional resource so you’re going to have to free that up for yourself. Firstly, standardize and simplify everything. Companies waste hours and hours doing things that are overly complex and immaterial. Senior finance figures have to be brave, challenge, be prepared to go head to head with the business. Find out ways to simplify because you can’t transform if you’re complex. Secondly, harness new technologies to take the strain off certain individuals. If you are complex and if you are manual you are going to be expensive. Thirdly, reinvest the time and headspace created by employing talent that gets value out of that new technology. For me that’s the path out of a locked up financial cycle.
“The consequence is that you become more relevant in board meetings in the sense of driving corporate strategy. That’s the journey and the reason I made the change. I saw and am passionate about the fact that the finance function will be entirely tech enabled. We’re aiming towards what we call internally the ‘touchless close’!”
7. Make creative friends
The good news is that you, the CFO, don’t necessarily need to be the creative one. You just need to know where to access creativity and how to work with it. Burgess says that the core of what he does as an AI consultant is “describe the art of the possible.” Carl-Åke Nilson and Per Lieng Stubberud both began their relationship with Bisnode based on simple data, but went on to develop more complex, mutually beneficial and highly creative relationships together. “I was curious what we could do with the data,” says Nilsen. “But Bisnode were also curious. ‘Can we do what no one else has done?’ we asked. What developed was a fruitful collaboration that ended up doing something new in Swedish consumer banking. There was a risk on Bisnode’s side that they were willing to take as well, or it may not have worked. But as I said, risk is about working out how to say yes in order to create an opportunity.”