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New challenges, pressures, for the modern CFO

Alvin Toffle, famous sociologist, is quoted as saying “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.” This concept – the growing need to update one’s knowledge increasingly often or risk becoming obsolete – is true for all professionals, in all industries- and not least for the modern Chief Finance Officer (CFO).

New challenges, pressures, for the modern CFO
In the last decade or so, the role of the CFO has evolved considerably. While once the average CFO was restricted to the accounting department and had a clearly defined job description to record transactions, manage budgets, prepare tax returns and the like – today the role has evolved. CFO’s now are part of a team in charge of driving the business from a strategic perspective and achieving corporate goals. The expectations of how the CFO can help the organisation have risen dramatically – and the average CFO is now expected to have an almost all-encompassing view of factors affecting business performance, to be a source of business intelligence, and to have a deep understanding of risk management.

Luckily, business intelligence (BI) tools have matured and morphed in the last five years, providing CFOs to meet these new demands. Despite the considerable challenges now faced by CFOs to update their skills base, there is comfort in knowing that such technologies will make this a far less daunting endeavour. CFOs operating in a changed environment

The pressures on the modern CFO come from both the external environment and from within the organisation itself. The business world has seen a shift in what are considered competitive success factors, which previously referred to physical assets and financial capital and have now been replaced by intellectual assets and human capital. The regulatory environment has changed, placing added pressures on the organisation from all sides, and shareholders are more demanding, no longer assuming a relatively passive stance, but instead becoming far more proactive than ever before.

Internally, pressures include the demand for better information and the necessary support to cope with the more competitive marketplace and anticipating changing customer needs. The job of the CFO is made particularly difficult due to the fact that they now have to deal with so much information, which is also far more detailed and complex than ever before. Decision-making time has been drastically cut, and there are a huge number of new measurements required for the balance scorecard.

The modern CFO’s job scope has widened considerably, and they are now expected to fulfil a far more strategic role in organisations. One of the key changes has been the requirement for CFOs to perform a ‘visionary’ function – no longer are they merely required to give an accurate analysis of the figures, but they are now expected to provide a reliable forecast of future scenarios and risks. On top of this, CFOs are required to skilfully communicate this analysis to the rest of the organisation – something that was certainly not within the job description of the CFO of the past. Ultimately, CEOs have become increasingly reliant on their CFOs for strategic direction, and thus the CFO of today is now commonly seen as the second most important executive in companies. News tools to help deliver on new expectations

Thankfully, business intelligence (BI) tools for the modern CFO, have also evolved considerably and are now far more sophisticated than they were five and ten years ago. They have adapted to new demands and now provide faster processing of data and richer visual outputs. Even entry level tools today enable trend identification and present reports in graphic format that can be manipulated by the user for deeper insight.

The analytic function within BI tools has become particularly important for the modern CFO, as well as fast integration of BI to multiple layers and systems within the organisation. This allows the CFO to easily review current business outcomes, in terms of prediction or projection of outcomes, and in terms of planning. Despite these tools being available, many organisations are still not utilising them – or not doing so effectively.

Research by the Hackett Group shows that 83% of firms are unable to provide an accurate earnings forecast. In a study that measured the extent of variance between forecast and actual results for earnings two quarters out in 2007, only 17% of firms were able to forecast within the 0-5% variance range. In many ways, accurate analytic capability has become a key competitive differentiator between firms, ultimately separating the winners from the losers.

Analytics allows CFOs to use scenario modelling to model and compare scenarios, exploring a range of ‘what if’ scenarios – something that has become increasingly important in the current volatile and unpredictable world economy. No longer is it enough for CFOs to provide insight into what has happened – they now need to be able to analyse the information to give reasoning as to why an event or action occurred, enabling the organisation to learn from such an event/action and improve business performance going forward.

Since the role of the CFO has expanded, it makes sense that the tools used by CFOs do not just focus on the traditional finance side of the organisation. As such, contemporary Financial Performance Management (FPM) tools have been built purposefully to be used in cross-enterprise initiatives, thus helping to bridge the traditional divide between finance and operations. Examples of these initiatives include eliminating or consolidating redundant projects, improving sales forecasting, streamlining and improving the workforce, and ensuring that the business is able to focuson ventures that will provide high impact and profits.

Although the pressure on CFOs is no doubt here to stay, they can ensure they nkeep up with new demands by staying in touch with advances in enablers such as BI. And while the environment in which the CFO operates may at times seem overwhelming, it is also immensely exciting, especially when coupled with tools that provide a guided exploration of information related to every aspect of the organisation and the opportunity to use these tools to make smarter decisions and improve overall performance.

Greg Bogiages
Cortell Corporate Performance Management

Source ITnews
Thursday, January 13th, 2011

Mardi 8 Février 2011

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