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The champ: how CFOs fuel growth

The finance function never used to be associated with innovation, but today, says Dan Matthews, senior finance professionals are expected to come equipped with a range of skills – from data interpretation to motivational messaging – to support experimentation and risk-taking in business

Not long ago, finance teams were considered a barrier to innovation in business. Hopeful marketers or business development executives would go cap-in-hand and ask for a budget to pay for investment in growth.

The CFO was the end-of-level boss: get past them and you won the money. Those days are gone. CFOs and FDs, in particular, have the opportunity to be champions of innovation, rather than “computer say no” gatekeepers.

The role of the finance team has evolved as businesses wake up to the opportunity of plugging financially-proficient executives into operational and strategic jobs. In ideal scenarios, they still keep an eye on past performance, but also real-time data, and they are perfectly placed to work with the CEO in leading organisations forward with ambitious yet financially-sound strategies.

A case in point is Steven Berns, CFO of Shutterstock, who has also assumed the role of COO: “I’m not sure how you could become a successful CFO without an operational focus,” he explains. “You have to understand business activities that drive financial results, so it follows you need to be embedded within those activities. Simply measuring financial outcomes is not a recipe for longevity. A clear understanding of how people spend their time, with the right allocation of resources, will provide grounds to take calculated risks and achieve objectives. Most CFOs I know have a major operational focus, even if they don’t have COO in their title.”

Dr Niran Subramaniam, associate professor in financial management at Henley Business School, argues that this is a natural fit, “Innovation-led organisations can benefit immensely from the input and influence of the finance executives, as they understand the value chain. As an invaluable strategic business partner, they can evaluate alternate business scenarios and models, assessing risk-return trade-offs, and recommend a best course of action for the organisation.

“One of the core competencies of a finance executive is in findings ways for the business to add value or to find ways to be profitable. As innovation leads to long-term sustainability, finance executives can naturally engage themselves in creating value for their organisations to increase the chances of business success.”

Actionable insights

If the merging of job roles is one driver of innovation, another is how finance teams interpret and deploy data. Numbers still shed light on past performance, but more importantly, analytics deliver near-instant actionable insights that highlight opportunities and justify strategies. Reading, digesting, understanding, translating and communicating this information in the context of an agile, forward-looking business environment is the new key skillset for finance teams.

As figureheads, CFOs breathe innovation into organisations with the help of this insight. “Innovation is all about being agile and responding to the data that flows into businesses,” says ICAEW director for business and industrial strategy, Iain Wright. “The challenge is finding relevant pockets of data instead of spending time measuring something for the sake of it.

“There is so much data available that it’s possible to stifle innovation if you fail to link analysis to core KPIs. By drilling down and overlaying different data sets – for example financial and operational – you’ll uncover some incredible actionable insights.” With the backing of a dynamic CFO, businesses can experiment confidently, knowing that risks have been quantified and budgets properly costed.

This brand of oversight gives organisations the chance to act like Silicon Valley start-ups, creating small ring-fenced projects, collapsing ones that burn out and bolstering others showing promise.

Educated risk-takers

Risk is not a value commonly associated with the finance function of a business, but in this brave new world, teams are increasingly encouraged to roll the dice and make informed choices about the future. CFOs are still sentinels of fiscal responsibility, but they are also best placed to judge which bets are worth taking.

Subramaniam agrees with this assessment: “CFOs are there to inject integrity and financial rigour, so ensuring they are involved in innovation might seem counterintuitive because that means accepting uncertainties and risk.

“Companies need to separate their operational business needs from the innovation pipeline, and involve finance professionals on specific innovation projects or early stage innovation ideas. Innovation and risk can be seen as the two sides of the same coin. Often an organisation’s strategies to mitigate risk and a risk averse mindset might end up stifling innovation and early stage innovation, so, to create an environment in which to foster innovation, companies must determine their attitude towards risk.”

At Shutterstock, the willingness to innovate has transformed the CFO role into one that uses financial devices to find solutions. It’s not about approving or denying spend, but finding the right circumstances in which to say ‘yes’. “The role is understanding the impact a project has on the business overall and making sure we’re taking good, solid decisions and allocating capital to set us up for success,” says Berns.

“Sometimes companies invest a certain amount, then if it fails they use failure as justification for not spending more. The reality is maybe they didn’t invest enough to increase the chances of success. My job is to start with an unconstrained environment and work out the best route to ‘yes’.”

“That sandbox approach is really important, with the CFO working to actively encourage it,” says Wright. “It’s something organisations should embrace on different levels and it has to be a key part of its culture – don’t be afraid to experiment. There should be no negative repercussions for failure. “If you’re experimenting, some things won’t work; you have to learn and move on. Any successful organisation is one that is constantly learning. The CFO can facilitate by providing small pockets of money to enable the experimentation with positive, motivating messaging.”

Shifting role

The shift in the role of CFO from “chief counter” to trusted strategic partner resulted from necessity as well as opportunity. Digital innovations capable of automating onerous rules-based processes risked cutting into the average finance team’s reason for existing. But while technology took with one hand, it gave with another, freeing up CFOs to manage teams on new, more creative tasks and contribute resource to profit centres within businesses. The accountancy example, and its increasingly positive outcomes, should give heart to other professions, says Oliver Vaughan, chief financial officer at Edenhouse Solutions.

“Companies in all industries are innovating at some level to keep up with the pace of change. There seems to be an underlying feeling of ‘transform or get left behind’, with many departments having to re-evaluate their existing operating model and embrace new ways of working. “Transformation of any kind will undoubtedly be a long-term play, so the need for CFOs or FDs to envision where the company could be in five years’ time is crucial,” Vaughan adds.

“As the ones giving the initial go ahead, our role is becoming all-encompassing; from managing day-to-day financial maintenance of the company, to being an integral cog in the future of the business.

“Innovation will be felt everywhere. Technologies like AI, for example, can deliver huge cost and timesavings, which are felt across the whole business. One major benefit of this is that employees have more time to focus on jobs that add longterm value. My advice to any CFO or FD who is looking to lead their business into the future, is to make sure you know what you want out of it. Every business is different, in terms of its size, scalability and goals.”

Perhaps the best way to facilitate innovation in business is not via a brand-new technology, but by breaking down the paper walls between different C-level executives. Along with the finance function, the IT department has long been a favourite target for unflattering stereotypes.

Fuelling the future

But just as CTOs are moving out of the server room, CFOs are not just reporting the financial strength of the business, but collaborating from the start, advising, consulting and taking decisions that fuel the future of organisations. It means CFOs should develop not just their hard-edged analytical abilities, but also their soft skills such as relationship-building, leadership and communication.

“As finance functions move up and across the value chain, the ability to communicate, influence people and portray a message becomes crucial,” says Wright. “Successful CFOs are essentially co-partners to CEOs now. They have to encourage teams to understand what the company is good at, where the opportunity lies and plans for experimentation.

“The C-suite works much more collaboratively,” he adds. “The CFO is at the centre, so working together is important, as is the ability to convey important messages to the whole organisation, not just finance.”

Equipped and qualified

But while CFOs have a great opportunity to push their organisations down new and innovative paths, businesses should be careful not to pull senior finance personnel in too many directions at once. A risk attached to the positive progress is that too much pressure could be lumped on finance to find solutions to challenges.

According to Wright, this risk is real but careful management and proper training are two ways to mitigate the potential problem: “I’m reluctant to say CFOs should be everything to everyone,” he says. “But they do need a handle on the business in order to become a strategic leader with a wide range of skills, knowing the business and the financial considerations that push it forward, how that relates to the product and the marketplace and how to attract great talent.

“CFOs with these skills are hugely in-demand. A modern chartered accountant qualification administered by ICAEW is a great way to develop these skills. It’s not just about grasping facts and figures but also where the world is going in the future.”

He continues: “If companies fail to adapt, they will die. Indeed, that’s not just true of individual firms, it’s now relevant to entire sectors and industries. That is why innovation and an entrepreneurial mindset in every organisation, with the CFO acting as the catalyst, is crucial to a company’s survival and success.”

While automation and AI are taking on menial accounting tasks, thereby removing them from the remit of junior members of the team, finance departments are not becoming obsolete. In fact, the opposite is true. The opportunity for business growth is enhanced by involving measured, financially literate executives in innovation projects. CFOs must adapt to this transition, but those prepared to learn new skills will enjoy status as chiefs not just of the purse strings, but of companies’ very futures.

Originally published in Economia on 2 May 2019.