How CFOs can drive digital transformation

Carol Lee at LogicMonitor describes how the role of the CFO has evolved and how it is now central to business growth and resilience

 

With a recession looming, UK Chief Finance Officers (CFOs) are under pressure to stretch resources further. Once the CFO’s role centred around an organisation’s finances. It has since evolved into a much broader role.

 

So, what does the role of the modern CFO look like, and how are they helping to drive digital transformation?

 

To keep pace with an ever-changing market, every company has had to evolve its processes and concepts. The CFO role is no different. Traditionally, CFOs were viewed as the budget holder, playing a behind the scenes role in business operations.

 

Recent events like the pandemic, however, have expanded the CFO’s platform as businesses sought their advice on crisis management and technology investment.

 

Not only does an organisation have to be able to select and implement the right tools to ensure growth and stability, it also has to have the right budget to do it. This is where the CFO comes in.

 

The key priority for any CFO is ensuring the growth of the organisation, which can come from safeguarding and protecting, but also in ensuring the right tech stack is in place.

 

IT is generally considered to be the second largest spend for a company after talent investment, and this is where a CFO needs to have the right experience and understanding—or the right team—to be able to play an active role in decisions regarding tech spend.

 

Among IT spend, there are two main levers to increase organisational productivity and drive cost efficiency:

1. Cloud is a fast-growing category within digitisation. The ability to manage and predict cloud costs is key to ensure business health. Observability platforms offer a single pane of glass to monitor usage and alerts for multi-cloud, hybrid environments, adding to the efficiency and predictability needed in today’s changing macro environment.
2. Tool consolidation is another lever in streamlining organisational complexity. When we add new tools to the stack, we need to rationalise what value it brings or what investments it can replace.

 

Offering perspective

When it comes to planning processes, it’s the CFO who is asking where growth will come from and how to think about it in relation to previous years.

 

But the more progressive CFOs are also asking more provocative questions like, “How aligned are we, really? And if I’m managing my business plan on this definition of digital transformation, are the commercial and operations officers, too? Do they all agree with that definition?”

 

The full C-suite needs to be aligned on the definition of digital, and that requires the leaders having the conversation on what it means to their particular business. That definition then needs to be articulated in a simple way that the entire organisation can rally around—typically, by deploying digital strategies or digitising their businesses in waves, starting with smaller workstreams and expanding.

 

Tackling economies of scale

CFOs understand macroeconomics extremely well. What’s new with digital is that the marginal cost is zero: you can instantly and at no cost replicate an offering, leading to massive shifts in the supply and demand curves. It means that economies of scale take on whole new proportions. Perhaps one of the biggest shifts in the CFO’s role is to explain to business leaders how the economics of their businesses are changing.

 

Another shift or learning for the modern CFO is congruence. How much money does the organisation spend on digital, and how should the team report on the effectiveness of its digital efforts, and is that congruent with what the business is trying to accomplish? In this instance, the CFO becomes the evangelist helping people understand the digital economy, and then the architect for fitting the pieces together in a way where performance can be measured.

 

Navigating new systems

As economies scale, industry boundaries are becoming blurred, and therefore companies need to ask a new set of strategy questions: How do you expand beyond your industry, and what types of partnerships and M&A deals are needed to achieve that expansion? These questions, once again, put the spotlight on the CFO.

 

There are only so many partnerships to be made within these systems, so for organisations that are not fast out of the blocks in figuring out what their role and partners should be, someone else will claim that space. There are lots of reasons why being out in front and bringing the CFO into these conversations early makes a huge difference.

 

CFOs are used to asking deterministic questions: tell me how much it’s going to cost, or, how many points of market share am I going to gain? What’s going to happen to my margin? Increasingly, they also need to ask, what is it that we will learn? What are you going to test?

 

Those are very different questions and metrics, and they require a CFO reskilling. If the CFO doesn’t understand technology, the organisation is at a disadvantage. The CFO has to be able to have intelligent conversations with their peers about what technology can and cannot do to succeed in today’s business landscape.

 

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Carol Lee is Chief Financial Officer at LogicMonitor

 

Main image courtesy of iStockPhoto.com