*How to be a CFO during economic uncertainty*
How next-gen CFOs can drive strategy and innovation during economically uncertain times
By Oliver Pickup, Award-winning Writer, Pickup Media
Data-savvy finance leaders, increasingly urged to take the helm, must navigate short-term problems while keeping an eye on the horizon
Who would be a Chief Financial Officer in 2023?
Urged to take the helm, they must chart a course covering short-term survival in economically uncertain waters and longer-term success is achievable only through innovating, horizon-scanning and smart, data-driven decision-making.
Headwinds of high inflation, rising interest rates, geopolitical unrest, fractured supply chains, increasing cybersecurity threats, a deepening cost-of-living crisis and a looming global financial crash make conditions the antithesis of plain sailing.
And yet, while some might fear sinking the business in this perfect storm, many CFOs remain optimistic that they can weather the tempest by investing in workforce development and digital transformation projects, bolstering enterprise resilience and staying on track toward growth goals on the distant horizon.
The responsibilities – and expectations – of a CFO have expanded massively in the last three years. Next-gen CFOs have to be more visible and influential. Transforming economic challenges into opportunities requires a further upgrade in status of the CFO in 2023. And those in position must have the skills to match because the already significant pressure to balance the books and enable – rather than block – business-critical innovation is only likely to intensify in the current climate.
Notably, 2021 research published by accounting software firm Tipalti found that 20% of UK CFOs reported a greater demand being placed on them by the executive board. "This trend will be amplified throughout 2023 as finance takes on a larger leadership role to drive resilience and stability in a time of economic uncertainty," says Rob Israch, the organisation's President.
That CFOs are being afforded a larger seat in the boardroom makes perfect business sense. "Finance should be at the centre of all strategic planning as businesses become more numbers-driven amid economically challenging conditions," continues Israch.
Today, budgets are out of date the minute they are inked. With everything going on in the world, it is vital to have rolling forecasts, including budget forecasts.
Balancing short- and long-term goals
Alarmingly, 75% of the global CEOs quizzed for PwC's latest Annual Global CEO Survey, published in February, believed their business would suffer a decline in growth in the coming year, primarily due to economic uncertainty and market volatility. Hence the greater burden on CFOs to steer the organisation.
Israch warns, though, that "the finance team cannot purely be in cost-cutting mode. They will need to create a long-term sustainable growth plan. New investments must be strategically timed and nuanced with different sensitivities at play. This requires focus and, crucially, balance."
Alarmingly, 75% of the global CEOs quizzed for PwC's latest Annual Global CEO Survey, published in February, believed their business would suffer a decline in growth in the coming year.
David Carrick, CFO of global financial services provider Apex Group, agrees. "As costs rise, CFOs may instinctively look to retrench and cut expenses," he says. "However, this can prove counterproductive in the longer term."
Despite the growing multitude of factors likely to halt progress, CFOs can't afford to be too myopic. Indeed, if things weren't tough enough in the near future, 40% of the CEOs in PwC's report reckoned their organisation would not be economically viable in a decade. The message is clear: what works today will not work tomorrow. Therefore, there is a critical need to shift away from a business-as-usual approach.
As 18th-century English historian Edward Gibbons posited: "The wind and the waves are always on the side of the ablest navigator." His point being leaders – and CFOs in particular – can better navigate challenges by having a broader scope of understanding. For CFOs in 2023, that means being comfortable with data, investing in technology and possibly foresight and scenario planning.
Further, with a more holistic, integrated strategy, leaders will understand the root cause of the short-term issues that keep bobbing up, argues Les Brookes, a Partner – and until recently CEO – at business transformation consultants Oliver Wight.
Rolling forecasts and financial plans
"Today, budgets are out of date the minute they are inked," says Brookes. "With everything going on in the world, it’s vital to have rolling forecasts, including budget forecasts. Assumptions around costs – commodity pricing, raw materials, fuel and so on – need to be updated constantly. Therefore, it’s paramount to use a rolling financial plan."
Little wonder a PwC Pulse Survey published in August 2022 found almost half (47%) of the 97 CFOs at Fortune 1000 and private companies in the United States revealed their top priority was building predictive models and scenario analysis capabilities.
CFOs must balance the financial constraints brought about by current economic uncertainty and the looming threat of recession with the fact that continued innovation is undeniably key to an organisation's success navigating such choppy waters.
Emphasising the importance of keeping longer-term plans in sight, and tweaking them as required, Brookes added: "You might think that it's primarily small- to medium-sized enterprises that tend to take their eyes off the horizon due to a lack of resources and the need to keep the ship afloat. But from my experience, the bigger the boat, the longer it takes to turn.
"So unless you are turning it well in advance, you're more likely to end up crashing into something impossible to avoid, and the cost of business will be too significant to survive."
To circumvent problems, investment in technology is essential, according to Apex Group's Carrick. "Digital technologies are increasingly forming part of the everyday role of the CFO: application programming interfaces, robotic process automation, data analytics, blockchain, cloud computing, artificial intelligence and machine learning," he says.
"CFOs should continue to focus on the sustainable acceleration of operational efficiencies, including those achieved through technology investment in these areas. Their ability to access relevant data and react quickly will be crucial to mitigate and manage risk, and ultimately deliver business resilience."
Taking the lead on innovation
James Buchanan, Executive Director at global innovation agency Designit, continues this theme. "CFOs must balance the financial constraints brought about by current economic uncertainty and the looming threat of recession with the fact that continued innovation is undeniably key to an organisation's success navigating such choppy waters," he says.
Therefore, determining cost-effective and clear steps to incorporate innovation "successfully and effectively are necessary," Buchanan continues. He suggests that such measures can initially include piloting "low-cost ideas for iterative experimentation" before implementing more extensive activity – and budget.
Buchanan points out that a modest outlay in market research is good value. "This way, experimentation is targeted to create developments immediately relevant to your market and impactful to your bottom line, budgets are not exhausted, and results can be predicted before a huge amount of money is spent on them."
When today's top CFOs started their careers, it is unlikely they could have predicted that enabling data-driven innovation would be part of their remit. But in 2023, and in the coming years, that is the reality. So perhaps members of the next-gen CFO, au fait with data analysis, are more confident with steering strategy and risk-averse?
Moreover, perhaps they realise failure and experimentation aren't necessarily expensive. "Innovation doesn't need a huge budget push to be successful and it also doesn't always mean developing and launching brand new products or services," says Buchanan. For instance, innovation might not be a huge digital transformation project. "It can be as simple as making small design changes that can increase effectiveness and save money, or adding personalisation tools to the products and services that your customers use, creating greater loyalty and increased sales."
Interestingly, while CFOs will feel the pressure in the coming months – and years, possibly – given the economic uncertainty, they will be better prepared for promotion, recent data shows. A Crist Kolder report found that in the first half of 2022, approximately 8.1% of 681 CFOs among both Fortune 500 and S&P 500 companies were promoted to the role of CEO – an all-time high. A decade ago, that number was just 5.6%. What will it be in 2032?
So, who would not be a CFO in 2023?
