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The Enduring Significance of the Strategic CFO

Chief Financial Officers (CFOs) are deeply involved in determining how businesses adapt to business trends, particularly when it comes to digitalization, according to a McKinsey global survey centered on the ever-evolving role of the CFO.

McKinsey conducted the survey in March and April 2021, among over 350 global business leaders, including nearly 200 CFOs.

Over the past two years, crisis management has been responsible for an increased amount of focus from the CFO. Longer-term responsibilities, like strategy and organizational change remained important, but were sidelined while crises were dealt with.

Today, as the economic recovery progresses, CFOs, long regarded as key strategic partners, have a better opportunity to create greater impact at the top, and in the business areas most susceptible to change.

Between 2016 and 2021, the share of CFOs responsible for their companies’ digital activities has more than tripled, McKinsey said, and the share reporting responsibility for investor relations has grown 44 percent.

McKinsey’s survey confirms a well-documented uptick in digital investments, including in robotic process automation (RPA) and artificial intelligence (AI), the uses of which more than tripled since the consultancy’s 2018 survey.

These technologies stand to bring the most value to the areas of revenue and cash-flow forecasting and scenario management, survey respondents said.

Just under 60 percent of respondents in this year’s survey said these investments have provided a strong, clear return on investment (ROI).

That may be further proven by the year we’ve had, in which digital infrastructure was integral to company resilience.

Respondents from companies “significantly more prepared for future crises” because of their pandemic response also reported greater use of digital and automation within their finance functions, McKinsey found.

The same barriers to entry nonetheless exist for companies unsure of making the investment. High up-front costs, lack of implementation skills and cultural resistance topped the lists of concerns.

When it comes to strategic partnership, a cornerstone of the CFO role, a great deal can be gained from a deepened connection with the CEO, the survey found.

With a larger day-to-day focus on digital technologies within finance alongside investor relations, CEO-CFO communication will likely become even more critical. This extends to other areas that have become of interest during the pandemic, namely environmental, social and governance (ESG) issues.

CFO respondents said their interactions with CEOs regarding organizational transformation have increased significantly during the pandemic, which is a huge value-add. Both groups of executives said they’re pursuing transformations for many reasons, including performance improvement and digital initiatives.

A key factor of the relationship: a CFO-initiated business transformation has the same odds of succeeding as does one initiated by the CEO, even though the CEO is much more likely to initiate the effort, McKinsey noted.

“CFOs say their time on transformations would be best spent on role-modeling new mindsets and behaviors, setting high-level goals, and communicating the transformation’s results,” the management consulting firm wrote. “When, in practice, they’re most often charged with traditional finance-oriented responsibilities.”

Many CFOs have found themselves pigeonholed into focusing squarely on their business’s short-term needs, like balance sheet health and cost maintenance. But McKinsey points out, the longer-term implications of topics like digital transformation, and ESG standards, also need their leadership and their deep knowledge of the company’s business model and financial position.

Namely, “CFOs can continue experimenting with new tools and technologies, digitize their own functions, and, with that experience, help spread digitization throughout the organization,” McKinsey wrote. “They can lead the way in evaluating ESG risks and opportunities by factoring ESG-related criteria into company decision-making. CFOs can also take on a bigger role in executing transformations, beyond traditional finance, since they control most of the key business levers that determine a transformation’s success."

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