At some stage, many businesses will decide to transform their finance function to make it more efficient and effective. Firms may also undertake this process to take advantage of the many new digital fiscal management tools that have emerged.
Companies are now appointing a dedicated C-suite executive to drive the transformation process. This person is given the power to make decisions and can direct the program from a senior level.
The role is often titled Chief Financial Transformation Officer (CFTO) but can also be named Financial Transformation (FT) Leader or head of FT.
Deloitte partner Paul Zanker says in the past, the CFTO role would be combined with another position, for instance the CFO, finance director, or finance controller. However, that risks a lack of total dedication to the transformation process.
“To drive transformation you need a dedicated person. They must be the chief architect of the change. But it's important to remember it's not something that's done in isolation, transformation must involve the finance team and also other senior stakeholders," says Zanker.
“The CFTO, the executive and the finance team, as well as representatives from other areas of the business, must plan what the transformation looks like and think about how they're going to drive it," he says.
Stakeholder management is a crucial part of this process. This involves bringing everybody in the business on the journey so the transformation achieves the desired results and success.
“Taking stakeholders through the process is a huge part of the role," Zanker says.
A finance transformation can be a costly exercise. Having a person dedicated to its success can ensure the process delivers the required return on investment.
According to management consulting firm McKinsey, two ingredients help a transformation program to be successful.
First, top-down support is critical. The CFTO relies on the visible backing of the CEO and board to help their work gain prominence across the rest of the business.
And second, the program requires a positive environment. This may be difficult to achieve amid change and disruption.
An effective CFTO has the experience and skills to turn around negative sentiment.
What's the difference?
It's useful to understand the differences in scope and function between a Chief Financial Transformation Officer and a Chief Financial Officer (CFO).
“It's the CFO's role to run the business. Their job is to be the guardian of the balance sheet and run the finance function and the finance team. Undertaking a finance transformation project is a very different job," says Zanker.
The CFO's role includes generating strategic financial insights and board reports, making sure capital resources are appropriately spent, and managing cash flow.
In contrast, the Chief Financial Transformation Officer's job is to reimagine a better finance function.
“The two roles work hand-in-hand and the CFO is a stakeholder of the CFTO. If the CFO is driving change and running the company they have to do too many things. The reality is there's only so much a person can do in a day successfully," he adds.
The role of data in transformation
Data plays a huge role in any transformation project. Its place in the business needs to be mapped out before the transformation process starts.
Key to the CFTO role is a solid understanding of how the business collects, stores and manages data from a range of disparate sources. These include finance, sales and CRM information, as well as marketing data.
This information forms a baseline measurement so the CFTO can understand the business' current position. From there, they are able to create clear and measurable goals for the transformation process.
For instance, a goal may be to improve accounts receivables so the average time in which a customer pays an invoice drops from 60 to 30 days. Such a goal can only be set if the business knows 60 days is the average time it takes a customer to pay a bill.
Once that goal is known, clear steps can be implemented to achieve it, for instance reviewing payment terms and debt collection processes.
“Data is critical because it's the source of truth for information about profitability and which markets are most appropriate for the business to enter or exit," says Zanker.
“The reality is that it is hard to have a finance conversation today without talking about digital technology. Finance is enabled and transformed by technology," he adds.
Another consideration for any CFTO: what will the finance worker of the future look like?
“One of the big questions on everyone's mind at the moment is: what are the skill sets required for the finance function of the future? In the past the finance team needed people with the skills to analyse historical financial information. Now there's more of a requirement for the finance team to have extensive commercial acumen," Zanker notes.
“It's essential for the transformation process to consider how the experience and knowledge of the finance team might need to change over time, especially as data is key to the future of finance," he adds.
It may be that the CFTO role is a short-term one. It could potentially be a contracted position with very specific requirements.
Alternatively, some businesses may choose to make the role permanent, acknowledging that ongoing transformation can help them make the most of new tools and technologies and keep the finance function operating at its full potential.
The right approach is different for every business. Often it will depend on the extent of the change and the nature of the business.
Whichever path the business takes, dedicating the right resources to ensure effective transformation may help set the business up for a sound financial future with the right systems and information at the team's fingertips.
- The transformation process can be streamlined when a dedicated C-suite executive drives it.
- The CFTO can deliver a return on investment for the transformation process.
- One of the main roles for the CFTO is stakeholder engagement so the program has traction throughout the business.