We now live in a changing world. The complexity of business models is changing, and regulation is evolving. In many senses, the relative stability of the 2010s has passed, and we’re now faced with a much more volatile financial environment.
ACCA’s recent report, Finance evolution: Thriving in the next decade, stresses the vital role finance teams play in growing sustainable businesses, and urges CFOs and finance leaders to take immediate action.
Our research showed 32% of respondents noted an organisational lack of understanding as to where the finance team can add value. If businesses want to survive a business environment in which finance teams play an increasingly important and complex role, attitudes and skills must adapt and change too.
A key element of the finance evolution concerns a shift from traditional data analytics and processing, to preemptive thinking on risks and opportunities and assessing the financial impacts. Whilst businesses may have been able to rely on the skills of consultants ten years ago, such skills are expected of a finance professional now.
Against a backdrop of change, how organisations achieve growth or sustainable business models in a complex world is going to be increasingly challenging. SMEs can’t afford to be passive. They cannot afford to risk losing out on growth opportunities, as we as a nation are hoping for more economic and political stability in years to come.
How does this affect the role of the CFO?
Traditionally, the CFO assists in aligning business and finance strategy. This helps to grow the organisation, and drives change or business improvement initiatives within the organisation.
As we have seen against the backdrop of the finance evolution, the role today encompasses much more than leading a businesses’ finance function, especially for SMEs.
In a small or medium sized enterprise, the CFO will likely have a smaller team. As such, they will need to wear more hats, and be able to jump across multiple avenues to problem solve and continue long-term growth. These multi-hat-wearing CFOs and their teams may already be more agile, have broader skill sets, and work more closely with the rest of the business stakeholders, giving them an ideal position to demonstrate the finance function.
Smaller businesses (such as those falling into micro) may have limited resources, perhaps just a single financial controller. There is a temptation, in micro-organisations for example, to maintain a function that is solely focused upon transaction processing. In a changing world, even the smallest organisation needs insight from data to guide strategic objectives and mitigate risks. In such a scenario there is a temptation to solely focus short-term financial goals, when longer term objectives also need to be considered. Here, accountants and external financial professionals can play an important role in guiding and advising small businesses to ensure resilience and growth across the board.
SMEs can also be more vulnerable to shifting economic situations with less cash reserves to lean on typically. Having a solid CFO, who may be a fractional CFO who works across several organisations, in place who is adaptable and always looking ahead can be really useful in addressing these challenges. They can work more closely with supply chains and partners, and across the business to find savings or streamline functions.
A further consideration is that the financial evolution affects the CFO by virtue of their team needing to adapt and change to meet ever-changing demands. The report offers a series of domains that finance functions need to have the capability of delivering. Addressing these requires action.
Firstly, firms need to identify skills gaps, and from where they derive. The gaps themselves often come from the organisation’s strategic objectives and the changing regulatory landscape. Each of those domains may have different strategies in addressing skill gaps, and therefore different potential solutions. Some gaps will require upskilling and investment in individuals, including the CFO themselves.
Secondly, CFOs need to recognise that skill development across their team is a paramount responsibility, and one that requires investment. We need to recognise that not all finance functions can have all the skills needed to address the requirements placed upon them, especially in an ever-changing world. This may be in more technical areas such as compliance or reporting where finance-as-a-service or business process outsourcing may offer alternatives here.
What next for CFOs?
The finance evolution has impacted not just the CFO role, but the wider function of entire SME finance teams. More work is needed to greater integrate finance functions into the wider growth and strategy of a business, and to remove the view that the department exists as merely a cost.
A CFO who understands the role requires them to constantly learn new skills, whilst not losing sight of traditional ones, will be able to feed knowledge into the wider team to the benefit of all. It is in this way that the CFO evolves to add value, taking on the mantle of a ‘value adding CFO’ or ‘Chief Value Officer’. Equally, employees can feed new skills and functions up the business chain, helping to present a more rounded view and feed into policy-making and long term strategic thinking.
Businesses who are passive players in this evolution ultimately risk preventing organisational growth, and long-term failure. Conversely, those who adapt quickly will be in a great position to succeed in future years to come.
