Recent and long-term trends have brought finance leaders into the realms of permanent transformation and adaptation. “This isn't new. The finance role has the authority to effectively anticipate change. But the changes are coming thicker and faster. And that's where the challenge lies.”
This article is a translation of a CFO magazine Interview with CFO Services Blue Chip Boutique Leader Alexander Van Caeneghem and Client Partner Filip Ceulemens by Niels De Boysere and Maïté Holvoet.
The Strategic Role of the CFO
The benchmark survey results correspond broadly with what TriFinance and CFO magazine identify as the latest developments in the finance community: a shortage of talent, digitization, coping with rising prices and inflation, data security, a slow-down in the economic recovery. … Our pollsters tell us that the strategic role of the CFO, both as a business supporter and a fixer of these issues, was and still is crucial to the organization.
“What we see in the benchmark survey ties in neatly with long-observed macro-economic trends”, says Alexander Van Caeneghem, Blue Chip Boutique Leader CFO Services at TriFinance. “And, obviously, that shouldn't come as a surprise. The talent shortage - the result of a demographic trend - might have been flagged years ago, but it didn't really hit until the summer of 2021 when the economic restrictions were lifted. The lockdown has triggered a catch-up operation.”
Seven out of ten respondents describe the talent shortage as problematic to highly problematic. Also highly problematic are rising inflation and the cost pressures that go with it. In the third place, we have data security… “Data security is clearly vital to the digital transformation process. The survey reflects what we’ve noted ourselves, but with one, specific factor added: continuous transformation, the changes all coming at once.”
The CFO as Change agent
Continuous transformation is not new. “It is just more prevalent than before," says Filip Ceulemans, Client Partner CFO Services at TriFinance. Excuse the clichés, but we live in a changing world, and those changes are coming thicker and faster.
Organizations need a rapid response capability. The CFO, as a business partner, plays a key role in this. Respondents say that it is they who hold the support roles and anticipate change. Some CFOs even view themselves as the drivers of transformation. We see the same in our own community, where nine times out of ten CFOs push RPA, for example, usually on the strength of their process expertise or that of the finance team. The finance role claims that it has the authority to facilitate change and that it even steers the narrative.”
A position endorsed by Van Caeneghem: “Everything is open to very rapid change. We have a shortage of relevant profiles on the labor market, the cost pressures, the disruption caused by digital transformation and technological innovation. Meaning that the business is in a permanent state of change. These ‘problems’ have to be dealt with all at once. You can't let any of them slide, as they are interrelated. Organizations are forced to operate in a continuous transformation mode, the new paradigm."
“By introducing an end-to-end process mindset and facilitating knowledge sharing and transparency, organizations can take crucial steps towards a culture of continual improvement.”
Toward continuous improvement
“Continuous Transformation Mode is a good description," Natasha De Clercq says. 'Across an organization, everyone has a daily responsibility to flag improvements. You don't complete a transformation and just leave it there. Continuous change is better than one-off change, an idea that comes with future-proofing the organization. The challenge, of course, is to bring the transformation about without too much pressure or stress. It is the change that has to be radical, not the method. Organizations should be in permanent adaptive mode, in readiness to face the upcoming challenge.
“By introducing an end-to-end process mindset and facilitating knowledge sharing and transparency, organizations can take crucial steps towards a culture of continuous improvement, in which businesses eventually transform into future-proof organizations.”
Improvement is the whole point of transformation, and that takes energy and willpower, sweat and determination. “Here, the CFO can ‘push’ the C-suite to recognize the sense of this and the need to approach transformation from a holistic and integrated perspective. Every component of the operating model (process, people, data, technology) is interlinked. But you can't do everything at once. So, make choices, set priorities (people first!), take a phased and disciplined approach, and follow a clear plan that isn't too heavily invested in ‘time’ and ‘financial return’. Factors that are extremely inhibitive for any transformation. The challenge facing the CFO is to get that point across.”
Beyond Profit & Loss
More than ever, the CFO is transforming into a Chief Value Officer. The finance role is all about value creation. “Data security might be one of our respondents’ biggest concerns, but as an organization, you can’t skirt around data management”, says Filip Ceulemans. “Getting the analysis right and drawing conclusions that actually improve your business performance is one of the core tasks of the finance role. One key role of the CFO is to capture data, link it to the relevant KPIs, and keep a close tab on it. Most organizations have an incredible amount of data, but only a fraction is ever used. It's a crucial tool for the CFO and, more broadly, the business as a whole.”
In a finance role this implies a shift from reactive to proactive behavior, says Van Caeneghem. “The finance role extends far beyond control or risk management these days. They’re still important, of course, but value creation is certainly on par. It is the CFO's job to make sure that what the organization does, in terms of processes and activities, is actually necessary. Can any tasks be eliminated? What can be automated? And what will that take? As Filip says, more data is more readily available all the time. This opens opportunities for insight and management information, beyond finance and P&L.”
Data security is an absolute priority for Belgian CFOs. “The CFO who manages IT, as does the CIO, plays an essential role in this area”, Ceulemans tells us. “Security is a matter of concern. We know how dangerous hacking can be… But there is a distinction to be made between big corporate firms and SMEs. The latter can't quite muster a defense, but the awareness is there.”
Van Caeneghem sees the interest and the heightened concern as justified. “Without data security, there can be no digital transformation”, he tells us. “Consider new work scenarios that came in the shape of hybrid working during the coronavirus crisis. The ability to work remotely has been important since the lockdown, but it has to be done securely. So we all have some catching up to do. This issue will loom even larger when 5G comes along.”
“There is a shortage of talented candidate profiles on the labor market, costs are under pressure, there are disruptions due to digital transformation and technological innovation. … ‘Problems’ that have to be dealt with all at once.”
Alexander Van Caeneghem, BCB Leader CFO Services
Define Strategic Costs
Another trend that crystallized in 2021 is that of global price rises, due in part to the coronavirus crisis. It is reported by many CFOs as an acute challenge. But there is no easy formula to hand.
Natasha De Clercq: “The big question is whether the rises are sporadic, or systemic. Reducing costs in the short term, for reasons of prudence, is often a good strategy. In the long term, a much broader take is needed. For shortages and supply issues there are other healthy and innovative solutions out there, such as doing more with less, process transparency, waste tracking and elimination, locating alternatives, new business models, business partnerships, … I am sure that a huge potential for efficiency gains still exists, and that it may offer an answer to rising prices.”
Alexander Van Caeneghem sees an important link with the ‘Value Officer’. “Obviously, these cost-reduction exercises shouldn’t come at the expense of future growth. The CFO must be able to pinpoint strategic costs. A good concept here is zero-based budgeting. What shouldn’t we do? What should we do, and what should we improve? This ties in with recruitment and the search for relevant candidate profiles. Seven in ten CFOs describe the talent shortage as problematic to highly problematic. That talent shortage lies somewhere along the continuum of rising costs.
Cost reduction can make it harder to reach the people you sorely need. Process optimization lets people create more value and can affect your employer brand, making you more attractive to candidates. It enables the organization to cut some of the non-added-value-work from its job descriptions and leads ultimately to more attractive roles and positions. This is one way to facilitate personal growth and better results, which is exactly what TriFinance does: furthering people for better performance. These are the decisive factors in the war for talent…”
Unquestionably, the digital transformation is altering the demand for specific profiles in finance. “You need people who can handle this transformation and change”, says Ceulemans. “Finance shifted from bookkeeping to analysis a long time ago. The focus has gone from traditional corporate finance roles to constant adaptation to an ever-changing environment. Every day there is a new aspect to be dealt with. Finance experts have to be quick off the mark. People, processes, and systems have to adapt to new trends and technologies.”
Van Caeneghem: “In businesses with ongoing transformations, 4 in 5 CFOs say that the transformation relates to efficiency improvements and effectiveness. The basis for transformation is linked to the operating model. The CFO plays a crucial role in the company's organization, depending on the strategy. We turn our attention to processes and activities, people, data, systems and performance metrics.”
Digital transformation is affecting not just employee profiles, but job descriptions as well. Ceulemans: “RPA frees up time for employees to take on value-creating work. Repetitive work is done by the robot. This counts for a lot in the war for talent. Employers should give this the attention it deserves. Value creation is not just a shareholder issue, it is a stakeholder issue.”
Remarkably enough, just 1 in 5 respondents report an active involvement with RPA. “We know that there is plenty of potential out there for digitization and automation. RPA is an important element in our portfolio. We note that many of our clients have room both to optimize their business processes and automate them. RPA comes increasingly to the fore for routine work, but not everyone recognizes the utility of RPA implementations or is even ready for them. As the main reason against process automation, the CFOs in our survey cite a lack of understanding of RPA. But this can be worked on. We see ourselves as RPA evangelists, and not without reason (laughs). A CFO will be quick to recognize the added value of RPA, but getting management on board is another matter. And once you start, you have to keep the pressure on. Stop, and the whole thing collapses like a pudding.”
“Our respondents give a clear indication that the cost factor weighs heavily in decisions to digitize”, says Ceulemans. “As do implementation time and shortage of relevant skills. I find the cost factor a little incongruous. The cost price of a robot, for example, is incomparable with the huge cost a new ERP package. If digital transformation is a deliberate choice, a software robot comes in at a low cost. But if a business has doubts, the cost component obviously weighs more heavily. Skills can always be supplied through companies such as TriFinance. You can go straight for a consultant, or, alternatively, train and develop your own employees. Co-creation is the preferred model.”
If you are looking for specialist expertise, it is safe to say that in-house activation is one of the main routes. “On some projects, we certainly do recommend taking the employees along for the ride”, says Van Caeneghem in agreement. “This has much to do with employee flexibility and adaptability, as we have mentioned above. At TriFinance we always look at things from the perspective of personal growth.”
Filip Ceulemans puts fears over the duration of a software-robot implementation into perspective. “A robot can be up and running fairly quickly, in theory, but some companies overlook the important fact that it all begins with the process. A robot cannot function, let alone operate profitably if the process goes wrong. You have to start with the process that goes hand in hand with digitization and RPA.”
RPA also sets a process in motion that recalls know-how to HQ. “In the past, everyone wanted a shared service center to low-income countries such as India, Poland, Romania, …”, says Ceulemans. “Many companies are now moving in the opposite direction, due to legal pressures and statutory structures. Efficient automation processes that obviate repetitive tasks make the team more efficient in this area. This is a positive trend for a country like Belgium, where it can be used to hold onto jobs. Automation also gives businesses the opportunity to generate added value through their own employees.”