Komil Ahmetov, Associate Director, Business Consulting, Grant Thornton UAE, gives his take on why CFOs need to think outside the box and consider the value of the unknown, in the form of predictive analytics.
The rapid development of new technology, disruptive changes in business models, enhanced competition and volatility in the commodities markets all seem to be impacting the finance function significantly. The role of the CFO has been transformed from playing a role of financial control and advice, to playing a more strategic role and taking future-oriented decisions and perspectives. Nowadays, CFOs are taking a leading, rather than an advisory or oversight role within strategic decision-making. More recently, a larger proportion of CFOs have started becoming the key partner for the CEO in strategic decision-making and thus evolving their own role.
Senior stakeholders see the main role of the CFO as supporting sustainable business growth. Given the changing external and volatile environment, the finance function should have greater adaptability and agility to ensure the business is braced and safeguarded from risk in the external environment. It must play a much more dynamic and facilitative role, moving from static and rigid processes and controls to adaptive and agile models. The finance function should have greater resilience, with the ability to absorb and bounce back from internal and external shocks along with being able to develop the adaptive capacity of the organisation, provide qualitative planning for unforeseen shocks and use predictive analytics and risk mitigation plans.
Developing robust analytics capabilities for the finance function is another important priority and one which the CFOs of the future will become more dependent on as market volatility and competitive pressures call for greater and faster insights from the finance function. Businesses expect that the finance function will provide actionable business insights and this requires (i) turning data into information and insights, (ii) then turning insights into actions. To secure this, CFOs and their finance function must live in the future, change their focus and look more at possibilities, not facts. They should not simply look ahead, but be predictive, and develop prescriptive solutions.
Leveraging Big Data can be a good way to provide predictive solutions. It involves examining large amounts of financial data for better decision-making and insights. An example being international car rental company AVIS/Budget Group who were facing difficulties during the recession in 2009 and as a result, were cutting back significantly on employee expenses. Reduction in revenues resulted in increased pressure on the management to formulate a plan to identify new opportunities. The company started mining Big Data to derive actionable marketing insights. It used Big Data technology to process significant volumes of transaction and unstructured data to analyse patterns, identify relationships, derive insights and put them into actions. As a result, the Group developed a ‘maximise customer value’ model which led to customer needs that had been previously untapped being identified and addressed. The initiative resulted in enhanced profitability and increased incremental revenues by approximately $200 million.
Technology and data are fundamentally impacting the role of the CFO. As a matter of fact, more and more chief information officers are directly reporting to CFOs than ever before. ERP and automation in the future will not be about incremental changes in the existing ERP. They will be about (i) continuous process improvements to increase efficiency and effectiveness; (ii) increasing the degree of functional process integration; and (iii) taking advantage of emerging technologies (robotics automation, cloud etc.). Such new technologies will enable CFOs to connect: (i) information from financial systems with data from other business functions; (ii) from cloud-based external sources in new ways, and with unprecedented speed.
Advanced technologies such as cloud computing, in-memory platforms and predictive analytics amongst others, can help CFOs make better and more sophisticated use of data, influence decisions and take practical, timely action. The following example supports the claim – Verizon, a large communication company in the US were facing challenges since the smartphone market was getting saturated and this impacted negatively on the cash flow. The company looked for opportunities to reduce costs. It introduced robotics process automation to automate corporate bookkeeping and accounting tasks. As a result of this initiative, the company cut a quarter of their manual Excel entry employees from 14,000 to 10,500, closed more than half of its 200 back-office locations, built a new hub for finance operations in Florida and reduced its finance-department costs by 21 percent. Real-time reporting in the future will provide the finance function a tool to communicate insights to businesses, allowing them to act faster in the future, thus promoting efficiency and reducing operating costs. Closing books on an everyday basis will provide the finance function with more flexible and adaptive processes like near real-time reporting, rapidly produced analytics and dynamic and integrated forecasting. Another big challenge ahead for CFOs is securing an enhanced connectivity within an organisation. It involves integrating finance and operations to provide connectivity between different functional silos, systems and processes.
Now, operations and finance are not always well integrated and they act as if they are two different islands. To ensure the integration, the finance function should engage with internal customers to understand their needs and business challenges and obtain necessary insights on how to provide value by supporting them. Real-time reporting, along with strong integration of the finance function with the remaining functions within the organisation, will provide them with a tool to communicate insights to the business, allowing them to act faster in the future, thus promoting efficiency and reducing operating costs.
These changes and pressures from the external environment will convert the role of the CFO to become the future innovation leader and profitability officer. We will also see the modern CFO being known as the chief profitability officer, chief strategy officer or chief innovation officer playing a key role in leading innovative initiatives within the organisation and driving forward a pioneering, profitable, efficient and dynamic function in the not so distant future.