The evolving role of CFOs

2023 is widely expected to be a potentially volatile year for global businesses. The latest IMF projections indicate that the global economy is likely to grow by only 2.9% in the year, with nine out of ten advanced economies likely to decelerate. On the other hand, India will continue to be a bright spot, growing at 6.1% on the back of resilient domestic demand. While the Indian corporates remain cautiously optimistic about their growth prospects in 2023, a significant responsibility rests on the shoulders of CFOs to be on top of their game and navigate their organizations through this period of volatility and uncertainty.

CFOs will have the dual focus on running the business as well as transforming the business at the same time, while ensuring financial prudence & stability, to deliver an accelerated value to the organization. Given this scenario, steering through strategic growth paths while navigating potential headwinds such as the global macroeconomic environment, volatility in foreign currency, interest rates, and inflation will require financial leaders who have the capability to perform and transform, along with the ability and agility to pivot dynamically between the two.

Here are some of the key levers in the finance cockpit that will require CFOs’ close attention in the months ahead to ‘Perform’ and ‘Transform’:

Data: For CFOs, preparing the FP&A function to deliver value amidst a volatile macroeconomic environment will be critical. There will be times when they will see themselves walking a tightrope between ensuring cash flow and enabling growth investments. It is important that CFOs fundamentally integrate latest the data techniques, AI, and machine learning into their FP&A capability and delivery. More broadly, CFOs who invest in creating a strong data backbone for the finance function – that enables KPI tracking and reporting, predictive capabilities to provide early warning signals, and mining data for real-time insights, enabling critical business decisions & investments – will have a firm grip to deliver in a fast-changing business environment.

Technology: With an eye on future strategy and performance, CFOs will need to collaborate extensively with boards, CEOs & CTOs for technology and cloud adoption. In the short-term, there may be a temptation to ‘differentiate music vs. noise about new technologies’ to justify returns, and therefore, balancing the organizations’ digital investments to near-term priorities vs. longer-term trends will be an important juggling act for CFOs in 2023. Furthermore, it will be important for finance leaders to have a clear roadmap for technology transformation within the finance function. The greater the adoption of digital analytics and technology in finance functions, the greater will be its ability to become a strategic asset for businesses.

Talent: CFOs who are considered strong business partners to CEOs often take a strategic view to developing next-gen skills and capabilities within their functional team, thereby elevating the value they deliver to their CEO and the board. We are seeing that CFOs are bringing in critical senior talent within their function to make it future proof while continuing to upskill their existing teams to build long-term capabilities. For example, the best-in-class finance teams are bringing in data science talent to leverage AI, ML, and predictive analytics capabilities in their day-to-day operations. The intent is to create a data backbone enabled by technology that is scalable and agile enough to adapt to the evolving needs of the business. The key here is scalability – as many do this for one or two used cases, but often struggle to scale it beyond.

Resilience: This is truly the litmus test in the current global economic scenario. CFOs will need to free up cash and strengthen their working capital to weather the economic slowdown in global markets. The organization’s ability to reduce costs, increase operational efficiency and manage risk is going to be very critical and CFOs will be at the center of making this happen. Times like these will also call for a higher level of pressure testing on strategic capital decisions and CFOs will bear the responsibility of guiding the business leaders and the Board through careful choices on capex spending.

Sustainability: Market-leading CFOs are getting heavily involved in creating policies, frameworks, processes, and data that need to be captured and analyzed to drive the gold standard in ESG reporting – not only with a view to complying with disclosure requirements but also achieving their corporate sustainability agenda and continuing to be an employer of choice. Furthermore, CFOs should lead the way by creating a culture of factoring ESG criteria while deliberating investment decisions. With the growing interest of investors, regulators, and consumers in ESG, this will remain an ongoing area of focus for CFOs and businesses at large.

To conclude, the cockpit that the CFOs direct today must weather many bumps and storms that will come along the way.  As CFOs prepare to navigate through 2023, it is prudent to say that with expanding portfolios and growing stature in the C-suite, they will play a central role in influencing their organizations’ ability to stay resilient and drive growth.

 

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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