CFO Central

When CFOs Talk, CEOs Listen

By Art Wittmann, Brainyard Editor
July 27, 2020
Puzzle

In short:

  • Our preliminary survey data shows CFOs taking on a new role: smasher of rose-colored glasses.
  • We also saw optimism over the ability of finance teams to function at a high level even while working remotely.
  • The million-dollar question now: Will CFOs come out of COVID-19 with new responsibilities? And if so, what does that mean for the role?

Measures taken to limit the spread of coronavirus have challenged businesses in ways that haven’t been contemplated in two generations. Yet many CFOs are pleasantly surprised by how their teams have continued and, in some ways, extended the mission of the finance department even as offices closed and workflows changed overnight.

That’s right: Pleasant surprise was a reaction often cited in the preliminary results of our most recent survey on finance team performance through the pandemic. Remote work, as it turns out, wasn’t the dire challenge many business leaders imagined it would be. That’s true even of month-end closes. In fact, less than one-quarter of our initial respondents said they were looking to return to a day with everyone in the office — making that the second least common response to our question about where work would be done as business resumed. The most common answer? Leave the choice to employees.

Still, the same survey shows that the finance department’s job is now more difficult in a number of key ways, including cash management, scenario planning and managing accounts receivable. No surprise there. But finance leads seem confident that these problems haven’t been, and won’t become, insurmountable. In fact, CFOs have become strategic in a way many haven’t experienced since the last painful downturn.

In the words of one CFO from a midsize software firm: “We got this.”

Now the trick is parlaying that confidence into long-term business influence.

Stepping In, Stepping Up

In less turbulent times, as companies hit their strides, CEOs tended to focus on creating great products while CFOs dealt with creating great companies.

If the CFO does an excellent job, the CEO doesn’t worry much about DSO or current AR or even cash runway as the business grows. It’s a dynamic-duo approach that works very well: Companies grow profitably as they delight customers with great products. Good CFOs, like good referees, keep everything running smoothly while staying mostly in the background.

Those “normal time” rules are out the door right now, and that has the CFO and CEO encroaching on one another’s fiefdoms in a big way. What finance says now matters a lot, particularly in determining measured responses that prioritize short-term viability without sacrificing long-term resilience and agility. That includes input on product mix and service strategy.

Another new part of the CFO’s job that’s just as important, if less publicly acknowledged: truth teller, and in some cases, BS caller.

Times of extraordinary uncertainty can drive companies to take solace in group think. Sales projections get suspiciously rosy. Supply chain issues are dismissed as more transient than they really are. Marketing’s SQLs might actually just be MQLs. And the same optimism that led founders to start companies can lead them to think that good times are just around the corner.

The CFO’s nature is (hopefully) to trust data and analysis over instinct. That means questioning assumptions about short- and long-term trends that don't come with solid data to back them up.

Chances are you’re spending a lot of time planning for various recovery scenarios. These are times that require ruthless honesty and a clear-eyed look at what you can glean from the data you have at your disposal.

No one wants to see a second wave of COVID-19 in the winter, but you sure better plan for the possibility. If sales leaders are coming to the table with outdated projections, someone needs to tell them that’s not good enough. They’ve got to talk to customers about future plans frequently and do something salespeople often struggle with — listen. Perhaps the hardest part of the equation will be coming to grips with staffing. The Economist looked at several Pacific Rim economies that handled the pandemic better than other regions did. The troubling reality: None of them has found its way back to 100%. Sooner or later, government stimulus will give way to a new normal. Whatever that reality is for your business, it’s going to come with implications for your largest ongoing expenses, like payroll.

Who Did the Leaving?

For companies that have been in business for a while, it might be hard to conjure up the institutional memory of finance’s role in the early days.

When exceeding $1 million in annual revenue is an ambition, organizations tend to be ideas rich and cash poor.

Somewhere north of a few million in revenue but short of $10 million, founders bring on finance experts to drive growth, and the CEO and CFO work closely together to convert vision to reality. They grow the business together.

Then, as companies move past that $10 million mark, something odd often happens. Finance cedes much of its strategic role and goes head-down formalizing and structuring processes around accounts receivables and payables collections; implementing GAAP-compliant accounting, tax and payroll; and shoring up back-office functions.

Think it’s non-finance execs pushing “the numbers guy” into the background?

On the contrary, our Winter 2020 Outlook Survey revealed that it’s finance teams abdicating their strategic roles, often to the dismay of their colleagues. As companies grow into the midmarket, non-finance execs are very interested in partnering with finance to identify opportunities for growth; in fact, it’s a top priority.

Finance Insights

Why do CFOs let this happen?

It’s an old story: Finance leaders are asked to do more, without more resources. As their companies grow, the number of rules and regulations they’re responsible for complying with increases in tandem. And, speaking of being responsible, they resist delegating.

Last year at this time, CFOs told us that “juggling too many responsibilities” was the biggest challenge they faced. That trend has not gone unnoticed. Increasingly, functions that might typically fall to a COO are being left to the finance team.

It seems clear that CFOs are simply getting bogged down in the routine functions of their jobs. What gets lost are the strategic functions.

CFO Challenges

The same survey also showed that CFOs believe technology will bring significant benefits to the finance department (see chart, below).

Finance teams are learning that improving manual processes and mining them for data will get them only so far. Technology, particularly finance process automation, is what’s going to earn the CFO more time and deliver data of the sort that will allow for better short- and long-term planning.

It’s one lesson coming out of the pandemic that smart companies will keep with them.

From our own surveys and success stories we’ve seen, it’s clear automating AR, AP, reporting and other finance functions — and doing so in the cloud — is greatly beneficial. The challenge has been justifying the cost of that automation versus, say, marketing or sales automation or improvements in operations or even adding new staff.

“We are a startup with a small finance team,” said one controller about the functioning of the finance department in a small healthcare company. “At the moment, we have the ability to meet the needs of the company; however, as we continue to grow — once COVID restrictions ease further — we will need to add headcount to handle the day-to-day operations.”

It's a familiar refrain as companies grow to a certain run rate. But will the FTE funding be there, and if so, would it be better spent on automation?

Technology to the Rescue

While the pandemic has reinvigorated the strategic role of the CFO, at some point, that enthusiasm will likely fade. Unless, that is, they take steps to reduce the load of repetitive tasks. Further, it’s been the conclusion of many that companies with stronger technology adoption are doing better through the crisis.

Morgan Stanley feels so strongly about it that it produced a (gated) report titled “Technology Eating the World - Top Trends Post COVID-19.” While many of the trends the report cites have been in the works for some time now, the pandemic has emphasized the benefits of cloud-based applications, automation and e-commerce and put an exclamation point next to the importance of mining data for insights. The report points out that, for many consumers of these technologies, the pandemic has accelerated adoption timelines.

Finance Challenges

Specifically, Morgan Stanley insists that e-commerce adoption has been sped up by at least two years.

For companies whose products are in demand now and will be more so in the future, this is likely the right time to up your technology game in at least some of these areas. In the process, relationships between the CFO, CEO and other execs, certainly including the CIO, become more strategic.

Finance automation in particular makes sense now because some of the biggest challenges currently are around cash runway and accounts receivable, while at the same time, new sales are likely harder to come by, and marketing may be less effective. Simplifying challenging finance functions while solidifying the ability to close the books remotely and creating a foundation for e-commerce will go a long way toward compiling the data everyone wants and making the company more resilient.

For many organizations, this demands a shift in priorities. Maybe you speed up plans that are already in process, maybe new funding is required. While CEOs understand the benefit of a back office that runs like a well-oiled machine, when faced with customers asking for new features and products at the same time as CFOs are asking for better technology, customers usually win.

This is one time when CFOs need to solidify their strategic standing. Money spent on projects that make for more integrated and automated business processes will deliver a solid ROI and better customer outcomes.

“We have made some adjustments, but most of it was accelerating initiatives we were already working on to be more efficient and improve reporting for better decision-making,” said a controller from a consulting services company when asked about finance operations during the pandemic.

A COO from a large wholesale distributor was more succinct about the actions needed: “Ridding ourselves of legacy and disparate systems cannot happen fast enough.” The same respondent reported two primary responses to the pandemic: reducing headcount and moving to cloud-based systems.

CFO as Tech Evangelist?

The emphasis on adopting up-to-date, cloud-based, highly integrated technologies isn’t just coming from the finance team. Marketers need tools to make the best use of digital platforms and social media. Sales teams need a system for managing customer contacts, supplemented with a good ecommerce engine. You may also need project management software, and the wholesale distribution COO above probably needs better inventory management systems that integrate easily with billing. Professional services organizations need engagement management tools, and so on.

The challenge of the pandemic is that it has laid bare the weakest parts of many of these processes all at once. This is at least partly borne out by our current polling, which shows tech investments are more likely to be funded now, with about half of respondents saying they’ll spend more on tech than they did in 2019.

Even in March, when our polls showed executives were eyeing spending cuts across their organizations, technology was the least likely to be hit. Now, tech spending intentions are increasing; sales and production spending is level; while marketing, capital spending and payroll are seeing reductions.

That technology wish list is usually too long to fulfill all at once, so this is where the CEO and CFO need to agree on strategy.

Our advice is, learn from those who’ve been there. Large businesses have been through this pain. They’ve made the mistakes of buying point solutions to one-off problems only to find that they couldn’t easily — or at all — integrate them into a holistic system.

Siloed technologies were, and often still are, the bane of many Fortune 500 companies. When that became clear, the answer was usually to hire a CIO to “see the big picture.” Unfortunately, those CIOs were often so risk-averse that they missed or were late to adopt important new technologies, like marketing or sales automation. Many are still clinging to on-premises systems like Linus to his blanket. As a result, in many large companies, disciplines like marketing or financial technology are no longer part of the CIO’s sphere of influence.

Oh, and the funding for those technologies has migrated to department leads. Maybe the CMO calls the CIO about new martech purchases, maybe she doesn’t.

For businesses without an enterprise-size checkbook, it’s important to take heed of the integration lessons big companies learned the hard way. This too is where CFOs need to assert themselves in strategy sessions. It’s easy for leaders from sales, operations or marketing to fall in love with a solution for its features but not consider the big picture.

Your job, as the one who has to build a great company, is to keep that big picture in mind at all times.

Art Wittmann is editor of Brainyard. He previously led content strategy across Informa USA tech brands, including Channel Partners, Channel Futures, Data Center Knowledge, Container World, Data Center World, IT Pro Today, IT Dev Connections, IoTi and IoT World Series Events, and was director of InformationWeek Reports and editor-in-chief of Network Computing. Got thoughts on this story? Drop him a line.

Mark Bianco

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