The Future of Finance

In a climate marked by constant disruption and unprecedented change, CEOs are aware that business as usual is no longer a viable option. According to KPMG’s 2018 Global CEO Outlook survey, nearly 60 percent of CEOs see agility as the dominant success factor for their businesses.

Increased agility demands innovative thinking and strategic risk-taking, neither of which, historically, has been associated with the CFO role. But that is changing as technology advances and key functions become automated. Value preservation, long the central raison d’être of the finance function, is still vital and will always be table stakes for finance. Today, CEOs need a finance chief who can steward value creation as well. Ideally, the CFO will partner with the business in deeper and more impactful ways and cut across functional areas and upend silos to unleash value. “It’s no longer reporting on the past,” says KPMG Partner John Mulhall. “It’s about having insight into where the business is going and being able to communicate that effectively.”

Ultimately, CFOs must wear two hats: one for stability and control of the enterprise and the other for enabling agility and profitability in future enterprise innovation. “There is really no other role in the organization that’s been given the permission and also has the capability to integrate strategy, financial outcomes and operational analytics,” says Mulhall. Whether a company is forecasting revenue in total or rolling out a new product; the CFO should provide insight using internal and external data.

On the flip side, the data-savvy CFO is uniquely positioned to help the company course-correct when it’s headed in the wrong direction, says Mulhall, who recalls a company that was looking at the revenue growth of one of its lines in a multi-billion-dollar segment. An analysis of external signals using algorithms and statistical techniques, incorporating 50,000 data, reached the conclusion that the line was facing decreasing revenue growth. “But the leaders of that line believed the opposite, based on their own selective anecdotal evidence and beliefs. The business had planned its costs and investment for that growth position,” says Mulhall. Ultimately, the data-based analytical predictive results were much closer to reality. “The business was not growing as fast—in fact, it was shrinking—and because the company had not planned for those scenarios, dialing back on them caught them a bit flat footed.” So, this is not just a change management challenge for finance; it is a challenge for the business and the role of finance.

To become a better business partner, the CFO must be able to:

• Embrace extreme automation. The confluence of robotics, advanced analytics, cloud applications, blockchain, and other technologies is expected to create an all-new operating model, empowering finance to deliver more value with less effort. In addition to automating core finance and accounting processes and reducing labor requirements by up to 70 percent, it may enable finance to harness the data inside those processes and become a strategic interpreter, providing new kinds of insights. “The CEO should sponsor an initiative to optimize and harmonize data structure designs across systems to increase the speed, depth and breadth of analytics,” says Mulhall.

• Learn the language of predictive analytics. AI and machine learning can help mine internal and external data to get a holistic view of customers, competitors, suppliers, partners, and employees, and then detect and interpret marketplace signals globally. The CFO can anticipate changes, making it easier to stave off disruption. He or she can also better manage capital asset investment, optimize budget planning and even manage supply chain risk using sophisticated algorithms.

• Link company strategy, financial projections and management metrics. Ideally, the CFO should participate in the development of the company’s strategy. If that is not the case, then he or she must be able to understand how that strategy will translate into future finance outcomes and related metrics. The finance chief must have the skill to tie those together and manage investor expectations of likely returns, says Mulhall. “They need to measure, on an ongoing basis, the delivery against the strategies—not just waiting to report on financial outcomes, but as the business is going along, understanding and predicting operational drivers.” For example, real-time analysis of order fill rates would reveal potential loss of revenue if those rates start to fall. “Having the systems to deliver operational metrics on an efficient basis, tie them to finance and do it in a predictive fashion—that is really the new frontier,” says Mulhall. Thanks to cloud-based “As-a-Service” models, midsize companies with fewer internal resources can now get access to the same tools used by large multinationals. For example, KPMG’s Performance on Demand allows subscribers to use the firm’s powerful analytics capabilities. Ultimately, says Mulhall, companies of all sizes will be able to take advantage of the latest technology, will be freed up to focus on strategy, anticipating potential challenges and leveraging disruption into opportunities for growth. “The technology is so advanced that people in the CFO suite will soon be performing new roles,” he adds. “It’s really a new era.”

 

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