2020 was a tough year. We continue to weather COVID-19 and are all stronger for it, and the slow rollout of vaccines around the world and the end of a turbulent US Presidency are both strong signals for far less turbulence in 2021.
We’ll all emerge from the pandemic as different people, and the same is true of our organizations. Those in the CFO function have had to make hard decisions related to real estate, staffing, budgeting, and the company roadmap. On a dime, organizations have had to quickly adapt to the reality of work-at-home with new or upgraded technology, and many businesses will be incorporating remote work more regularly going forward.
These sacrifices and quick pivots speak to the versatility of top CFOs in the pandemic, and Gartner even recently took the time to identify the nine traits of successful CFOs during 2020:
- Growth Leaders: Were 1.4 times more likely to gain first-mover advantage, made M&A deals that were 21% larger, and implemented R&D spending 2x faster than a control group.
- Scope Creep Wranglers: Had 24% fewer product and service lines and 18% fewer industry groups.
- Initiative Insurers: Allocated funds, and backup funds, for strategic initiatives.
- Obstacle Smashers: Identified internal barriers to growth and massaged them away.
- Customer Gurus: Didn’t just rely on data, but actually communicated with or surveyed customers and identified motivating drivers.
- Loss Cutters: Planned out timelines for investments with exit triggers baked in.
- Advantage Protectors: Avoided cutting costs on initiatives that provided competitive advantages.
- Savings Savants: Involved their entire organization in identifying cost-saving measures across the board.
- Budget Modelers: Utilized both zero and driver-based budget models to ensure all resources are aligned properly.
All of these shifts will have lingering effects on the role of the CFO, which has been steadily focusing less on financial stewardship and more on guiding the company strategy in developing disruptive business models and pitching investment in emerging technologies.
As we enter 2021 and the end of pandemic lockdowns are within view, we’ve identified 5 priorities for the strategic CFO in the new year.
1. Reevaluate the company business model
Rapidly emerging technologies and markets are disrupting business models just as rapidly, and if you haven’t already, now is the time to identify new avenues for success while simultaneously performing cost-benefit analysis – particularly as the CFO function is becoming more and more involved in risk management and IT decisions within their organizations. Finance touches every aspect of a business, so a CFO will have a broad perspective over where the most meaningful changes can be made to shore-up the company business plan.
When you’re next updating your business model canvas, you should look to address a few key operational questions as a framework for a new strategic direction:
What factors are restricting the growth of the company?
What are the primary uncertainties facing the company?
What technology or competitor has the potential to upend our strategy?
How can we efficiently scale so that revenue increases faster than costs?
How can we free up capital and other resources to invest in priority initiatives?
Be sure to read our previous article about the role of the CFO in developing a company business model in which we explore how each of these questions in more detail.
2. Employ modular business budgeting strategies
A recent Deloitte CFO survey listed “reducing costs” “increasing cash flow” as a CFO’s top two priorities in 2020 respectively, and this will stay true in 2021.
The raw uncertainty of 2020 saw many businesses doing away with their fixed cost budgets and implementing modular variable cost budgeting. Up to 20% of company funds need to be held in reserve to be able to move quickly to support key initiatives that are triggered by KPI thresholds, one example being if demand in different markets increases or decreases from the initial projections
As part of this modular strategy, all major initiatives such as R&D or capital projects need to be broken up into multiple phases with measurable KPIs. These junctions allow for funding to be adjusted based on performance, or for the plug to be pulled if necessary.
3. Bolster your scenario planning
A similar approach should be taken with your scenario planning. The pandemic has proved that it’s all too common for businesses to underestimate uncertainty when developing business plans and predictions. It’s important to ensure that you have Plans A through Z prepared should worst-case scenarios materialize.
With limited time and resources, of course, it’s impossible to develop fully fleshed out plans for every contingency. One helpful way to prioritize your efforts is to organize them by the level of uncertainty. We like this 4-tier system developed by McKinsey consultant Hugh Courtney:
Image Source: McKinsey & Company
The way you plan within each tier varies, and while Level 4 uncertainty is rare, it’s good to plan as much as is reasonable so the business can adapt swiftly when needed.
4. Invest heavily in digital transformation
The new work at home paradigm has required many organizations to rethink their internal processes and controls, and train employees in new ways of working. This is as much about risk management as it is about streamlining efficiency across the board – a flexible, technologically-fluent workforce is one that can adapt quickly.
Modernizing the finance department should also be a key focus here. Rather than seek solutions that make the status quo more efficient, now is a good time to think outside the box and reinvent the entire data capturing/reporting/analysis workflow. This means standardizing data storage and capture across the organization to ensure data is credible, consistent, and immediate.
Modern ERP and accounting software, for example, utilizes financial AI to pull relevant, real-time company data and provide information that is key to identifying trends and opportunities:
360 View of Accounting Data: Allows a CFO to view real-time procurement, expense tracking, invoicing, and cash flow simultaneously.
Improve Controls: Systems that include audit tracking and financial oversight to reduce financial errors and ensure the accuracy of all accounting data.
Financial Planning: Data from various operational components of the business provides business cases for cash management, borrowing, restructuring, equity raises, etc.
Real-Time Compliance: ERP reporting provides an investigative interface that helps ensure tax compliance and remediate issues.
Automating other functions such as accounts payable and receivable, time tracking, inventory management, and financial reporting all save time on data entry and result in less error on the balance sheets.
5. Make stakeholder alignment a priority
Having buy-in from all key stakeholders on innovation within a company is a necessity for all of the above. COVID-19 has hastened the process of breaking down company silos so that communication between business units is fluid, allowing for rapid shifts in strategy. Big changes can make anyone uneasy, so keeping lines of communication open and having leaders be transparent with their teams can make a transition that much smoother.
GCG’s CFO Consultants Can Keep You Ahead of Market Disruption
If you’re looking to transform your business model while leveraging financial executive-level expertise but aren’t sure where to start, look to Greenough Group. Our CFO consultants are available to work with you to reinvent your business model to keep up with (and stay ahead of) disruption.
“GCG’s executives don’t work like typical consultants; they integrate themselves into the company like they’re part of it. They’re deeply engaged in our business, take full responsibility, and we trust them completely,” said Michael Tso, Chief Operating Officer and Co-Founder of Gemini Mobile Technologies.