Three narratives driving CFO priorities in the COVID-19 era and beyond
Major crises are said to accelerate pre-existing trends, but they also expose the true nature of things. Covid-19 has walloped corporate finance groups with both experiences.
Throughout 2020, despite intense Covid-related disruptions to core finance processes, changing business realities have driven CFOs, controllers and finance vice presidents to expand their strategic priorities—an ongoing trend we have observed in recent years. Finance leaders have done so while stress-testing in real-time a new, highly flexible labor model during the seismic shift to remote working conditions—all the while addressing the organization’s growing demand for forward-looking, data-driven insights from their finance teams in a rapidly changing marketplace. In fact, advanced technologies that help generate informative analytics are a notable theme in the list of priorities for CFOs and finance leaders, particularly given the declining value of historical data.
Based on discussions with finance executives across multiple industries, as well as a survey, conducted earlier this year, of more than 1,000 CFOs and finance leaders worldwide, we have identified three narratives underscoring the CFO’s overall mission in the coming year. (Note: This survey was conducted by Protiviti.)
Narrative #1: Covid upended finance operations, yet significantly increased organizational demand for finance’s analyses, insights and expertise.
The numerous disruptions sparked by the pandemic made preparation of timely financial statements more difficult, created new cybersecurity risks, impeded the ability of many third parties to meet their service-level agreements, sparked supply chain upheavals, and spurred CFOs to fundamentally rethink their staffing approaches. Many of these challenges are reshaping how finance groups will operate moving forward.
Early on, pandemic-related obstructions tested financial reporting processes. Finance organizations endured significant challenges to completing financial reporting activities in a timely manner during the brunt of the pandemic’s spike in the first and second quarters of 2020.
Covid disruptions also interfered with finance processes performed offshore in shared service centers or by outsourcing partners. Some offshore and shared services operations had to cease activities under lockdown requirements, which forced finance groups to stand up replacement operations in other locations, or virtually, in a just-in-time fashion. Finance organizations are now rethinking their approach to using third-party resources and their overall labor models (see below).
As the economic fallout from the pandemic became evident in the first part of 2020, finance and treasury groups launched aggressive cash and working capital management activities. These groups promptly increased the frequency of their liquidity forecasts as they scrambled to respond to a deluge of requests from colleagues for deeper, real-time financial insights. Covid-related disruptions also increased the appetite for financial expertise and analysis among new segments of internal customers, including those responsible for data privacy, supply chain, and environmental, social and governance (ESG) activities. Expect those groups to continue requesting deeper data and insights from their finance organizations in 2021 and beyond. Forecasting and reliability of information for decision-making have become more elusive for many companies as historical trending data and year-over-year comparisons have become less reliable, putting a premium on currency of insights.
If all of this were not enough, CFOs continue to address a longer-lasting pandemic implication: revamping risk assessment and risk response and business continuity programs in response to hard-earned learnings and insights from Covid disruptions.
Narrative #2: Digital capabilities are becoming table stakes.
During the second quarter of 2020, it became clear whether finance groups were operating in a truly digital manner or making do with a digital veneer around their core finance capabilities.
Finance groups in the former category demonstrated greater agility and flexibility in restoring core finance processes initially hampered by Covid-related disruptions. Less digitally advanced finance teams were slower to recover and experienced more difficulties adapting to virtual collaborations. This underscores the need for finance groups to advance their digitally-driven capabilities going forward.
The value of a digital finance capability—advanced technologies, cloud-based systems and applications embedded with workflows and underlying data governance—is apparent when considering the top priorities for finance leaders in the coming year, among them: security and privacy of data, enhanced data analytics, financial planning and analysis, cloud-based applications, and profitability reporting and analysis.
As I’ve emphasized before, finance teams play a vital role in bolstering organizational data security and privacy capabilities. Leading CFOs continue to develop innovative methods for assessing, quantifying, articulating and optimizing cybersecurity investments. They also remain more committed than ever to enhancing their use of automation. Most CFOs and finance VPs expect their organizations will increase automation to perform critical business functions over the next 12 months.
Narrative #3: Finance leaders are navigating critical human capital dilemmas.
CFOs face two major human capital investment challenges. The first involves assessing which talent and skills investments are most likely to enable the enterprise to operate at the right size, and in the right manner, to best address current and future disruptions and opportunities. The second resides closer to home: CFOs are intent on developing an increasingly diverse and flexible labor portfolio comprising full-time employees, contract and temporary workers, expert external consultants, managed services providers, and outsourcing partners.
This priority seems to have intensified in response to Covid-19, which inflicted varied and nuanced impacts across industries and within different areas of individual organizations. Although many finance organizations reduced overall staff sizes this year, just as many, if not more, of them are currently increasing resources in certain areas, particularly those involving data analytics and cloud-based finance applications.
The use of managed services providers that offer a mix of talent models is increasing. Finance groups are now more likely to deploy a blend of full-time staff, contract professionals and third-party experts to support tax, strategic finance and various accounting operations than ever before. Even if it were possible, securing all of the needed skills on the company’s full-time payroll is simply not cost-effective.
Finance organizations focused on building mature digital capabilities ensure the foundational elements of their digital transformation—data governance, workflows, collaboration and more—receive sufficient attention, funding and improvements, as well as the talent required to support them. CFOs who have embraced a next-generation labor model recognize that the need for highly flexible talent and resourcing strategies predated Covid-19—and that this need will continue long after the current pandemic, and all of the trends it has accelerated and exposed, subside.
Finance groups that have so far navigated the pandemic with the greatest success tend to invest significant planning and resources in two distinguishing capabilities well worth keeping in mind in 2021 and beyond: digital finance and a flexible finance labor model.
As 2020 comes to a close (thankfully, in the minds of many of us) and a new year brings promise of an effective and widely available Covid-19 vaccine, CFOs can ill-afford to let their guard down. We expect that internal demand for data and insights, digital capabilities, and new approaches to human capital and resourcing will dominate the CFO agenda in the coming year, underscoring the need for finance leaders to be forward-looking and flexible in addressing the challenges facing their organizations.