The changing role of the CFO in a post-Covid-19 world

22 December 2021 5 min. read
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Pre-Covid-19, CFOs primarily focused on reporting historical financial performance. But today, with rising logistics costs, supply chain bottlenecks, escalating input costs, and the uncertainty of sales, developing a forward-looking perspective is a must, write Chee Wee Teo, Huan Gao and Adam Mokhtee from Alvarez & Marsal.

In the months and years ahead, the CFO role must significantly evolve to keep up with the ever-changing Covid-19 environment. To be successful in the role, CFOs need to apply predictive thinking, adopt a greater strategic view, and increase their focus on forward risk assessment and contingency planning. 

Develop a forward-looking perspective

Traditionally, finance teams spent 80% of their time on reporting results and 20% of their time on forecasting. In a Covid and post-Covid world, that ratio needs to shift toward a forward-looking approach that will better prepare companies to respond to unexpected events. 

The changing role of the CFO in a post-Covid-19 world

With this new approach, the CFO’s conversations with the CEO and the board will center on what could happen in the future. For the CFO who is accustomed to relying on historical data, this may be an uncomfortable transition, but it’s vital for the changing role of the effective CFO.

With a perspective shift comes a shift in ownership. Rather than just reporting on the business’ performance, it’s essential for the CFO to help drivebusiness performance and effectiveness. This creates a sense of ownership of the outcome.

Delivering the business narrative is another critical component of the evolving CFO role. The narrative should be visible and reflected in the company’s outcomes and performance. CFOs taking responsibility for this narrative and ensuring its fulfillment is key.

Digitize the finance function

Although digitizing processes has always been necessary for efficiency, the digitization offorecasting has become especially crucial. Leveraging digitization for predictive analytics can help anticipate challenges ahead and allow companies to stress test their business plans. 

In some companies, the CFO manages the finance team while the Chief Digital Officer leads the data analytics effort. We strongly encourage the finance function to collaborate with data analytics so that the CFO can develop a predictive, forward-looking view of where the business can go. 

Taking this step requires the CFO to become more IT literate and develop an understanding and appreciation of data captured outside the company’s internal accounting platform. In the long run, this will provide the CFO with an angle on the business that otherwise wouldn't have been accessible. 

Utilizing digitization for predictive purposes pushes the finance team to rely on more than past performance. It entails accessing non-finance applications (like CRMs) that can capture forward-looking data to give an indication of where the business is heading (e.g. customer order trends). Utilizing such tools supercharges the CFO’s ability to pressure test the business growth drivers. 

The following should be digitization focus areas:

Customer focus: Build a profile of key customers, their cadence in ordering products, consumption pattern and liquidity situation. 

Production and inventory management: Establish a robust production system (that captures the right production costs) all the way through to an effective sales fulfillment (that delivers the right product to customers at the right time witminimal production waste and inventory leftover). These interdependent processes are typically filled with manual touchpoints and subject to human judgement. This can be significantly augmented with digital tools to drive optimization.

Further reading: The top digitalisation trends for CFOs and the finance function.

Focus on liquidity management/cashflow

The two aspects to target: 

Customer side: With increasing late customer payments and rising bankruptcy risk during Covid, the CFO must align the Treasury and Revenue Management functions with the Chief Sales Officer to ensure timely customer payments and assess how to help customers avoid bankruptcy or liquidation.

Vendor side: The CFO needs to think creatively and partner with the Chief Supply Chain Officer to stretch payments to vendors while also considering the potential long-term impacts of these delays (e.g. pushing vendors into bankruptcy, being cut off by vendors).

Drive cost transformation

As custodian of the value narrative of the business, the CFO should lead periodic reviews of enterprise cost structure against the evolving operating environment to ensure the ongoing efficiency of capital deployed. Partnership with the Chief Human Resource Officer (CHRO) and collaborative relationships with other functional heads will be essential to gain insight into organizational effectiveness and ensure support for structural transformation initiatives. 

Though Covid has accelerated the transition of the CFO role to one that is more forward-looking, strategic, and partner-focused, the change is permanent. Even in a post-Covid world, the CFO’s role will continue to move in this direction. With that in mind, acknowledging the shift, digitizing the finance function, driving cost transformation, and focusing on liquidity management are critical to ensuring success in this evolving environment.