Bertrand Lavayssiere, managing partner at international financial management consultancy, zeb
New study reveals the evolving role of the CFO to shape banks' growth strategies
The role of the modern CFO appears to be changing. Where this role traditionally focussed solely on tasks such as management reporting, accounting and regulatory reporting, today's CFO has become moving towards the larger role of the Chief Future Officer who plays a role in creating value and shaping the future of the bank. Three quarters of CFOs and executives of huge UK and European banks who taken part in zeb's proprietary research, see themselves as sparring partners from the CEO and the executive committee in driving strategic discussions, while only 4% solely deal with the “number crunching” at large.
However, despite this general shift, many CFOs find it difficult to balance their traditional activities with the ones that include strategic development. All too often major improvement projects and forward-looking analyses take second place behind mandatory standard tasks. Because they see it, their traditional roles are: preparation from the monthly and yearly statements, preparing the regulatory reports, preparing management dashboards, and piloting cash strategy exercises. The new components of their roles are emerging because of the new regulatory frameworks and specifically those associated with the forward-looking initiatives, which require a comprehensive understanding of the institution's own business models.
CFOs at banks increasingly recognise the significance of digitisation in their industry yet it's still regulatory constraints that they expect will have the biggest influence on their work within the next few years. Indeed, as digital transformation and more and more stringent regulatory requirements still dominate the industry's agenda, these two aspects are set to be at the very core of the struggle faced by individuals with ambitions to play a more strategic role in their banks.
Amidst the effects of a long-lasting, low yield environment, evolving regulations and the requirement to manage the advent and maturing of recent technologies are the major concerns that CFOs of financial institutions foresee affecting their functions. Their concerns mirror what they see as the industry challenges posed by digitisation – of clients, of their bank as well as the entire banking environment – and also the emergence of serious new competitors according to new business models facilitated by new regulations like open banking or PSD2.
Therefore, the brand new CFO roles are slowing evolving to incorporate:
– Performance measurement: CFO to provide proactive engagement in performance measurement and also the integrated financial resources, management tools and support (details business models levers analysis, for instance)
– Resource optimisation: based on those tools, CFO to challenge the business performance and the utilisation of the scarce resources, encompassing the core banking topics: equity, liquidity, debt and leverage – have the ability to become scarce in the last 10 years.
– CFO/CRO collaboration: CFO to build with the CRO, the adequate simulations for optimising the utilisation of the scarce resources and highlight the issues arising in terms of business strategies and priorities. The new IFRS9 regulation, for example, will force CFOs and CROs to organize for credit provisioning together.
A digital future
Most CFOs understand the measures required to increase efficiency and effectiveness in their area. Finance executives recognise clear and significant advantages of digital technology, particularly for process optimisation and management decision-making. As banks adopt technology, finance functions will increasingly make use of next generation analytics, smart automation and high-quality, consolidated data. Highly automated and needing substantially fewer staff, the finance purpose of the future will proactively support revenue generation across the bank, for instance through better resource management, wallet analyses and pricing.
So far, however, the advantages of technological advances are neither reflected in banks' digital strategies nor in corresponding budgets. 80% of CFOs bemoan their organisation's unclear priorities, lack of a clear digitalisation strategy and insufficient investment. “New” technology is not widely used at present, the study found. Moreover, the need for digital skills development within finance teams is widely recognised as a major obstacle to progress – a lot more than two thirds of CFOs face deficiencies in skilled employees among their current teams, saying the abilities profiles of the past are not enough to satisfy new requirements. In other words, for many CFOs such digital tools remain within sight although not within reach.
Although the transition for CFOs to the role of Chief Future Officer won't plain sailing, here are four areas of focus for CFOs looking to move towards a far more comprehensive future role:
- Advanced analytics: use of advanced analytical tools to achieve new insights and support revenue generation, notably via resource management benchmarking, wallet and pricing analysis
- Strategic resourcing: use of high-quality data as a strategic resource means; consolidating the core data around smart data lakes for process efficiency and accurate analytics; thinking with persistence from the structured/unstructured data opportunity with IT colleagues; planning the future real-time world; bulk data transport as impacting data quality and availability.
- Skills development and partnering: developing additional skills and partnering, as future finance functions will be based on a clear separation of analytics and production; building the CFO eco-systems to develop agile working models with partners for economic modelling and external data.
- Smart automation: the opportunity of automation varies greatly across the CFO sub-functions – accounting operations and standard reporting are highly automatable and could even be outsourced to some extent to shared services platforms; AI functionality, such as chatbots, should be tested and implemented wisely; planning end-to-end, front-to-back automation across the organisation is big prize but is probably much more of a long term goal for most CFOs.
Not simply looking, but moving forwards
Of course, not every current CFOs will take on these expanded roles later on; in part, it's a skills issue as well as in part an organisational one. Looking into how the CFO function is positioned within banking organisations, needless to say that there is not a “one size fits all” – it varies based on the CFO profile, the CEO profile and also the history of the bank. As each bank differs, the way to succeed are going also likely to be specific to each institution.
The zeb CFO study 2021/19 gives foundation to what many have been observing anecdotally so far: a strong majority of CFOs want to play a more strategic role in their bank's future. To take on the mantle of Chief Future Officer, CFOs now have to need to communicate a clear overview of where the finance function is where it should go, setting priorities and rollout timelines for the next three to five years. They must bridge the space between what they actually do and just what they're capable of doing to help their banks grow.