Evolution and Challenges of Strategic Finance: Navigating the CFO Role

“At an early stage, if you are thinking about finance and not your business, you have the wrong priorities.”- Someone smart said this a few days back.

But as you grow, if you don’t think about finance, it will hurt your business in the long term.

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The role of the finance function has evolved drastically over the last few years. The role is no longer to just make sure everything is okay, it has moved to more strategic finance.

“The role of the CFO has evolved dramatically over the last decade,” says Caroline Hudson, head of CFO Practice at Pure Search. “No longer is it enough for the CFO to be the steward of the organization. They are now firmly established as the right-hand person to the CEO, partnering with the business financially, commercially, and strategically.” Indeed, CFOs must continue to foster closer relationships with CEOs. While decision-making will ultimately reside with the CEO, the two must share trust, understanding and integrity.”

But what is Strategic Finance?

Strategic financial management is the study of finance with a long-term view considering the strategic goals of the enterprise.

For a long time, finance was the stepchild. With FP&A and more strategic finance coming into play, the finance function has started gaining importance- contributing to growth. Now with XP&A, the role has further increased. XP&A is a planning approach that takes the best financial planning and analysis (FP&A) capabilities – like continuous planning, forecasting, advanced analytics, and performance monitoring – and extends them across the enterprise.

Companies that look at the finance function more strategically tend to do better. According to a report by McKinsey, companies can do the following things to join the top quartile

1. The first is to cast a wider net for new efficiency opportunities, reaching beyond the transactional activities that have long been the primary focus of attention.
2. Boost finance’s role in managing data, whether consolidating, simplifying, or controlling the flood of information flowing across the organization.

1. Strengthen decision-making through the widespread adoption of data visualization, advanced analytics, and debiasing techniques.
2. Finally, reimagine the finance operating model so that it fosters new skills and capabilities.

Especially in the current environment, businesses have been forced to make difficult decisions around resource allocation and cash flow planning. Governance has become more important than ever. The person most critical in helping the CEO make those high-stakes calls—the CFO—is more vital than ever. Yet despite an influx of data on which to base business decisions, the tools at the CFO’s disposal have not kept pace. Today’s CFOs are thus facing a lot of challenges:

1. Data is stale, limited, and hard to access- hard to consolidate and thus, take decisions
2. Limited information in an ever-changing startup environment
3. Reconciliation is tough
4. Difficult to make forward-looking decisions

There are a lot of legacy enterprise tools but not a lot for early-stage and mid-market. The CFO stack currently involves:

Though a few areas are covered, there are a lot more left to make better. It will be interesting to see how it evolves in the future. In the next few versions, I will write about some of these tools in-depth and explore their value add for startups.