The Finance Function of the Future

BACKGROUND

While the origin of finance can be traced to the start of civilization, with the earliest historical evidence of finance dating to about 3000 BC, it was in the middle of the 20th century that finance emerged as a distinct discipline, separate from economics.
The Chief Financial Officer (CFO) role emerged in the 1960s, and together with the finance team, the CFO is saddled with the responsibility for managing the company’s finances, which includes
financial planning, financial management and financial reporting.
However, the business environment has changed significantly since the 1960s and C-Suite executives expect much more from the finance team than lies within the scope of the traditional functions. With factors ranging from the global financial crisis and the COVID 19 pandemic to technological advancement, today’s business environment is more volatile, uncertain, complex and ambiguous (VUCA) than ever before.
Due to increasing complexities and uncertainties, today’s CFOs are under more pressure to cut costs, grow revenue and manage risks.

THE NEW CFO MANDATE
The role of the CFO has evolved and expanded to include strategy, enterprise risk management, performance management and communicating the organization’s story to the outside world. We are
beginning to see the emergence of new designations such as Chief Strategy officer (CSO) and Chief Financial and Operating Officer (CFOO) to capture the realities of the changing role of the CFO and the finance function.
According to a survey by McKinsey, the average number of functional areas reporting to CFOs increased from 4.5 in 2016 to 6.2 in 2018 with notable increase in the areas of board engagement and digitalization (i.e. enablement of business process automation, cloud computing and advanced data analytics). Other non-traditional functional areas reporting to the CFO highlighted by the survey include risk management, corporate strategy and investor relations, with risk management being the function that most commonly reports to the CFO. Countless organizations are struggling with the effects of the Ukraine-Russia war that has led to major supply chain disruptions and record-high inflation globally, coupled with the aftermath of the COVID 19 pandemic which organizations are still yet to fully recover from. Financial survival is only one challenge as these crisis have resulted in existential threats to many businesses. The CFO is at the heart of efforts to manage the growing risks. Beyond managing financial risks, the CFO and the Finance team is required to actively participate in enterprise risk management by facilitating risk analysis, management and contingency planning, and also help to identify risks and opportunities.