Today, the role of CFOs is not only to provide the correct numbers but also help the companies in making strategic decisions to achieve their objectives. They are expected to provide guidance and advice to the CEOs. One of the best examples mentioned in Financial Executives is Microsoft CFO, Amy Hood. Since she became CFO in Microsoft and partnered with Satya Nadela, CEO Microsoft, she has played an instrumental role in advising Satya and translating his strategies into realities. During her tenure in Microsoft, she has helped CEO in cracking more than 50 deals including the 2018 $7.5 billion acquisition of software development platform GitHub. Since she joined as CFO, the company’s stock has surged nearly 300% (Forbes Report).
Gone are the days, when the role of finance professionals was limited to accounting and act as a custodian. There are rapid changes in the profession and the situations like COVID 19 and transformation in ways of working, expecting the finance professional to keep them updated and flexible with the changing times.
The future role of finance professionals can be better understood with the help of the following table
|Comparison between Traditional Finance and Next – Gen Finance
In earlier times, the role of the finance division was of a custodian, but it has changed with the passage of time. Presently, the finance division is expected to take additional responsibilities and play the role of an analyst. It needs to analyze the actual results and compare the same with the projections and forecasts. Now, the role demands to multitask, provide the outcome to research that is rational and well-timed. The migration of role has intensified in the recent past. At present, the analytical side of finance is emphasized. A financial analyst is expected to align himself with the company’s targets, provide inputs to minimize costs and enhance financial performance.
If compared to earlier times, the finance division was supposed to execute only the routine operational activities and was limited to reporting. Now, it is expected to provide insights to the management and help them taking important decisions. The analysts have to keep themselves updated about the innovations in the field. For instance, the COSO (Committee of Sponsoring Organizations) 2004 version focused on how the risk management of each organization was implemented at entity level, while the revised 2017 version was more focused on the fundamental activities that organizations should engage in as part of ERM (Enterprise Risk Management) practice. The updated version highlights the importance of considering risk in both the strategy-setting process and in driving performance (pwc report). The analysts are expected to be well aware of such latest updates.
The traditional finance work was monotonous and most of the time resources were engaged in tick and tie activities. But now it is more on the analytical side. The role of FP&A (Financial Planning and Analysis) analysts is becoming more important. They are result oriented, problem solvers and play the role of evaluating investment opportunities which can maximize the profits, identifying the products which are the key contributors in profit margin and examining the cost-effectiveness of all the divisions of the company.
Against managing the financial tasks manually in traditional times, handling accounting and finance tasks in the computerized environment has numerous advantages. Using technology, the work can be performed faster and timely. Financial reports can be generated accurately and instantly. It also reduces the potential of human errors. As a result, the deliverable is more reliable, effective and assist in decision making.
Earlier, data records were managed manually. The accounting records, challans, pay-in-slips, invoices, petty receipts etc. were kept in the files which were stored in the cabinets. Storing and managing data manually is a cumbersome task. It used to create delays in producing records, inconsistencies and security risks. Organizing and securing data electronically offers protection of valuable information, reduced storage costs, mitigating risks of recovering records due to fire, floods etc. and many more.
Particularly at present and in future, there are enormous opportunities in the field of finance. Introduction of new laws e.g. Sarbanes Oxley Act, Foreign Corrupt Practices Act etc. has created enormous opportunities for finance professionals. There are diverse career options available in the field. Hard work and willingness to learn can help reach you apex.
Waves of change
There are various factors which are impacting the profession. The keys to them are mentioned below:
In the past, accountants and bookkeeping professionals use pen, ledger and a desk calculator. Even small errors while computing data could cause serious trouble such as tax penalties and board disciplines. That could also terribly harm the professional reputation. Now, they have specialized in processing tools and software that aid in computing data. Use of these tools and software has reduced the potential errors to a large extent. Today, technology is creating an important role in almost every business model. As compared to 2000 and 2010, there are 7 TECH Companies on top out of 10 in 2020 by market cap. Some of the top tech companies, viz Microsoft, SAP, Oracle etc. provide the critical tools to many companies including the finance function.
Now, the accounting and audit professions have also gradually been started to get automated. This is the time to seriously think about the technologies. Finance professionals are expected to learn to keep themselves up to date as the work they are doing today is getting computerized. They should keep themselves abreast with latest tools and techniques viz, Analytics, Machine Learning, Robotics, Blockchain and Artificial Learning. For instance, AI is a powerful tool which significantly reduces time and cost through the use of algorithms to generate insights and make predictions about the profitability.
The world is becoming a Global Village. If anything happens in one part of the world, it has its consequences everywhere. Financial globalization has several benefits including FDIs (Foreign Direct Investments), Technological Innovation, Economies of Scale. As a result, companies can avail the best and most efficient technologies, services and material at the most competitive price and hence optimize the cost. It stimulates the development of the financial sector. Financial markets generate financial alternatives for borrowers and investors.
- Regulations/Economic Reforms
There is a plethora of regulation changes in the last couple of decades across the world. It has its threats as well as opportunities. When a new Act is introduced, it supersedes the older Act and professionals had to experience on older Act had to build their understanding about the new laws from the very beginning. On the opportunities side, fresh roles, new jobs are created that can be served from anywhere. For instance, the introduction of the Sarbanes Oxley Act, 2002 has provided numerous opportunities across the world in the field of Internal Audit, Risk Management, Governance and Compliances.
According to Protiviti, a global consulting firm headquartered in Menlo Park, California, the costs and level of efforts for SOX Compliance engagements are continuously increasing every year. Given below comparative exhibits the rising trend in costs from 2019 to 2020 for a number of unique locations.
- Diverse Workforce
Working in organizations has started to change. Diversity has confirmed to boost innovation and financial results. Today’s leaders know that their companies derive multiple advantages from hiring, developing and retaining a diverse workforce. The members of different teams see things differently and generate innovative ideas. Workplace diversity enhances creativity as employees from diverse backgrounds brings unique and diverse solutions. Also, diversity helps in enhance the goodwill of the organization because the workforce reflects the footprints where the entity is located. According to the Harvard Business Review report, diverse companies enjoy a better overall financial performance. Diverse teams are more capable of identifying the unexplored markets.
- Unprecedented Changes due to the pandemic
Due to unprecedented changes caused by COVID 19, businesses have started thinking about how their operations and working environment should be reformulated in order to move things forward. It is time to identify avenues that bring added benefits to finance and organizations have already started exploring the same. Working virtually is the best example of change caused by the novel coronavirus. Organizations, particularly, service industries are getting positive feedbacks of the virtual working model. Working remotely helps better work-life balance. Employees feel happy and motivated with a better work-life balance. Consequently, they work with better focus and deliver improved results.
Moreover, every finance leader should keep evaluating the plans for 2020 and 2021 and modify them according to the market uncertainties. Scenario planning is recommended in such a rapid changing environment. Leaders should keep a track on KPIs with the help of business insight tools or dashboards to see any yellow or red flags. They should re-strategize the crisis mechanism according to the continuous changes and take decisive actions. Leaders who are disciplined in spending company’s money during difficult times face the challenges easily.
Role of data science in finance management
Data science as applied to finance is the field where you build systems and processes to extract insights from financial data in various forms and organize it in such a way that it portrays the meaningful information to the senior management. Choose any feature for the finance whether risk management, pricing, marketing outreach, customer outreach, development, cost and revenue allocation – data science is there. Therefore, it has become imperative that finance professionals must have an understanding of data science, its role in finance and the tools used for data analytics. Though they are not expected to play exactly the role of a data engineer, they should be familiar with the system to the extent it is required in the field of Finance.
Data science is applied in various fields of finance. According to the Forbes report, companies that had automated at least 70 per cent of their business processes compared to those that had automated less than 30 per cent discovered that more automation translated into more revenue.
To sum up, it is clear that the roles and responsibilities of finance are expanding. The role is getting difficult but exciting. CFOs are expected to have broader experience with flexibility. During changing times, they will have new challenges and with the right attitude, they can surely add more value to the business.
- Impact of COVID 19 pandemic on the financial reporting - August 26, 2020
- The Expectation from Finance in the Changing World - August 2, 2020