Digital Transformation Success Demands CFO’s Evolution

The chief financial officer's expanded role in digital banking transformation goes far beyond financial management. Finance plays a critical role in shaping a financial institution's digital transformation strategy, evaluating technology investments, supporting customer experience initiatives, identifying growth opportunities and managing risk.

Virtually every financial institution is engaging in some level of digital banking transformation, but success isn’t consistent across the industry. And in many instances, banks and credit unions have not seen the impact on revenues or costs that they anticipated.

Many factors challenge digital transformation. Some of the most critical components to capturing value from the digital transformation process include: focusing on customer engagement as opposed to transaction efficiencies; the deployment of new technologies at speed and scale; and the development of existing human resources. Each component demands a departure from legacy thinking and the ability to reimagine existing business models from the inside out.

The organization’s chief financial officer sits at the hub of these changes. Evolving from a more reactionary and transactional focus to a value generation and strategic engagement role places the entire finance operation of a bank or credit union center stage in the digital transformation process. Deploying traditional and non-traditional financial expertise within every division of the institution can guide the business model’s realignment and help allocate resources more effectively.

“Companies that embrace transformation within the finance function are three to four times more effective at developing and executing their strategy,”  states “The Strategic CFO,”  an IBM report. In fact, when companies aligned the finance functions with the company mission, the result was 49% higher revenue growth and 20 times higher EBITDA growth over a five-year period. (EBITDA stands for “earnings before interest, taxes, depreciation and amortization.”)

Take a Deeper Dive on the Banking Transformed podcast: The Exciting Evolution of the CFO in Business Transformation

Digital Transformation and the Broadening of the Finance Function

Digital transformation has become a strategic imperative for banks and credit unions, as technology disrupts traditional banking models and customer expectations evolve. The CFO stand at the forefront of this transformation, responsible for aligning financial strategies with the digital agenda of the bank or credit union. In the digital era, the CFO must embrace technology as both an enabler of change and a catalyst, recognizing its potential to transform operations, improve decision-making and drive profitability.

One key aspect of the CFO’s role in digital transformation is leveraging data analytics to drive insights and inform strategic decision-making. The CFO, using financial expertise, can harness the power of data analytics to identify growth opportunities, optimize revenue streams and manage risks effectively. By leveraging advanced analytics tools, the CFO can uncover patterns, correlations and trends in data that can drive innovation and enable more proactive financial planning.

Beyond traditional cost-cutting efficiencies, the finance function must help organizations adapt to changing market conditions and deliver value to their customers.

monica-proothi-ibm

Monica Proothi, IBM Consulting

IBM’s Monica Proothi says the transformation of the CFO and the finance function is critical for several reasons:

  1. Improving efficiency: Help companies streamline their financial operations and improve their overall efficiency by leveraging new technologies and automation.
  2. Enhancing customer experience: The CFO ensures that the financial institution’s investments in technology, infrastructure and talent are directed towards enhancing customer satisfaction and loyalty. Leading with artificial intelligence and insights will facilitate finance in identifying trends and being prepared to adapt to changing market demands improving the user and customer experience.
  3. Driving innovation: Collaborate with business leaders across the company, such as the chief technology officer (CTO) or chief innovation officer (CIO), to identify and evaluate emerging technologies and innovative solutions that can drive business growth and operational efficiency.
  4. Improving risk management: Bolstering capabilities for handling risk by providing banks and credit unions with better visibility into their financial data and enabling them to respond quickly to emerging risks.
  5. Supporting strategic decision-making: By partnering with the CTO or CIO, the CFO ensures that technology investments are aligned with the institution’s overall financial strategy, risk appetite and regulatory requirements. Furthermore, the CFO monitors the financial performance of technology investments.

“Finance leaders have gone from being bean counters to storytellers,” Proothi states in a Banking Transformed podcast. “They’re not just informing the business and reading the news and reporting on historical data but they are creating the news and using data and insights to predict and forecast as they partner with the business to drive outcomes.”

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Challenges to the CFO’s Transformation

Historically, the CFO’s primary role has been focused on financial management, compliance and reporting. Shifting to broader responsibilities related to digital transformation requires a significant change in mindset and skillsets. CFOs may lack in-depth knowledge and expertise in emerging technologies and data analytics, making embracing new responsibilities uncomfortable (at best). Finally, too many priorities and the lack of a clear strategy and vision are the most significant challenges preventing successful digital transformation within the CFO function.

Despite these challenges, financial institutions can address these by providing the necessary support, resources and training to CFOs, encouraging cross-functional collaboration, and recognizing the strategic value that the CFO brings to the digital transformation process. The mission is to enable the CFO function to drive digital transformation and actively contribute to the change of an organization.

The term “value integrator,” mentioned in an IBM study, accurately describes the expanded CFO role. Value integrators help to consistently deliver superior revenues and earnings while also possessing skills that go well beyond their accounting training. They include integrating information from numerous internal sources, planning and forecasting, measuring and monitoring business performance, managing risk and generating predictive insights.

Keys to Successful CFO Transformation

Monica Proothi believes one of the keys to successful transformation of the finance function is to support cross-functional collaboration between the finance department and other departments involved in digital transformation, such as IT, operations, and marketing. Creating platforms for open communication and knowledge sharing, enabling the CFO and finance team to contribute insights and provide financial guidance throughout the transformation journey at the same time that departments outside finance function support the objectives of the CFO.

While the investment in technology can’t succeed without a cultural and leadership shift, the financial department still must be equipped with the necessary technology infrastructure to support its expanded role. This may include implementing cloud-based financial systems, data analytics tools and automation solutions to streamline processes, enhance data accuracy and enable real-time financial reporting and analysis.

Even the biggest banks and credit unions will often require strategic collaborations to maximize both speed and scale of digital transformation. Collaborate with external providers, such as technology vendors, industry experts, and consultants, who can provide the CRO and their team with insights and expertise in digital transformation. Engaging these partners can help the CFO and finance department stay abreast of emerging trends, adopt best practices and leverage external knowledge and resources.

Finally, CFOs must establish mechanisms to measure and communicate the financial impact of digital transformation initiatives. They must regularly share progress, achievements, and financial outcomes with stakeholders, demonstrating how the expanded role of the CFO and the financial department have contributed to the organization’s digital success.

To find out more about how finance transformation can propel business value, visit “The Strategic CFO” from IBM.

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