The 3 Biggest Themes for CFOs in 2021

February 17, 2021

In The Hackett Group’s 2021 Key Issues Study, we identified the top 10 issues for CFOs this year. However, executing on 10 objectives can be overwhelming for a function under intense cost pressures. It’s easier to consider them in the context of three larger buckets:

  • Becoming a strategic advisor to the business
  • Accelerating finance digital transformation
  • Creating an agile finance organization


Strengthening the business/finance partnership

The Covid-19 crisis has greatly elevated finance’s profile. More than ever, management and business leaders need its advice on how to allocate scarce resources and chart a strategic course into the next normal.

The massive disruption in business conditions last year highlighted the role of finance in keeping pace with the rate of change and delivering sound, data-driven advice. Demand from the business won’t abate anytime soon. Our study shows that G&A executives predict continued uncertainty: 46% of them expect conditions will not stabilize until the second half of 2021, and 36% expect that to happen even later.

Against the backdrop of this extremely volatile business environment, it has gotten harder to detect and understand changing conditions and therefore reliably forecast cash and the P&L. Business leaders require finance to join them at the decision-making table, so they can share data-driven insight and advise on different scenarios and alternative actions.

To get that seat at the table, finance must bring value to the conversation. This is where the emphasis on improving analytics and modeling capabilities fits in. The pandemic caught many finance organizations unprepared. It basically rendered their 2020 budgets meaningless, but a lot of them struggled to come up with new forecasts and targets. In our Covid-19 study, which we ran right after the outbreak, we found that addressing rising demand for forward-looking insights was among the top-three disruptors to finance operations.

To be an effective advisor, finance has to be able to quickly develop new assumptions, generate forecasts, and use them to model the business today and in the future. One of the ways we see this manifested is in the transition from single-point forecasts to ranges of expectations using statistical modeling with defined confidence levels. There’s also a significant increase in the use of scenario analysis to try and account for ongoing disruption. The acceleration and projected growth of data and analytics technologies are an important consequence. More on this below.

But business partnering goes way beyond new technologies.

First, it’s important that finance develop new skills that allow it to work more effectively with business counterparts. Historically, finance has had a spotty record with regard to talent development. In all of our recent skills surveys, we found major gaps between current skills and those required to be successful in the future. And the future means in the next couple of years, if not sooner.

While right at the top of the list of skills finance must evolve are data and technology savvy, there are also big differences between current and desired core skills, critical to the function’s advisory role. Those include critical thinking, innovation, collaboration/communication and influencing, among others. Ultimately, as finance moves up the maturity curve, from an administrator to a value-adding partner, it must be able to tell stories and affect decisions in areas where it has no control.

The good news is that this year, we see growing recognition of the role of talent. It was ranked as the number-two hurdle to transformation success, and 40% of finance organizations in our study have a specific initiative to launch a talent development program on their to-do list for 2021.

It is also critical to design a new interaction model between finance and its stakeholders, so that it’s clear where it gets involved, when and who to call and how to collaborate effectively.

In January, we had a webcast to discuss the 2021 Key Issues Study’s findings, and dozens of finance executives joined. When we asked them how they intend to improve their role as business advisors, the top answers involved building a clear engagement model, both by assigning specific staff to specific business units/functions and by embedding FP&A in the business.

Very much related to this theme of collaboration is growing emphasis on planning integration, also on our top-10 objectives’ list. At any given time, there are multiple planning events happening within the company, which are typically completely disjointed; they rely on different assumptions and do not add up to a cohesive plan. We are now seeing more emphasis on connecting the dots between financial and S&OP planning activities. That does not mean synchronizing them. It means finance is taking a leading role in orchestrating the information value chain. This way, every group of planners can work off the latest set of information.


Accelerating Digital Transformation

Finance organizations have been on a digital transformation journey for the past few years, but progress for many has been slow. In our earlier research, we found that many finance organizations did not have a comprehensive strategy for going digital.

The global pandemic was a wake-up call and is prompting a significant acceleration in finance’s adoption of different technologies. While traditionally, the function had strived to consolidate legacy applications to create a single source of the truth and consistent practices, a lot of organizations have found that path is prohibitively expensive and takes too long to accomplish – if at all.

Finance is now looking for ways to get quicker returns on technology investments and leapfrog the painful legacy system integration effort. What many are now doing is migrating straight to the cloud for ERPs and point solutions, like EPM in the cloud. And they are deploying robots as a rapid way to automate repetitive activities and create automated links between multiple source systems. Deploying robotic process automation (RPA) can take a few weeks; migrating to the cloud a few months; consolidating legacy systems several years. Our data shows that 57% of organizations have halted their efforts to roll out on-premises solutions because of the Covid-19 outbreak.

What’s driving the acceleration trend?

  1. Finance had to support a nearly overnight shift to remote work, which exposed process weaknesses – areas where a heavy amount of manual work was required.
  2. Finance has come under intensified pressure to become more efficient. Our study shows a projected 3.4% YOY contraction in the finance operating budget and a 4.4% decline in headcount.
  3. Finance is also being tasked with upgrading its service. Leadership is demanding more information, more quicky and with a forward-looking bent.

The upshot, once again, finance is being asked to do more with less. Just that this time, having already extracted may of its first-layer inefficiencies, it can only execute on these two mandates by leveraging digital tools to reduce cost and create new capabilities, e.g., advanced analytics.

At many companies, demand shocks have prompted management to scrutinize new and existing projects. But digital projects are not generally ending up on the chopping block. The vast majority continue at pace, and some are even accelerated. For example, our research shows that 35% of finance organizations are moving faster to adopt advanced analytics solutions; 32% are expediting the adoption of RPA; and 31% are speeding up implementation of cloud-based core finance application suits. We also see very aggressive YOY growth projections across technologies. The fastest growth is expected in cloud ERPs, at 25%. Right behind are advanced analytics and data visualization tools at 24%.

Ultimately, we are witnessing the evolution of a new finance digital architecture that is anchored on cloud-based solutions and modern data management platforms.


Building an Agile Finance Function

Companies are facing an unparalleled level of uncertainty. This trend started long before Covid-19. In recent years, many organizations faced intensified global competition and technological- and business-model innovation. The pandemic exacerbated these trends. In this new environment, companies have to move quickly if they are to remain competitive.

The agility of the enterprise is closely related to the agility of the finance function. If finance is on top of things and can sense change and respond at speed, it can support faster and better business decisions and actions, providing a competitive advantage.

Becoming an agile finance function is a combination of all the themes mentioned above:

  1. Finance has to be nimble in keeping track of changing conditions and leveraging technologies to produce insight so management can make quick moves.
  2. It has to be scalable to accommodate spikes in demand for its services at little if any incremental cost. That means targeting every bit of remaining inefficiency by eliminating manual work. And it also means it has to free up capacity to work on value-creating activities like insight generation and business collaboration.
  3. Finance also has to have the right combination of skills. Basic “technical” skills are table stakes. Professionals need to develop core skills and analytics and data savviness to turn information into useful insight – quickly and in many cases, in real time.

There are other specific skills we see that are related to this goal of improved agility. Finance professionals have traditionally been very risk-averse and accustomed to relying on 100% accurate information. But as things move faster and data volumes rise, 100% is simply not realistic or even desirable. Of course, numbers need to be 100% correct for financial reporting purposes. But to be able to develop advice quickly, professionals have to learn how to live with a measure of ambivalence.

Ultimately, finance needs to reinvent its operating model, the way it delivers services and where different activities take place. That involves aligning its services to the needs of the enterprise vs. an internal focus. And it means moving toward a more agile workforce management approach.

We see continued migration to centers of excellence and global business services (GBS) organizations, as finance centralizes around expertise and efficient execution. But that’s just the first step. The next is to convert these functional entities into what we call enterprise capability centers (ECCs). For finance that means becoming the analytics hub of the enterprise, serving all functions, businesses and management.

To make sure ECCs are not in constant “overload” mode, there is also greater emphasis on pushing analytics capabilities to the end-user through self-service tools. This way, the business can get customized reporting and first-level analysis without having to wait for the ECC to respond.

We also see an emphasis on leveraging the use of mobile, multi-disciplinary teams that can assemble quickly to address a specific problem or project. This capability is essential if finance is going to become more integrated into the enterprise. But it has its challenges. Yes, automation can free up capacity to join these SWAT teams, but they also require staff to wear multiple hats and have multiple skills.

Looking at a long list of 10 objectives can be intimidating. But in reality, they are closely interrelated. Grouping them into three categories can help CFOs better align their plans with the needs of the business and the objectives of the enterprise.