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Redefining the CFO: Navigating the AI Revolution in Finance

A 2024 survey by Gartner indicates a striking trend: 71 percent of CFOs plan to increase their investments in AI by 10 percent or more compared to 2023. The rapid advancement of Artificial Intelligence (AI) is ushering in a new era for CFOs, presenting them with unprecedented opportunities for innovation and efficiency. This signifies a pivotal shift, demanding a blend of novel skills and a transformative mindset from today’s CFOs.

AI’s Impact on Finance

Integrating AI into financial processes has led to significant advancements in automation. Automation now accounts for 70 to 80 percent of the accounting or transaction operations previously managed by financial controllers and CFOs. The effort and bandwidth required for monitoring and governing these areas will also be reduced dramatically. For example, an entity that used to run 2,000 to 3,000 journals a month will soon find that around 90 percent of this work is done by machines.

Reconciliations are experiencing a similar transformation due to AI’s prowess in predictive modeling and its proficiency in pattern recognition. This allows for the accurate alignment of transactions that are not an exact match, a task beyond the reach of traditional computing power.

Rethinking the CFO’s Role in an AI-driven World

“AI is prompting CFOs to reimagine not only their day-to-day working practices, but the possibilities for the operational and strategic financial analysis and decisions.” says Ian Young, CEO Canada & MD – US North East, The CFO Centre Group. “As organizations develop their AI strategies they’ll need to decide on their ultimate ambition for the technology.”

The shift toward AI allows CFOs to pivot from traditional financial oversight to assuming even more pivotal role in enterprise-level decision-making. By adopting a more forward-looking and strategic stance, CFOs can better influence decisions on capital restructuring, mergers and acquisitions, business divestments and planning. This transition enables them to contribute much more to shaping these decisions proactively rather than managing the financial implications post-factum.

In the context of today’s geopolitical and economic uncertainties, such a comprehensive and strategic perspective from CFOs is needed even more to help their companies manage risks, such as supply chain shocks, consumer price fluctuations, inflation effects and even state bankruptcy in real-time.

Shifting Skill Sets for Tomorrow’s CFO

To embrace this more forward-looking, strategic role and harness the full potential of AI, CFOs must undergo significant changes in their work practices and skill sets. Currently, managing financial risks dominates the CFO’s time. According to a 2023 McKinsey survey, 38 percent of CFOs have dedicated most of their efforts in this area over the last 12 months compared to 29 percent who have devoted most of their time to identifying growth opportunities. While technologies such as predictive analytics offer a path forward, transitioning from a guardian of financial health to becoming a catalyst for growth demands a broadened skill set.

To achieve this, CFOs must shift their self-perception from accountants to data scientists. However, only 20 percent of 150 global CFOs surveyed by management consultancy Horváth have “developed a solid data culture,” despite 85 percent recognizing that it would enhance decision-making quality. Furthermore, 71 percent believe it would accelerate decision support, and 67 percent see it improving financial planning and forecasting.

Adopting the mindset and skills of data scientists involves not only acquiring new capabilities but also adjusting to the work approach. The utility of Generative AI (Gen AI) across various professions is undeniable, yet it introduces new risks. Consider the case last year of the US law firm which was fined after it used ChatGPT for research – only to find that the cases cited by the app didn’t exist because it had made them up.

To effectively manage these risks and the possibility of errors in reporting and decision-making, CFOs must ensure the transparency, data privacy, explainability and traceability of AI-driven processes. Understanding the workings of Gen AI is imperative to avoid decisions based on inaccurate information. Hence, comprehensive training is crucial for CFOs to maintain control over decision-making processes, improve usage of available tools and justify the rationale behind AI-influenced decisions.

Change Management and Cultural Transformation

The advent of AI also heralds a crucial need for enhanced change management and cultural transformation skills among CFOs. Despite significant investment in AI systems for data generation and report creation, many business leaders remain reluctant to use them. Instances where finance teams rely on Excel sheets for analyses, even after implementing S/4HANA, underscore the issue. This resistance signals a need for a cultural shift, one that CFOs are uniquely positioned to lead, necessitating strong change management and team leadership skills.

This new mindset and culture means that CFOs and their colleagues are more willing to use insights provided by new tools and find ways to adopt instead of resist them. They should also be ready to defend the accuracy and relevance of the insights provided by AI if the board and others challenge them. Moreover, the ability to adapt AI-generated data to align with the company narrative or strategy, considering various factors in the business environment, is essential.

Future Directions and Opportunities for CFOs

 As AI and automation help shoulder the burden of manual and repetitive tasks, CFOs must reimagine their roles and how they allocate their newfound time. This reevaluation transcends what they do within the organization on a day-to-day business. For some, this technological liberation might translate into a better work/life balance, possibly through transitioning to part-time work. However, for others, it could open up avenues to approach their work with renewed creativity and strategic foresight.

Consider, for instance, the scenario of a burgeoning start-up with lofty aspirations. A small enterprise with a turnover of a few million dollars today might harbor a vision of expanding into a half-billion-dollar organization within the next few years. To achieve this goal, it will need an experienced strategic finance leader, someone with a big-picture, big-company vision who thinks like the CFO of a USD 1 Billion business. However, can the start-up afford such a senior person? Probably not full-time, but they could employ them on a part-time or consultancy basis. This is where the concept of a portfolio career becomes relevant and attractive for today’s CFOs.

From CFO to COO and CEO: Expanding Leadership Horizons

 The evolving role of CFOs reflects a broader trend in the corporate leadership landscape, with many crossing into the realms of COO or even stepping up as joint CEOs. Their deep insights into the financial and operational underpinnings of a company position them to align core functions with strategic goals.

This trend is also preparing CFOs to take the top job – 8.4 percent of CEO positions were filled by CFOs at Fortune 500 and S&P 500 companies in 2023, the highest percentage since 2013. Meanwhile, according to recent research, 30 percent of FTSE 100 chief executives were previously finance chiefs, up from 21 percent in 2019. Recent examples of this move from CFO to CEO include Margherita Della Valle at Vodafone and Murray Auchincloss of BP.

The increasing reliance on AI within finance functions is a key driver enabling CFOs to broaden their influence and contribute more significantly to their businesses. However, capitalizing on these opportunities demands continuous learning and adaptation. CFOs must actively update their skills and adjust their perspectives to maximize the opportunities.

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