In 2020, Sage announced the dawn of CFO 3.0. This version of the chief financial officer embraces data and emerging technologies to bring about a new phase of finance. According to Sage, this CFO is often in the driving seat when it comes to digital transformation and broader business strategy. In 2021, the role of the chief financial officer is set to change even more. Going forward, finance professionals expect a slow return to normal following a year of uncertainty thanks to the coronavirus pandemic.
Back in 2016, Deloitte outlined the four different faces of the modern CFO – a catalyst, a strategist, a steward and an operator. Many of these faces still hold incredible value today. And will continue to have an impact throughout 2021.
To be a catalyst, the CFO must use the power of their purse strings to drive business improvement initiatives and as a strategist CFOs need to help influence the future direction of the company and align the finance strategy with the business’ growth plans. As an operator, the CFO must operate an efficient and effective finance function that provides various services to the business and finally, the financial steward is responsible for safeguarding the company’s vital assets, ensuring compliance with financial regulations and effectively communicating any issues to investors and key stakeholders.
Cutting costs, strategically
This year, CFOs might be tempted to cut costs via traditional methods but it’s no longer that simple. As a financial strategist and steward, finance leaders must rethink spending and need to view their budget allocations as an investment in the enterprise’s digital future.
Below are few common cost cutting mistakes that CFOs should avoid in 2021.
Setting unrealistic targets
Did you know that fewer than half (43%) of organisations achieve the cuts they set out to? This suggests that intended cost cuts are rarely feasible. When looking to reduce costs, savvy CFOs don’t set the bar too high. Instead, they understand that funding is needed for business growth and they very strategically allocate budgets towards the things that will boost the business going forward.
Too much, too quickly
Only a small percentage of businesses maintain cost savings for three consecutive years. This implies that many take ‘crash diet’ approach to cutting costs, which doesn’t work in the long-term. A far better approach is to make sustained improvements to margins over several years, which has a greater cumulative effect than a few quarters of drastic measures. This strategy is also less disruptive to the organisation.
Ever heard of disciplined innovation? CFOs and finance directors who embrace innovation, with an element of discipline, increase the likelihood of achieving breakthroughs because they create the right conditions for innovation to take place. As part of this, any innovation effort should be set out with a fixed timeframe and budget. These constraints shouldn’t impede creativity, they should create a sense of urgency and encourage greater focus.
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