Pressure on CFOs putting businesses at serious risk

Tim Vine, Head of European Trade Credit, Dun & Bradstreet, explores whether the increasing pressure on the CFO is putting businesses at risk

 

Are pressures on finance leaders putting businesses at risk?

The role of the finance leader has come a long way.

From budget steward to financial guardian, then to a vital strategic leader, the financial director is now central to any organisation’s planning and integral to its success.

But inevitably, as the role has expanded, expectations of financial directors and their departments have risen.

More than half of finance leaders believe it is “just a matter of time” before a serious mistake is made due to a lack of staff and resources, according to recent Dun & Bradstreet research.

How can modern finance leaders avoid the pitfalls of being pulled in too many directions?

The changing face of finance

Despite the sweeping changes that have already taken place in the role of the CFO, there’s little evidence that this change is slowing.

The role of the finance leader is growing to encompass a much broader range of duties. Almost two-thirds of financial directors point to greater management of risk and compliance (59%) in the last three years, while around half said they are increasingly asked to explore ways of cutting costs or saving resources.

While the role continues to diversify, finance leaders aren’t able to neglect the ‘core’ day to day functions that previously defined them; accounting and treasury duties are just as relevant as they were three years ago.

Overall, financial directors’ attentions look to be more evenly split across more activities: essentially, they are being pulled in more directions than ever before. And this makes for a difficult job, as 91% of respondents agreed that their role has become more challenging over the past three years.

The pressure to do more with less

So, what is causing the increase in pressure on CFOs? It boils down to business priorities and economic turbulence.

Half of CFOs point to the importance of operational cost-cutting, while 47% say economic uncertainty has caused the business to lean more heavily on the finance function for support with strategic decision making.

Contributing further to the increasing strain on the finance function are the complexities inherent in a globalised world.

The challenge of knowing about and being able to respond to local events that impact business is cited by a quarter of finance leaders as a concern. This is particularly pertinent, given recent geopolitical events.

Organisations seem to be increasingly reliant on finance leaders’ broad skillsets to help them deal with external pressures.

A large proportion of those surveyed suggest that the demands being placed on them are too great. Many struggle with resource issues (45%) and time pressures, preventing them from completing tasks effectively (43%).

More than half of finance leaders say that their board has unrealistic expectations of the finance team, compounded by the fact that 60% say that their team size has actually decreased in the past few years.

Finance teams are being asked to do more than ever before, with dwindling resources.

The dangers of conflicting priorities

For the majority of financial directors, this means they are simply being asked to do too much. Almost three quarters (71%) say that too much pressure is being placed on the team to be both a protector of the business and a driver of growth at the same time.

The repercussions of this may be serious. More than half of finance leaders believe it is “just a matter of time” before a serious mistake is made due to a lack of staff and resources.

There are suggestions of a “growth at all costs” culture leaving many organisations unduly exposed.

Almost two-thirds of finance leaders admit that the organisation takes credit risks in order to rush through revenue-generating activity, while 52% state that the organisation sometimes rushes the compliance process to push through deals with new customers or suppliers.

“A growth at all costs culture”, which can sit at odds with finance leaders’ own appraisal of its dangers, speaks volumes about the position of finance leaders today.

Pulled in too many directions at once, finance leaders are finding themselves forced to make decisions in the dark – putting in jeopardy not only their reputation, but that of their organisation.

Knowledge is power

Amidst these challenges, finance leaders believe that knowledge is power – and will be crucial to navigating the difficulties of the current business environment.

The vast majority (92%) of respondents agreed that data is important in helping them to make smart decisions and forecasts. It is also key to helping businesses to understand their customers and markets, improving operational efficiency and vitally identifying new revenue opportunities.

Despite this, the finance function is not optimistic about the quality of the data it holds.

Finance leaders believe that data deficiency is having a direct impact on performance, with half stating that it’s contributing to missed revenue opportunities. 42% of those surveyed also pointed to an increasing risk of bad decisions being made due to a lack of insight.

So why don’t organisations use data effectively? While 50% of respondents say that their team lacks the skills needed to capitalize on the full value of data, more (56%) go on to say that their employees don’t have access to the tools and technologies that could help them.

Data – and more specifically the currency and the value it can deliver when harnessed in the right way – is now one of the most influential assets impacting on finance leaders. But not enough finance leaders are able to access the tools they need to maximise its many advantages.

Conclusion

The role of the finance leader is in flux. As this evolution continues, conflicting priorities, growing expectations and shortfalls in essential resources are creating a high-pressure, high-risk environment, one in which the consequences of poor decision making are becoming ever more significant.

Finance leaders must work with the C-suite to re-orientate their position.

While business growth and protection are not at odds, the finance function must be armed with the right tools and resource, and importantly, data must be used to empower smarter-decision making.

The modern world requires a new kind of finance leader; businesses must ensure that they are giving their finance leaders the resources needed to fulfil this function, so that they can support their organisation’s success for the future.

 

Tim Vine is head of European trade credit at Dun & Bradstreet.

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