The Role of the CFO and Digital Transformation
Why Digital Transformation?
“Digital Transformation” is a term that has different meanings depending on the context and the audience. Do a quick search on Google, and you will get a wide range of definitions that include artificial intelligence, virtual reality, Internet of Things and of course, the cloud.
Though there is not necessarily one detailed definition that fits all of the variations, in general they lead toward a single overarching goal: the need to modernize IT infrastructure so organizations can address key business challenges and respond quickly to new and emerging ones. In simpler terms, how do we, as an organization, take advantage of new technologies such as those in the cloud to deliver more competitive services to our customers in a faster, cheaper fashion?
Revenue, Revenue, Revenue
As we talked to our customers, this definition seems to resonate as their current IT infrastructure limits their ability to meet the needs of the marketplace. In one example, a Fortune 1,000 customer is looking to move off their mainframes (yes, you read that correctly, mainframes are still in use) as these severely limit their ability to offer new services to the customers. For them, the first deliverable of their digital transformation project will be the seemingly simple task of delivering a web-friendly solution – something that is nearly impossible given their current IT infrastructure limitations.
So, enterprises both large and small embark on this Digital Transformation journey to pursue key strategic outcomes that are often ultimately motivated by the very basic desire to protect or increase revenues. An agile IT infrastructure enables an organization to quickly respond to marketplace demands, directly impacting its competitive position and, of course, its revenues.
Operating Cost Reduction
But for all the talk of growing revenue, there is a second, rather familiar, justification for digital transformation initiatives: That old CFO favorite of reducing operating costs.
A great example of this is a company whose customer demand fluctuates seasonally. In the “old” system, the CFO has to invest in expensive IT infrastructure robust enough to meet these spikes in demand – yet effectively waste money as that same infrastructure remains 40, 50, maybe even 70, percent underutilized the rest of the year. For such an organization, the ability to scale cloud infrastructure to meet peak seasonal customer demand only when needed, for example, can result in significant cost savings.
CFO as a Digital Transformation Leader
So, then, how does the CFO engage in this Digital Transformation journey?
The role of the CFO today is no longer confined to “keeping the books in good order” or as I like to say “running the trains on time”. Ask any CEO and nine times out of ten, you will get this answer: I want a CFO that is able to contribute in a significant manner to the corporate strategy. The CFO needs to be a trusted adviser not only to the CEO, but also to the Board and to the rest of the management team.
The role of the CFO in this Digital Transformation journey should be the same as many other strategic projects within the enterprise. The CFO should bring all of the finance organization expertise to help measure the financial impact of this project. Put a different way, how will we measure financial success of this Digital Transformation journey? What is the return on investment (ROI) of this investment? What is the probable increase of revenues? Decrease of operating costs? Expansion of the gross margin?
The CFO will certainly keep the “financial score” on this journey, but the CFO should play an active role as an adviser, a supporter, and potentially even a co-sponsor of the project. In order to be an effective contributor, the CFO will need to have a good understanding of the concept linked to this Digital Transformation. Notions such as commodity hardware, reference architecture, SQL databases, network latency, and anything related to the cloud should become as familiar to the CFO as the debits and credits of this project.
This understanding will enable the CFO to be a key stakeholder in the Digital Transformation journey.