As digital initiatives transform nearly every industry, the digital charge is affecting the contributions senior financial executives are making to their organizations.
To understand how the CFO’s role and responsibilities are evolving, FEI Daily spoke with Ekta Singh, EY Americas Innovation and Digital Strategy Leader, about the growing role of CFOs in supporting and enabling digital innovation.
FEI Daily: The topic of digital and digital transformation is rather broad, so can we start with some context of the issues your clients are raising?
Ekta Singh: I like to say that “digital” in many ways is a bit of a suitcase word, because depending on your role in the organization, it can and should mean different things to you. But EY’s definition of digital is that it’s a continuous form of disruption to new or existing business models that’s enabled through digital technology and data to create new or enhanced products, services, systems, and potentially new ecosystems.
And when it comes to the real impact of digital, whether you’re the CEO of a company, CFO, CMO, CTO or other leader, digital enables a continuous form of disruption. And fundamentally, our point of view is that the CFOs have a tremendously important role to play in capitalizing this opportunity.
FD: How does that role align with the traditional role of the CFO?
Singh: CFOs traditionally have been responsible for managing and keeping an eye on the risks that the enterprise faces, for being focused on the bottom line, and on managing the balance sheet. Ensuring the company is growing and the right investments are being made. That traditional role is going to continue, but because of the opportunity and threat presented by digital, it’s going to expand. The CFO can’t do this alone, but the CFO has to identify the risks and the opportunities, and address them holistically for digital.
The traditional role has broadened and perhaps become more complex because digital investments have to be woven across every aspect of the business, and they’re going to affect every corner office in the company. Hence the new role of the CFO is to successfully grow and capitalize on the opportunity presented by digital.
FD: While still taking care of their “day job.”
Singh: Absolutely right.
FD: When you consider the idea of continuous disruption, how do CFOs balance the challenges of this being a continual activity?
Singh: One of the keys to staying abreast and becoming or maintaining one’s position as a digital leader is focusing on agile innovation that’s going to creatively unlock the potential that every business has. Traditionally, companies have invested in innovation that’s focused on products and services and business models, but in the world of digital where there’s continuous disruption, continuing to innovate and being creative in that traditional way isn’t enough.
Agile innovation is one of the keys that can help companies rapidly iterate and experiment continuously. These 90-day agile innovation sprints have demonstrable success at our clients. Companies experiment in a team with partners in the ecosystem, and potentially even team with the competition, and this goes through a “rinse and repeat” cycle. That’s one of the keys to digital.
It used to be media and entertainment or technology where we saw the greatest volume and variety of innovation, but it’s happening in all the other industries slowly and surely. How do you constantly scan the environment, how do you figure out which digital trigger you’re going to react to or be proactive about, and then what is the process during that 90-day period to incubate, and then activate what comes out of it.
FD: So it’s the idea of constant experimentation and evaluation, and probably re-evaluation of what you’ve done 180 or 270 days earlier?
Singh: That’s right. It’s constant scanning, and I would use the word “real-time” sensing, monitoring, and figuring out what you’re going to activate.
And one of the other keys from the CFO’s vantage point is asking what’s the return on this investment and agile innovation? What’s in that innovation portfolio? How does the CFO assess the performance of these digital investments across multiple stakeholders in the organization? So the quality and the availability of data, both financial and non-financial, are really important to help CFOs figure this out.
FD: As CFOs collaborate with other departments, what’s the operative or governance model look like?
Singh: Our view is that the CFO has a really critical role to play in identifying and capitalizing on the opportunities, and de-risking what digital could mean for their business. But digital is everyone’s responsibility. Different organizations have adopted, and I would say are continuing to adopt, different models. Every stakeholder has to embed digital in many ways in everything they’re doing.
So now it’s more of a distributed responsibility. One of the key executives who can really help the CFO navigate the landscape, primarily because a lot of the pervasive disruption in digital is being enabled by technology and data, is the CIO or CTO. And in one of the studies that EY recently undertook, “Born to be Digital“, somewhere between 63 percent and 75 percent of CIOs said they had a good relationship with their CFO.
FD: If you take a step back at the CFO’s traditional role and their digital responsibilities, does that require new or different skills on the part of the CFO?
Singh: One of the key things that CFOs can do is to appreciate that it’s not about the latest development in mobile or cloud or a new digital ads technology platform, but that change is coming from places they least expect it to. And in many ways digital natives or the Millennials who’ve grown up in this world can be key to helping CFOs and other senior executives truly appreciate the art of the possible with digital.
In terms of the skills, it’s really figuring out how they can stay on top of the constant disruption and evolution in this space as new companies are born and as ecosystems are disrupted. It’s not just the CFO, but it’s the CEO, the chief risk officer, and the boards of directors. Their digital challenges are unique, so learning and staying on top of the pervasive impact of digital, not just the functional impact of digital, requires them to figure out ways that they can understand this and stay on top of it.
FD: When you make distinction between the pervasive and the functional, what do you mean?
Singh: Let’s take the example of a life sciences company. As more medical information is digitized into more consumer friendly formats, such as video, apps or smart labels, and distributed across multiple channels beyond just healthcare professionals, it may be used to grow and improve patient adherence; play a different role in engaging with patient advocacy groups or responding to the changes in regulations. All of these use-cases demonstrate the potential intersection of medical information and digital and how it may significantly disrupt the ecosystem.
In this example, it’s going to impact the head of medical information, the supply chain officer, your chief medical officer, your sales and marketing engines, the head of legal and regulatory and communications, and the C-suite and the board. And that’s just one example of leveraging medical information in emerging ways.
FD: You mentioned risk earlier. Security and privacy have long been challenges, and do we expect that to continue? Or are there other risks that companies need to be aware of?
Singh: The risks related to cyber-security, new business model risk, globalization, the impact of regulatory changes, analytics, remote working, and the new era of customer expectations — all are either existing risks to the company, or new risks depending on how they’re leveraging digital. Given the increasing acceleration in digital, risks are going to multiply.
In order to de-risk digital, I go back to agile. Companies have to be agile in order to be able to innovate, to be digital leaders, or digital winners, and constantly scan, monitor, sense and act, to stay abreast.
FD: So along with agility on the innovation front, they also need to be agile on the risk management and governance front?
Singh Absolutely right. And because digital is so pervasive, now it’s everybody’s responsibility.
FD: If you look at the ideas of managing risk and assessing opportunity, those are skills that CFOs have been comfortable with for years. Should that make digital seem less daunting?
Singh: For CFOs, digital can be a faster and better way to unlock the value within their four walls and in the ecosystem. And in many ways, this is going require CFOs to continue to navigate as they have traditionally in the past, but with an added dynamic …digital. How do they get comfortable? How do they manage the risk? How do they do it in an agile way across their enterprise? CFOs have faced disruptive opportunities and changes in the past, and they’ll figure this out.•