Evolution of Modern CFO from Number Cruncher to Strategic Partner
Ankur Maheshwari, EVP & Group CFO, C5i, 0
The definition and the expectations of the role of a Chief Financial Officer (CFO) have seen a marked change over the years. Traditionally seen as an organization’s numbers guy, the modern CFO is now seen as a key strategic partner, actively involved in shaping business strategies, navigating potential risks, and seizing growth opportunities. Today, CFOs bridge the gap between operational efficiency and visionary leadership with an acute understanding of both finance and market dynamics. As organizations navigate their growth and transformation journeys, the CFO plays a crucial role in prioritizing a company’s actions, maintaining financial stability, and driving strategic initiatives for long-term success.
This transition to a business-first CFO orientation has led to the emergence of several CFOs who are now being elevated to CEOs to run the company, given their holistic understanding of the business and in-depth understanding of finance. The proportion of CEOs who used to be finance chiefs rose to 30 percent in 2023 from 21 percent in 2019, analysis from executive search firm Heidrick & Struggles has found.
My Evolution to a CFO Role
So, what does a CFO’s role entail? How does one qualify to become a CFO? There can be several textbook answers to this, but I will share my personal journey as an example. My path to becoming a CFO has been an unconventional one. I consider myself an accidental CFO; I did not intend on becoming one when I started my work journey. I am neither a chartered accountant, and nor do I have a background in traditional finance. I started my career in consulting, investing in start-ups, transitioned to business, and then into the world of corporate finance. When it was time to think about what was next, it became clear that a strong business orientation, coupled with functional knowledge of finance, can help companies immensely in their growth journey.
The Three-Tier CFO Pyramid
When I look at the role of a CFO, I think of it as a classic pyramid structure that consists of three main tiers:
Foundational Finance
The base layer is the “Science of Finance.” This foundational layer includes bookkeeping, taxation, compliance, cash flow management, etc. While this may seem to be the least creative function to most, it’s the most critical function for any organization, given the rigid adherence to the different regulations of different countries in which the company operates. Any slippages here can have significant implications for the business. Simply put, if the foundational finance function is not strong, no matter what you build on top of this, the company will fail.
Intelligence Finance
Over the years, as companies have become far more complex with scale and business diversity, including their operational and geographic reach, it has become imperative for them to monitor if the business is on track to meet its objectives. This shifts the focus on correctly identifying metrics, sometimes inventing new ones that help convert different business actions into measurable financial
outcomes. These key performance indicators (KPIs) help companies measure their performance objectively. This is led to the emergence of functions such as Financial Planning & Analysis, Business Finance, Pricing, etc., focusing on “why” certain decisions are made and “how” they impact the business and not just “what” is happening financially, which is the focus for Foundational finance.
Strategic Finance
This sits at the top of the pyramid and is where strategic decisions such as capital sourcing, deployment, and investment in new growth areas take place. This is where the CFOs effectively partner with the CEOs to identify the best way to source capital, be it equity or debt or variations of that, that should be invested in the company for growth, whether organic or inorganic. This is crucial as no company has access to unlimited resources, and optimizing this can help them differentiate materially from their peer set.
This is a 30,000-foot view of how I view the structural makeup of a CFO. However, the mix or priorities can change materially for different companies depending on their near- to mid-term focus.
Evolution of the CFO Role in Big and Small Companies
It would be misleading to say that the modern CFO concept is entirely new. It’s an inverted pyramid of sorts in which very large, complex organizations look for CFOs who would not only manage finances, but also help them strategize for the future. These companies, due to their scale and operational intricacies, understood the strategic value a CFO brought to the table a long time ago. Most of the smaller organizations, on the other hand, have for long treated the finance function as primarily a cost center responsible only for foundational finance.
However, there has now been a marked shift in this perspective. Smaller organizations are also realizing that it is more critical for them to have a strategic CFO because of the dynamism of the business landscape. Not knowing what tomorrow looks like can be worrying, so these companies now look for an expert in the field who can also plan for the future, besides telling them what has already transpired in the past.
AI’s Impact on the Evolving CFO Role
With the rapid growth of AI in today’s digital landscape, the integration of AI and automation into finance functions has been nothing short of being dramatically transformative in nature. Foundational finances always have the highest volume of transactions; account payables, account receivables, cash flow issues—all these need to be done correctly. Even the smallest of misses can have serious legal consequences. Foundational tasks done in the traditional way are extremely time-consuming and, sometimes, prone to error. Now, AI-led solutions are enabling teams to perform these same actions accurately and quickly. This frees up time and allows the finance team to focus on other critical areas.
Real-time, predictive analytics and insights are also enabling CFOs to become key strategic leaders in the boardroom, shaping future strategies and anticipating risks with agility and confidence. As the number of use cases for AI increases and the technology evolves, organizations will chart their future with the help of AI-enabled data-driven decisions. In all of this, the traditional CFO will evolve into a more powerful entity that leverages insights to improve business performance. In the C-suite of the future, the CFO will no longer function in a silo. Instead, it will be a blend of tech-enabled number crunching, compliance, innovation, and data-driven strategic management, with a clear objective to achieve collective success.
Strategic Finance
This sits at the top of the pyramid and is where strategic decisions such as capital sourcing, deployment, and investment in new growth areas take place. This is where the CFOs effectively partner with the CEOs to identify the best way to source capital, be it equity or debt or variations of that, that should be invested in the company for growth, whether organic or inorganic. This is crucial as no company has access to unlimited resources, and optimizing this can help them differentiate materially from their peer set.
This is a 30,000-foot view of how I view the structural makeup of a CFO. However, the mix or priorities can change materially for different companies depending on their near- to mid-term focus.
CFO will evolve into a more powerful entity that leverages insights to improve business performance.
Evolution of the CFO Role in Big and Small Companies
It would be misleading to say that the modern CFO concept is entirely new. It’s an inverted pyramid of sorts in which very large, complex organizations look for CFOs who would not only manage finances, but also help them strategize for the future. These companies, due to their scale and operational intricacies, understood the strategic value a CFO brought to the table a long time ago. Most of the smaller organizations, on the other hand, have for long treated the finance function as primarily a cost center responsible only for foundational finance.
However, there has now been a marked shift in this perspective. Smaller organizations are also realizing that it is more critical for them to have a strategic CFO because of the dynamism of the business landscape. Not knowing what tomorrow looks like can be worrying, so these companies now look for an expert in the field who can also plan for the future, besides telling them what has already transpired in the past.
AI’s Impact on the Evolving CFO Role
With the rapid growth of AI in today’s digital landscape, the integration of AI and automation into finance functions has been nothing short of being dramatically transformative in nature. Foundational finances always have the highest volume of transactions; account payables, account receivables, cash flow issues—all these need to be done correctly. Even the smallest of misses can have serious legal consequences. Foundational tasks done in the traditional way are extremely time-consuming and, sometimes, prone to error. Now, AI-led solutions are enabling teams to perform these same actions accurately and quickly. This frees up time and allows the finance team to focus on other critical areas.
Real-time, predictive analytics and insights are also enabling CFOs to become key strategic leaders in the boardroom, shaping future strategies and anticipating risks with agility and confidence. As the number of use cases for AI increases and the technology evolves, organizations will chart their future with the help of AI-enabled data-driven decisions. In all of this, the traditional CFO will evolve into a more powerful entity that leverages insights to improve business performance. In the C-suite of the future, the CFO will no longer function in a silo. Instead, it will be a blend of tech-enabled number crunching, compliance, innovation, and data-driven strategic management, with a clear objective to achieve collective success.