This article was first published on 9 February 2021 on the Praxity website here.
CFOs face significant challenges to achieve better value in 2021 as companies seek to get back on track after a year of upheaval and fire-fighting.
Global research organisations Gartner and McKinsey suggest CFOs should prioritise digital transformation while embracing a new approach to budgeting in response to the Covid-19 crisis.
Finance chiefs will also be looking at signs of economic recovery and changes to working patterns, as well as tax, regulation and trade, according to Wall Street Journal.
New digital initiatives
The pandemic, rather than hinder business transformation, has speeded up digital measures in many organisations, research shows.
A Gartner report titled Top Priorities for Finance Leaders in 2021 reveals 69% of board directors say the effects of the pandemic are accelerating their digital transformation.
Gartner’s Chief of Research, Finance, Alexander Bant, says: “CFOs must fund that acceleration while maintaining control over the organization’s finances — even when operating conditions remain highly volatile.”
Gartner surveyed 300 CFOs and finance leaders worldwide to identify the top finance priorities and expected challenges for 2021. The results show CFOs face a dual challenge of accelerating growth and digitalisation, and preserving or restoring their organisation’s financial health.
However, digital priorities such as advanced data analytics, robotic process automation (RPA), and accelerating digital skills in finance, will take significantly longer to implement than previous digital measures, the report warns.
Better functioning departments
Gartner highlight the importance of focusing on the “function” of finance departments, including “bringing back the right costs to support growth”, staff engagement and retention, and improving employee performance in a new environment. Other priorities include cost reduction initiatives, restructuring the business or portfolio, and improving working capital.
A more radical way to achieve better value is a to overhaul the budgeting process. In an article titled Memo to the CFO: A new approach to 2021 budgeting starts now, McKinsey say 2021 presents an opportunity to turn hard-earned lessons from the pandemic to transform the way budgeting is done.
Based on conversations with finance leaders over six months, McKinsey claim that CFOs “know that the business-as-usual budgeting process, with its traditional inputs and standard approaches, is no longer fit for the task”.
A different way to budget
In a McKinsey survey of 127 CFOs, 43% of the 127 CFO respondents cite the need to streamline budgeting processes to react more quickly and efficiently, while 65% anticipate more use of rolling forecasts in 2021 and beyond.
The McKinsey “memo” outlines five steps CFOs can take to improve their budgeting processes in 2021:
- Stress-test scenarios, assumptions and decisions made during Covid-19 (or not) to counter uncertainty;
- Conduct a spending review and adopt zero-based budgeting – where expenses must be justified for each budget period;
- Hold back some spending centrally as contingency and allocate funding with more agility to reflect changing priorities;
- Assign finance specialists to the highest-priority areas and provide clear direction for staff, with empathy;
- Rethink decision making to speed up processes and remove bias.
Eyes on recovery
Meanwhile, CFOs will be keeping an eye on possible economic recovery and how to respond, particularly in the second half of the year, according to the Wall Street Journal.
In an article on ten things CFOs should look out for in 2021, the Journal highlights the key topics that are likely to dominate finance leaders’ inboxes. These include M&As, corporate tax, regulation, trade, cash and capital expenditures, and the impact of remote working on real estate and office locations.
After a year like no other, 2021 is set to be another roller-coaster ride for CFOs as they seek to juggle different priorities in volatile conditions.
Digitalisation is set to dominate once again but they may also be more focus on the way finance departments operate and the way budgeting is done.
Depending on the impact of the pandemic and the success of vaccination programmes, we could see a more proactive, planned approach to achieving better value.