Upheavals in financial markets present challenging times to CFOs but these are also great opportunities to learn, to emerge stronger on the other side of the crisis. Tormented by COVID-19, the years 2020 and 2021 were like none other. It challenged CFOs with extreme turbulence and the worst recession in a long time. We saw disruptions in practically all aspects of financial management and that forced CFOs to learn and implement new strategies and manage risks and treasury better.
Fear of the unforeseen
External threats to a company like socio-political instability, government policies, public opinion, and natural calamities are always on the mind of a CFO. But something like the pandemic situation we witnessed was not planned for. It is indeed a life-altering lesson for CFOs, that they need to be proactive. Data analytics can crunch information where data is available but CFOs will have to assess those risks on which no information exists, as well.
Mask Mason, CFO, Citigroup explains the importance of data analytics, “We talk about the importance of having proper data governance or proper data strategy and how we get our data to a place where it’s coming in at a very high quality. We say here at Citi, everyone owns data. That allows you to run your operations more efficiently, but it positions you to serve your clients more effectively as well.”
Power of the worst-case scenario
We have strong financial reporting tools, risk management tools and sophisticated software for planning and crisis response. However, what CFOs learnt in 2020-21 is, perhaps, that they need to start planning keeping the worst-case scenarios in mind so that in any crisis, business continuity is not affected. That would cover everything from inventories and supply chain backups to employees’ needs in emergencies and planning for eventualities like sudden shutdowns.
Janny Bloom, CFO, Zapier, spoke about navigating the early months of the COVID-19 pandemic when the company experienced its impact. When the business was hit in March 2020, Zapier implemented a five-step plan which included cutting non-crucial costs back. The business was able to recover by April 2020 and reinstated costs by July 2020. Also, everyone was able to enjoy a little extra bonus in December 2020.
Another learning which comes as a corollary to the above is the need for increased flexibility. CFOs have to learn on the go and plan on the go. Situations may suddenly teach us that the much appreciated just-in-time inventory may not be the best strategy at times.
The crisis has accelerated the need for organizations to adapt quickly. For example, dine-in restaurants had a tough time during the pandemic but delivery services were able to grow manifold. So, companies like DoorDash, Grubhub, Uber Eats, Swiggy and Zomato saw significant growth. Similarly, while fitness centers and gyms had a tough time, home fitness companies emerged and innovated to gain market share. Some even expanded, like the multinational athletic apparel retailer Lululemon deciding to acquire at-home fitness company Mirror.
Another life-altering lesson for CFOs is the need to evolve and implement suitable financial controls, and recording and budgeting mechanisms, for the work-from-home environment. CFOs need to devise new auditing systems and fool-proof authentication and payment authorization systems for the new out-of-office virtual accounting mode. Strong cyber security systems for remote connectivity will continue to be very important and companies will have to invest in them, if not done already.
Rachel Prescott, CFO, The Sill, explained how she has been tracking the incredibly rapid progress during her tenure at the company. “Technology has definitely been helpful on the finance side. Moving to an ERP has made it much, much easier to close the books and feel confident in our financial results. We have a more centralized house for all of our data. We are certainly looking for ways to augment and make the data-aggregation process a lot quicker so that the team can then spend more time drawing insights.”
The need for a crisis-proof cash management strategy is another learning for every CFO and they have to find their own methods, depending on the needs of the company and the resources at hand. It will be prudent, as the year taught us, to develop more financing options and keep them ready for a crisis situation.
As Vasant Prabhu, CFO, Visa, puts it, “Where finance plays a much larger role is how we allocate resources — people, money, etc. — efficiently and effectively around those priorities. And how do you avoid the normal pitfalls, which are spending too much on things that may not move the needle or too little on things that could, or sticking with something too long when it isn’t paying off.”
With time, all skill sets need updation, as does the role of a CFO, and as does the incorporation of technology. It will become increasingly crucial to employ emerging technologies, primarily the likes of artificial intelligence, data analytics, and robotic process automation, to ensure that an organization is both flexible and resilient. The past year has probably made it clear that the lack of data management, forecasting tools and automation, can make cash flow optimization difficult for even veteran CFOs.
Mask Mason, CFO, Citigroup, explaining the need for digitization in every sector. He said, “If you think about technology, digitization, and all of those things that are changing the way any company, but certainly a bank, competes, this is where you need to be focused.”
The one thing the past couple of years taught all CFOs is that there is nothing absolutely right or wrong. The best plan may not be good enough in a certain situation or hoarding inventory may be better than just-in-time in a certain situation. Also, the merits of working from office versus working from home may need a serious evaluation in terms of cost, convenience, and mental and physical health of employees. Most importantly, CFOs will need to think deeper about human resources. Expanding the horizons of thinking is and will be the key.