Digital Transformation » Big Data » Three key issues impacting on the modern CFO

Three key issues impacting on the modern CFO

Erik Charles, VP strategic marketing of Xactly, a provider of commission solutions for sales performance management, examines the effects of Big Data, regulation and cyber security on finance leaders.

The role of the CFO is changing. CFOs are being charged with more strategic responsibilities within organisations that go beyond traditional finance functions. A recent McKinsey report found that 40 percent of CFOs now spend the majority of their time on non-finance issues.

While external reporting and maintaining a strong treasury focus are still critical requirements, CFOs are being turned to as agents of change within their organisations and are expected to bring additional value to the table.

However, along with this broadening role, CFOs also face fundamental technology and industry shifts that affect all levels and aspects of the business.

To strengthen credibility, modern CFOs must understand the potential impact of these transitions on their brand, operations, and profitability. In order to do so and stay on the forefront in evolving times, today’s CFOs need insights into three critical areas:

* Big Data

* Changing Regulatory Requirements

* Cyber Security

Grapplingwith emerging technology – the rise of Big Data

Data has always been essential to the CFO role in measuring and monitoring business performance. Benchmarks, including return on assets and investments, and profitability and revenue growth metrics, help CFOs conduct due diligence in evaluating their company’s financial health. Furthermore, if you’re working for a public company, investors want to know how your business performs against competitors. All require data.

Analytics have transformed the amount of data able to be captured, the depth of insights available, and how this data be used proactively to benefit the business. By leveraging big data, CFOs get better information about what’s coming down the pipeline and can improve forecasting accuracy. Analytics also empower the modern CFO to drive strategic change by shining a light into operational functions.

It’s especially important for CFOs to have insight into anticipated expenses and to ensure that commission plans are optimised to support business goals. Incentive compensation drives employee behaviours that increase performance to generate higher revenue. In a recent article, Joe Consul, CFO at Xactly Corporation, states: “If you pay 500 sales people $100K a year in incentive compensation, you’re making an investment of $50 million per year. The ability to see how these dollars are working for you – or how they are not – presents an opportunity to make a huge difference for the business.”

New research from EY shows that over 80 percent of CFOs recognise that investing in data can help them replace spreadsheets; however, they remain deterred by the perceived cost and complexity of new systems. But the value that instant data brings to the role of the CFO far outweighs any benefit of

keeping and continuing to use spreadsheets. With new technologies making real-time data available at your fingertips, you gain confidence that your numbers are true and accurate.

Adapting to changing regulatory standards- commission expense accounting

Most CFOs that want to stay compliant with the Generally Accepted Accounting Principles, or GAAP, are already aware of the new revenue recognition standards being adopted by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB).

To briefly recap, the decision was made to implement a single revenue recognition principle (IFRS 15), which was issued and went into effect on January 1 2018. The new revenue recognition standards represent a huge shift for CFOs – changing a rule-based methodology to a system that leaves more room for interpretation and judgment.

However, while much attention has been given to the revenue accounting aspects of the standard, many organisations have overlooked the complexity and system requirements needed for commissions under the new standard.

Officially called the “incremental cost of obtaining a contract,” this changes how organisations manage their accounting for sales commissions. Until now, companies have had the choice between capitalising and expensing over time the commissions that were paid to sales – rather than expensing them in the period that the expense occurred. That choice will no longer be available with the new standard.

This means that companies now have to account for commissions down to the customer level – maybe even the order level. If you don’t have a good system in place to do that, you have a problem. Because the majority of companies still use spreadsheets to manage commissions, they only aggregate payments to the rep level. In the past, they didn’t need all the customer and order detail for commissions. Now they do.

Additionally, because the new commissions expense accounting also requires a comparison to the prior two years, companies may also need to incorporate a “look-back” period for 2016 and 2017. Companies will need the ability to show who is getting paid, what is being paid for and the commission amounts by customer. This data is essential to meet the principle’s requirements on capitalisation and amortisation of incremental costs of obtaining a contract.

Protecting your business from invisible threats- cyber security

It takes just an instant for a cyber attack to devastate an organisation’s financial status and reputation. If customer data is involved, the risks are even higher. Given these business hazards, it’s perhaps not surprising that nearly 20 percent of CFOs, according to McKinsey, now say that cyber security functions report to them.

But, even if you don’t oversee these functions, cyber security still represents a top concern for CFOs. Without having measures in place to prevent and respond to security threats, your business is in jeopardy. According to a 2016 PwC survey, 84 per cent of people say breaches of data privacy and ethics cause them to lose trust in companies.

In the CFO Alliance roundtable series: “The Crystal Ball for CFO Success: What Matters Most Going into 2017,” CFOs identified education and preparedness as key to mitigate cyber risks. Specifically, the top cyber security lessons CFOs noted were: educating employees about cyber risks; signals and prevention tactics; preparedness planning; and data breach response planning.

Adequate preparation for a data breach requires both offensive and defensive measures. In addition to quickly spotting threats, you need a prevention and response plan in place. Furthermore, you can’t take for granted that everyone in the organisation understands how to protect themselves and sensitive data. Whether your company is public or private, CFOs need to be sure that employees are educated about cyber security threats.

Online training can help with cyber security education, covering topics ranging from password management to viruses and malware to protecting mobile data to incident response and more. But there are dozens of areas that need to be addressed to protect your company’s systems and networks. The Cyber Security Risk Research Centre alone focuses on over 50 areas of cyber security research and is continuously reassessing what’s required to manage security risks in a digital world.

Greater understanding strengthens credibility

To maintain and strengthen credibility in their broadening role, CFOs must understand how the above issues impact the various aspects of their business. They need deeper insights in order to implement the right strategies. They need systems that help deliver compliance with changing regulatory requirements and analytics that increase forecast accuracy to ensure their final reported financial numbers are correct.

Over 90 per cent of CFOs say the ability to dynamically plan “in the moment” is important to react in a fast-changing business landscape. With more intelligence, CFOs can make smarter decisions that are based on actual data patterns and decrease risks. The rewards include confidence that you’re choosing the best strategic course of action for your business and increased credibility with your board, executive team, and investors.

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