The modern CFO is a business strategist rather than a digits champion
The Deloitte CFO Survey indicates that Danish CFOs continue the digitalization of the financial functions – but how does this affect the CFO-role?
The CFO should lift his or her head from the spreadsheet and focus on working as a strategic sparring partner. The future for CFOs is about data analysis, performance and being able to see ahead to the opportunities of the next quarter, says Christian Baltzer, CFO for Tryg.
How did your background prepare you for your role as CFO?
While the classic CFOs’ responsibilities have consisted of creating financial statements and making sure that the books are correct, strategic work is taking up more and more of CFOs’ time these days. The company's direction, risks and future opportunities are crucial considerations when making strategic decisions. As an actuary, one is trained to understand stochastic variance, the connected risks and the various sample spaces that one investigates. I use this insight strategically.
What can you use your knowledge of sample spaces for?
We must recognize that it is not possible to say precisely where a company will find itself in a year or two, only that it will be found within a given sample space. Depending on where in the space the company ends up, as a CFO, I must know the reasons for the position and our options as a company. Is it a question of stochastic variation? Or should we make radical changes to move the business? This training and approach have a significance.
The Danish CFO Survey
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How do you take on a strategic role as CFO?
It is not enough just to have control of the firm’s financial history; I must also be able to answer the central question: How can we best exploit our capital? It is fundamental that I am able to look out the windscreen rather than down at the dashboard. In the ‘old days’, the dashboard was in focus, and the CFO kept track of the fuel supply and the speed. Today, the CFO should also be able to see if one is heading towards a curve.
Executive boards may be divided into silos with clearly defined fields of responsibility. Where does this put the CFO?
CFOs must be able to play more on the others’ half, and not just be a digits champion. For example, he or she must be able to understand the business-related issues that a head of sales or production faces. To be a strategic partner, a CFO must know how he or she can support other managers’ objectives, and it is important to speak a language they can relate to.
What language is it?
Storytelling is the bridge to making numbers intuitive, turning on the light bulb in other people’s minds and motivating those who are not especially interested in figures. The CFO should be able to breathe life into the figures and make them intelligible. It creates value for the business when concrete and factual knowledge is drawn out of the data.
It sounds like there is much more to the CFO role than professional finance. What should one do to prepare for the future if one strives to become a CFO?
Understanding strategic and business structures is crucial, so thinking about business value is quite natural. You must help creating vision and be able to motivate an organization. If you cannot do this, it will be difficult to break out of the accounting role.
If we project the development that the CFO role has undergone, where do you see it in 10 years?
Assuming that robotics, automation, analytics and data are taking up more and more space in the corporate world, it would not surprise me if, in 10 years, we see organizations without a ‘CFO’. I can well imagine a setup where the chief accountant assumes the classic CFO responsibilities, and where management realizes the need for a new role that focuses solely on performance. For example, a ‘Chief Performance Officer’ might take several business decisions based on data and information and then be charged with extracting the maximum value from the capital that is used.
Which role do you as a CFO have in the digitalization process?
Basically, my role is about prioritizing and figuring out what supports the strategy the best and then work out where we will derive the greatest impact from our investment. When one digitalizes and carries out a transformation, I must know, as CFO, how far we can go before our spending no longer returns any value. At some point, the burden of the transformation is greater than the added value. In achieving this balance, I have a central role and make sure that we invest in a responsible manner.
How do you weigh and prioritize the various initiatives at Tryg?
This task is partly about finding out how the customers’ needs and the aims of the business are related to our new ideas and concepts. Correspondingly, we need to make clear how the funding of the new initiatives is handled. For example, does it come from new sales or via cost reductions? At Tryg, we have created what we call a bank where the business can pitch its ideas. It's a bit like the TV program Dragons’ Den, where we, as the management, sit at the control column and prioritize capital to the right places in the company as good ideas come along.
Is it possible to follow up on the initiatives?
The follow-up is a challenge, but instead of looking only at the bottom line, we identify at least three KPIs that make up the success criteria for each project. For example, it could be a reduction in the number of full-time employees, or an increase in the number of customers converting to a sale. To better measure the impact of the initiatives, we sometimes carry out A/B testing with control groups. It is critical to design a good follow-up from the start, and it needs to be thought through. If the initiatives do not have the desired effect, they should be stopped.
While digitalization is taking place, there is often a need for increased cyber security. How much does this take up your agenda?
Cyber security is a basic prerequisite. Although you can never be 100 percent safe, you have to be robust and have the right procedures ready if there is a breach. Of course, Cyber security has to be invested in, but balancing is central. You can spend billions on Cyber security and set up several walls to secure your business, but this does not necessarily mean that the company is stronger or delivers a better customer experience. We can see that over 90 percent of all Cyber security breaches happen when a user clicks on a link or passes on his or her password in a phishing email. Therefore, education and internal understanding in this field are nearly more important than large IT walls.
How does digitalization affect the composition of employees in the finance function?
I think the bookkeeper who reconciles accounts will largely disappear. In the future, robots and algorithms will be able to handle the job. The classic accounting employee who ensures that the accounts are correct, that procedures are working and that there is the necessary dialogue with auditing will continue to be necessary. This type of employee will become even more specialized within their field as the complexity increases all the time. The new IFRS rules are not actually less complex than before, are they? For managers, the task is to be able to coordinate, cooperate, find the right profiles and master storytelling activities. While there previously was a need for professional management, today there is a need for leaders who are able to make the employees feel the unity and fellowship of the organization.
Which competencies are particularly in demand?
Being able to bring business value from the numbers. This requires employees who are able to code, make forward-looking analyses such as predictive analytics and communicate, among other things. Students should learn something about statistics, predictive modelling, machine learning and neural networks in various forms. In the future, we will experience new working procedures where machines and humans work together to complete tasks. We already have a group of analysts and actuaries who are working with big data and the technologies I have mentioned to predict the directions that constitute possible business opportunities for our company.
Curriculum Vitae: Christian Baltzer graduated as an actuary from the University of Copenhagen in 2004. He has been with Tryg since 2009 and has worked with business development, business intelligence and analytics, among other areas, before being named group CFO in 2016. Baltzer will take up the position as CFO at Danske Bank on 14 October 2018.
Tryg is one of the largest insurance companies in the Nordic region, with operations in Denmark, Norway and Sweden. The company is listed on the Nasdaq OMX Copenhagen, and its 3,300 employees serve more than 3 million customers.
About the CFO Survey
Deloitte’s CFO Survey is a biannual report, published across 20 countries in the EMEA-region and covering the perceptions of more than 1600 CFOs. The survey provides insight into the CFOs’ views on various themes such as financial prospects and uncertainty, risk appetite, geopolitical changes, strategic prioritizing and digitalization of the financial function. In Denmark, we have chosen to put special emphasis on which role digitalization may play for the visionary CFO. Therefore, we have supplemented our data with relevant cases focusing on the processes of digital transformation and development of the financial function.