If there is one thing most people can agree on, it is the fact that the world today undergoes constant change in a manner that is almost impossible to keep up with at times.
The business world is in no way an exception, of course, as shifts come in across various sectors within short periods. This is especially evident following the COVID-19 pandemic when most—if not all—industries were forced to transform to hold out.
As a major part of an organisation, finance leaders are tasked to face various challenges within the finance function to keep the business afloat.
Ronald Wong, ASEAN financial accounting services leader at Ernst & Young, said that in a rapidly changing business landscape, chief financial officers face the challenge of meeting contradictory demands amid market shifts, competition, and cost pressures.
“They are asked to drive long-term value while finding short-term cost efficiencies as well as to reinvent the finance function while doing more with less,” he says. “These contradictory demands form paradoxes that are inherent in the CFO role.”
Figure 1: Long-term value priorities seeing pauses or cuts in spending
Note: Respondents could select up to three long-term priorities. Not all priorities were included in the list of areas to cut or pause investment. Only comparable response options are shown. For planned cuts or pauses to investments, only select response options are shown. Respondents could selectall areas that applied. Source: 2023 EY Global DNA of the CFO study
The three challenges
The 2023 EY Global DNA of the CFO study found three challenges for CFOs across Southeast Asia that arise from the evolving role.
The top challenge that CFOs face is the need to balance short- and long-term investments. According to Wong, CFOs in Southeast Asia are facing increased pressure to drive cost efficiencies and hit short-term earnings targets, which may impact areas that are also priorities for long-term value, such as technology innovation or transformation.
The challenge here is getting the balance right, requiring CFOs to leverage technology and rationalise the enterprise-wide IT landscape to avoid costly inefficiencies and duplication.
Additionally, CFOs need to work more collaboratively with the business to update strategies and performance indicators, as well as proactively deliver insights and value.
At the same time, CFOs need to build effective relationships with the CEO and other leaders to influence decision-making and establish trusted relationships with the board, key executives, and other stakeholders.
Figure 2: Trusted relationships are key to being able to influence decisions
Question: What are the most important attributes that you feel a CFO must have to effectively influence the executive team’s decision-making? Source: 2023 EY Global DNA of the CFO study
Another challenge CFOs face is the need to balance risk with innovation and bold transformation for the finance function. According to Wong, CFOs recognise that they need to build digitised finance functions that can proactively support their organisations in achieving sustainable long-term growth.
Ronald Wong
“In this journey, talent and skills can be the biggest hurdle to digital transformation. Hence, CFOs should elevate the talent and skills agenda to align with their digital transformation objectives.”
Ronald Wong
Given Southeast Asia’s talent shortage, Wong believes that finance leaders should invest in upskilling existing team members and change their hiring profiles to strategically upgrade existing skill sets.
Moreover, CFOs need to set clear boundaries around the scope of experimentation and set up clear roles and responsibilities which will create a safe environment for their teams to experiment.
“When fostering a culture of safe experimentation, CFOS need to inculcate a ‘fail fast’ mindset in their teams so that they understand the leeway for agility while also meeting macro performance targets,” explains Wong.
The last one relates to the evolving role of the CFO. As the role becomes more strategic and value-adding, the CFO as an enterprise transformational leader is becoming more prominent.
Wong thinks this highlights the need for finance leaders to stretch their skills to be more strategic, and beyond their pure finance domain expertise.
“An important skill CFOs should look at is their emotional intelligence and interpersonal skills,” Wong says. “According to the abovementioned EY study, the top skill or attribute expected of successful CFOs in the next five years is ‘highly developed emotional intelligence and experience in people issues like diversity and wellbeing.’”
GenAI in 2024
Wong believes there are three major themes for the finance function in 2024, which will bring in opportunities as well as challenges for CFOs and finance leaders.
“GenAI presents an opportunity for finance and reporting teams to augment their capabilities, perspectives, and decision-making processes,” Wong says. “Within the realm of corporate reporting, artificial intelligence (AI) and GenAI hold the potential to extract information from a company's public statements, facilitating fraud analytics, and conducting in-depth analyses of balance sheets and performance metrics.”
Moreover, Wong thinks that GenAI has a pivotal role in aiding organisations to develop a nuanced understanding of long-term value.
To fully harness the potential of GenAI, finance leaders must embed trust in their systems and data outputs. They should also proactively address emerging risks and identify the right talent to capitalise on these intelligent systems.
At the same time, organisations need to support finance staff in reskilling or upskilling to gain capabilities in digital finance and AI.
“Accounting and finance professionals should also be encouraged to gain new capabilities required for using GenAI and stay connected to new developments.”
Ronald Wong
Importantly, Wong says finance leaders and CFOs should also develop an appreciation of GenAI, so they can better understand how the future finance function will look like and hire the necessary talent or train existing teams accordingly.
While GenAI can be an enabler, finance leaders will need to develop clear protocols on how to leverage GenAI with security considerations in place, to build trust in the AI systems and insights generated.
ESG and sustainability
According to Wong, the second major theme in 2024 is environmental, social and governance (ESG) and sustainability.
Taking action on climate change has become an imperative in business strategy, and CFOs are at the forefront of this shift.
For Wong, the transition to low-carbon economies is accelerating and companies are increasingly positioning climate and sustainability under the CFO’s oversight to mainstream climate risk within their business operations.
“CFOs are tasked with ensuring that their organisations and investors have the necessary information to support a business model compatible with a net-zero economy.”
Ronald Wong
Such involves providing actionable insights on the opportunities and risks associated with climate change, as well as the potential financial impacts.
“The CFO's role includes explaining how climate strategy and risk management relate to the accounting estimates and judgments used in financial statements and reports,” Wong points out, adding that CFOs are also expected to maximise green incentives for investments in sustainability and partner with C-suite leaders to invest in innovations that promote sustainability.
Hence, the CFO needs to collaborate better with leaders of other departments and other stakeholders to enable them to drive productive conversations on critical ESG topics organisation-wide and to create sustainable strategies that can help drive revenue, decrease costs, and meet stakeholders’ expectations.
The regulatory landscape is also becoming increasingly complex, according to Wong, with frequent updates and changes in financial reporting requirements. CFOs should keep track of these changes and understand their implications across multiple regions.
With data volumes exploding, finance leaders are becoming data stewards, necessitating the modernisation of the finance function.
“Finance teams must shift from processing transactions to analysing financial data and using it to inform strategic decisions.”
Ronald Wong
Wong believes that one of the key aspects of this digital transformation is for the finance function to become an analytics powerhouse. This involves shifting the capabilities of analytics away from simply understanding "what happened" to focusing on "what will happen" and "how can we make it happen".
According to Wong, this enables finance teams to prepare for the future, including navigating disruptive events and allows them to play a more strategic role in the organisation.
Automation
Another aspect of finance transformation is automation technology, with advanced technologies like robotic process automation (RPA) elevating the role of finance professionals, enabling them to deliver expanded analytic insights to businesses.
Research by EY and the University of Oxford’s Saïd Business School found that 77% of CFOs surveyed say they experienced at least one underperforming transformation in the last five years.
“Many CFOs overlook the importance of team buy-in in successful transformations,” Wong says. “Transformation success comes from putting people at the centre of the transformation and engaging their people to buy into the transformation objectives to maximise the probability of success.”
CFOs must also provide emotional support to sustain engagement and upskill staff to help them adapt to new ways of working. They must empower their finance teams with digital tools and technologies that remove much of the routine drudgery that may prevent finance teams from driving value for the business.
“Empathetic leadership and emotional intelligence will be key to leading people through transformation and culture change,” Wong says.
Arra Czarina Igno is an experienced News Writer with a demonstrated history of working in the financial services industry.
She is a media and communication professional with a Bachelor’s Degree focused in Broadcast Communication from Polytechnic University of the Philippines.
