• July 10, 2024

Gaining the psychological edge: The modern CFO’s playbook for strategic mastery

Gaining the psychological edge: The modern CFO’s playbook for strategic mastery

“Doing things right is of no value if one is not doing the right things.” This adage, once mentioned in a lecture, has lingered in my mind ever since.

The evolving role of CFOs

It is necessary for CFOs to incorporate behavioural psychology into their strategic decision-making processes. The evolving role of CFOs now includes not only significant contributions to strategic goal setting and alignment but also the adoption of technology and utilisation of AI. This encompasses the implementation of ERP or SaaS applications within organisations. The CFO’s role has expanded to selecting the appropriate applications for the desired results, igniting debates about their technological acumen and sensitivity.

A number of theories, research papers, and studies in economic sciences offer valuable insights into psychological factors and behavioural biases—both rational and irrational—that influence investment decisions, shaping market dynamics and outcomes. Emotions often sway financial decisions more than logic and reason.

Balancing risk and reward

The most challenging decisions for CFOs frequently involve balancing risk and reward in financial investments, determining the optimal time for expansion or cost-cutting, and allocating capital between competing projects or departments. CFOs can harness financial data to provide insights and make decisions grounded in data rather than intuition. Forecasting tools can aid in planning for business expansions, while reporting tools enable CFOs to make strategic, data-backed decisions. CFOs influence strategic planning by aligning financial targets with company goals.

Leveraging data and technology

Today, data is abundant. However, the key strength of a CFO lies in their agility and proficiency with numbers, which can be leveraged for meaningful insights. The use of technology assists in optimising results and making realistic, unbiased decisions promptly.

Influencing stakeholders

A CFO’s most crucial role in strategic decision-making is to convince and influence key stakeholders with financial data and insights transparently and compellingly. CFOs are not only responsible for formulating financial plans but also for ensuring their successful implementation and the discipline required to follow processes. This provides visibility across the organisation for all activities initiated to achieve the desired goal in a tech-savvy, programmed manner, which can be analysed and periodically reviewed.

A CFO who can present a strategic plan can effectively rise to organisational challenges by providing an unbiased, definitive analysis and decision-making platform for key stakeholders. Their responsibility for financial discipline, coupled with modern analytics, gives them cross-enterprise visibility, allowing them to connect the dots in ways that drive effective decision-making to achieve financial goals.

The CFO success paradigm

In the current landscape of continuous transformation, where organisations strive for sustainable growth, the CFO Success Paradigm survey conducted by Accenture in August 2022 underscores that a CFO’s leadership style, the company’s strategic imperative, and its culture determine how successfully CFOs can execute their decisions and realise organisational and personal success. According to their survey and research, leadership style exerts the greatest influence on organisational success, even more than a company’s strategic imperative and culture (Source: https://www.accenture.com/us-en/insights/consulting/cfo-decision-paradox-success-paradigm).

Today, data empowers narratives across all spheres, particularly with generative AI capabilities. With just a click on an app, management can access comprehensive information on sales, inventory, and logistics, even without visiting the showroom or sifting through ledgers. Financial planning, including costs, inventory, receivables, and associated risks, is accessible at the click of a tab.

Modern technology and tools enable CFOs to focus on strategic initiatives while navigating mundane tasks through automated processes. Dynamic leadership qualities further allow CFOs to effectively lead their teams, with communication, delegation, and teamwork being key to achieving company goals collectively. Collaborative efforts often lead to the most significant successes.

Supporting SMEs and startups

The government has provided various concessions, waivers, tax holidays, redressal platforms, and amenities to SMEs and start-ups. SMEs have been the backbone of growth and development. However, on the technology front, SMEs often face high expenditures on global software applications and their implementation. Many IT expenditures are restricted due to limited funds or budget allocations for financial MIS and regulatory submissions, leading to manual intervention, repetitive tasks, data collation, and increased chances of human error and biased decision-making.

Adaptability and innovation

Business environments often require swift solutions to address changing needs. Off-the-shelf solutions may not always align perfectly with unique requirements, making adaptability crucial. Credence, as part of its innovative initiatives, introduces APP Builder: low-code tools that empower users with limited coding experience to build applications rapidly, accelerating the development lifecycle. By reducing manual coding, low-code platforms increase the speed of application development, improving productivity and allowing teams to focus on higher-value tasks.

Customisation and user empowerment

Tools that are easy to customise empower non-technical users to make modifications and improvements. App Builder enables customers, users, IT team members, and the Credence implementation team to design their own standardised workflows.

Authored by Ms. Anita Ananthan, Chief Financial Officer – Legal & Compliances at Credence Analytics, a micro-certified MSME software company. Ms. Ananthan is a Certified Independent Director and a distinguished alumna of the London School of Economics (LSE). She is also the founder of ‘Club of Hope’, an NGO dedicated to supporting children and the elderly.

Disclaimer: The views expressed here are personal. The author can be reached at anitakumar@credenceanalytics.com

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