Top 5 stories from CFO Dive

CFO agility —  challenged in recent years by the COVID-19 pandemic, Silicon Valley Bank’s failure and war in Ukraine and the Middle East — is facing a new test as turmoil in the U.S. Presidential election has quickly ratcheted up domestic geopolitical risk and uncertainty, corporate finance experts say. 

In a one-two punch of extraordinarily unusual political events that played out over the course of about nine days, the attempted assassination of former President Donald Trump on July 13 was followed by President Joe Biden's subsequent announcement on July 21 that he was not seeking reelection and had decided instead to endorse Vice President Kamala Harris. In the midst of it all, a CrowdStrike software glitch unleashed massive technical disruptions across industries on July 19 in what’s been called the largest IT outage in history that will hit Fortune 500 companies with more than $5 billion in direct losses, according to CNN. 

“It’s really tough when you put together these three massive events in a two-week period and try to find the right combination of crystal balls to figure it out,” Bobby Mikkelsen, CEO and CFO of the Las Vegas, Nevada-based Tego Cyber, said in an interview. “You put all those three things together and if anybody says they have all the answers today they’re full of [it] because all the different scenarios that could be developing out of those three things are large.”  

Like many executives and voters, Mikkelsen said he was still evaluating the potential fallout that the events could have on his cybersecurity software company. But already he’s concerned about the impact on the climate for financing which is the lifeblood of early stage companies like his. He’s not expecting capital to be “coming out in droves over the next three and a half months — and even less so because of the last two weeks,” he said. 

New threats in a ‘polycrisis’ era

The election shakeup is only the latest disruption in what some call a “polycrisis” era. The term, coined by Adam Tooze, a Columbia University history professor, denotes a world buffeted by crises that can spill into one another, like climate change that can dislocate people and lead to immigration, the Financial Times reported. 

To be sure, finance experts and executives hold a range of views on the relative import that the presidential election’s turmoil will have on business as compared to other crises CFOs have grappled with in recent years. But many say that the political shakeup, at least for CFOs, pales in comparison to the pandemic and the regional banking crises which slammed the corporate finance world squarely at its core. 

“When you think about SVB, that led treasurers to really have to think, ‘is my liquidity really what I think it is, do I have to rethink my banking partner?’ It was a direct impact on the financial system,” Stephen Philipson, head of wealth, corporate, commercial and institutional banking at Minneapolis, Minnesota-based U.S. Bank said in an interview. During the pandemic, there was a fear of what “tomorrow was going to look like” along with “zero visibility” on cash flow, he said.  

In comparison, the tenuousness of the election’s outcome does not have a direct and immediate impact on businesses, even as the unprecedented nature of the turmoil around the events is very “front of mind” for CFOs and treasurers, he said. “There’s visible uncertainty,” Philipson said. “There is predictability in that we have two potential paths and I think people have a general idea of what each party would do if [they were] in office.” 

Blind corners

Even before the singular political events of late scrambled the presidential race, executives — as they typically do ahead of all major elections — were bracing for the election and the potential policy changes that different outcomes can bring. 

In early June, nearly one-third of CFOs signaled that their companies were postponing, scaling down, delaying or permanently canceling investments due to uncertainty around the upcoming election, according to a survey that closed June 3 that was a joint initiative of Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.

In contrast, after Biden announced he was getting out of the race, the CFO Leadership Council sought to gauge finance chief sentiment in a one-question LinkedIn survey that asked whether CFOs felt the upcoming U.S. elections would impact their strategic planning. A majority (78%) of the more than 800 finance chiefs surveyed felt the upcoming U.S. elections would affect their plans in some way, with 20% anticipating a significant impact, 31% a moderate one and 27% a minimum impact. Only 22% said it would have no impact at all. 

The bottom line is that CFOs are divided on their views of the impact of the election outcome, in part because the varied nature of businesses mean policies affect them very differently or not at all, Jack McCullough, founder and president of the CFO Leadership Council said in an interview. For example, a company that competes with goods made outside the U.S. would welcome the 10% tariff on all imports proposed by Trump while one that buys imported goods could see their margins squeezed, he said.

But what the survey didn’t tackle was the angst that the new uncertainty piles onto CFOs who crave strong data they can use to support the solid forecasts and strategies that they need to deliver to their boards and companies. “For CFOs, the thing they like best in their professional lives is certainty…and when you’re living in a volatile environment as we have been for four years it’s probably the worst-case scenario,” he said, noting that a previous tongue-in-cheek survey found that the most popular super power craved by finance leaders was “seeing around corners.” 

Accelerated issuance, hedging

CFOs have been dipping their toes into the market to offset some of the risks they are seeing. In a U.S. Bank survey back in January and February of more than 2,000 executives, the share of respondents who named geopolitical risks as a top worry rose to 26% from 17% in the year earlier, CFO Dive previously reported, with an increasing number of CFOs and treasurers hedging against interest rate risk and shifts in foreign exchange and commodity prices.

“Even though the market seems to react in a less volatile fashion to these big news headlines that would have been major market movers in the past, I think finance executives are still very cognizant of identifiable risk, whether it’s the presidential election or the wars going on around the world,” Philipson said in an interview last week. “And the last two weeks demonstrate that there’s also unidentifiable risk that can pop up.” 

As a result, he said one of the things the bank has seen a lot more this year is an increased use of FX option strategies that companies are using as a way to cap their downside risk. For example, they’re buying call options, effectively locking in the ability to buy or sell a currency at an out of the money price as a potential against downside risk. That’s no longer just for the biggest corporations; even middle market companies are increasingly using such hedges to offset the possible impact of an election or central bank policy move that can affect the dollar’s strength relative to other currencies, he said.

At the same time, many companies have already accelerated corporate debt issuance this year, a pull-forward of activity that Philipson attributes in part to companies seeking to avoid any potential election volatility. The volume of U.S. investment-grade corporate bond issuance passed the $1 trillion mark on Wednesday, well ahead of the September date it crossed that threshold in 2023, Philipson said. That's the second earliest date historically that investment-grade corporate debt issuance has reached that level, according to U.S. Bank data. Only in 2020 did the issuance surge any earlier, an outlier year that saw the $1 trillion milestone passed in May as companies across industries scrambled to shore up their balance sheets.

While financing volumes are always slower in the second half, Philipson said that as long as risk markets remain stable there could still be a steady amount of supply in the second half of the year, especially given that there’s a big wall of early pandemic debt that will need to be refinanced next year.  

Of course, there are political changes afoot outside the U.S. that could have a range of implications for various corners of the global economy. For example, the U.K. election earlier this month led to Labour Leader Keir Starmer becoming prime minister, but it’s not clear what that’s going to mean for M&A, David Dean, managing director of M&A at Willis Towers Watson, said in an interview.  

Do get educated, don’t overreact

While Biden stepping down is a clear signal of coming change, the important thing for CFOs to do right now is “get educated, but be patient,” Connor Augustyn, director of financial operations and private equity at West Monroe told CFO Dive.

It’s important for CFOs to pay attention to any key differences that may emerge between the Biden and Harris platforms. Ultimately, this juncture should serve as a catalyst for finance chiefs to ensure their organizations are well-prepared to weather change, Augustyn said in an interview.

“I would say since COVID, this has become the second-largest business disruption that's forced CFOs to pause and say, ‘How do I plan for agility?’” he said. “So it's become a good catalyst for them to look introspectively and say, when the change comes, ‘How do I quickly pivot my organization to make sure that we are not behind the eight ball?’”

Finance chiefs also should be sure not to overreact — for West Monroe’s part, the consultancy has been coaching finance chiefs through a “standard election” where both parties have different views on corporate policies, taxes and regulatory, he said, despite the tumult of recent events.

What CFOs can do in practice to prep for any coming changes is examine their core business processes to make sure they have the flexibility they need — if new tariffs are placed on imports, for example, and subsequently impact product costs, “how quickly can my organization put a product cost change and a pricing change out to the market?’” Augustyn said.

The FP&A team will play a critical role — ensuring that needed flexibility “comes through making sure that your FP&A organization is very sound…but then it's also taking a look across the organization and understanding where you may be slower to move because of inefficiencies in processes, technologies,” he said.

With so much coming at businesses today, the real challenge for finance chiefs is making sure you’re being proactive and not reactive, said Myles Corson, global and Americas strategy and markets leader, financial accounting advisory services for Big Four firm Ernst & Young said.

“I think for CFOs, the big challenge is, if you don't have a clear vision of where you're going as an organization, and where you're going as a function…you can get overwhelmed by reacting to all of that disruption,” he said, adding that the outlook for interest rates and what that means for capital investments probably remains a bigger concern for CFOs. It’s critical, he said, for CFOs to be able to “see through some of the short-term noise of the news cycle.”

 

Call it the generative AI paradox.

CFOs are chasing the hope of a bonanza from generative artificial intelligence in one of the most frenzied investments in technology in decades.

Yet they have, at best, a loose grip on how to measure the innovation’s ultimate business payoff, according to financial executives and AI experts.

“I haven’t seen anything quite like this,”  said Daniel Rock, who co-founded Workhelix, a generative AI consultancy, with Erik Brynjolfsson and Andy McAfee.

Since the public launch of ChatGPT in November 2022, “there has been this ‘Ah-ha!’ moment, when people say, ‘This is capable of things that I didn’t think information technology systems could do,’” Rock said in an interview, noting the prospect that AI will streamline operations, better serve customers, upgrade forecasting, speed software programming and improve marketing and sales.

The CFO rush to generative AI will likely prove especially rapid because adoption is happening primarily from the bottom-up — from consumers — rather than top-down — from businesses, San Francisco Federal Reserve Bank President Mary Daly said.

The release of ChatGPT marked a “surge moment,” as “generative AI went from a thing others did to relative ubiquity overnight,” Daly said at a University of Chicago conference in March. “This moment led to what I think of as ‘people-driven diffusion.’”

As a result, CFOs and their C-suite colleagues face shareholder pressure and rising expectations for AI-enabled efficiencies and customer service, Daly said. They must move “from apathy to action” faster than with other formative innovations including steam power, electricity and the internet.

“Our conclusion is that you will essentially see the benefits of generative AI over the next five years,” EY-Parthenon Chief Economist Gregory Daco said in an interview. To hit a similar payoff, computers took 10 years, electricity more than 40 years and steam power 80 years, Daco said.

Rapid adoption of generative AI will enable companies to better innovate, harness the new skills of employees, retain customers and gain market share, Daly said.

At the same time, quick deployment of generative AI requires CFOs to measure ROI faster than prior technologies or risk wasteful spending, according to financial executives and AI experts.

AI shakedown

CFOs must also look out for hype and outright fraud, according to the top cop at the Securities and Exchange Commission.

“While perhaps not quite yet a perfect storm, there’s certainly one brewing around AI,” SEC Enforcement Director Gurbir Grewal said. “Every day, we see revolutionary technological advancements in artificial intelligence, or AI, that promise to transform nearly every aspect of our lives, including our financial decision making.”

“Every day, we see individuals, corporations, analysts and others touting these developments,” he said in an April speech. “Every day, we see companies attempting to not only develop AI capabilities, or harness it to improve their productivity and growth, but also to attract and retain investors.”

Most investors (61%) believe that rapid adoption of AI is very or extremely important to a company’s value, according to a PwC survey.

In turn, CFOs and their C-suite colleagues harbor “fear of missing out,” Glenn Hopper, CFO at Eventus Advisory Group, said in an interview. “They’re getting pressure from investors and boards — at every minute, from everybody.”

Consumers have also set a high bar, according to financial executives and AI experts.

“At some companies AI deployments will be something that must be done because customers expect it,” according to Rock, who is also assistant professor of operations, information and decisions at the University of Pennsylvania’s Wharton School. “It’s just going to be table stakes.”

During the coming year, 37% of U.S. companies plan to invest at least $100 million in generative AI, KPMG found in a survey of 220 companies published in March.

Spending on AI software will surge to $298 billion by 2027, 140% more than in 2022, according to Gartner, with 35% of investment focused on generative AI.

“You’re not going to be able to stop the momentum,” Hopper said.

Nvidia, arguably the decade’s top momentum stock, leads the juggernaut behind generative AI adoption. Its share price during the past year has rocketed 153%.

Yet a hint of speculation by Nvidia on the operational value of its products suggests that the onrush into the new technology may, at some point, venture onto shaky ground.

Countries as well as companies have hired the company to upgrade $1 trillion worth of data centers into “AI factories to produce a new commodity — artificial intelligence,” Nvidia CEO Jensen Huang said in a quarterly earnings call on May 22. “The next industrial revolution has begun.”

Every $1 invested by a cloud service provider in Nvidia’s software and networking can, over four years, yield $5 in revenue, Nvidia said in a “Company Overview” on a page titled, “The High ROI of High Compute Performance.”

In a footnote, however, Nvidia said in the May report that its calculation is merely an “illustrative example.”

To be sure, CFOs gauging ROI in generative AI are trying to map fuzzy terrain, the financial executives and AI experts said. Some payoffs from the emerging technology are potentially illusory, especially in the short term.

Only 5.2% of organizations attributed more than 10% of their earnings before interest and taxes to use of generative AI, McKinsey said in May, citing a global survey of 1,363 executives.

Big Data, Big Challenge

The challenge of measuring the value of data predates generative AI, as well as the advent of so-called Big Data and advanced analytics two decades ago.

CFOs and investors have struggled for years to precisely value proprietary data on customers, markets, products and other information.

The measurement challenge did not stop the meteoric rise of Amazon, Google, Uber and other Silicon Valley giants that rely on detailed, self-generated data to fuel profits and growth.

The path-breaking companies rode an explosion in the use of the internet, smartphones and other tools for connectivity and data sharing. Investors place more value on their proprietary data than on their buildings, workers or technologies, Laura Veldkamp, a finance professor at Columbia University’s Business School, said at a New York Fed conference on productivity in February.

CFOs in industries that arose before the advent of so-called information technologies often face a bigger challenge gauging a return from generative AI across their operations, Rock said. “I’m not sure that ROI in gross terms is going to be there.”

AI cost estimates by some companies have fallen short of the mark by as much as 1,000%, Nisha Bhandare, a Gartner vice president and analyst, said at a Gartner CFO conference in May. “Given how new AI is, we don’t really know how much it costs, and are learning as we go.”

Editor’s note: This is the first of two reports on the challenge of measuring return on investment from generative AI. In part two, CFO Dive will describe how financial executives can limit the cost and maximize the payoff from the technology even though, at the outset, they may lack a solid estimate of the potential gains.

To institutional investors, “speculation” is a four-letter word — unless they happen to make a killing. For financial executives, acting on speculation is often a surefire trigger to job loss.

Yet CFOs across several industries are piling billions of dollars into generative artificial intelligence based on fuzzy forecasts of the likely payoff.

“It’s a noisy estimate,” said Daniel Rock, co-founder of AI consultancy Workhelix, referring to common projections of the gains from generative AI. “It doesn’t mean trying is not worth it.”

Generative AI has helped CFOs finely tune customer service, refine forecasting, speed software updates and upgrade other tasks.

Yet as AI brings “the industrialization of knowledge production,” financial executives face a challenge accurately forecasting the return on investment from new, powerful efforts to squeeze more value from data, according to Laura Veldkamp, a finance professor at Columbia University’s Business School.

The challenge often breaks the usual yardsticks for ROI: Data by its nature is harder to observe and price than assets that undergird the industrial era economy such as buildings and employees, Veldkamp said at a symposium on productivity held by the New York Federal Reserve in February.

“There’s a lot of things in this economy in general that we are going to have a hard time measuring and that we just don’t know enough about yet,” Prasanna Tambe, an associate professor at the University of Pennsylvania’s Wharton School, said at the symposium. “Measurement remains a challenge.”

Despite ambiguity, the stampede into generative AI has swept up investors, financial executives and information technology companies of all sizes, CFOs and AI experts said.

“Speculative frenzies are part of technology, and so they are not something to be afraid of,” David Cahn, a partner at Sequoia Capital, said in a June research note. He sees a $600 billion gap between what companies are spending on AI-related infrastructure and the revenue needed to justify such outlays.

“Those who remain level-headed through this moment have the chance to build extremely important companies,” Cahn said. “But we need to make sure not to believe in the delusion that has now spread from Silicon Valley to the rest of the country, and indeed the world. That delusion says that we’re all going to get rich quick, because AGI [artificial general intelligence] is coming tomorrow.”

Financial executives willing to chance an outlay in generative AI, the CFOs and AI experts said, can follow seven tips to cut through the forecasting haze and seize the potential payoffs:

1. Approach ROI Flexibly

A rush into any “new, new thing” cries out for CFO skepticism. Yet when a potentially terrain-shifting technology emerges, top financial executives would do well to consider more flexibility in gauging ROI.

“As a CFO, the first thing you’ll say to someone coming to you for money is, ‘What’s the ROI?’”  Glenn Hopper, CFO at Eventus Advisory Group, said in an interview. “For something like AI, it’s very difficult to determine.”

Greater efficiency is often one of the most immediate payoffs, he said. AI can trim by as much as three days the time between delivery of a good or service and payment, or the day-to-sales outstanding, he said. It can also streamline just-in-time inventory control and avert errors.

“It’s hard without any prior knowledge to evaluate the potential return on investment,” EY-Parthenon Chief Economist Gregory Daco said in an interview. Identifying with precision the potential payoffs for each company sweeps away some of the fuzziness on potential gains.

“We work on a case-by-case basis with a number of clients to say, ‘OK, in your specific sector, for your company with X market position and an X total addressable market, we believe that AI could have this this type of return on investment if applied across these functions,” Daco said. “It’s really a case-by-case approach because every industry and company is different.”

Many of the companies that succeed with generative AI will embrace risk and experiment despite uncertainty over ROI, Rock said in an interview.

“If you get failure, that doesn’t necessarily mean you made a bad choice,” Rock said. “You can cut it off and re-route it to something else.” Rock founded Workhelix with Erik Brynjolfsson and Andy McAfee.

C-suite executives this year have shown flexibility in their expectations for ROI from generative AI, KPMG found in a June survey.

During the first quarter, 51% of business leaders expected the biggest gains in the next 12 months to come from higher productivity, with 47% expecting higher revenue as the No. 1 benefit, KPMG said.

The rankings flipped in Q2, with 52% of 100 respondents ranking higher revenue as the leading improvement, while greater productivity fell to 40%, according to KPMG.

2. Focus on longer term gains

Getting generative AI up and running often demands sizable up-front investment that could otherwise go to other operations with more certain, immediate returns, Rock said.

“There’s opportunity costs to build up something intangible, like a new way of doing things, a new organizational structure or new workflows, and it seems like you’re putting a lot in to get nothing out,” he said. “Later, there’s a sense that ‘Hey, we’re getting a lot more productive’ — you start to get tangible benefits.”

Paradoxically, CFOs most knowledgeable about AI — its capabilities, limitations and costs — tend to expect the benefits over three to five years, Daco said. Their peers with a weak grasp on the technology “tend to believe the benefits will be more immediate — in two years.”

3. Create a ‘wholesale’ strategic plan

Before considering potential return on investment, a CFO should help create a strategic plan for streamlining operations and increasing growth by weaving generative AI into the organization, Daco said. Bolting the technology onto existing operations often yields meager returns.

“It’s not just about saying, ‘Well, we can automate or augment certain functions,’” he said. “It’s about having a wholesale perspective on how to integrate AI into the fabric of an organization rather than just simple add ons.”

As with any strategic plan, goal setting from the start is essential, according to Adriana Carpenter, CFO at Emburse, a provider of expense management software. “It’s always best to start with the question: ‘What is the outcome that I’m trying to achieve?’” she said.

While creating a broad strategy from a high-elevation viewpoint, CFOs should also help ensure that employees, all the way down to front-line staff, will make the most of generative AI, the CFOs and AI experts said.

“You need to develop a corporate culture that is AI savvy, and think about how to refine your workforce in a way that allows you to put into place a top-down, strategy perspective with a bottom-up, operational perspective,” Daco said.

4. Prioritize your AI projects

A CFO could apply generative AI to most company functions but should resist that temptation and prioritize instead, the financial executives and AI experts said.

“You probably want to stack-rank the different opportunities that are there because there's lots of them and you definitely have limited resources,” Rock said.

Along with alignment to strategy, a generative AI project should draw on existing staff, focus on an operation that they will find compelling and offer the prospect of a quick success, he said.

Before launching a proof of concept, “pick something that you know will be successful and will change minds,” Rock said. “When you’ve demonstrated ROI, then you can say, ‘Cool, now we can move on.’”

Some early adopters of generative AI, although confident in eventually achieving company-wide gains, focused first on picking a surefire project rather than risk a failure that would sour employees on the technology, Rock said.

“You have to prioritize the business outcome you want to achieve,” Carpenter said.

Generative AI has proven especially potent in boosting revenue by analyzing customer data and monetizing it, Carpenter said. It also can help identify where a company is underpricing compared with the competition or how it can expand its customer base.

5. Befriend your CTO, CIO

As the holder of the purse strings, the CFO may have a tense relationship with the chief information officer or chief technology officer, who may not always get funding for their top projects, the AI experts and financial experts said. A CFO should set a friendly, collaborative tone.

“The CFO and CIO — in general —  their areas are historically considered as cost centers, so they’re both fighting with each other,” Hopper said. “It’s important to collaborate together on this to gain efficiencies and really understand that AI is a strategic capability that’s going to strengthen the financial performance and operational excellence of the company —  if they work together on this, everybody wins.”

The CFO also needs a deeper understanding of technology than in previous decades, the AI experts and CFOs said.

Previously, the CFO would have largely focused on how AI and automation would help the controllership, the back office and other tasks within the finance function. Now a CFO needs to cast a broader net and understand the value of generative AI across the entire company.

“I’m not saying you have to become a data scientist or developer, but you need to understand your business, your industry so you have this breadth of knowledge,” Hopper said. “If you don’t know how the information is created, how will you be able to correct it?”

A tech-savvy CFO will also sooner identify high-return innovations in generative AI.

“There’s all sorts of new breakthroughs occurring — every week there’s some new fascinating thing,” Rock said. “You need to stay on top of new developments and build your own detector for the impossibly high-value innovation for your company.”

6. ‘Define’ the data

As part of accurate ROI measurement, the CFO needs to ensure a precise, company-wide definition of the data fed into generative AI, the AI experts and CFOs said. Otherwise, different parts of the company may use the same data to make inconsistent conclusions, undermining the technology’s value.

“In the early days you ended up with these data silos because everybody was doing their own citizen development and building their own data fiefdoms,” Hopper said. “If you’re only taking a slice of the pie at a time, you’re not going to get maximum value. The way you’ll get maximum value is through a shared data warehouse and using it across the company.”

CFOs should keep in mind that the costs of launching a generative AI application — including creating a “data dictionary” and detailed governance of information as part of “responsible AI” — may exceed estimates, Carpenter said.

7. Bring employees along with you

CFOs seeking to achieve a high ROI will err by deploying generative AI primarily to cut payroll, the AI experts and CFOs said. Instead, the technology offers a potential tool for streamlining operations and lifting employee job satisfaction, they said.

“It’s a massive mistake to view this as a cost-saving technology in terms of workforce rather than an augmenter that enables people to get a ton of work done and focus on things that are genuinely hard to do,” Rock said.

Large-language models such as ChatGPT will imperil jobs for workers in dozens of professions, including accountants, auditors, financial quantitative analysts, blockchain engineers, interpreters, mathematicians and journalists, according to a study by researchers at the University of Pennsylvania and OpenAI.

The technology over time will streamline at least 10% of the tasks performed by 80% of workers, and half of the tasks done by 19% of workers, the researchers said.

To dispel worker anxiety, CFOs should “cultivate an AI-savvy culture with a desire to move things forward,” Daco said. They should ensure that employees are “on board with the transformation and that fears of job loss are alleviated.”

Mastering the ability to precisely gauge ROI from generative AI will not happen in a matter of months, the financial executives and AI experts said. To succeed, CFOs will need a balanced mix of resolve and patience.

“There are a lot of learnings that need to occur, there’s going to be fits and starts and it will take time for each type of business in different industries to evolve and accelerate the adoption of this,” Carpenter said. “But generative AI is here to stay.”

As finance continues its evolution toward becoming the strategic heart of the business, CFOs are searching for top talent that can help them effectively plan for that future — such as the right person to lead critical teams like financial planning & analysis.

Requiring both data fluency and broader vision, it’s not an easy job. Those in the FP&A function “truly have to be the jack of all trades, be able to connect the dots between all the different functions within finance,” Cosmin Pitigoi, CFO of global payment provider Flywire said.

Prior to joining the Boston, Massachusetts-based Flywire as its finance chief in March, Pitigoi spent 11 years at PayPal in various roles — serving at the head of its FP&A function as its SVP, Global FP&A, operational finance and pricing, according to his LinkedIn profile.  

The FP&A team oversees some of the most essential processes in the finance function, including forecasting, scenario planning and other analytics that support strategic business decisions, according to an overview by Oracle. The FP&A team typically focuses on forward-looking projections, rather than backward-looking accounting or present cash management, and has only grown in importance over recent years. For CFOs who are now serving as key partners to the CEO when it comes to future planning and decisions, having a trusted FP&A leader in place is a must.  

The operational muscle

FP&A serves as a critical connection point to ensure business processes can be conducted speedily and effectively. Like the chief accounting officer and controller, FP&A leaders are an essential part of an effective finance team. While CAOs focus on areas surrounding financial systems and governance and controllers zero in on processes such as the quarterly close, FP&A leaders act as a bridge between finance and other key parts of the business.

Rather than an employee, for example, having to bring in someone from the analytics department, human resources or marketing department to answer one question, they can head to FP&A and see all of that data marshaled in one place, Pitigoi said in an interview. The FP&A team serves as “the operational muscle of the company,” he said.

Ensuring that muscle is working as intended means whoever is in charge of the FP&A function needs to be able to wear multiple hats with ease, and be able to draw different threads of data from throughout the business to present a clear, comprehensive tapestry to the CFO.

“A great FP&A person is somebody who has that mindset of, ‘I'm the right hand, let me be that for you and chase all those things down,’” Pitigoi said.

Other experts have referred to FP&A as a sort of “corporate octopus,” with its remit reaching into all parts of the business to consolidate the necessary data they need to provide key insights, according to a 2023 report by CFO Dive.

FP&A leaders can earn salaries on par with other top roles in the finance suite, with VPs or directors of FP&A logging salaries of around $200,000, according to a recent write up by FP&A software provider Cube. This compares to average salaries of around $238,200 for chief accounting officers, the second-highest role in the finance function behind the CFO, CFO Dive previously reported.

As technologies like artificial intelligence put a further premium on data-driven insights, the importance of FP&A leadership has only grown. A recent report by Gartner found 97% of finance chiefs agree that global FP&A has increased in scope over the past couple of years.

Those expanding responsibilities come as most CFOs — 84% — face a critical shortage of talent in their accounting and finance teams, according to a 2023 study by tax compliance software provider Avalara. Forty-nine percent of top financial leaders highlighted a lack of FP&A expertise throughout their finance function, according to the study, which surveyed leaders in both the U.S. and United Kingdom.

Pulling the plan together

A well-oiled FP&A team, complete with talented leadership, can also provide businesses with an edge over their competitors, Randeep Rathindran, VP and team leader for Gartner said.

“Normally if you ask companies, ‘what differentiates you? What's a source of advantage?’ They're going to say, ‘well, it's our products, it's our brand, it's our operational excellence. it's our cost leadership,” Rathindran said in an interview. “FP&A people are saying, well, the way you plan and the way you make decisions, that's as much a source of advantage as the company's brand.”

Over the past few years, many teams are creating a subgroup within FP&A that is a kind of “decision support group,” Rathindran said, providing critical aid to CFOs which are straddling the operational and financial needs of the business. In an environment where data-driven strategies can provide a key competitive advantage, the pressure for the FP&A team to serve as the “real analytical powerhouse” of finance has only increased, Edward Bush, CFO of FP&A software provider Cube said.

“It’s the same thing that was expected of the FP&A function five or 10 years ago, but to a much higher degree,” Bush said in an interview. As CFOs evolve into “chief future officers” and assume more strategic responsibilities, FP&A’s support is crucial.  

Embracing the AI-driven finance evolution

FP&A leaders today must act as the analytical right hands of their CFOs — a kind of braintrust of institutional data — something that can allow FP&A professionals to gain critical experience in operations as they navigate a potential path to the CFO seat.

Before joining payments platform Flywire as a CFO, Pitigoi led a team of 400 people serving as the head of FP&A for payments service PayPal. THe role left him acting as an operational bridge, helping to run finance alongside the head of investor relations when PayPal’s then-CFO John Rainey departed, he said.

The experience not only allowed him to develop a good sense of how to run a business operationally, but provided key lessons “from a leadership perspective” on how to drive impact for a company, Pitigoi said.

It’s crucial for aspiring FP&A or CFO leaders to get a clear picture of how emerging technologies like artificial intelligence and automation are changing the traditional role of finance. Pitigoi has members on his FP&A team which can code just as well as those on the analytics team, for example, he said, a change which comes as technology and data skills are becoming just as essential for finance leaders as accounting or finance acumen.

The need to hone both sets of skills comes as nearly all — 92% — of CFOs surveyed by Avalara indicated a belief that AI would help to improve efficiencies as well as drive up both productivity and profitability at their organizations. When it comes to FP&A, CFOs are looking to see how GenAI could fit into use cases such as forecast and budget variances, for example, according to Gartner.

Emerging technologies such as AI are starting to accelerate a trend that has been ongoing in finance for more than two decades — the push to become that strategic voice for the company, Cube CEO Christina Ross said.

Finance and FP&A are “still not doing the job they are meant to do,” Ross said in an interview. But, “if you think of a timeline of getting to be strategic versus being entirely transactional, that curve has accelerated, probably 10x in the last 10 years or so,” Ross said. “And that started with automation.”

In the face of new ways of working and technologies, finance professionals like the chief accounting officer are seeing their historic roles morph to fit the needs of a modern business. The CAO is one of the highest-ranked members of the finance team, often second only to the CFO.

Like the controller, the CAO acts as a trusted partner and advisor for the finance chief, but when it comes to differentiating between the CAO and the controller, “the aperture is just a little bit bigger, when I think about it at the CAO level,” said Lauren Hotz, CAO of software provider Intuit.

Widening the aperture

Hotz has logged a nearly two-decade career at the Mountain View, California-based technology provider, which offers products including QuickBooks, TurboTax and Mailchimp. She has held numerous roles throughout her time at the company, including as its VP of finance and corporate controller, and has served as its CAO since February 2022, according to her LinkedIn profile.

Processes such as the quarterly close or how accounting policies are implemented across an organization often fall into a controller’s purview, for example, while as a CAO, Hotz takes responsibility for “areas around financial systems and governance,” she said. Hotz spends much of her time focused on compliance, working closely with Intuit’s chief audit executive regarding compliance surrounding the Sarbanes-Oxley Act as well as overall governance, she said.

“I spend time in other types of compliance, looking at things that we produce externally, like scripts, press releases…ESG, all the new climate rules, cybersecurity,” Hotz said by way of example. “There's just a little bit of an open aperture when it comes to those functions, and that's really where I find myself and my peers in [the] industry tend to focus.”

That range of responsibilities means that the CAO has a critical role to play in the finance function, reflected in their compensation. On average, CAOs in the U.S. receive annual salaries of $238,200, according to data from Salary.com. Annual salaries can range between $238,200 to $334,100. 

CAOs act as key partners for finance chiefs in a world where CFOs need to juggle a growing amount of information, quickly. Today, a CFO is expected “to become a data expert, and a process expert and a systems expert,” said Patrick Villanova, chief accounting officer of Los Angeles, California-based AP automation software provider Blackline.

That expectation is then filtered down to the rest of the finance function, with many of the responsibilities historically taken by the CFO now given over to the CAO — the two roles have a “symbiotic relationship,” Villanova said in an interview.

CAOs can step in on some of the processes overseen by controllers — such as account reconciliation — but they are also expected to support the CFO in strategic decisions. A close working relationship between the two is especially critical as finance chiefs need to juggle an ever-increasing volume of data to do their jobs, Villanova said.

“So what has happened is a proliferation of data, and every company is just generating tons and tons of data because we have the computing power to do it,” he said. “And the issue with it is deciphering that data, ingesting that data, and changing that data into information and insights. Therein lies the challenge that a lot of CFOs face.”

CAOs — who are already experts in processes — are taking on the burden of ensuring information is accurately relayed to the CFO.

The CAO also needs to work closely with their CFO to ensure the business’ finance and accounting functions are moving smoothly; for Hotz, the CFOs she has worked with as CAO at Intuit — there have been two since she took the seat — have been more FP&A focused than accounting-focused finance chiefs, and “because of that there always is much more of a focus on strategy and operations and the segment finance functions,” she said.

“I think key to the role between a CFO and a CAO is excellent communication, understanding what's important for them to know, and what's not important for them to know,” Hotz said. As a CAO, Hotz also has a fiduciary responsibility that goes beyond who she reports to and “discharging that effectively is part of what I hold myself accountable to,” she said.

“It's not always what people want to hear, but it's always in service to managing risk and governance, because each of us as officers and signers have a responsibility to the public and to the street,” Hotz said.

Making space for strategy

The CAO’s evolution is part of an ongoing, decade-long trend impacting the finance function. As CFOs step into a more strategic role, CAOs are beginning to take on more of the “tactical and operational tasks that CFOs once dominated,” according to Oracle.

Today’s CFOs are also less likely to engage with the day-to-day of accounting, tax or related topics, according to a 2022 report by executive search firm Spencer Stuart, with the CAO increasingly absorbing the responsibilities the CFO is leaving behind.

“We’re the SOX experts, we're the process experts, we generate the actual information, actual financial results,” Villanova said of the CAO’s responsibilities. “So it really starts with the head of accounting, to ensure that the systems and controls and automation is in place to get information into the hands of the CFO, as quickly and accurately as possible.”

The evolution of finance allows it to provide more help to the rest of the organization, but also has benefits on the part of finance itself, Hotz said.

Earlier in her career, “this idea of being an enterprise connector that goes across the organization was done in service to the fact that if we could connect the dots, help things move through…we could get early reads on some of those issues,” she said, pointing to events such as products and new market launches. “And then that would help us make sure that we would get the operations and the reporting and the accounting correct.”

Playing that role as a connector is only more critical for finance today, when accounting skills are the bare minimum asked from the financial function. Finance is steadily being tapped to influence company decisions as well as keep a focus on governance, Hotz said.

The shift means financial professionals now “get into a lot of things that require a deep business acumen, and things that will go beyond the domain of just being an accountant,” she said. “There’s a leadership and an influence that you have to have.”

AI and the future of finance

Emerging technologies have accelerated finance’s evolution, changing the way controllers, finance chiefs and other critical finance executives approach their work and day-to-day responsibilities, CFO Dive previously reported. The “new CAO” is going to be looked at as the person to straddle the divide between finance and data science, said Greg Selker, managing director for executive search firm Stanton Chase.

“The new definition of a CAO is that, this person must have the basic understanding of data science,” Selker said in an interview. “Not be a data scientist but be able to talk about the business processes — particularly from an analytical perspective — that AI could automate and then work with a team of data scientists to take those concepts and to integrate the data science.”

While incorporating emerging technologies is not new — Intuit, for example, has been utilizing robotic process automation and other forms AI for years at this point — generative AI represents a new phenomenon the company is keeping a close watch on, Hotz said.

“I would say that's probably the thing that's really shifting now is, how do we do it?” she said of GenAI. “How do we get some of that benefit faster, and at a higher velocity than then maybe we have in the past?”

The company is still in its early days of experimenting with GenAI, she said, and the technology has the potential to help automate some of the time-sucking, routine tasks that can take up accountants’ time. Bringing AI into the accounting function allows for things such as faster categorization of expenses or quicker account reconciliation, automating key processes such as procurement, accounts receivable and accounts payable — “all of the areas that would fall ultimately with the CAO and the controller,” Selker said.

“The bottom line is, what is the level of interaction? What is the level of influence?” Selker said. “And given that the CAO is responsible for all of the data, it makes sense that the CAO has something to say about what the data means.”

For CAOs themselves, automation frees them up to conduct the data analysis companies are increasingly asking of their finance departments, rather than spending time simply aggregating the information.

Hotz views the technology as “an aid to doing things faster, and better and potentially at a higher degree of scale,” she said — a tool that still requires control and judgment on the part of the accountants utilizing it.

“I can't say that AI itself is going to change sort of the scope of my role,” she said. “It just might change how I do certain things.”

The introduction of AI is not only affecting how the finance department does their work, but the skill sets and experiences of who is doing that work. For example, over 10% of Villanova’s team focuses purely on systems and automation, sitting in the accounting department, he said.

“The fact of the matter is, you're now looking at maybe up to one in five people in your accounting and finance department [who] aren't an accounting or finance expert,” Villanova said. “They know enough to comprehend it. But their core skill set is systems AI, automation, and data.”