Evolving role of the CFO in the age of AI
AI will have a profound impact on businesses in more ways than currently imaginable. While this technology has been available for many years, the heralded arrival of generative AI* has upended the global marketplace.
AI and generative AI is likely to impact the overall strategic complexion of multiple businesses. Businesses will be forced to consider their fundamental purpose, structure, and position within the market. They will have to rethink their most valuable assets, key risks, how they gain and retain customers, where they allocate capital, and how to maximize return on investments. In the AI age, the role of CFO will be elevated to that of a ‘strategic partner’ in creating superior enterprise value. AI will well and truly accelerate the transition from risk management to value creation by providing the tools to enable data-driven finance. While we do not yet know exactly how these changes will manifest, we do know they will profoundly affect the role of the CFO.
When asked how AI will change the CFO role,
ChatGPT summarized
AI will revolutionize the CFO role by automating tasks, providing advanced financial analysis and insights, improving forecasting and risk management, optimizing costs and enabling strategic decision making.
*Generative AI, such as ChatGPT, is an artificial intelligence system that creates new content, data, or other media when prompted by a user. This content output is based on learned patterns and the structure of the input data, which is then used to generate new data with similar characteristics.
This paper discusses how AI will impact three main areas of responsibility for the CFO:
- Serving as a steward of the company
- Managing financial operations and required reporting
- Becoming a strategic partner to enhance the enterprise value of the business.
While the three dimensions of the CFO role - the steward, the operator, and the value creator remain unchanged - the foundational work of the finance organization, the structure, the import, and the focus of these dimensions will change. AI will impact how the work gets done. It will strengthen and improve the veracity of financial data, and it will enable and expand the CFO’s work of value creation.
Let’s delve deeper how AI will impact each of these dimensions and how CFOs can leverage AI in their organization to drive greater strategic advantage for their company.
Changing what needs to be protected
As the steward of the company, the CFO ensures the financial integrity and compliance of the organization. The work of the CFO and the finance team protects the company’s assets and reputation and guards against risk. Historically these assets have been things like intellectual property, trade secrets, processes, and/or tangible assets such as machinery and inventory.
Now with the changing landscape, there will be multiple additions to what needs stewardship. Data, customer relationships, and brand reputation will become the most valued assets of the company and a source of differentiation. CFOs will be tasked to protect the company in all new ways such as ownership and access to data, data models, and algorithms. These are complicated things with vastly different characteristics than a proprietary formula, a recipe, or a piece of equipment.
Generative AI also brings “black box risks” such as unrealistic expectations for AI capabilities or a general lack of trust in AI technology due to issues like AI hallucinations. Additionally, the finance team will also have to focus more on cyber risks, especially protecting customer data. A breach of any data asset could hugely damage financial operations and the overall integrity and reputation of the company.
In this new world, there will likely be more regulation on data and privacy protection as well as ethical use guidelines for AI and other technologies. CFOs will need to take an active role in defining company policies to comply with these requirements.
Operations and AI—the biggest disruption
Managing the books and financial reporting—the traditional work of the CFO—will be greatly impacted by AI. How CFOs run their own operations will change significantly as AI will take financial automation to the next level.
AI will streamline financial operations processes and increase efficiency and effectiveness. AI will become the trusted digital accountant to the Financial Controller. For example, this is now a very real scenario: an “accounting copilot” reviews the account balances in real-time, recognizes anomalies, recommends actions (manual journal entries, credit/payment holds), and executes those actions upon confirmation/research by a member of the finance team.
AI will also allow finance to more effectively reduce leakages. With AI, the finance teams will have improved insights into locating and fixing leakages in payables (duplicate invoices, fraudulent claims), collections (invalid deductions, late payments), and credit (dynamic credit adjustments). AI will also uplevel assurance through continuous control monitoring and pattern and anomaly detection.
When embedding AI into their daily financial operations, CFOs must keep in mind two key considerations. First, ensure the sanctity of the data by connecting to the right data source. Second, engage a “human-in-the-loop” to ensure it is explainable and review all transactions before they are entered/posted on the company’s book of record.
Another facet of this role that will undergo a rapid change is business intelligence (BI). Historically, the finance team would provide reporting and information to the business by using a conventional business intelligence model. Finance and technology teams would interpret and predict ongoing and ad hoc requests from a business unit, run queries, and report back information and insights. The definition of success was providing accurate information on-time.
All of this will change with AI. Collecting, reviewing, analyzing and distributing financial data will become self-service and autonomous. AI will now truly allow data analytics to run as close as possible to the business and at hyper speed, turning conventional business intelligence into conversational BI. This new functionality will offer greater insights regarding financial performance, trends, and anomalies, and will allow business and finance executives to make datadriven decisions rapidly.
Growth in the role of value creator
For years, CFOs have been wanting to become an active business partner in improving the overall economics of the business. Successful CFOs will embrace AI and use it to accelerate the transition to true data-driven finance organization and become a strategic business partner.
AI will enable CFOs to provide rapid, real-time actionable financial- and risk-related insights leading to more effective forecasts and projections, better capital allocation, quicker analysis of new sources of value and sharper estimation of risks (new and emerging). Of course, these are not new activities for the finance department. AI will turbo-charge this transition in how quickly these value-accretive processes can be implemented and in how these sharper insights can be derived and delivered back to the business.
With AI, the finance teams will have the ability to ingest internal (results, utilization, trends, customer behavior) and external data (macro, competitors, mobility trends) real-time and fine-tune their forecasts and projections at speed. The real difference between leading and lagging will be speed and AI will enable that for the enterprise. By relying on real-time data, they will better determine how to allocate capital and develop scenarios quickly and effectively. Finance teams will more easily provide data-driven counsel for or against a new proposal or apply multiple dimensions to improve the efficacy of their forecasting.
Rather than just using a risk-based approach to assess new ideas and projects, CFOs will be able to provide a more balanced view of risk. For example, a finance executive can now replace the traditional NPV/DCF calculator with multi-scenario models. They also could use real-time IoT data (such as from plants, sensors, or factories) to prioritize activities such as continued maintenance versus building or investing in new capabilities. They can even optimize capital allocation decisions, such as dividend distribution versus share buy-back, by rapid modelling multiple scenarios and market conditions.
Finally, CFOs will now be front and center in helping organizations identify, define and monetize new sources of value– leveraging data, models and algorithms. (eg: longevity models by a life insurer, anonymized customer behavior and personas by an e-commerce marketplace, customer personas by payment networks/banks etc).
How CFOs will spend their time in this new reality
Beyond how these three roles of stewardship, operations, and value creation are anticipated to change, where and how CFOs spend their time and devote their attention will also be significantly different than how they work today. The operator role will eventually become highly autonomous and work on its own. This will free up valuable time to allow CFOs to focus on the much-needed roles of stewardship and value creation.
This transformation will be a paradigm shift in how finance organizations function. For many organizations, data collection and reporting still remain the predominant role. With AI, this activity will soon take the least amount of time and attention. A forward-thinking finance organization will instead focus on creation of new sources of value, protect the company from the risks of AI technology and reap the rewards of data-driven finance.
About EXL
EXL helps CFOs transform financial operations to achieve superior business growth. EXL leverages AI technologies to drive operational efficiency, enhance the customer experience, and enable data-driven analysis for financial organizations. We utilize our deep expertise in data and analytics coupled with industryspecific capabilities to deliver actionable insights. Our goal is to guide CFOs through this AI transition so they can more quickly become trusted value creators for their organizations.
Written by
Narasimha Kini
Executive Vice President and Business Head,
Emerging Business Unit
EXL
Prarthan Kaushik
Vice President, Finance & Accounting
EXL