Category Archives: Data Analytics

How deadly is COVID-19? A biostatistician explores the question

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How deadly is COVID-19? A biostatistician explores the question

The latest statistics, as of July 10, show COVID-19-related deaths in U.S. are just under 1,000 per day nationally, which is down from a peak average of about 2,000 deaths per day in April. However, cases are once again rising very substantially, which is worrisome as it may indicate that substantial increases in COVID-19 deaths could follow. How do these numbers compare to deaths of other causes? Ron Fricker, statistician and disease surveillance expert from Virginia Tech, explains how to understand the magnitude of deaths from COVID-19.

As a disease surveillance expert, what are some of the tools you have to understand the deaths caused by a disease?

Disease surveillance is the process by which we try to understand the incidence and prevalence of diseases across the country, often with the particular goal of looking for increases in disease incidence. The challenge is separating signal from noise, by which I mean trying to discern an increase in disease incidence (the signal) from the day-to-day fluctuations in that disease (the noise). The hope is to identify any increase as quickly as possible so that medical and public health professionals can intervene and try to mitigate the disease’s effects on the population.

A critical tool in this effort is data. Often disease data is collected and aggregated by local and state public health departments and the Centers for Disease Control and Prevention from data that is reported by doctors and medical facilities. Surveillance systems then use this data and a variety of algorithms to attempt to find a signal amidst the noise.

Early on, many people pointed out that the flu has tens of thousands of deaths a year, and so COVID-19 didn’t seem so bad. What’s wrong with that comparison?

The CDC estimates the average number of flu-related deaths since 2010-11 is around 36,000 per year. This varies from a low of 12,000 deaths in 2011-12 to a high of 61,000 deaths in 2017-18. Thus, the number of COVID-19 deaths to date is three to four times greater than the annual average number of flu-related deaths over the past decade; it is 10 times larger when compared to the 2010-11 flu season but only about twice as large compared to 2017-18.

To make this a fair comparison, note that seasonal influenza mostly occurs over a few months, usually in late fall or early winter. So, the time periods are roughly comparable, with most of the COVID-19-related deaths occurring since late March. However, COVID-19 does not appear to be seasonal, and fatalities are a lagging measure because the time from infection to death is weeks if not months in duration, so the multiples in the previous paragraph will be greater by the end of the year.

Furthermore, while death rates have been coming down from a peak of more than 2,700 on April 21, 2020, the United States is now averaging just under 1,000 deaths per day as of July 10, and given the dramatic increase in cases of late, we should expect the fatality rate to further rise. For example, the University of Washington’s IHME model currently predicts slightly more than 208,000 COVID-19-related deaths by November 1.

So, by any comparison, the COVID-19 death rate is significantly higher than the seasonal influenza death rate.

What are some comparisons that could provide some context in understanding the scale of deaths caused by COVID-19?

As of this writing, more than 130,000 people have died of COVID-19, and that total could grow to 200,000 or more by fall. Those numbers are so big, they’re hard to grasp.

Michigan Stadium in Ann Arbor is the largest football stadium in the United States. It holds 107,420 people, so no football stadium in the country is large enough to hold everyone who has died from COVID-19 thus far. By the time bowl season comes along, assuming we have a football season this year, the number of COVID-19 fatalities will likely exceed the capacity of the Rose and Cotton bowl stadiums combined.

The state of Wyoming has a population of slightly less than 600,000 people, so it’s the equivalent of one out of every five people in that state dying in the last four months. By this fall, the COVID-19 death total will be the equivalent of fully one-third of the people in Wyoming dying.

The populations of Grand Rapids, Michigan; Huntsville, Alabama; and Salt Lake City, Utah are each just over 200,000 people. Imagine if everyone in one of those cities died over the course of six months. That’s what COVID-19 may look like by fall.

How do COVID-19 deaths compare to chronic diseases like cancer or heart disease?

Today, COVID-19 ranks as the sixth leading cause of death in the United States, following heart disease, cancer, accidents, lower chronic respiratory diseases and stroke. Heart disease is the leading cause, with just over 647,000 Americans dying from it each year. Alzheimer’s disease, formerly the sixth largest cause of death, kills just over 121,000 people per year. If the University of Washington IHME model’s current prediction of COVID-19-related deaths comes to pass, COVID-19 will be the third leading cause of death in the United States by the end of the year.

The American Cancer Society estimates that in 2020 there will be an estimated 1.8 million new cancer cases diagnosed and 606,520 cancer deaths in the United States. Lung cancer is estimated to kill about 135,000 people in the US in 2020, so the number of COVID-19 deaths is currently equivalent and will exceed it soon. Of course, it is important to note that the COVID-19 deaths have occurred in about the past four months while the number of lung cancer deaths is for a year. So, COVID-19 deaths are occurring at roughly three times the rate of lung cancer deaths.

What are some historical comparisons that you think are useful in understanding the scale of deaths from COVID-19?

The 1918 influenza pandemic was similar in some ways to the current pandemic and different in other ways. One key difference is the age distribution of deaths, where COVID-19 is concentrated among older adults while the the 1918 pandemic affected all ages. In my state of Virginia, only 8% of the people who died in the 1918 pandemic were more than 50 years old, compared to more than 97% for COVID-19.

The CDC estimates that the 1918 pandemic resulted in about 675,000 deaths in the United States, so slightly more than five times the current number of COVID-19 deaths. In October of 1918, the worst month for the influenza pandemic, about 195,000 people died – well more than all who have died so far from COVID-19.

As with any historical comparison, there are important qualifiers. In this case, the influenza pandemic started in early 1918 and continued well into 1919, whereas COVID-19 deaths are for about one-third of a year (March through June). However, today the United States’ population is about three times the size of the population in 1918. These two factors roughly “cancel out,” and so it is reasonable to think about the 1918 epidemic being about five times worse than COVID-19, at least thus far.

In comparison to past wars, the U.S. has now had more deaths from COVID-19 than all the combat-related deaths in all the wars since the Korean War, including the Vietnam War and Operations Desert Shield and Desert Storm. In World War II there were 291,557 combat casualties. So the number of people who have died from COVID-19 thus far is about 45% of the WWII combat casualties. By the fall, it could be more than 70%.

Finally, note that the number of confirmed and probable deaths from COVID-19 in New York City (23,247 on July 10, 2020) is more than eight times the number who died in the 9/11 attack (2,753).

 

 

 

 

Tracking Our COVID-19 Response. Each state’s progress towards a new normal.

Posted on by • Posted in Coronavirus, Data, Data Analytics, Data Governance, Data Interpretation, Data Management, Data Ownership, Evidence-based Leadership, Evidence-Based Plan, Evidence-Based Policy, Infection Control, Infection Control Plan, Infectious Virus, Mortality, National Strategy, Pandemic, Public Good, Public Health, Public Safety, Quarantine, Social Distancing • Leave a comment

https://www.covidexitstrategy.org/

July 10 – Updated Color Scale
As a country we’ve reached a record number of cases. We’ve added a new color to the scale: “Bruised Red”. There were extremes that were not captured in our original scale. Our scale also has been adjusted to put more weight on “new cases per million” and “positivity”.
July 15 – ICU and Bed Occupancy – Not Publicly Reported by CDC Anymore
Unfortunately our data source for ICUs and beds has been removed by the CDC. Our hope is this loss of critical public health information is temporary. HHS is instituting a new process for collecting information from hospitals. The aggregate data from that system should be made public.

 

 

 

The top 10 questions from the 2020 J.P. Morgan Healthcare Conference that every CEO must answer

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https://www.beckershospitalreview.com/strategy/the-top-10-questions-from-the-2020-j-p-morgan-healthcare-conference-that-every-ceo-must-answer.html

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As we enter a new decade, everyone is searching for something to truly change the game in healthcare over the next 10 years. To find that answer, an estimated 50,000 people headed to San Francisco this week for the prestigious J.P. Morgan Healthcare Conference. Every one of them is placing big bets on who will win and lose in the future of healthcare. The shortcut to figuring this out is actually a question — or 10 questions to be more precise. And what matters most is whether or not the right people are asking and answering those questions.  

While the prophets are ever present and ever ready to pitch their promises in every corner of the city, the pragmatists head up to the 32nd floor of the Westin St. Francis Hotel to hear from the CEOs and CFOs of close to 30 of the largest and most prestigious providers of care in the country. Why? Remember, this is an investor conference and if you want to understand any market, the first rule is to follow the money. And if you want to understand the future business model of healthcare, you better listen closely to the health providers in that room and take notes. 

What providers are saying matters to everyone in healthcare

Healthcare is the largest industry in our economy with over $4 trillion spent per year. Healthcare delivery systems and healthcare providers account for over $2 trillion of that spend, so that feels like a pretty good place to start, right? For that reason alone, it’s critical to listen closely to the executives in those organizations, as their decisions will affect the quality, access and cost of care more than any other stakeholder in healthcare.

Some will say that what they saw this year from healthcare providers was more of the same, but I encourage you to ignore that cynicism and look more closely. As the futurist William Gibson once said, “The future is already here — it’s just not evenly distributed.” The potential for any health system to drive major change is certainly there and the examples are everywhere. The biggest blocker is whether they are asking the right questions. One question can change everything. Here’s proof. 

The stunning power of and need for good questions 

Last year I titled my summary “The #1 Takeaway from the 2019 JP Morgan Conference – It’s the Platform, Stupid.” The overwhelming response to the article was pretty surprising to me  — it really resonated with leaders. One example was Jeff Bolton, the chief administrative officer of Mayo Clinic, who told me that the article had inspired their team to ask a single question, “Does Mayo need to be a platform?” They answered the question “yes” and then took aggressive action to activate a strategy around it. Keep reading to learn about what they set in motion. 

Soon after, I had a discussion with John Starcher, CEO of Cincinnati-based Bon Secours Mercy Health, one of the largest health systems in the country, who shared with me that he is taking his team off site for a few days to think about their future. It occurred to me that the most helpful thing for his team wouldn’t be a laundry list of ideas from the other 30 healthcare delivery systems that presented, but rather the questions that they asked at the board and executive level that drove their strategy. Any of those questions would have the potential to change the game for John’s team or any executive team. After all, if you’re going to change anything, the first thing you need to do is change is your mind. 

The wisdom of the crowd 

So, I set out to figure this out: If you were having a leadership or board retreat, what are the 10 questions you should be asking and answering that may change the future of your organization over the next 10 years? I didn’t have the answers, so I decided to tap into the wisdom of the crowd, listening to all 30 of the nonprofit provider presentations, spending additional time with a number of the presenters and reaching out to dozens of experts in the market to help define and refine a set of 10 questions that could spark the conversation that fires up an executive team to develop to the right strategy for their organization. 

A special thank you to a number of the most respected leaders in healthcare who took their time to contribute to and help think through these questions: 

  • Mike Allen, CFO of OSF Healthcare (Peoria, Ill.)
  • Jeff Bolton, CAO of Mayo Clinic (Rochester, Minn.)
  • Robin Damschroder, CFO of Henry Ford Health System (Detroit)
  • JP Gallagher, CEO of NorthShore University HealthSystem (Evanston, Ill.)
  • Kris Zimmer, CFO of SSM Health (St. Louis) 
  • Wright Lassiter, CEO of Henry Ford Health System (Detroit)
  • Mary Lou Mastro, CEO of Edwards-Elmhurst Health (Warrenville, Ill.)
  • Dominic Nakis, CFO of Advocate Aurora Health (Milwaukee and Downers Grove, Ill.) 
  • Dr. Janice Nevin, CEO of ChristianaCare (Newark, Del.)
  • Randy Oostra, CEO or ProMedica (Toledo, Ohio)
  • John Orsini, CFO of Northwestern Medicine (Chicago)
  • Lou Shapiro, CEO of Hospital for Special Surgery (New York City) 
  • John Starcher, President & CEO, Bon Secours Mercy Health (Cincinnati)
  • Vinny Tammaro, CFO, Yale New Haven Health (New Haven, Conn.)
  • Bert Zimmerli, CFO of Intermountain Healthcare (Salt Lake City)

Here are the top 10 questions from the 2020 J.P. Morgan Healthcare Conference

Based on the wisdom of the crowd including the 30 nonprofit provider presentations at the 2020 JP Morgan Healthcare Conference, here are the Top 10 Questions that every CEO needs to answer that may make or break their next 10 years.

1. Business model: Will we think differently and truly leverage our “platform?” As referenced earlier in this article, this was the major theme from last year — health systems leveraging their current assets to build high-value offerings and new revenue streams on top of the infrastructure they have in place. Providers are pivoting from the traditional strategy of buying and building hospitals and simply providing care toward a new and more dynamic strategy that focuses on leveraging the platform they have in place to create more value and growth. Mayo Clinic is an organization that all health systems follow closely. Mayo adopted the platform model around their ‘digital assets’ into what they refer to as Mayo Clinic Platform, which initially targets three game-changing initiatives: a Home Hospital to deliver more health in the home even for high acuity patients, a Clinical Data Analytics Platform for research and development and an Advanced Diagnostics Platform focused on predictive analytics, using algorithms to capture subtle signals before a disease even develops. Children’s Hospital of Philadelphia, one of the top pediatric hospitals in the world, is leveraging their platform to drive international volume, where revenue is 3.5x more per patient. They are also making investments in cell and gene therapy, where their spinoff of Spark Therapeutics returned hundreds of millions of dollars back to their organization. Both organizations were clear that any returns that they generate will be re-invested back into raising the bar on both access to care and quality of care.

 

2. Market share: Are we leveraging a “share of cup” strategy? Starbucks had dominant share in the market against Caribou Coffee, Peet’s Coffee and Dunkin’ Donuts. Instead of solely focusing on how to grab a little more market share, they reframed the definition of their market. They called it “share of cup” meaning that anywhere and any time a cup of coffee was consumed, they wanted it to be Starbucks. In that definition of the market, they had very little share, but enormous growth potential. Hospital for Special Surgery in New York is the largest and highest volume orthopedic shop in the world. Their belief is that wherever and whenever a musculoskeletal issue occurs, they should be part of that conversation. This thinking has led them to build a robust referral network, which 33 percent of the time leads to no surgical treatment. So instead of fighting for share of market in New York, they have a very small share and a very big opportunity in a “share of cup” approach. NorthShore University Health System in Illinois has taken a similar approach on a regional level, converting one of their full-service hospitals into the first orthopedic and spine institute in the state. The results have exceeded expectations on every measure and they already have to increase their capacity due to even higher demand than they originally modeled. 

 

3. Structure: Are we a holding company or an operating company? There has been a tremendous amount of consolidation over the last few years, but questions remain over the merits of those moves. The reality is that many of these organizations haven’t made the tough decisions and are essentially operating as a holding company. They are not getting any strategic or operational leverage. You can place all health systems on a continuum along these two endpoints — being a holding vs. an operating company — but the most critical step is to have an open conversation about where you’re at today, where you intend to be in the future, when you’re going to get there and how you’re going to make it happen. Bon Secours Mercy Health’s CEO John Starcher shared, “It makes sense to merge, but only if you’re willing to make the tough decisions.” His team hit the mark on every measure of their integration following their merger. They then leveraged that same competency to acquire the largest private provider of care in Ireland, as well as seven hospitals in South Carolina and Virginia. Northwestern Medicine has leveraged a similar approach to transform from a $1 billion hospital into a $5 billion health system in a handful of years. Both of these organizations prioritized and made tough decisions quickly and each has created an organizational competency in executing efficiently and effectively on mergers and acquisitions. 

 

4. Culture: Do we have employees or a team? Every organization states that their employees are their most important asset, but few have truly engaged them as a team. Hospitals and healthcare delivery systems can become extraordinarily political, and it’s easy to see why. These are incredibly complex businesses with tens of thousands of employees in hundreds of locations and thousands of departments. Getting that type of organization to move in the same direction is incredibly challenging in any industry. At the same time, the upside of breaking through is perhaps the most important test of any leadership team. JP Gallagher, CEO of North Shore University Health System, shared his perspective that, “Healthcare is a team sport.” The tough question is whether or not your employees are truly working as a team. Christiana Care provides care in four states — Delaware, Maryland, Pennsylvania and New Jersey. They have taken a unique approach that they frame as “for the love of health,” incorporating the essence of what they do in every communication both internally and externally, in their values and in their marketing. In a multi-state system, it is tricky to create a caring and collaborative culture, but it’s critical and they’ve nailed it. Their CEO shared that, “If you lead with love, excellence will follow.” That’s not only well said but spot-on. Creating a world-class team requires not only loving what you do, but the team you’re part of.

 

5. Physicians: Are our physicians optimistic or pessimistic? There’s a lot of concern about “physician burnout” with a reflex to blame it on EHRs, cutting off the needed conversation to dive deeper into where it really comes from and how best to address it. The challenge over the next decade is to create an optimistic, engaged and collaborative culture with physicians. In reading this, some will react with skepticism, which is exactly why leadership here is so important. One suggestion I was given was to make this question edgier and ask, “Are our physicians with us or not?” However the question is asked, the bottom line is that leadership needs to find a way to turn this into a dynamic, hyper-engaged model. A little while back I spent the day with the leadership team at Cleveland Clinic. At the end of the day, their CEO Dr. Tom Mihaljevic was asked what he would tell someone who was thinking of going to medical school. He said he would tell them that, “This is absolutely the best time to be a doctor.” His answer was based on the fact that there has never been a time when you could do more to help people. He wasn’t ignoring the challenges, he was simply reframing those issues as important problems that smart people need to help solve in the future. Those who adopt that type of optimism and truly engage and partner with their physicians will create a major competitive advantage over the next decade.

 

6. Customer: Do we treat sick patients or care for consumers? Words matter here – patients vs. consumers. Most hospitals are in a B2B, not B2C, mindset. Patients get sick, they try to access care, they check into an ER, they get admitted, they are treated, they get discharged. People get confused, anxious and concerned, then they seek not only care, but simplicity, compassion and comfort. With half of America coming through their stores every week, Walmart is already the largest provider organization that no one thinks of as they provide ‘consumer’ care, not ‘patient’ care. But they are starting to broaden their lens, and health systems will need to make moves as well. Competing with Walmart, CVS and other consumer-centric models will require a different mindset. I think Dr. Janice Nevin, the CEO ChristianaCare, captured this really well when she said, “Our mindset is that our role is to ensure everything that can be digital will be digital. Everything than can be done in the home will be done in the home.” Henry Ford Health System CEO Wright Lassiter commented, “Trust is the fundamental currency in healthcare.” Building that trust will require a digital experience in the future that is just as compassionate and caring as what health systems strive to deliver in person in the past. 

 

7. Data: Will we make data liquid? The most undervalued and misunderstood asset of health systems may be their data. While some at the conference refer to this as having the economic equivalent of being the “oil of healthcare,” the real and more practical question is whether or not your organization will make data liquid, available and accessible to the right players on your team at the right time. Jeff Bolton from Mayo commented that, “The current model is broken. Data and tech can eliminate fragmentation.” In a recent Strata survey, we asked leaders in health systems whether they had access to the information they needed to do their job, and 90 percent said no. For many health systems, data is a science project, hidden behind the scenes primarily used for research and impossible to access for most stakeholders. The call to action is activating that data to improve clinical outcomes, operations and/or financial performance. 

 

8. Cost: Are we serious about reducing the cost of care and delivering value? Affordability is a hot topic, and for good reason, as high deductible plans, price transparency and other factors have accelerated its urgency. As Intermountain Healthcare CEO Dr. Marc Harrison shared, “We have an absolute responsibility to make healthcare affordable.” While the consumer side will be a moving target for some time, the No. 1 challenge for hospitals right now is to lower their cost structure so they can compete more effectively in the future. Advocate Aurora Health, Baylor Scott & White Health, CommonSpirit Health and many others are targeting cost reductions of over $1 billion over the next few years. As most hospitals are now in a continuous process to reduce cost in order to compete more effectively in the future, organizations like Yale New Haven Health in Connecticut have implemented advanced cost accounting solutions to better understand both cost and margins. Yale is using this data to understand variation, supporting an initiative that drove over $150 million in savings. Additionally, they have combined cost data with clinical feeds from their EHR to understand the cost of harm events, which turn out to be 5x more expensive. As more providers take on risk, having a “source of truth” on the cost of care will be essential. Advocate Aurora Health CFO Dominic Nakis shared that, “We believe the market will continue to move to taking on risk.” Many of the presenting organizations shared that same perspective, but they won’t be able to manage that risk unless they understand the cost of care for every patient at every point of care across the continuum every day.

 

9. Capital: Do we have an “asset-light” strategy? Traditional strategy for health systems was defined primarily by what they built or bought. Many hospitals still maintain an “if you build it, they will come” strategy at the board level. Yet, Uber has become the biggest transportation company in the world without owning a single car and Airbnb has become the biggest hospitality company in the world without owning a single room. These models are important to reflect upon as healthcare delivery systems assess their capital investment strategy. Intermountain Healthcare CFO Bert Zimmerli refers to their overall thought process as an “asset-light expansion strategy.” In 2019, they opened a virtual hospital and they have now delivered over 700,000 virtual interactions. The number of virtual visits at Kaiser Permanente now exceeds the number of in-person visits at their facilities. With that said, there will be a balance. I really like how Robin Damschroder the CFO of Henry Ford Health System framed it: “We believe healthcare will be more like the airline and banking industry, both of which are fully digitally enabled but have a balance of ‘bricks and clicks’ with defined roles where you can seamlessly move between the two. Clearly, we have a lot of ‘bricks’ so building out the platform that integrates ‘clicks’ is essential.” 

 

10. Performance: Do we want our team to build a budget or improve performance? The most significant barrier to driving change that many organizations have baked into their operating model is their budget process. The typical hospital spends close to five months creating a budget that is typically more than $100 million off the mark. After it’s presented to the board, it is typically thrown out within 90 days. It creates a culture of politics, entitlement and inertia. According to a Strata survey of 200 organizations, close to 40 percent are now ditching the traditional budget process in favor of a more dynamic approach, often referred to as Advanced Planning. OSF HealthCare leverages a rolling approach, radically simplifying and streamlining the planning process while holding their team accountable for driving improvement vs. hitting a budget. When it comes to driving performance, SSM Health CEO Laura Kaiser captured the underlying mindset that’s needed: “We have a strong bias toward purposeful action.” Well said, and it certainly applies to all of the questions here among the top 10.

 

5 additional questions to consider

As you would imagine or might suggest, the questions above can and in some cases should be replaced with others. Additional critical questions to answer that came from the group included the following:

  1. Competition: Who else will we compete with in the future and are we positioned to win?
  2. Digital health: Are we going to be a “digital health” company, providing tech-enabled services?
  3. Affordability: How are we making care more affordable and easier to understand and access?
  4. Social determinants: Is this a mission, marketing or operations strategy?
  5. Leadership: Have we made the tough decisions we need to make, and will we in the future?

 

Start asking questions

The point here isn’t to get locked into a single list of questions, but rather to force your team to ask and answer the most important and challenging ones that will take you from where you are today to where you want to be in the future. After reviewing these questions with your team, the one additional question you need to consider is one of competency: Do you have the ability and bandwidth to execute on what you’ve targeted? In the end, that’s what matters most. While there are many interesting opportunities, too many teams end up chasing too much and delivering too little.

The next 10 years can and should be the best 10 years for every health system and every healthcare provider, but making it happen will require some really tough questions. “The current path we’re on will leave us with a healthcare delivery model that is completely unsustainable,” stated Randy Osstra, CEO of ProMedica Health System. “We need to take meaningful action toward creating a new model of health and well-being — one that supports healthy aging, addresses social determinants of health, encourages appropriate care in the lowest cost setting, and creates funding and incentives to force a truly integrated approach.”

Strong leaders are needed now more than ever. The rest of healthcare is watching, not just professionally but personally. We are all grateful to you for the extraordinary and often heroic care that you deliver without hesitation to our family and friends every day both in our communities and across our country. But now we all need you to not only deliver care, but a new and better version of healthcare. So, ask and answer these and other tough questions. We know you will do everything that you can to help make healthcare healthier for all of us over the next 10 years.

 

 

 

The evolution of the CFO

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https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-evolution-of-the-cfo?cid=other-eml-alt-mip-mck&hlkid=566473ff51dc4a379e17847ee5acfc84&hctky=9502524&hdpid=7cd18d63-2307-4455-b5bd-e821124db867

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CFOs are playing an increasingly pivotal role in driving change in their companies. How should they balance their traditional responsibilities with the new CFO mandate?
In this episode of the Inside the Strategy Roompodcast, McKinsey partner Ankur Agrawal and consultant Priyanka Prakash speak with communications director Sean Brown about how to manage the competing demands of the CFO role in the digital age.

Podcast transcript

Sean Brown: If you wanted evidence that the only constant in life is change, then look no further than the evolution of the CFO role. In addition to traditional CFO responsibilities, results from a recent McKinsey survey suggest that the number of functions reporting to CFOs is on the rise. Also increasing is the share of CFOs saying they oversee their companies’ digital activities and resolve issues outside the finance function. How can CFOs harness their increasing responsibilities and traditional finance expertise to drive the C-suite agenda and lead substantive change for their companies?

Joining us today to answer that question are Ankur Agrawal and Priyanka Prakash. Ankur is a partner in our New York office and one of the leaders of the Healthcare Systems & Services Practice. Priyanka is a consultant also based in New York. She is a chartered accountant by training and drives our research on the evolving role of finance and the CFO. Ankur, Priyanka, thank you so much for joining us today.

Let’s start with you, Ankur. Tell us about your article, which is based on a recent survey. What did you learn?

Ankur Agrawal: We look at the CFO role every two years as part of our ongoing research because the CFO is such a pivotal role in driving change at companies. We surveyed 400 respondents in April 2018, and we subsequently selected a few respondents for interviews to get some qualitative input as well. Within the 400 respondents, 212 of those were CFOs, and then the remainder were C-level executives and finance executives who were not CFOs. We had a healthy mix of CFOs and finance executives versus nonfinance executives. The reason was we wanted to compare and contrast what CFOs are saying versus what the business leaders are saying to get a full 360-degree view of CFOs.

The insights out of this survey were many. First and foremost, the pace of change in the CFO role itself is shockingly fast. If we compare the results from two years ago, the gamut of roles that reported into the CFO role has dramatically increased. On average, approximately six discrete roles are reporting to the CFO today. Those roles range from procurement to investor relations, which, in some companies, tend to be very finance specific. Two years ago, that average was around four. You can see the pace of change.

The second interesting insight out of this survey when compared to the last survey is the cross-functional nature of the role, which is driving transformations and playing a more proactive role in influencing change in the company. The soft side of the CFO leadership comes out really strongly, and CFOs are becoming more like generalist C-suite leaders. They should be. They, obviously, are playing that role, but it is becoming very clear that that’s what the business leaders expect them to do.

And then two more insights that are not counterintuitive, per se, but the pace of change is remarkable. One is this need to lead on driving long-term performance versus short-term performance. The last couple of years have been very active times for activist investors. There are lots of very public activist campaigns. We clearly see in the data that CFOs are expected to drive long-term performance and be the stewards of the resources of the company. That data is very clear.

And then, lastly, the pace of change of technology and how it’s influencing the CFO role: more than half of the CFO functions or finance functions are at the forefront of digitization, whether it is automation, analytics, robotic processes, or data visualization. More than half have touched these technologies, which is remarkable. And then many more are considering the technological evolution of the function.

Sean Brown: In your survey, did you touch on planning for the long term versus the short term?

Ankur Agrawal: Our survey suggests, and lot of the business leaders suggest, that there is an imperative for the CFO to be the steward of the long term. And there is this crying need for the finance function to lead the charge to take the long-term view in the enterprise. What does that mean? I think it’s hard to do—very, very hard to do—because the board, the investors, everybody’s looking for the short-term performance. But it puts even more responsibility on the finance function in defining and telling the story of how value is being created in the enterprise over the long term. And those CFOs and finance executives who are able to tell that story and have proof points along the way, I think those are the more successful finance functions. And that was clearly what our survey highlighted.

What it also means is the finance functions have to focus and put in place KPIs [key performance indicators] and metrics that talk about the long-term value creation. And it is a theme that has been picked up, in the recent past, by the activists who have really taken some companies to task on not only falling short on short-term expectations but also not having a clear view and road map for long-term value creation. It is one of the imperatives for the CFO of the future: to be the value architect for the long term. It’s one of the very important aspects of how CFOs will be measured in the future.

Sean Brown: I noticed in your survey that you did ask CFOs and their nonfinance peers where they thought CFOs created the most value. What did you learn from that?

Priyanka Prakash: This has an interesting link with the entire topic of transformation. We saw that four in ten CFOs say that they created the most value through strategic leadership, as well as leading the charge on talent, including setting incentives that are linked with the company’s strategy. However, we see that nonfinance respondents still believe that CFOs created the most value by spending time on traditional finance activities. This offers an interesting sort of split. One of the things that this indicates is there’s a huge opportunity for CFOs to lead the charge on transformation to ensure that they’re not just leading traditional finance activities but also being change agents and leading transformations across the organization.

Ankur Agrawal: The CFOs of the future have to flex different muscles. They have been very good in really driving performance. Maybe there’s an opportunity to even step up the way that performance is measured in the context of transformation, which tends to be very messy. But, clearly, CFOs are expected to be the change agents, which means that they have to be motivational. They have to be inspirational. They have to lead by example. They have to be cross-functional. They have to drive the talent agenda. It’s a very different muscle, and the CFOs have had less of an opportunity to really leverage that muscle in the past. I think that charismatic leadership from the CFO will be the requirement of the future.

Sean Brown: You also address the CFO’s role regarding talent. Tell us a bit more about that.

Ankur Agrawal: Another really important message out of the survey is seeing the finance function and the CFO as a talent factory. And what that means is really working hand in hand with the CEO and CHRO [chief HR officer] over this trifecta of roles. Because the CFO knows where to invest the money and where the resources need to be allocated to really drive disproportionate value, hopefully for the long run. The CHRO is the arbiter of talent and the whole performance ethic regarding talent in the company. And the CEO is the navigator and the visionary for the company. The three of them coming together can be a very powerful way to drive talent—both within the function and outside the function.

And the finance-function leaders expect CFOs to play a really important role in talent management in the future and in creating the workforce of the future. And this workforce—in the finance function, mind you—will be very different. There’s already lots of talk about a need for data analytics, which is infused in the finance function and even broader outside the organization of finance function. The CFOs need to foster that talent and leverage the trifecta to attract, retain, and drive talent going forward.

Sean Brown: Do you have any examples of successful talent-development initiatives for the finance function? And can you share any other examples of where CFOs, in particular, have taken a more active role in talent and talent development?

Ankur Agrawal: An excellent question. On talent development within the finance function, a few types of actions—and these are not new actions—done very purposefully can have significant outsize outcome. One is job rotations: How do you make sure that 20 to 30 percent of your finance function is moving out of the traditional finance role, going out in the business, learning new skills? And that becomes a way where you cultivate and nurture new skills within the finance function. You do it very purposefully, without the fear that you will lose that person. If you lose that person, that’s fine as well. That is one tried-and-tested approach. And some companies have made that a part of the talent-management system.

The second is special projects. And again, it sounds simple, but it’s hard to execute. This is making this a part of every finance-function executive’s role, whether it’s a pricing project or a large capex [capital-expenditure] and IT project implementation. Things like that. Getting the finance function outside of their comfort zone: I think that’s certainly a must-have.

And the third would be there is value in exposing finance-function executives to new skills and creating a curriculum, which is very deliberate. I think technology’s changing so rapidly. So exposing the finance function to newer technologies, newer ways of working, and collaboration tools: those are the things I would highlight as ways to nurture finance talent.

Priyanka Prakash: Just to add onto that. A lot of the folks whom I talked to say that, very often, finance folks spend a large chunk of their time trying to work on ad hoc requests that they get from the other parts of the business. A big opportunity here is in how the finance function ensures that the rest of the nonfinance part has some basic understanding of finance to make them more self-sufficient, to ensure that they are not coming to the finance function with every single question. What this does is it ensures that the rest of the organization has the finance skills to ensure that they’re making the right decisions, using financial tools.

And secondly, it also significantly frees up the way that the finance organization itself spends its time. If they spend a few hours less working on these ad hoc requests, they can invest their time in thinking about strategy, in thinking about how the finance function can improve the decision making. I think that’s a huge sort of benefit that organizations have seen just by upscaling their nonfinance workforce to equip them with the financial skills to ensure that the finance team is spending time on its most high-value activity.

Sean Brown: Is this emphasis on talent focused only on the finance function? What I am hearing from your response is that it’s not just building up the talent within the finance function but embedding finance talent and capabilities throughout the organization. Is that right?

Priyanka Prakash: Absolutely. Because if you take an example of someone who’s in a factory who wants to have an investment request for something that they want to do at a plant, they will have to know the basic knowledge of finance to evaluate whether this is an investment that they need or not. Because at the end of the day, any decision would be incomplete without a financial guideline on how to do it. I think that the merging of your other functions with a strong background and rooting in finance can improve the quality of decisions that not just the finance function but other teams and other functions also make in the organization.

Sean Brown: Priyanka, your survey touches a bit on the topic of digital. What did you learn there?

Priyanka Prakash: Sure. This is one of those things that everybody wants to do, but the question that I’ve seen most of my clients struggle with in the initial phases is, “Yes, I have the intent from the top. There is intent from the finance and other teams on how to become more digital, but how do you actually start that process?”

There are four distinct kinds of technologies or tools that finance teams, specifically, could use in enabling their digital journey and transformation. CFOs have way too much on their plates right now. What this essentially means is that they need to invest time and a lot of their thinking into some of these newer, more strategic areas while ensuring that they keep the lights on in the traditional finance activities. The biggest tool that will enable them to keep the lights on as well as add value in this new expanded role is to take advantage of automation, as well as some of the newer digital technologies that we see.

There are basically four types of digital stages that we see as finance functions start to evolve. One is using automation, which is typically the first step. For example, “How do I move from an Excel-based system to an Alteryx one? How do I move from a manual transactional system to something that’s more automated, where my finance teams don’t have to invest time, but it happens in the background with accuracy?” That’s step one.

The second thing that we see as a result of this is you have a lot of data-visualization tools that are being used. This is very helpful, especially when you think about the role of FP&A [financial planning and analysis]. “How does my FP&A team ensure that the company makes better decisions? How do I use a visualization software to get different views of my data to ensure that I’m making the right decisions?”

The third one is, “How do I use analytics within finance? How do I use analytics to draw insights from the data that I might have missed otherwise?” This could be something in forecasting. This could be something in planning. But this could also be something that’s used when you compare your budget or your forecast. Your analytics could really help draw out drivers of why there’s a variance.

And fourthly is, “How do I then integrate this advanced-analytics philosophy across the rest of the company?” What this means is, “How do I integrate my finance and traditional ERP [enterprise-resource-planning] systems with the pricing system, with the operations, and supply-chain-management system? How do I integrate my finance systems with my CRM [customer relationship management]?” Again, the focus is on ensuring that the whole database is not this large, clunky system but an agile system that ensures you draw out some insights.

Sean Brown: Some have suggested the CFO is ideally suited to be the chief digital officer. Have you seen any good examples of this?

Ankur Agrawal: There were examples even before the digital technologies took over. In some companies, the technology functions used to report to CFOs. There are cases where CFOs have formally or even informally taken over the mandate of a chief digital officer. You don’t necessarily need to have a formal reporting role to be a digital leader in the company. CFOs, of course, have an important role in vetting expenses and vetting the investments the companies are making. That said, CFOs have this cross-functional visibility of the entire business, which makes them very well suited to being the digital officers. In some cases, CFOs have stepped up and played that more formal role. I would expect, in the future, they will certainly have an informal role. In select cases, they will continue to have a formal digital-officer role.

Sean Brown: It sounds like, from the results of the survey, the CFO has a much larger role to play. Where does someone begin on this journey?

Priyanka Prakash: Going back to the first point that we discussed on how CFOs should help their companies have a more long-term view, we see that this transformation is specifically here to move to more digital technologies. It’s not going to be easy, and it’s not going to be short. Yes, you will see quick wins. But it is going to be a slightly lengthy—and oftentimes, a little bit of a messy—process, especially in the initial stages. How do we ensure that there is enough leadership energy around this? Because once you have that leadership energy, and once you take the long-term view to a digital transformation, the results that you see will pay for themselves handsomely.

Again, linking this back with the long-term view, this is not going to be a short three-month or six-month process. It’s going to be an ongoing evolution. And the nature of the digital technologies also evolve as the business evolves. But how do you ensure that your finance and FP&A teams have the information and the analytics that they need to evolve and be agile along with the business and to ensure that the business responds to changes ahead of the market? How do we ensure that digital ensures that your company is proactively, and not reactively, reacting to changes in the external market and changes in disruption?

Sean Brown: Priyanka, any final thoughts you’d like to share?

Priyanka Prakash: All that I’ll say is that this is a very, very exciting time for the role of the CFO. A lot of things are changing. But you can’t evolve unless you have your fundamentals right. This is a very exciting time, where CFOs can have the freedom to envision, create, and chart their own legacy and then move to a leadership and influencer role and truly be a change agent in addition to doing their traditional finance functions, such as resource allocation, your planning, and all of the other functions as well. But I definitely do think that these are very exciting times for finance organizations. There are lots of changes, and the evolutionary curve is moving upward very quickly.

Sean Brown: Ankur, Priyanka, thanks for joining us today.

 

 

 

 

The new CFO mandate: Prioritize, transform, repeat

Posted on by • Posted in Board Engagement, Capability Building, Cash-Flow Improvements, Change Agent, Changing Responsibilities, Chief Financial Officer (CFO), Corporate Strategy, Data Analytics, Data Integrity, Digitization, Internal Audit, Key Performance Indicators, Performance Baseline, Performance Management, Pricing, Risk Management, Talent Management, Transformation Strategy, Unchanged Persceptions • Leave a comment

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-new-cfo-mandate-prioritize-transform-repeat

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Amid a raft of new duties for CFOs, our survey suggests that finance leaders are well positioned to lead the C-suite agenda by championing transformations, digitization, and capability building.
If you wanted to validate the old adage that the only constant in life is change, the results from our newest McKinsey Global Survey suggest you need not look any further than the CFO role.1 In the two years since our previous survey on the topic, CFOs say the number of functions reporting to them has risen from about four to more than six. What’s more, the share of CFOs saying they oversee their companies’ digital activities has doubled during that time. And many finance leaders say they are being asked to resolve issues in areas that are relatively new to them while continuing to mind traditional responsibilities, such as risk management, that remain business priorities.

Responses indicate that the opportunity for CFOs to establish the finance function as both a leading change agent and a source of competitive advantage has never been greater. Yet they also show a clear perception gap that must be bridged if CFOs are to break down silos and foster the collaboration necessary to succeed in a broader role. While CFOs believe they are beginning to create financial value through nontraditional tasks, they also say that a plurality of their time is still devoted to traditional tasks versus newer initiatives. Meanwhile, leaders outside the finance function believe their CFOs are still primarily focused on and create the most value through traditional finance tasks.

How can CFOs parlay their increasing responsibility and traditional finance expertise to resolve these differing points of view and lead substantive change for their companies? The survey results point to three ways that CFOs are uniquely positioned to do so: actively heading up transformations, leading the charge toward digitization, and building the talent and capabilities required to sustain complex transformations within and outside the finance function.

Changing responsibilities, unchanged perceptions

The latest survey results confirm that the CFO’s role is broader and more complex than it was even two years ago. The number of functional areas reporting to CFOs has increased from 4.5 in 2016 to an average of 6.2 today. The most notable increases since the previous survey are changes in the CFO’s responsibilities for board engagement and for digitization (that is, the enablement of business-process automation, cloud computing, data visualization, and advanced analytics). The share of CFOs saying they are responsible for board-engagement activities has increased from 24 percent in 2016 to 42 percent today; for digital activities, the share has doubled.

The most commonly cited activity that reports to the CFO this year is risk management, as it was in 2016. In addition, more than half of respondents say their companies’ CFOs oversee internal-audit processes and corporate strategy. Yet CFOs report that they have spent most of their time—about 60 percent of it, in the past year—on traditional and specialty finance roles, which was also true in the 2016 survey.

Also unchanged are the diverging views, between CFOs and their peers, about where finance leaders create the most value for their companies. Four in ten CFOs say that in the past year, they have created the most value through strategic leadership and performance management—for example, setting incentives linked to the company’s strategy. By contrast, all other respondents tend to believe their CFOs have created the most value by spending time on traditional finance activities (for example, accounting and controlling) and on cost and productivity management across the organization.

Finance leaders also disagree with nonfinance respondents about the CFO’s involvement in strategy decisions. CFOs are more likely than their peers to say they have been involved in a range of strategy-related activities—for instance, setting overall corporate strategy, pricing a company’s products and services, or collaborating with others to devise strategies for digitization, analytics, and talent-management initiatives.

Guiding and sustaining change

Our latest survey, along with previous McKinsey research,2 confirms that large-scale organizational change is ubiquitous: 91 percent of respondents say their organizations have undergone at least one transformation in the past three years.3 The results also suggest that CFOs are already playing an active role in transformations. The CFO is the second-most-common leader, after the CEO, identified as initiating a transformation. Furthermore, 44 percent of CFO respondents say that the leaders of a transformation, whether it takes place within finance or across the organization, report directly to them—and more than half of all respondents say the CFO has been actively involved in developing transformation strategy.

Respondents agree that, during transformations, the CFO’s most common responsibilities are measuring the performance of change initiatives, overseeing margin and cash-flow improvements, and establishing key performance indicators and a performance baseline before the transformation begins. These are the same three activities that respondents identify as being the most valuable actions that CFOs could take in future transformations.

Beyond these three activities, though, respondents are split on the finance chief’s most critical responsibilities in a change effort. CFOs are more likely than peers to say they play a strategic role in transformations: nearly half say they are responsible for setting high-level goals, while only one-third of non-CFOs say their CFOs were involved in objective setting. Additionally, finance leaders are nearly twice as likely as others are to say that CFOs helped design a transformation’s road map.

Other results confirm that finance chiefs have substantial room to grow as change leaders—not only within the finance function but also across their companies. For instance, the responses indicate that half of the transformations initiated by CFOs in recent years were within the finance function, while fewer than one-quarter of respondents say their companies’ CFOs kicked off enterprise-wide transformations.

Leading the charge toward digitization and automation

The results indicate that digitization and strategy making are increasingly important responsibilities for the CFO and that most finance chiefs are involved in informing and guiding the development of corporate strategy. All of this suggests that CFOs are well positioned to lead the way—within their finance functions and even at the organization level—toward greater digitization and automation of processes.

Currently, though, few finance organizations are taking advantage of digitization and automation. Two-thirds of finance respondents say 25 percent or less of their functions’ work has been digitized or automated in the past year, and the adoption of technology tools is low overall.

The survey asked about four digital technologies for the finance function: advanced analytics for finance operations,5 advanced analytics for overall business operations,6 data visualization (used, for instance, to generate user-friendly dynamic dashboards and graphics tailored to internal customer needs), and automation and robotics (for example, to enable planning and budgeting platforms in cloud-based solutions). Yet only one-third of finance respondents say they are using advanced analytics for finance tasks, and just 14 percent report the use of robotics and artificial-intelligence tools, such as robotic process automation (RPA).7 This may be because of what respondents describe as considerable challenges of implementing new technologies. When asked about the biggest obstacles to digitizing or automating finance work, finance respondents most often cite a lack of understanding about where the opportunities are, followed by a lack of financial resources to implement changes and a need for a clear vision for using new technologies; only 3 percent say they face no challenges.

At the finance organizations that have digitized more than one-quarter of their work, respondents report notable gains from the effort. Of these respondents, 70 percent say their organizations have realized modest or substantial returns on investment—much higher than the 38 percent of their peers whose finance functions have digitized less than one-quarter of the work.

Unlocking the power of talent

The survey results also suggest that CFOs have important roles to play in their companies’ talent strategy and capability building. Since the previous survey, the share of respondents saying CFOs spend most of their time on finance capabilities (that is, building the finance talent pipeline and developing financial literacy throughout the organization) has doubled. Respondents are also much more likely than in 2016 to cite capability building as one of the CFO’s most value-adding activities.

Still, relative to their other responsibilities, talent and capabilities don’t rank especially high—and there are opportunities for CFOs to do much more at the company level. Just 16 percent of all respondents (and only 22 percent of CFOs themselves) describe their finance leaders’ role as developing top talent across the company, as opposed to developing talent within business units or helping with talent-related decision making. And only one-quarter of respondents say CFOs have been responsible for capability building during a recent transformation.

But among the highest-performing finance functions, the CFO has a much greater impact. Respondents who rate their finance organization as somewhat or very effective are nearly twice as likely as all others to say their CFOs develop top talent organization-wide (20 percent, compared with 11 percent). Among those reporting a very effective finance function, 38 percent say so.

Looking ahead

It’s clear from the numbers that CFOs face increased workloads and expectations, but they also face increased opportunities. In our experience, a focus on several core principles can help CFOs take advantage of these opportunities and strike the right balance:

  • Make a fundamental shift in how to spend time. To be more effective in their new, ever-expanding roles, CFOs must carefully consider where to spend their time and energy. They should explore new technologies, methodologies, and management approaches that can help them decide how and where to make necessary trade-offs. It’s not enough for them to become only marginally more effective in traditional areas of finance; they must ensure that the finance organization is contributing more and more to the company’s most value-adding activities. It’s especially important, therefore, that CFOs are proactive in looking for ways to enhance processes and operations rather than waiting for turnaround situations or for their IT or marketing colleagues to take the lead.
  • Embrace digital technologies. The results indicate that the CFO’s responsibilities for digital are quickly increasing. We also know from experience that finance organizations are increasingly becoming critical owners of company data—sometimes referred to as the “single source of truth” for their organizations—and, therefore, important enablers of organizational transformations. Finance leaders thus need to take better advantage and ownership of digital technology and the benefits it can bring to their functions and their overall organizations. But they cannot do so in a vacuum. Making even incremental improvements in efficiency using digital technologies (business intelligence and data-visualization tools, among many others) requires organizational will, a significant investment of time and resources, and collaboration with fellow business leaders. So, to start, CFOs should prioritize quick wins while developing long-term plans for how digitization can transform their organizations. They may need to prioritize value-adding activities explicitly and delegate or automate other tasks. But they should always actively promote the successes of the finance organization, with help from senior leadership.
  • Put talent front and center. Since the previous survey, CFOs have already begun to expand their roles and increase their value through capability building and talent development. But the share of CFOs who spend meaningful, valuable time on building capabilities remains small, and the opportunity for further impact is significant. Finance leaders can do more, for instance, by coaching nonfinance managers on finance topics to help foster a culture of transparency, self-sufficiency, and value creation.