14 health systems with strong finances

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Here are 14 health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.

1. Advocate Aurora Health has an “Aa3” rating and positive outlook with Moody’s. The health system, which has dual headquarters in Milwaukee and Downers Grove, Ill., has a leading market share in two regions and strong financial discipline, Moody’s said. The credit rating agency said it expects Advocate Aurora Health’s operating cash flow margins to return to pre-pandemic levels. 

2. Pinehurst, N.C.-based FirstHealth of the Carolinas has an “AA” rating and stable outlook with Fitch. The health system has a strong financial profile and stable operating performance, despite disruption from the COVID-19 pandemic, Fitch said. The health system’s revenue in the first quarter of fiscal 2021 rebounded to levels close to historical trends, according to the credit rating agency. 

3. Indianapolis-based Indiana University Health has an “Aa2” rating and stable outlook with Moody’s and an “AA” rating and positive outlook with Fitch. Cost controls and patient volume will help the system sustain strong margins and liquidity, Moody’s said. 

4. Rapid City, S.D.-based Monument Health has an “AA-” rating and stable outlook with Fitch. The health system has solid operating margins that Fitch expects to remain stable over the near term. Monument Health’s operating margins will continue to support liquidity growth and capital spending levels, the credit rating agency said. 

5. Chicago-based Northwestern Medicine has an “Aa2” rating and stable outlook with Moody’s, and an “AA+” rating and stable outlook with S&P. The system’s consolidated operating model will allow it to maintain a strong financial position while effectively executing strategies, Moody’s said. The credit rating agency expects Northwestern Medicine to expand its prominent market position in the broader Chicago region because of its strong brand and affiliation with Northwestern University’s Feinberg School of Medicine. 

6. Renton, Wash.-based Providence has an “AA-” rating and stable outlook with Fitch and an “Aa3” rating and stable outlook with Moody’s. Fitch said Providence has a long-term strategic advantage over most of its peers because it has invested heavily in developing technology in recent years, and the system’s plan to transform healthcare delivery through the use of data and technology has been undeterred through the COVID-19 pandemic. Fitch said it expects Providence’s cash flow margins to be close to 7 percent in the coming years. 

7. Livingston, N.J.-based RWJBarnabas Health has an “Aa3” rating and stable outlook with Moody’s. Moody’s said it expects RWJBarnabas, the largest integrated academic health system in New Jersey, to see near-term revenue growth and to execute on several strategic fronts while achieving targeted financial performance.  

8. Broomfield, Colo.-based SCL Health has an “AA-” rating and stable outlook with Fitch and an “Aa3” rating and stable outlook with Moody’s. The health system has consistently improved its liquidity levels and has a long track record of exceptional operations, Fitch said. SCL Health is well positioned for change in the healthcare sector because it has built up cash reserves over time, according to the credit rating agency. 

9. San Diego-based Scripps Health has an “Aa3” rating and stable outlook with Moody’s. The health system has ample liquidity coverage, an extensive footprint and strong brand and market share within San Diego County, Moody’s said. The credit rating agency said it expects Scripps to weather current operating challenges and to grow operating cash flow over the long term. 

10. Norfolk, Va.-based Sentara Healthcare has an “Aa2” rating and stable outlook with Moody’s. The health system has strong margins, and Moody’s said it expects the system to maintain a strong financial position and balance sheet. 

11. Arlington-based Texas Health Resources has an “Aa2” rating and stable outlook with Moody’s. The health system has a strong cash position, which will be boosted by favorable investment gains and bond proceeds, Moody’s said. Based on performance in the second quarter of this year, Moody’s expects Texas Health Resources’ patient volume and operating cash flow margins to recover to pre-COVID-19 levels. 

12. Iowa City-based University of Iowa Hospitals & Clinics has an “Aa2” rating and stable outlook with Moody’s. The credit rating agency said it expects the system to maintain strong operating performance and cash flow. The system benefits as the only academic medical center in Iowa, according to Moody’s. 

13. Des Moines, Iowa-based UnityPoint Health has an “AA-” rating and stable outlook with Fitch. The system has strong leverage metrics, and it benefited from strong market returns during the pandemic. The system’s days with cash on-hand increased to 285 days at the end of 2020, up from 231 days at the end of 2019, according to the credit rating agency. 

14. Kansas City-based University of Kansas Health System has an “AA-” rating and stable outlook with Fitch. The health system has solid operating results and has sustained significant revenue growth, Fitch said. The system’s profitability dipped in fiscal year 2020 because of the COVID-19 pandemic, but its profitability rebounded in fiscal year 2021, according to the credit rating agency. 

As fraud rises, CFOs must approach numbers skeptically, report finds

https://www.cfodive.com/news/Center-Audit-Quality-financial-reporting-fraud/593123/

Executives might be committed to accuracy, but middle managers and others throughout the organization must be on board, too.

The pandemic is increasing financial reporting fraud, putting the onus on CFOs to create an organization-wide system that prevents wrongdoing, a coalition of auditing and other oversight groups said in a report released today.

Financial statement fraud in public companies is real and that risk has only increased during the Covid-19 pandemic,” said Julie Bell Lindsay, executive director of the Center for Audit Quality, one of four groups to release the report.

To help ensure the integrity of their company’s financial reporting, CFOs can’t rely on external auditors as their bulwark against fraud; they must weave protection into the fabric of the organization and exercise the same skepticism toward numbers auditors are trained to do.

“The strongest fraud deterrent and detection program requires extreme diligence from all participants in the financial reporting system,” Lindsay said. “Certainly, you have internal and external auditors, but you also have regulators, audit committees and, especially, public company management.”

Heightened stress

The report looks at SEC enforcement data from 2014 to 2019, a period of relative calm Linsday said can help set a baseline for assessing how much in pandemic-caused fraud regulators will find when they do their post-crisis analysis.

“The timing of this report is really a great way to … remind all the folks in the financial reporting ecosystem that … the pressures for fraud to happen are strong right now,” she said. 

Improper revenue recognition comprises about 40% of wrongdoing in financial reporting, more than any other type, a finding that tracks an SEC analysis released last August. 

Companies tend to manipulate revenue in four ways:

  1. The timing of recognition
  2. The value applied
  3. The source
  4. The percentage of contract completion claimed

The report singles out revenue-recognition manipulation by OCZ Technology Group, a solid-state drive manufacturer that went bankrupt in 2013, as a typical case.

The company had to restate its revenues by more than $100 million after it was caught mis-characterizing sales discounts as marketing expenses, shipping more goods to a large customer than it could be expected to sell, and withholding information on product returns.

The CEO was charged with fraud and the CFO with accounting, disclosure, and internal accounting controls failures.

The report lists three other common types of fraudmanipulation of financial reserves, manipulation of inventories, and improper calculation of impairment.

Reserve issues involve how, and when, balances are changed, and how expenses are classified; inventory issues involve the amounts that are listed and how much sales cost; and impairment issues involve the timing and accuracy of the calculation. 

Increase expected

More of these kinds of problems will likely be found to be happening because of the pandemic, the report said. 

“This is where all of this comes to a head,” Lindsay said. “You certainly can see pressure, because some companies are struggling right now and there can be pressure to meet numbers, analysts expectations.”

The pressure finance professionals face is part of what the report calls a “fraud triangle,” a convergence of three factors that can lead to fraud: pressure, opportunity and rationalization.

In the context of the pandemic, pressure comes as companies struggle with big drops in revenue; opportunity arises as employees work remotely; and the rationalization for fraud is reinforced by the unprecedented challenges people are facing. 

“It could be anything,” said Lindsay. “‘My wife just lost her job, so I need to make up for it.'”

The report lists fraud types that analysts expect are rising because of the pandemic:

  • Fabrication of revenue to offset losses.
  • Understatement of accounts receivable reserves as customers delay payments. 
  • Manipulation of compliance with debt covenants. 
  • Unrecognized inventory impairments.
  • Over- or understated accounting estimates to meet projection.

About a dozen types in all are listed. 

“Past crises have proven that at any time of large-scale disruption or stress on an economy or industry, companies should be prepared for the possibility of increased fraud.” the report said. 

Lindsay stressed three lessons she’d like to see CFOs take away from the report.

First, the potential for fraud in their companies shouldn’t be an afterthought. Second, protection against it is management’s responsibility but there’s also a role for company’s audit committee, its internal auditors and it’s external auditors. Third, CFOs and the finance executives they work with, including at the middle management level, must bring that same skepticism toward the numbers that auditors are trained to bring.

“Professional skepticism is a core competency of the external auditor and, quite frankly, the internal auditor,” she said. “Management and committee members are not necessarily trained on what it is, but it doesn’t mean you shouldn’t be exercising skepticism, [which is] asking questions about the numbers that are being reported. Is this exactly what happened? Do we have weaknesses? Do we have areas of positivity? It’s really about drilling down and having a dialogue and not just taking the numbers at face value.”

In addition to the Center for Audit Quality, Mitigating the Risks of Common Fraud Schemes: Insights From SEC Enforcement Actions was prepared by Financial Executives International, The Institute of Internal Auditors and the National Association of Corporate Directors.

14 health systems with strong finances

14 health systems with strong finances

Hospital Mergers, Acquisitions, and Affiliations | Case Study – RMS

Here are 14 health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.

1. St. Louis-based Ascension has an “AA+” rating and stable outlook with Fitch and an “Aa2” rating and stable outlook with Moody’s. The system has a strong financial profile and a significant presence in several key markets, Fitch said. The credit rating agency expects Ascension will continue to produce healthy operating margins. 

2. Charlotte, N.C.-based Atrium Health has an “Aa3” rating and stable outlook with Moody’s and an “AA-” rating and stable outlook with S&P. Atrium and Winston-Salem, N.C.-based Wake Forest Baptist Health merged in October. The addition of the Winston-Salem service area and Wake Forest Baptist’s academic and research programs enhance Atrium’s position within the highly competitive North Carolina healthcare market, S&P said. 

3. Phoenix-based Banner Health has an “AA-” rating and stable outlook with Fitch and S&P. Banner’s financial profile is strong, even taking into consideration the market volatility that occurred in the first quarter of 2020, Fitch said. The credit rating agency expects the system to continue to improve operating margins and to generate cash flow sufficient to sustain strong key financial metrics. 

4. Dallas- based Baylor Scott & White Health has an “Aa3” rating and stable outlook with Moody’s. The system has strong liquidity and is the largest nonprofit health system in Texas, Moody’s said. The credit rating agency expects Baylor Scott & White Health to continue to benefit from its centralized operating model, proven ability to execute complex strategies and well-developed planning abilities. 

5. Newark, Del.-based ChristianaCare Health System has an “Aa2” rating and stable outlook with Moody’s. The health system has extensive clinical depth and includes Delaware’s largest teaching hospital, Moody’s said. The system’s strong market position will help it resume near pre-pandemic level margins in fiscal year 2021, according to Moody’s. 

6. Falls Church, Va.-based Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The system has a strong financial profile, and Moody’s expects Inova’s balance sheet to remain exceptionally strong. 

7. Philadelphia-based Main Line Health has an “AA” rating and stable outlook with Fitch. The credit rating agency expects the system’s operations to recover after the COVID-19 pandemic and for it to resume its track record of strong operating cash flow margins. 

8. Rochester, Minn.-based Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The system has an excellent reputation and generates strong patient demand at its academic medical centers in Minnesota, Arizona and Florida, Moody’s said. The credit rating agency said strong patient demand and proactive expense control measures would likely fuel good results for Mayo for the fiscal year that ended Dec. 31.

9. Midland-based MidMichigan Health has an “AA-” rating and stable outlook with Fitch. The system generated healthy operational levels through fiscal year 2020, and Fitch expects it to continue generating strong cash flow. 

10. Chicago-based Northwestern Memorial HealthCare has an “Aa2” rating and stable outlook with Moody’s. The health system had strong pre-COVID margins and liquidity, Moody’s said. The credit rating agency expects the system to maintain strong operating cash flow margins. 

11. Winston-Salem, N.C.-based Novant Health has an “AA-” rating and stable outlook with Fitch. The system has strong margins and each of its markets have met or exceeded budgeted expectations over the past four years, Fitch said.  

12. Albuquerque, N.M.-based Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The health system has a strong financial profile and a leading market position in Albuquerque and throughout New Mexico, Fitch said. The credit rating agency said it believes Presbyterian Healthcare Services is more resilient to pandemic disruptions than most other hospital systems. 

13. Renton, Wash.-based Providence has an “Aa3” rating and stable outlook with Moody’s. Providence has a large revenue base and a leading market share in most of its markets, according to Moody’s. The credit rating agency expects the system’s operations to improve this year. 

14. Livonia, Mich.-based Trinity Health has an “AA-” rating and stable outlook with Fitch. The rating is driven by Trinity’s national size and scale, with significant market presence in several states, Fitch said. The credit rating agency expects the system’s operating margins to improve in the long term. 

Bruising labor battles put Kaiser Permanente’s reputation on the line

Bruising labor battles put Kaiser Permanente’s reputation on the line

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The ongoing labor battles have undermined the health giant’s once-golden reputation as a model of cost-effective care that caters to satisfied patients — which it calls “members” — and is exposing it to new scrutiny from politicians and health policy analysts.

Kaiser Permanente, which just narrowly averted one massive strike, is facing another one Monday.

The ongoing labor battles have undermined the health giant’s once-golden reputation as a model of cost-effective care that caters to satisfied patients — which it calls “members” — and is exposing it to new scrutiny from politicians and health policy analysts.

As the labor disputes have played out loudly, ricocheting off the bargaining table and into the public realm, some critics believe that the nonprofit health system is becoming more like its for-profit counterparts and is no longer living up to its foundational ideals.

Compensation for CEO Bernard Tyson topped $16 million in 2017, making him the highest-paid nonprofit health system executive in the nation. The organization also is building a $900 million flagship headquarters in Oakland. And it bid up to $295 million to become the Golden State Warriors’ official health care provider, the San Francisco Chronicle reported. The deal gave the health system naming rights for the shopping and restaurant complex surrounding the team’s new arena in San Francisco, which it has dubbed “Thrive City.”

The organization reported $2.5 billion in net income in 2018 and its health plan sits on about $37.6 billion in reserves.

Against that backdrop of wealth, more than 80,000 employees were poised to strike last month over salaries, retirement benefits and concerns over outsourcing and subcontracting. Nearly 4,000 members of its mental health staff in California are threatening to walk out Monday over the long wait times their patients face for appointments.

“Kaiser’s primary mission, based on their nonprofit status, is to serve a charitable mission,” said Ge Bai, associate professor of accounting and health policy at Johns Hopkins University. “The question is, do they need such an excessive, fancy flagship space? Or should they save money to help the poor and increase employee salaries?”

Lawmakers in California, Kaiser Permanente’s home state, recently targeted it with a new financial transparency law aimed at determining why its premiums continue to increase.

There’s a growing suspicion “that these nonprofit hospitals are not here purely for charitable missions, but instead are working to expand market share,” Bai said.

The scrutiny marks a disorienting role-reversal for Kaiser, an integrated system that acts as both health insurer and medical provider, serving 12.3 million patients and operating 39 hospitals across eight states and the District of Columbia. The bulk of its presence is in California. (Kaiser Health News, which produces California Healthline, is not affiliated with Kaiser Permanente.)

Many health systems have tried to imitate its model for delivering affordable health care, which features teams of salaried doctors and health professionals who work together closely, and charges few if any extraneous patient fees. It emphasizes caring and community with slogans like “Health isn’t an industry. It’s a cause,” and “We’re all in this together. And together, we thrive.”

Praised by President Barack Obama for its efficiency and high-quality care, the health maintenance organization has tried to set itself apart from its profit-hungry, fee-for-service counterparts.

Now, its current practices — financial and medical — are getting a more critical look.

As a nonprofit, Kaiser doesn’t have to pay local property and sales taxes, state income taxes and federal corporate taxes, in exchange for providing “charity care and community benefits” — although the federal government doesn’t specify how much.

As a percentage of its total spending, Kaiser Permanente’s charity care spending has decreased from 1.29% in 2012 to 0.8% in 2017. Other hospitals in California have exhibited a similar decrease, saying there are fewer uninsured patients who need help since the Affordable Care Act expanded insurance coverage.

CEO Tyson told California Healthline that he limits operating income to about 2% of revenue, which pays for things like capital improvements, community benefit programs and “the running of the company.”

“The idea we’re trying to maximize profit is a false premise,” he said.

The organization is different from many other health systems because of its integrated model, so comparisons are not perfect, but its operating margins were smaller and more stable than other large nonprofit hospital groups in California. AdventHealth’s operating margin was 7.15% in 2018, while Dignity Health had losses in 2016 and 2017.

Tyson said that executive compensation is a “hotspot” for any company in a labor dispute. “In no way would I try to justify it or argue against it,” he said of his salary. In addition to his generous compensation, the health plan paid 35 other executives more than $1 million each in 2017, according to its tax filings.

Even its board members are well-compensated. In 2017, 13 directors each received between $129,000 and $273,000 for what its tax filings say is five to 10 hours of work a week.

And that $37.6 billion in reserves? It’s about 17 times more than the health plan is required by the state to maintain, according to the California Department of Managed Health Care.

Kaiser Permanente said it doesn’t consider its reserves excessive because state regulations don’t account for its integrated model. These reserves represent the value of its hospitals and hundreds of medical offices in California, plus the information technology they rely on, it said.

Kaiser Permanente said its new headquarters will save at least $60 million a year in operating costs because it will bring all of its Oakland staffers under one roof. It justified the partnership with the Warriors by noting it spans 20 years and includes a community gathering space that will provide health services for both members and the public.

Kaiser has a right to defend its spending, but “it’s hard to imagine a nearly $300 million sponsorship being justifiable,” said Michael Rozier, an assistant professor at St. Louis University who studies nonprofit hospitals.

The Service Employees International Union-United Healthcare Workers West was about to strike in October before reaching an agreement with Kaiser Permanente.

Democratic presidential candidates Kamala HarrisBernie SandersElizabeth Warren and Pete Buttigieg, as well as 132 elected California officials, supported the cause.

California legislators this year adopted a bill sponsored by SEIU California that will require the health system to report its financial data to the state by facility, as opposed to reporting aggregated data from its Northern and Southern California regions, as it currently does. This data must include expenses, revenues by payer and the reasons for premium increases.

Other hospitals already report financial data this way, but the California legislature granted Kaiser Permanente an exemption when reporting began in the 1970s because it is an integrated system. This created a financial “black hole” said state Sen. Richard Pan (D-Sacramento), the bill’s author.

“They’re the biggest game in town,” said Anthony Wright, executive director of the consumer group Health Access California. “With great power comes great responsibility and a need for transparency.”

Patient care, too, is under scrutiny.

California’s Department of Managed Health Care fined the organization $4 million over mental health wait times in 2013, and in 2017 hammered out an agreement with it to hire an outside consultant to help improve access to care. The department said Kaiser Permanente has so far met all the requirements of the settlement.

But according to the National Union of Healthcare Workers, which is planning Monday’s walkout, wait times have just gotten worse.

Tyson said mental health care delivery is a national issue — “not unique to Kaiser Permanente.” He said the system is actively hiring more staff, contracting with outside providers and looking into using technology to broaden access to treatment.

At a mid-October union rally in Oakland, therapists said the health system’s billions in profits should allow it to hire more than one mental health clinician for every 3,000 members, which the union says is the current ratio.

Ann Rivello, 50, who has worked periodically at Kaiser Permanente Redwood City Medical Center since 2000, said therapists are so busy they struggle to take bathroom breaks and patients wait about two months between appointments for individual therapy.

“Just take $100 million that they’re putting into the new ‘Thrive City’ over there with the Warriors,” she said. “Why can’t they just give it to mental health?”

 

 

 

The evolution of the CFO

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.