AWS Cloud Enterprise Strategy Blog

The Digital CFO

As we navigate the changes brought about by the digital revolution, we can see that the role of the enterprise CFO is also changing. Whether the one is the cause of the other, and which is cause and which effect, I’m not so sure. But the digital world certainly requires us to think very differently about what a CFO is, and what role the CFO plays in the enterprise.

I’m not the first to notice this. Many articles in CFO journals, reports by consulting firms, and conference seminars have hinted at or described these changes. In this blog post I will try to combine all of their thoughts into a coherent way of characterizing the digital CFO, and I’ll add the AWS Enterprise Strategy angle to it. I’ll do so by comparing the “old” and the “new” ways of defining what a CFO does. These are very much generalizations—different CFOs and their enterprises have treated the role differently. When you put all of these elements together, though, it is clear that the CFO has become central to driving the digital performance of the enterprise.


Old: Backward Looking, Trailing Indicators, Financial Metrics
New: Forward Looking, Leading Indicators, Performance Metrics

Traditionally, CFOs have focused much of their attention on financial reporting, which means, in a sense, that they have been looking in the rearview mirror. A financial report summarizes performance over a previous period, or, as with the balance sheet, summarizes the state of the business at the end of a period.

For today’s CFO, of course, financial reporting is still critical. But technology today makes it possible for the finance organization to get near real-time information about the company’s performance, and even to gather data on leading indicators—those that show how the company will perform in the future. As Jeannette Wade, CFO of the Office of Technology Services & Security, says, “The role of the CFO has changed from being the keeper of the financial information to the driver of business change with financial information.”[1] A variety of business intelligence and analytical tools give the CFO the ability to slice and dice this information, even to perform predictive analytics through new machine learning technologies. And data lakes and real-time streaming make it easier to analyze information across business silos, business units, and even subsidiary companies to gain a complete picture. The digital CFO takes advantage of all of these tools to make decisions and give the other CXOs insight into company performance.


Old: Quarterly Performance
New: Company Sustainability (and quarterly performance)

As the steward for the board and the shareholders, the CFO must make sure that the company is future-ready and sustainable. Boards are increasingly worried about company sustainability as they see industries being disrupted and observe how precipitously companies drop from industry leadership positions. Company sustainability appears to involve a paradox: the company must continue to innovate and grow, but at the same time must guard against risks to its core business as well as security breaches and market uncertainties. The one certain thing is that enterprises cannot sustain their market leadership position through stasis, by maintaining the status quo, or by managing only for today or this quarter or this fiscal year.


Old: Cost Oriented
New: Growth Oriented

Eighty-one percent of CFOs believe it is their responsibility to identify and target new growth areas across the enterprise. CFOs must find and cultivate new sources of growth.[2] Following from my previous point, the CFO cannot just focus on controlling and reducing costs. Maintaining a market leadership position in the current economy requires continuous innovation and seizing market opportunities as they arise. Boards and CFOs—not to mention the financial markets—demand growth, and the CFO must find a way to deliver it, which means spotting growth opportunities and directing cash and other resources toward them. The CFO cannot be a “no-sayer;” on the contrary, good financial stewardship means encouraging and supporting innovation and the spending required for growth.


Old: Focused on Cost
New: Focused on Leanness

This subtlety makes all the difference in the digital world, which is a world of speed, responsiveness, and sustained feedback cycles. In order to foster innovation, seize opportunities faster than competitors, and respond effectively to customer needs, the enterprise needs to be fast. By “fast” I mean that lead times must be short, and in the Lean Manufacturing/Toyota Production System paradigm, this means removing waste that contributes to long lead times. That waste might not be in obvious places—it is often in handoffs between business siloes, bureaucracy and redundant or ineffective controls, poor hiring practices, or wasteful feature bloat in IT systems (that is, “requirements” that shouldn’t be required). Fortunately, reducing waste also reduces cost, or at least unit cost.


Old: Vetting Innovation, Guarding Funds and Resources
New: Fostering Innovation, Channeling Funds and Resources

Is the CFO one of many gatekeepers and guardians in the organization who “vet” innovations by saying “no” to most of them? Or does the CFO help the company exploit potential growth opportunities by encouraging the right kind of innovation? In a company with a growth imperative, it must be the latter.


Old: Focused on Plans and Milestones
New: Focused on Outcomes

In the old world, the CFO (and everyone else in the enterprise) focused on plans and milestone adherence as a way to (ostensibly) control them and manage risk. But in an environment of uncertainty, plans must change often; and in any case, it is not the plan that is important—it is the outcome. In a world of short lead times and fast delivery (especially from IT), outcomes can be measured quickly and used as a control. The question should never be “Did you complete all the requirements and execute according to plan?” but rather “Are you generating valuable outcomes quickly?”


Old: Deploying Capital Based on Business Cases
New: Deploying Capital Based on Staged Investments

Business cases prepared in advance of an investment are subject to uncertainty, complexity, and rapid change. It is risky to invest in a business case in times of disruption and volatility. Fortunately, the digital world gives CFOs a better way to manage investment risk, and that is through incremental or staged (or metered) investment. Instead of committing funding to a large initiative, the enterprise should commit funding in stages. IT teams can and should deliver results quickly and frequently (that is what DevOps is all about), and the business results of these deliveries should be scrutinized as a way of deciding whether to continue funding an initiative and at what level. It is even possible to make small investments in a portfolio of opportunities and then decide which will yield the best returns before deciding which ones to commit funding to.


Old: Sustainable Competitive Advantage
New: Creative Destruction and Continuous Reinvention

It has become very difficult to sustain a competitive advantage. Barriers to entry are low. Customers are fickle. Government rules and policies change, as does the geopolitical situation. Distribution channels are disintermediated. Disruption is rife. It may not be wise to depend on today’s competitive advantage to still exist when you wake up tomorrow. Instead, companies compete today based on continuous innovation, frequent renovation of business models, and creative destruction of existing advantages. A CFO is looking to create change, not to avoid it.


Old: Supporting Siloed Activity
New: Supporting Cross-Functional Activity

Old-style budgeting and performance management were based on functionally siloed organizations. Marketing was responsible for marketing objectives and costs; IT for IT objectives and costs; business units for their own P&Ls. But todays organizational practices are based on cross-functional teams, the more widely representative of different functions, the better. The CFO must foster or create transparency across organizational silos, and must find a way to fund and measure the performance of teams that cut across traditional organizational boundaries.


Old: CAPEX and Fixed Costs, Total Costs
New: OPEX and Variable Costs, Marginal Costs

As I explain in another post, Decisions at the Margins, enterprises can make better decisions in the digital world if they focus on marginal costs and marginal value, rather than total or average. The costs to operate a digital service are now typically variable costs and often represent operational expense rather than capital expense. The cloud, for example, turns what used to be large, fixed costs into small, variable costs (see my post on Micro-Optimization). Often, these costs are expensed rather than capitalized. DevOps breaks down monolithic IT system delivery costs into small, incremental costs to deliver individual features or microservices. This is one reason for lowered barriers to entry for startups: they no longer need large investments before they start doing business; instead, they can see their costs rise only as the business scales. Enterprises, too, can take advantage of this change to cost structure.


Old: IT as a Cost Center
New: IT as a Partner and Enabler

IT supports and enables the CFO in accomplishing all of the changes I have discussed in this post. Working with IT, the CFO can bring transparency across silos, obtain near real-time data and analytics, reduce lead times, and divide investments into low-risk chunks. But more than this, IT is an enabler of business growth and a driver of innovation, rather than just a fixed cost the enterprise must bear and try to minimize.


Old: Finance-Operations Focused
New: Cross-Enterprise Operations Focused

According to a McKinsey study, two-thirds of CFOs think they should spend less time on traditional finance activities and more on strategic leadership.[3] BCG found that about 30% of the finance department’s effort is invested just in the mechanics of assembling data and resolving inconsistencies.[4] CFOsand their finance groups have spent entirely too much time on the mechanics of getting the books closed each month. The CFO is the CFO for the entire organization!


Old: Risk is Unpredictability and Financial Risk
New: Risk is Predictability and Business Risk

The CFO manages risk for the enterprise, and it is critical that the CFO teach the enterprise to think differently about risk. The Status Quo Bias (see my other blog post) leads us to perceive risk in things that are new, while overlooking the risks in the old. (Should you be worried more about the security of new things or the problems in your security posture today?) It leads us to focus on cost and schedule risk when the real risk is the risk of not gaining the desired outcome at a good price quickly. It makes us think that innovations are risky whereas not innovating is even riskier. It convinces us that it is risky not to follow an upfront plan and business case even when the environment is constantly changing and new information is being discovered. The CFO must bring to the enterprise a rational basis for making risk decisions.


Old: Compliance is a Checklist, Reactive Compliance
New: Compliance is a Design, Proactive Compliance

The GDPR is a model for how we should think about compliance going forward. It requires that we implement “privacy by design”—in other words, that we design customer privacy into our systems and processes as we create them. This is indeed the way IT organizations increasingly think about security, resilience, and privacy—all IT systems should be designed for “ruggedness,” or for the way they will be used and operated. It is not enough to make customer information secure today; tomorrow a hacker will invent a new way to steal it. Similar considerations apply to other compliance frameworks—HIPAA, Sarbanes Oxley, FISMA. Instead of auditing after the fact whether they have the appropriate controls, we need to design systems and processes so that they will meet the control objectives in a way that is resilient and future-oriented.

In summary:

Old New
Backward Looking, Trailing Indicators, Financial Metrics Forward Looking, Leading Indicators, Performance Metrics
Quarterly Performance Company Sustainability (andquarterly performance)
Cost-Oriented Growth-Oriented
Focused on Cost Focused on Leanness
Vetting Innovation, Guarding Funds and Resources Fostering Innovation, Channeling Funds and Resources
Focused on Plans and Milestones Focused on Outcomes
Deploying Capital Based on Business Cases Deploying Capital Based on Staged Investments
Sustainable Competitive Advantage Creative Destruction and Continuous Reinvention
Supporting Siloed Activity Supporting Cross-Functional Activity
CAPEX and Fixed Costs, Total Costs OPEX and Variable Costs, Marginal Costs
IT as a Cost Center IT as a Partner and Enabler
Finance-Operations Focused Cross-Enterprise Operations Focused
Risk is Unpredictability and Financial Risk Risk is Predictability and Business Risk
Compliance is a Checklist, Reactive Compliance Compliance is a Design, Proactive Compliance


A Seat at the Table: IT Leadership in the Age of Agility
The Art of Business Value
War and Peace and IT: Business Leadership, Technology, and Success in the Digital Age (now available for pre-order!)

[1] and the other references below are also cited in my upcoming book, War & Peace & IT: Business Leadership, Technology, and Success in the Digital Age.




Mark Schwartz

Mark Schwartz

Mark Schwartz is an Enterprise Strategist at Amazon Web Services and the author of The Art of Business Value and A Seat at the Table: IT Leadership in the Age of Agility. Before joining AWS he was the CIO of US Citizenship and Immigration Service (part of the Department of Homeland Security), CIO of Intrax, and CEO of Auctiva. He has an MBA from Wharton, a BS in Computer Science from Yale, and an MA in Philosophy from Yale.