Unprecedented changes are sweeping across the economy, creating a real need and opportunity to reinvent how government operates. Federal CFOs are responding to this urgency by taking on agency-wide initiatives that go beyond their core financial focus.
Given this, the final role played by successful federal CFOs is that of the transformation architect. In many cases, CFOs are leveraging their unique perspective to transform current operating models and evolve the agency’s role in society. For example, identifying new sources of value is already their top use of operational data.
To better unlock trapped value, improve their agencies' societal impacts, and re-imagine the status quo, many federal CFOs are contemplating anew their agencies’ value propositions and considering societal concerns as part of their balance sheets.
Rethinking the agency with new value propositions
CFOs have historically served as change agents in their organizations, championing the adoption of lean operating models, the balanced scorecard, enterprise resource planning, shared services, and RPA as just several examples. Given this heritage, it is not surprising that nine out of 10 federal respondents believe that the finance function, led by the CFO, will champion enhanced ways of operating and integrating across the enterprise.
As a result, many are leading their finance organization in agencywide initiatives, including:
- Developing new products/services – 45 percent
- Implementing new enterprise technology – 34 percent
- Wide-scale business transformation – 32 percent
- Identifying and unlocking new value (such as developing new business models) – 27 percent
- Improving environmental, societal and governance (ESG) performance – 26 percent
- Revisiting strategy in response to changing operating conditions – 25 percent
Our conversations with federal CFOs also reveal an increased focus on exercising great influence and oversight over the entire back office (e.g., procurement, human resources). In many cases, they are leading efforts to implement shared service models and similar frameworks within their agencies.
However, they also face constraints in exercising a larger role. These barriers include concerns about data and privacy breaches (43 percent) that limit their ability to generate new insights as well as growing pressures to focus on core finance functions (38 percent) and insufficient support or buy-in from other senior leaders.
CFOs are adding societal concerns to the balance sheet
Within the private sector, enterprises are expanding their view of critical stakeholders to include employees, customers, suppliers and communities as well as shareholders. With this shift toward more responsible businesses, they are adopting greater accountability for their ESG impact.
According to the Office of Federal Sustainability, the U.S. federal government is the nation’s largest energy consumer. Given this scope, it is not surprising that federal CFOs are increasing their focus on sustainability as well, with 90 percent asserting that finance has ultimate responsibility for their agency’s impact. By comparison, 68 percent of commercial CFOs held similar responsibility. And when we asked federal CFOs to choose their most significant outcome over the past two years, improving their ESG performance was the top response (33 percent), surpassing areas like collaborating with OMB and Congress more effectively and enhancing efficiency through automation.
Critical actions for federal CFOs:
- Ensure finance is consulted on strategic initiatives at the outset rather than waiting until a request for investment is submitted. Work to partner with other senior leaders on end-to-end project oversight to help maximize results and optimize performance. Begin the process by initiating horizon scanning and similar exercises to identify early the financial opportunities and risks associated with key trends.
- Evaluate standards for managing ESG performance. The Biden Administration has made sustainability a priority while groups like the Sustainability Accounting Standards Board are refining reporting standards for enterprises. Federal CFOs should evaluate how they can manage and measure their ESG performance and what additional steps they can take to mitigate their agency’s impact on the environment.
- Create a finance-led vision for your agency. Take the lead in demonstrating how financial leverage will help your agency address the challenges and opportunities of the forthcoming decade. Through this process, you can advance the finance brand as an agile problem solver that fosters agencywide innovation.
A recent World Bank report, Government accounting at crossroads: Emerging opportunities during COVID-19, noted:
Government accounting and financial reporting are at a crossroads today. Providing information on how much cash is received into treasuries and paid out for goods, services, and transfers is not enough. Stakeholders are demanding more accountability and engagement in public finances.
Federal CFOs are at a unique moment in time, as their response to the pandemic and economic upheaval has revealed the fundamental role that they play in both agency strategy and operations. Solidifying these gains can lead federal agencies to become more resilient, agile, and insight driven.
The finance function must continue to emerge as a center of excellence for automation, analytics, and workforce agility within the agency. Doubling down on these investments and commitments will yield increasing dividends.
Federal CFOs have also demonstrated their ability to serve as a force multiplier for their peers. To increase this valuable collaboration, they must look to further develop their own leadership teams to provide even richer insight while allowing for further delegation.
Finally, they should seize the opportunity to lead their agencies in new ways and directions. Success in these endeavors will require that they embrace skill sets from the chief operating officer as well as the chief innovation officer.