MANAGEMENT

Expert Advice: This Is How the Role of the CFO in China Needs to Change

A poor nation with an economy based largely on heavy manufacturing and agriculture just a few decades ago, China today is one of the most digitized countries in the world. 

Recent research conducted by my colleagues at the McKinsey Global Institute highlights just how far China has come in such a short span of time. China is now the world’s largest e-commerce market, accounting for more than 40% of the value of worldwide e-commerce transactions, up from less than 1% about a decade ago. 

Modernizing the finance function at Chinese companies will require making substantial changes, some of which will require the deployment of new technology, while others will require a radical redesign of core business processes

China has also become a major global force in mobile payments with 11 times the transaction value of the United States.

And China is in the top three in the world for venture-capital investment in key types of digital technology, including virtual reality, autonomous vehicles, 3-D printing, robotics, drones, and artificial intelligence (AI).

Yet, if you were to go into most Chinese companies, whether state-owned behemoths or smaller and faster-growing privately-owned firms, you would find that most are still running on the same inefficient, labor-intensive, and largely un-digitized processes they’ve been relying on for years.

Modernizing the Finance Function

This is particularly true in the finance and accounting departments, which can employ hundreds or even thousands of people at some companies.

The CFO ends up spending a disproportionate amount of time on managing essential but nonetheless low value-added activities such as basic bookkeeping functions. As a result, he/she spends less time on higher value adding activities such as budgeting, pricing, and performance management, tasks that enable him/her to serve as a counselor to the CEO on critical strategic business issues.

If Chinese companies hope to heed the government’s call to innovate and move up the value chain, they will need to have a finance function that enables the CFO and the CEO to make better decisions and more swiftly.

Modernizing the finance function at Chinese companies will require making substantial changes, some of which will require the deployment of new technology, while others will require a radical redesign of core business processes.

Four Action Steps

Here are four areas CFOs in China should focus on as they kick-off their transformation:

Manage for value. In the finance departments of many Chinese companies, we often find that too many resources have been allocated to transactional and standardized activities such as accounting and expense reimbursement. Too little attention is paid to providing “consultation activities” that allow the CFO and his team to manage for value, which include activities like business analytics, planning and budgeting, investment analytics, and M&A support.

“Consultation activities” provide decision-support to CEOs, are closely aligned with business activities, and offer the highest opportunity to create value among all types of activities conducted by the finance function. 

Data analytics, for example, can help the CFO conduct a wide range of value-added activities, including advanced scenario planning, project selection and prioritization, inventory planning, dynamic cash flow simulation, performance drivers analysis, and capital allocation optimization.

  • 1
  • 2
  • Next page

Related Articles

Bain & Company suggests letting sales reps see the effect of a deal’s price...
Five finance leaders were honored in the sixth CFO Innovation Awards held in...
When business is good, as it is right now, nothing seems to be underperforming...
CFOs must persuade the CEO, others in the C-suite and the board to support the...