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Research:
Research
23 Nov 2021

The meteor is coming

The role of the private equity backed CFO

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Our third survey examining the role of the private equity backed CFO reveals that an unprecedented period of change brought on by technological advances will, in the years ahead, profoundly transform the role, making it much more varied, proactive and analytics-driven.

We interviewed over 100 CFOs, PE investors, CEOs and Chairs to create a picture of their top priorities and preoccupations today, and asked them all to look to the future – to predict how they think the role of the CFO will evolve in this era of great disruption.

Key insights

 

The great gap: CFO vs. investor expectations

 

“It’s an increasingly ruthless industry these days. You haven’t got time to spend 18 months bedding in and getting to know the management and allowing management to make mistakes, they’ve got to perform.” PE investor

Operating as a PE backed CFO has always been challenging, yet our survey reveals an intensification of this. Nearly three quarters of PE investors will replace CFOs who do not grasp the importance of their role in driving value - with many investors replacing 1 in every 2 of their CFOs within 18 months of investment. The message is clear - CFOs have a short window to build credibility with their investor, making proactive management of expectations in this environment crucial to survival.

Impact: The technology meteorite

 

85% of CFOs and 82% of PE investors state that automation and technology will have a key impact on finance functions over the next 10 years.

Technology will bring about a revolution in the finance function – nearly all of our respondents were clear on this. It was also clear that responsibility for owning this change and managing broader business data rests with the CFO. However, few CFOs could paint an accurate picture of the steps they were intending take to unlock this opportunity - generating some unease amongst CFOs and investors alike. While a number of finance functions are taking their first tentative steps towards basic analytics capabilities, few have a clear plan for moving this forward and unlocking its true potential.

Extinction: From finance steward to “Chief Value Extractor”

 

76% of CFOs and 83% business owners agree... The “bean-counting” CFO of old with a focus on looking backwards is being replaced.

CFOs are expected to drive change. The traditional CFO with a focus on looking backwards is being replaced by a tech-savvy, visionary and entrepreneurial CFO who can release and create value in the business from day one and throughout the entire investment cycle. This will not happen without an optimal finance team so nurturing talent will also be high on CFOs agenda.

Evolution: A world of opportunities

 

82% of PE investors believe a successful CFO can have a fundamental impact on the creation of business value.

The role of the PE backed CFO in the future will be all-encompassing and therefore more challenging due to the numerous hats they will have to wear. A key contributor to strategy, enhanced by predictive technology, the future CFO will be central to decision making, ranking more equally with the CEO. The switch to lean and ‘intelligent’ finance will enable CFOs to free themselves from mundane tasks to concentrate more on commercial strategy to assist the owners in their ultimate quest: maximising value on exit.

As a result, the role of the PE backed CFO in the future will be much broader, more technology-driven and more demanding, requiring an even balance of hard and soft skills. Not every CFO will be able to bring about the level of change required and there will no doubt be casualties of this great revolution. But for those able to adapt, embrace and evolve, the opportunities will be significant and the role more rewarding than ever.

The objective of our 2019 research is to provide fresh insights and perspective into the changing role of the private equity backed CFO in an era of great change and technological disruption.

The process was two-fold:  

  • First, we gathered quantitative research based on the answers that respondents (CFOs, Chairmen, CEOs and PE investors) gave to a set of background questions in a multiple-choice format to highlight key themes and top-ranking priorities in order to set the scene.
  • This was followed by a more extensive interview to discuss open-ended questions. More discursive in nature, these questions allowed us to gauge the sentiment of the participants on the topics discussed.

We conducted the survey between March and June 2019 and interviewed 112 participants in companies of varied international footprints across different industries.

A majority of interviewees came from companies with group turnover of £0-£100m (51%), more than 70% of the companies have turnover below £250m. Only 3% of the interviewed companies had a turnover over £1bn.

Analytics and Modelling

To analyse the survey’s results and identify key trends and themes, Deloitte’s analytics team used an innovative analytical and modelling approach.

In order to better navigate the large amount of unstructured data we collected after interviewing 112 participants, the analytics team transformed the information from background and interview questionnaires provided into a structured database to enable its visualisation in an interactive visualisation dashboard.

The dashboard offers a number of features, allowing users to engage with the data sets at a very detailed level and refine the survey’s results based on the various criteria selected (role, industry, size of the business or geography, etc.).

Sentiment Analysis

Sentiment analysis is a part of Natural Language Processing (NLP) whose purpose is to determine the attitude or emotions expressed in words and sentences. Using Textblob, an open source Python application programming interface (“API”), Deloitte’s analytics team ran an analysis on the answers to the survey’s open-ended questions to reveal the feelings of the respondents and present them in a visual form. A sentiment analysis provides two scores: polarity (sentiment orientation: negative, positive or neutral) and subjectivity (to measure if a sentence expresses personal feelings, views or beliefs). The team was also able to create a word cloud based on the sentiment analysis, which shows how often a word is mentioned. The size of the word in a cloud is proportionate to its frequency.

Other than common words the respondents would naturally mention in normal discourse during interviews when discussing the future role of the PE backed CFO such as ‘business’ or ‘finance’, the use of other words such as ‘technology’, ‘value’, ‘time’, ‘change’, ‘data’ highlights the current concerns of the key players in the PE environment.

The word cloud also reveals the subtle but telling differences in the words most frequently used by CFO and PE investors. ‘Data’, ‘information’ and ‘quality’ appear to be used more often by PE investors for instance, whilst CFOs cited ‘function’, ‘technology’ and ‘challenge’ on more occasions than the former.

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