The skills of any good business executive evolve as the company evolves. But perhaps no role has changed more over the last 30 years than the chief financial officer.

David Axson has witnessed that change. Known as The CFO Whisperer, a moniker he says his clients coined, Axson has worked in corporate finance for 40 years. After stints at Kearney, Deloitte, and Lloyds Bank of London, he cofounded The Hackett Group, a business benchmarking and advisory service, and led Accenture's global CFO practice. He now has his own consulting firm, working with many Fortune 500 companies, as well as serving as parttime CFO for Shrap, a financial tech startup in the UK

We sat down with Axson to explore some of the changes he's seen in the span of his career. The biggest one, we learned, is that today, more business value comes from outside rather than inside a company. Specifically, value comes from a company’s ecosystem: its business partners, suppliers, and others. Where CFOs used to primarily manage and measure the value of what an enterprise made and sold on its own, they now have the additional, much more complex, job of assessing and managing the value generated from the business ecosystem.

Increasingly, embedded finance—which Axson defines as a non-financial business borrowing a bank’s financial and regulatory infrastructure to extend a financial service to customers—is a key to unlocking ecosystem value.

Here’s what Axson has to say about navigating this new landscape.

What have been the biggest changes in corporate finance? How have they affected the job of a CFO?

The biggest challenges fall under the heading of volatility. Today's environment is one of constant change and uncertainty—in technology, the business environment, and geopolitics. Companies that successfully adopted technological improvements have become more nimble and better able to react to this volatility.

For example, better technology has significantly automated routine financial accounting and transaction processing. In the early days of my career, the cycles of procure-to-pay and order-to-cash were largely manual and mostly paper-based, with a significant number of handoffs and long cycle times. We literally had to wait until the end of the month to find out what had happened that month. By then, it was usually too late to do anything about it.

Now, many of those steps are automated. So, the velocity at which financial transactions are processed has accelerated dramatically. Now we know day by day, even hour by hour or minute by minute, what's going on, and can make course corrections. In most organizations, the accounting close is a regulatory exercise for compliance purposes, but it's not central to the management reporting and decision-making process.

Having this kind of digital technology in finance is the price of admission to today’s market. If you don't have it, you're at a competitive disadvantage.

If that’s table stakes, how can businesses differentiate themselves with their financial systems?

Where the differentiation comes today is the ability to integrate those technology capabilities with the way your customers, your suppliers, and your employees operate. In fact, one of the biggest changes for CFOs is that business value comes more from your business ecosystem than from your individual company.

How so?

It's about understanding what the customer is looking for in a particular situation. For example, one of my clients is an oil processing company. One of its products is gasoline. Another is asphalt.

One of its customers—a truck stop in Iowa — needed a gasoline supplier but also needed to maintain its parking lot. So the company constructed a package for this customer that included not only a five-year contract for gas, but also asphalt to repave the lot, as well as a loan to finance the deal.

The business now has three revenue streams: the gasoline, the asphalt, and interest on the loan. That's what I mean by being creative in the way you bring the technology and service together.

Another example would be Uber and Lyft, which now offer vehicle rentals to drivers. That enables drivers who don't own cars to make money, which generates revenue, but the company also gets a piece of the action on the rental.

That's an embedded finance offer that bundles product, service, and financing. CFOs have to manage this financial ecosystem, not just their own enterprise.

How does the company process three revenue streams?

That's where it gets complicated. How do you calculate the profitability of that customer relationship? There are three types of value to account for in data: transaction value, information value, and analytic value.

Transaction processing is straightforward. Did someone pay their invoice? But then there is the value of the information associated with that transaction: Who was the customer? What was the product?

Most businesses do a decent job on the first two. The third element is the analytic value of data. How profitable is that transaction? Overall, how profitable is that customer? You don't get those answers by looking at just transaction data. You need to look at things like: What costs went into that? How do we allocate overhead? That remains the biggest problem.

It's hard, because you need to define allocation mechanisms – how to measure profitability, how to measure customer value. The oil processor might make boatloads of money selling asphalt to the truck stop, but if the customer defaults on the loan, do you have any profit at all? These are the type of questions that embedded finance offerings are prompting.

And it's further complicated by the ecosystem of data. With the increasing use of models like software as a service, a lot of that data now resides outside of your own organization. It resides in the ecosystem of customers, suppliers, and business partners. Which goes back to what I said about most of the value residing in the ecosystem. Companies depend on a very complex ecosystem to deliver value.

Why is figuring analytic value in the ecosystem so difficult?

The heart of the problem goes back to a long-standing issue: lack of common definitions in data. If how you define a customer and how I define a customer are different, we're going to be talking at cross-purposes. These are simple definitional questions, but the problem is that so many of these definitions were embedded in companies long ago, before value migrated out to the ecosystems, which made sharing data so important.

So, it's a legacy issue?

Yes. It dates back to when customer master files and vendor master files were originally set up. One of the powers of ERP systems was that they forced a level of definitional consistency across the enterprise. But now, we need definitional consistency across the ecosystem. There are a number of standards and APIs, but we still don't have that plug-and-play where two organizations can seamlessly communicate with each other. We may optimize everything within our own enterprise, but then it fails at the handoff point.

How do these challenges affect the CFO job?

Today's CFOs usually have a good handle on what's going on inside their own company. Now they are turning outward.

In the old days, a CFO would spend 60% to 70% of their time managing what's happening in the enterprise and 30% to 40% on looking outside. Today that's inverted. Because they can be confident that their company’s transactions will be processed quickly and accurately, they can focus more on ecosystem risk. What is the credit risk associated with our customers? With our suppliers?

Today's CFO is looking less in the rearview mirror and more at the road ahead. And just like in cars, we are moving to automated ways of navigating that road. Modern cars have GPS and collision-avoidance systems to minimize disruption and danger. Large companies like Walmart have forced much tighter integration with suppliers, which enables some of this navigation.

Some supermarket chains don't own the inventory on their shelves. That box of cereal may still be owned by the supplier until the consumer scans the barcode and pays for it. That takes a massive capital investment off the retailer’s balance sheet because it doesn't pay for the product until it has sold it. And the supplier is paid on a real-time basis rather than end-of-month or end-of-quarter.

How many companies would you say are doing this type of embedded finance in their ecosystems successfully?

We are in the early stages. If you define embedded finance as when a non-financial business borrows a bank’s financial and regulatory infrastructure to extend a financial service to its customers, the best forecast I can find is that it's growing at around 30% a year, which is a significant compound growth rate. It is projected to grow from just under $100 billion in 2023 to a little over $1 trillion by 2032. That would be a 10X increase. Organizations are really seeing this as an opportunity.

What advice would you offer our CFO readers on how to manage embedded finance in the ecosystem?

Go in with your eyes open, in terms of your business case and your risk profile. Be very clear on what value you are trying to realize. It's still very hard to measure the value or return on investment in these situations.

When you're doing a cost reduction project, it's easy to say, “I'll spend $1 million to save $3 million a year.” But with embedded finance, you're not trying to save money, you're trying to generate new business.

So how do you build a business case for that? You want a sound business case that looks at potential value streams. More important, you need to be able to measure whether you're realizing that value.

The other thing is managing risk. Make sure you have the internal capability to manage the increased risks in the ecosystem, including credit risk and reputational risk. Even though the value derives from the ecosystem and its players, the company that sells the branded product or service will suffer reputational damage if something goes wrong. If we promise next-day delivery and our shipping partner fails to deliver it the next day, the customer blames us.

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