| A framework for finance in the new economy |
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| While e-commerce is revolutionising every area of business Marian Corcoran says the path to e-finance requires a realignment of the finance organisation towards a structure and culture that can enable e-business transformation. |
E-Commerce is changing the rules of the game. New business models and innovative technologies are demanding greater levels of finance leadership to ensure long-term viability and success. Finance organisations must understand and apply the latest thinking and best practices while at the same time, balancing and maintaining stewardship of traditional finance and control.
As companies rise to the challenge of operating in the new economy, all parts of the organisation are undergoing change. Consumer and business marketplaces are being transformed, products and services are evolving, and new channels of delivery are emerging, almost on a daily basis. A recent Andersen Consulting study ‘e-Commerce and the CFO: A framework for finance in the new economy’, shows that many chief financial officers (CFO) view their companies as lacking the necessary structure and culture to effectively account for today’s changing e-business conditions.
The chief financial officer (CFO) is the individual charged with leading the move towards an ‘e-finance’ model that can manage this tumultuous world of fluctuating market shares, new revenue/cost streams and unanticipated performance-management issues.
e-finance for the purpose of this article can be described as web-enablement of the finance functions, accurate investment appraisal of ‘e’ opportunities and rapid implementation of evolving new-economy principles.
As new business models transform the corporate value proposition, finance is being forced to respond to the restructuring of cost and revenue streams. Companies are being connected with customers and suppliers in virtual and collaborative marketplaces and competitors in some instances are becoming allies. The e-finance organisation must be able to anticipate and manage the corresponding demands for data and analysis.
For example, senior executives believe the new economy requires that corporate strategy evolve. A strategy that has been in place for three years has likely been revisited numerous times, with many shifts in focus under the broad objective of attaining e-business milestones. These milestones are increasingly tied to demands from the business lines, which experience market and customer changes most directly. In addition, finance must take a greater interest in accounting for the performance of ventures and alliances, which can introduce new skill sets and offer entry into new markets.
Most noticeably, dot.com start-ups have injected a high degree of uncertainty into business modeling by redefining elements of the customer and supply-chain propositions. E-finance acumen must draw on financial and operational data to offer insights that help corporations respond quickly and decisively while leveraging the value of their brand and their established market position. Many companies, at first startled by the dot.com e-business model, are now focusing on how to capitalise on their existing franchise.
However it is the enabling technologies, particularly the internet, that offer the finance organisation an opportunity to leverage legacy systems and apply new levels of connectivity that do not require entirely new infrastructures. Finance will be forced to adopt new technologies to remain competitive and to provide services demanded by its customers.
Advances in information technology (IT) have raised expectations about how corporations can enable business-to-consumer (B2C), business-to-business (B2B) and business-to-employee (B2E) environments. Now the finance function can use IT to offer more sophisticated and accurate services at higher speed through Internet solutions that are repeatable, scalable and dependable.
IT systems should serve the finance function yet support the broad corporate demand for performance management tools and service the needs of customer and supply-chain partners. This will necessitate greater technological awareness from finance, which will need to evaluate the new solutions rapidly coming to market.
One of the most visible areas, from a finance perspective, that can be e-enabled is the transaction processing side of the business. Transaction processing must facilitate accelerated month-end account closing, truncated budget scheduling and improved processes by which to develop and evaluate e-business initiatives. This requires rolling reporting and real-time access to financial and operational information. The next phase is for companies to move to a virtual close. Certain companies are likely to benefit more than others. This is because the processes simultaneously deliver information transparency that can help realign business priorities. For example real time information can significantly improve inventory management, which is critical in sectors such as manufacturing and telecommunications where there is a higher potential for inventory obsolescence.
The shift to e-speed in corporate decision-making is critical for the finance organisation. This requires finance to shift from being a corporate overhead to being an enabler of business-line decisions, embracing the opportunity to move from offering support in business strategy implementation to helping shape a new-economy business model.
The finance function must extend throughout the layers of the organisation. If finance exists in a functional vacuum, it cannot provide critical support for corporate and business-line initiatives successfully from the planning stage through implementation.
Changing organisational structures are forcing CFOs to revisit their strategy for positioning the finance organisation and re-examine their own role. The core fundamental responsibilities of the CFO do not change, though new elements have been introduced as they help the organisation through changes in business modeling. CFOs have always seen themselves as strategy facilitators, but now the dynamics of the management committee require the CFO to bring vital investment appraisal skills to the decision-making table. This contribution is pivotal to the formation of ideas and the fast implementation of strategy.
CFOs should start to pursue some key initiatives to solidify their resources into an effective e-finance framework. First there is a need for a refined level of ownership in which finance adopts and supports corporate strategy to create value and deliver new e-economy growth. CFOs also need a discrete business plan with a prioritised timeline for introducing e-business initiatives evaluated for their contribution to broad business. And lastly, an advanced approach to what-if analysis that minimises the role of historical-data gathering and develops a new architecture for forecasting. This must include more frequent checkpoints for business reviews and a flexible approach to new criteria of assessment.
The path to e-finance requires a realignment of the finance organisation towards a structure and culture that can enable e-business transformation. Like all other executives, the CFOs need to embrace the e-finance philosophy. The time to act is now. |
Marian Corcoran is a partner at Andersen Consulting and can be reached at marian.corcoran@ac.com
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| Article appeared in the October 2000 issue.
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