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Tuesday, 23rd April 2024
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Re-focusing the CFO’s role to strategic direction and value creation Back  
CFOs of multinational and Irish owned companies have been charged by shareholders and CEOs with adding value at every opportunity. The challenge is to transform often inwardly looking finance functions working mainly on financial reporting and controls, to one that spends more time focused on strategic decision-making and value creation.
A global KPMG survey of over 280 finance executives, conducted by the Economist Intelligence Unit, provides an insight into a range of finance departments, including the progress they have made on key goals and the major challenges that lie ahead.

The main findings include the fact that top performers spend less time on cost control and more time on decision support. Not surprisingly, many CFOs aspire to being both a strategic partner to the CEO and playing a key role in creating value by providing guidance and insight to the business. In reality, most finance functions spend more time on traditional tasks such as controlling costs and reporting and advising on tax matters. Almost 80 per cent of CFOs at average performing companies view cost control as a major part of finance’s role. In contrast, only 64 per cent of top performing companies in the survey cite cost control as a key focus. They spend more time on decision support activity, are more likely to have a strong vision for the finance function and critically - they will have communicated this to the rest of the business.

Our survey highlights the fact that finance executives are confident in their ability to deliver historical financial reporting but are much less satisfied with their ability to deliver forward-looking insights. A disappointingly high 43 per cent are dissatisfied with their skills in planning, budgeting and forecasting tasks and 42 per cent state similar concerns over the quality of management information.

Despite high levels of investment in IT for transaction processing and financial reporting, there is a continued reliance on manual processes for forecasting and decision support. There is more work to be done to upgrade and integrate legacy systems so the businesses can achieve consistent, accurate data that provides a single version of the truth. It seems reasonable to suggest that finance needs to be trained - not just to generate and consolidate financial data but to draw insight from it.

Finance functions are restructuring. Not just to save money but also to release time for strategic tasks. Shared service centres are widely used to drive cost-efficiency without some of the risks associated with outsourcing. According to the survey, between 35-50 per cent of companies now handle treasury management, financial reporting and transaction processing within a shared service center. The numbers using such a model is likely to rise.

Looking forward, routine management reporting will be a particular growth area in the use of shared service centres, as organisations seek to improve the quality of management information. In contrast, outsourcing strategies for finance are still in their infancy and less popular than other support functions such as IT, but do represent an emerging model for running routine finance processes.

Finance functions have been at the coal face of regulatory compliance projects, inevitably creating a distraction - almost two out of every three senior executives saying regulatory compliance has absorbed time that could have been spent profitably elsewhere.

It seems unlikely that the overall burden of compliance will ease in the foreseeable future. Amongst financial services companies surveyed, over two thirds of finance executives expect it to increase over the next three years. By investing in better information management and more robust standardised processes, finance functions can prepare for future compliance requirements and thus release time for more value-added activities.

Investors are conscious of today’s highly competitive business climate and are asking for better measures of economic value and a more reliable guide to a company’s future performance. Much of the burden has fallen on the finance function. One CFO interviewed spends between 15 - 20 per cent of her time communicating with the organisation’s shareholders. It remains however an area where many finance functions have more work to do.

Only 26 per cent of executives from average performing organisations believe they are excellent at reporting business results to investors. In contrast, finance executives in top performing organisations are almost twice as likely to be confident in this area: 40 per cent of them believe they are now excellent when it comes to investor relations. Leading CFOs espouse better forecasting techniques as a vital step forward in improving the quality of investor guidance.
Irish companies are not unique in having to compete for skilled talent. More than half (55 per cent) of companies in the survey say they plan to recruit new finance employees in the next two years, but 47 per cent also say that this will be one of the biggest obstacles to transforming their organisations. The challenge is even greater because the profile of the finance professional is also changing.

Leading CFOs are reorganising and centralising their finance functions to help create a single view of finance across the company. Instead of having multiple country CFOs with a high degree of autonomy, group CFOs are taking command of the global organisation.

Regulations such as Sarbanes-Oxley have accelerated this trend, as companies strive to impose standardised, high-quality processes and controls throughout the business.

For Irish and multinational companies such developments are highly relevant. Leading finance functions are streamlining their traditional finance processes and are already playing a valuable strategic role in the business. The top performing companies in the survey are those that spend less time on routine finance and more time on delivering strategic insight – thereby helping their organisations to achieve a significant competitive advantage.

Finance functions are assuming new responsibilities, some of which pull them in opposing directions. From controlling costs to the demands of regulators and investors, finance functions are in the thick of traditional accounting tasks. However, in the medium to long term finance also needs to play a more strategic role in the business. For a busy CFO with competing objectives, such an aspiration is clearly easier said than done.

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