A recent survey1 concluded by CFO Research Services, in collaboration with KPMG, confirms the need for change in the finance function while identifying some of the main challenges to be expected along the way. In anticipation of the imminent release of the research report, some key findings as follows have emerged that should be of interest to local CFOs:
1 The survey reached 444 respondents across all industries and from every corner of the globe (including South Africa!)
Playing a greater strategic role
It should come as no surprise to CFOs that their peers are expecting finance to play an even greater role in future. Consultants have been preaching the gospel of “business partnering” for many years and we have seen the demands on our local finance teams increase exponentially during the recent downturn.
More than ever before, boards are less interested in the “score” and more focused on the “vision”. Questions like “What will the impact on our bottom line be if the Rand continues to remain stronger than we had anticipated during our budget cycle?” generate a flurry of activity in the finance function. Hours are spent re-calculating and re-consolidating business unit forecasts, and many a finance team member has wondered how he ended up becoming so proficient at Microsoft Excel.
CFOs have also realised that systems and process improvements alone will not allow them to play this broader role. As one South African CFO that took part in the survey put it: “The people we hire are excellent accountants, strong in governance – but they can be hopeless at conceptual or analytical matters and decision support services”.
Clearly, the successful finance professional of today needs more than a strong grasp of IFRSs. In our interaction with finance functions, we have noticed a growing trend towards developing the “whole” professional. Many leading organisations are creating formal programmes to grow and develop talent internally. These organisations typically start the journey by developing career frameworks that are aligned to business' needs.
These frameworks define both the technical skills and behavioural competencies required for each role in the finance function. (In addition, they clarify the career path of the ambitious finance professional.) Once the skills and competencies have been defined, it is a matter of assessing the team's current skills against the required set and developing programmes to close the gap. Skills development interventions often include temporary assignments to “operations” to encourage greater understanding of the business. Changing the mix of skills by bringing in a larger contingent of business analysts rather than financial accountants, for example, or selecting new employees based on their technology backgrounds and familiarity with existing systems, can also prove valuable.
Addressing process weaknesses
Fewer than 40% of the organisations that participated in the international survey were satisfied with their existing methods for planning, budgeting and forecasting. This is of particular concern in light of business' need for forward-looking information. Our local research conducted in 20102 indicated that nearly 75% of respondents believed that improved budgeting and forecasting would enhance the overall financial performance of their organisations, but almost half were dissatisfied with their existing budgeting skills.
2 Improving financial performance in 2010 and beyond
The downturn brought inadequate budgeting and forecasting skills into sharp focus - before the downturn our local surveys indicated that fewer than half of organisations believed improved budgeting and forecasting should be a priority.
Improving these processes in a volatile environment is often easier said than done. In fact, our experience shows that the planning, budgeting and forecasting process, is often the most difficult process to improve. Sophisticated budgeting and forecasting tools are certainly enablers of an improved process, but budgeting and forecasting should never be regarded as a purely mechanistic exercise. The value of finance professionals with a deep understanding of the business (and the key drivers of the business) should not be underestimated.
Participants in the survey generally rated processes that are directly under the control of finance higher than those that span multiple functions in the organisation. Fewer than a third of finance functions regard the order-to-cash and procure-to-pay processes as strengths. In our experience, organisations that follow a centralised “command and control” approach to these processes, are often more successful.
Driving collaboration between finance and the business
I once interviewed the CFO of a blue-chip JSE listed company and asked him what he believed the CFO's most critical role was in an organisation. Without a moment's hesitation, he said it was to “play an integrating role” within the executive tier. This CFO clearly understood the need for collaboration with the broader team. To quote Charles Darwin: “In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed.”
The CFO Survey highlights a growing trend among finance personnel that have begun to realise that their relationships with other functions (including human resources, IT and legal) are in need of improvement. In fact, fewer than 40% of survey participants rated their relationship with IT as a strength. If one considers the crucial role IT needs to play in enabling finance to fulfil the role of “visionary”, improving this relationship should be a clear priority for finance in the short term. As the finance director at a large South African manufacturer said: “Financial reporting, planning, and budgeting require investment in systems, training, and also the involvement of the different areas in the value chain to get relevant and meaningful business performance information to be automated”.
The evolution from scorekeeper to visionary is not an overnight exercise. It requires careful planning together with balancing of the efficient with the effective, risk and reward, incremental change and disruption. Or, to (mis)quote Bela Bartok “In finance there are only fast or slow developments. Essentially it is a matter of evolution, not revolution.” asa
To access a copy of Improving Financial Performance in 2010 and beyond, visit www.kpmg.co.za.
Therese Cilliers CA(SA) is partner for Finance Transformation at KPMG and a member of the KPMG International Working Group collaborating with CFO Research Services.
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