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BearingPoint

CFOs today are expected to manage the tasks of tracking and reporting accuratedata while also acting in the role of corporate leader.

Organizations today are at a crossroads with what to expect from their finance function. While there is value in adding analytical thinking and strategic financial support to all decision making, there is also a demand for accurate and timely financial reporting that doesn’t result in a financial “restatement” or, even worse, land the organization in a headline-making financial scandal. The role of finance is multidimensional, with competing priorities. From acting as a strategic partner with the business and proactively managing risks, to delivering timely and accurate financial reports and providing the needed information and analytics to manage the business, the office of the CFO has never been more complex.

Master the Art of Balance

The finance organization has spent the last decade in reactive and recovery mode.

The spiral started at the turn of the century with Y2K fears, then quickly turned to the dot-com bubble bust. Just when the economic outlook seemed brighter and enterprises had a chance to retool and prepare for growth, on came the financial scandals. The scandals were quickly followed by Sarbanes-Oxley, Basel II and similar regulatory mandates, turning the entire finance community upside down.

This shift back to the basics has resulted in some elements of the CFO’s responsibilities lying dormant, as traditional accounting, compliance and pure financial reporting moved front and center. Strategic initiatives driven by finance that were being considered or were already in process stalled out because compliance mandates required refocusing resources to basic blocking-and-tackling activities.

As organizations now try to stand up and dust off, finance is once again looking beyond the basics and re-evaluating its strategies for driving value within the organization. Most CFOs have been neglecting their biggest challenge: promoting the value equation throughout the organization. They must address this question, as they can no longer focus solely on the tactical aspect of their role. It is critical to the success of the enterprise that the CFO’s office learns to balance the “day job” of tracking and reporting accurate and quality data with the leadership activities expected of today’s CFO and finance organization. Without this, the businesses they serve will be at a severe disadvantage.

CFOs must learn to master the balancing act between business excellence and business execution. There are two major elements within this balance that are essential to the success of finance now:

• Finance must lead the organization in maximizing its return on investment in order to help drive value.
• Finance must support the organization by identifying sustainable growth opportunities through promoting innovations and helping to ensure that innovations can be identified, tracked, managed and measured.

To explore this balance, in 2006 BearingPoint and IDC surveyed 153 CFOs within large enterprises (most with more than 1,000 employees) to gain perspective on the current and future states of the finance organization. To establish a global view, nearly a quarter of the respondents were from organizations outside of the U.S. From an industry perspective, manufacturers represented the largest share at 18 percent, followed by financial services firms and public sector organizations.

360° View of Finance – From Finance
What do CFOs see as the role of their finance organizations, and how successful have they been in fulfilling their goals and responsibilities? Relative to a few years ago, CFOs have begun to embrace the evolving nature of their functions and have taken meaningful steps to change their businesses. Yet there are also indications that their perception of success may be a bit misguided.

As shown in Figure 1, the most important priority within the finance organi-zation is to act as a strategic partner to the senior business executives. Closely following are the desires to provide analytics to support decision making and to have standardized and consistent financial processes.

The activities in Figure 1 can be organized into three fundamental roles for finance (see Figure 2). These roles represent the pillars on which finance can maximize potential for the enterprise.

The Role of the Strategic Partner
More than ever, CEOs and enterprise stakeholders are looking to their CFOs for significant contributions in the areas of strategy development and implementation and growth opportunity identification. This is a major departure from the CFO’s traditional function as “traffic cop,” curtailing expenses and managing the accounting processes. While on one level the CFOs interviewed are trying to embrace their role as a strategic partner, the fact that they ranked “accurately reporting quality data” as the second-most important ability suggests that they are still heavily focused on these basic financial responsibilities. This focus continues to be necessary given the onslaught of regulations and notorious business scandals in recent years. Thanks to the resulting pressures around reporting and transparency, CFOs are responding to this new era of corporate accountability with a continued focus on the need to report information accurately and efficiently.

The high importance placed on “providing analytics and management reporting” and on “maintaining standardized, sound and consistent financial processes” is further evidence that CFOs appreciate the evolving direction of their responsibilities. Properly functioning financial processes ensure better data to fuel the analysis and management reporting needed for decision making. Ultimately, these efforts can help the company meet its stated goals.

Strategic Partner – Catalyst for Change
A troubling find in the study is that finance executives may be underestimating the definition of a strategic partner. Low importance and success rankings on “imposing financial discipline throughout the enterprises’ operations and other back-office functions” suggest that CFOs have yet to acknowledge the need to be a catalyst of change for the company. Providing insight for and taking part in the strategic planning activities of the company are part of their charter, but it doesn’t stop there. And it also doesn’t stop at the boardroom or with the most senior executives. Finance leadership and managers must work to educate the entire company on the important aspects of financial decision making. The finance organization cannot be everywhere at once and cannot do it alone – the entire organization must participate in the process.

The Dynamics of Change

All of the diverse concepts related to the CFO function – financial transformation, enabling ROI, promoting innovations and shaping financial discipline throughout the enterprise – share a common trait: They require implementing, balancing and embracing change. Regardless of how entrepreneurial or flexible an organization is, it is still a social system that is rooted in culture and history, which become particularly important when introducing new ways of thinking. CFOs must undertake this challenge or the stakeholders they serve will be at a competitive disadvantage.

Competition, adapting to new business models, inventive methods of managing the supply chain and globalization are forcing organizations to increase flexibility and measure their organizations differently. Figure 3 summarizes some examples of these market dynamics. External factors, such as the globalization of business, have exacerbated the need for holistic views of customers and worldwide operations.

Meanwhile, internal issues, such as a merger or divestiture, can bring sweeping changes to an organization and an opportunity to revisit, re-examine and potentially re-engineer existing processes and structures. From every direction, CFOs are feeling the pressure.

CFOs have had to overcome multiple obstacles: business challenges, economic hurdles, technology mishaps, regulatory changes and more. Now they are feeling the pressure to transform their organizations from outside the finance department. In fact, the No. 1 driver of transformation initiatives is the demand for better information and business insights from the other business units. As a result, CFOs and finance executives in all types of organizations are under increasing pressure to deliver value-added services to multiple constituents at the lowest possible costs. In order to meet these demands and support business unit constituents optimally, finance executives must shift their mind-set and be prepared to work closely and openly with other business units.

Why the CFO?
CFOs are uniquely positioned to help the organization navigate through the current business environment, championing enterprisewide efforts and taking action. They sit squarely at the heart of the business and have the most extensive knowledge of all its financial aspects. They are also closest to the planning process, making them acutely aware of the link between business strategy and tactical plans for executing the strategy. The combination of deep financial acumen with knowledge of the organization’s strategy makes an intriguing and potentially powerful union.

Finance executives take a disciplined approach to just about everything they do, and many projects can benefit from this skill. Consider innovation, for example. Thus far, the role of the CFO in innovation has been ill-defined, but that is likely a by-product of the fact that the innovation process itself is often not formally defined, identified, managed, tracked or measured on a regular basis. Innovation is a critical step to unlocking growth opportunities, but despite its significance, many organizations do not take an active and structured approach to managing it, nor do they have a systematic method to monitor its results. Finance resources can bring discipline to the undisciplined innovation process.

A Detailed Look Across the Enterprise
Implementing changes of this nature and magnitude will require a fundamental culture shift that may take years to foster while also stimulating growing pains and friction. Yet future opportunities for enterprises are dependent upon the CFO’s ability to make this evolution. Triggers for such monumental change are quite often related to new leadership or business models and economic drivers. Because these triggers on their own can cause constituents to feel threatened or anxious, leaders must take excruciating care in communicating the vision.

In addition, the finance organization should act as a role model on how to encourage cross-departmental and cross-organizational teaming. Improving relations with marketing, information technology and other functional teams â€“ through coordinated initiatives, integrated performance management strategies and so on – will enhance the overall enterprise force. Additionally, having complementary objectives and agendas among all of the C-level executives within an organization will increase momentum and ensure consistency both in vision and communication.

First Steps

For those who are thinking about, or are about to embark on a transformation of finance, consider the following counsel on how to get started:

1. Align the strategy of the finance organization with the strategy of the enterprise; ensure the goals of the enterprise are directly linked to what the finance organization will deliver.
2. Conduct a review of the finance organization’s current activities and capabilities, both within and outside its own function, and evaluate against the business strategy.
3. Do the homework – assess the data, evaluate the gaps and build the business case necessary to minimize the gaps.
4. Get internal and external perspectives and validation on the business case where needed, secure support of senior leadership to ensure commitment to action and funding and secure the necessary resources.
5. Communicate goals, progress and results openly and actively; commit the time necessary to encourage and reward participation; celebrate milestones.

CFO Checklist
The following are practical steps that CFOs and finance executives can implement immediately in order to align the finance organization’s priorities with enterprise goals.

• Don’t underestimate what it means to be a strategic partner. Recognize that nonfinancial data and metrics – centered on customers, products, markets and processes – are critical elements of how executives outside of finance implement their strategies and manage their operations. Lead the executive suite to develop and integrate nonfinancial metrics into business intelligence activities, and improve the linkages to human capital and team performance. Educate the entire organization on important aspects of financial decision making, leveraging both financial and nonfinancial indices.
• Find ways to optimize costs.Explore opportunities by leveraging the planning and budgeting cycle to identify cross-divisional and cross-functional saving opportunities. Enhance cash forecasting and cash management activities, and look for opportunities in procurement, billing, accounts receivable and collection processes.
• Lead process articulation and enterprisewide standardization.Drive this effort both within and outside of finance to maximize organizational efficiencies, improve quality and further reduce costs. Focus on standardizing and automating transaction processing, routine activity and other noncore competencies, and position the organization to further leverage shared services, as well as outsourcing opportunities.
• Support growth by bringing discipline to the undisciplined process of innovation. Provide useful process components and metrics to allow “good ideas” time to generate results and to cut off investment in “bad ideas” at the right time. Accomplish this through improving analytics, and by defining and implementing a process to track, monitor and measure results. Coordinate with other departments and business units to fully engage all parties in the process.
• Proactively assess and manage broader business risk.As the organization implements growth strategies, it will face a much more complex set of risks. Take part in developing organizationwide processes for identifying and managing not only financial risk but also in areas such as strategy, operations and organization.
• Train the finance staff on the evolving role of finance. Instill in the finance team the importance of bringing financial discipline to all business processes and operations, as well as approaching activities both from a financial and business perspective.
• Embrace the role of catalyst for change, and work across the C-suite to promote and sustain change. Take the lead, and counsel, collaborate and coordinate among executives to develop and execute a change plan that has support and buy-in. Acknowledge this as a requirement and recognize the importance of identifying changes that will positively impact both return on investment and return on innovation. The successful CFO and finance organization are able to effectively balance all competing priorities, and do so with a focus on those aspects which drive the highest degree of value within their individual organization.

The complete study findings are available at www.bearingpoint.com/cfostudy. Source: Customer research conducted by IDC, sponsored by BearingPoint, 2006.