The Hindu Business Line : Needed, CFOs who can turn information into insight

Business remains hungry for insightful information and the finance function should take a lead role in meeting that need. It is a mistake to believe that providing non-financial information is not the role of the finance function.

The role of the CFO (chief finance officer) has changed, but finance functions have not kept pace." With this disturbing quote of Scott Parker, Head of Financial Management, KPMG LLP, begins a recent report from the firm.

A great challenge for the finance function is to shed the image of being inward-looking, with a focus on `financial reporting and controls', and instead spend `more time focussed on strategic decision-making and value creation,' states the report titled `Being the Best'.

That top performers in finance spend less time on cost control and more time on decision support is the first of the key findings of the report, which is based on a global survey of nearly 300 finance executives conducted by the Economist Intelligence Unit. In contrast, `almost 80 per cent of CFOs at average performing companies in the survey see cost control as a major part of finance's role.'

A single version of truth

The second finding is about two main areas that need improvement, viz. forecasting and management information. Nearly one in two executives surveyed are not too happy with their ability to forecast, and with the quality of management information. "Tellingly, while most finance functions are using sophisticated IT (information technology) systems for transaction processing and financial reporting, they continue to rely on manual processes for forecasting and decision support activities."

What should be done, therefore? Upgrade and integrate legacy systems so the businesses can achieve consistent, accurate data that provides a single version of the truth, urges KPMG. "Finance executives need to be trained, not just to generate and consolidate financial data but to draw insight from it."

Take for instance Natura, a Brazilian cosmetics company, which uses `specialist skills within the finance department to better understand the behaviour of its 5,00,000-strong sales force.' This is how: "The company has been investing in business-analytics applications, in order to achieve a more rigorous analysis of the business and support the company's sales and marketing function. These quantitative methods and statistical analyses are directly provided through the finance function."

Business remains hungry for insightful information and the finance function should take a lead role in meeting that need, says KPMG. It is a mistake to believe that providing non-financial information is not the role of the finance function, notes the firm. "Finance is not seen as the natural `owner' of information pertaining to, for example, customer satisfaction, product and service innovation or investor perceptions." Wrong, the finance function is uniquely positioned to gather, integrate, analyse and disseminate such information with the same degree of integrity it does financial measures, avers the report.

Outsourcing vs shared services

The third finding is about an alternative to outsourcing, for achieving `new efficiencies': Shared service centres. These can increase cost-efficiency without some of the risks associated with outsourcing, advises the report. One learns that between 35-50 per cent of companies now handle their treasury management, financial reporting and transaction processing within a shared service centre.

"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," finds the survey. However, routine management reporting is expected to be a particular growth area in the use of shared-service centre, `as organisations seek to improve the quality of management information'.

With increasing regulatory requirements, compliance has gobbled up disproportionate time of CFOs. Three out of five finance executives in large organisations have said that regulatory compliance has absorbed `time that could have been spent profitably elsewhere'. It will be too wishful to expect regulatory baggage to reduce. What can be useful is to invest in `better information management and more robust standardised processes', to `release time for more value-added activities,' counsels the firm.

Contrary to common thinking, leading CFOs are not spending more time with bankers but with investors. "Leading CFOs espouse better forecasting techniques and the use of value-based management concepts and tools as a vital step forward in improving the quality of investor guidance."

Skills crunch

A worrying finding is that finance faces a skills crunch. Nearly 50 per cent of the companies surveyed say that recruiting finance employees `will be one of the biggest obstacles to transforming their organisations'. To compound their problem, the profile of the finance professional is also changing. How? "The new hires are expected to possess different capabilities focusing on softer skills such as communication, relationship management, change management and the ability to work in teams," notes the report. "They are also required to have more sophisticated analytical techniques and to be creative problem solvers."

One face of finance

The final finding is that companies must simplify and consolidate their global finance operations, which means, there should be `a single view of finance across the company'. How can this be achieved? "Instead of having multiple country CFOs acting with a high degree of autonomy, companies are empowering Group CFOs to take command of the global organisation," reads a best practice cited in the report. The much reviled SOX or Sarbanes-Oxley has apparently accelerated this trend, "as companies strive to impose standardised, high-quality processes and controls throughout the business."

One of the mini-cases in the report is about how Vodafone, the global mobile telecom giant, increasingly seeks to give one look and feel to management information across the enterprise.

The company puts more of its information in `a common format'. Chief Management Information Officer, a new position in the company, handles the challenge of `developing and implementing a consistent information architecture across Vodafone's operations (both financial and non-financial)'.

Work on a vision

Finance function too needs a clear vision and strategy statement, exhorts KPMG. For, without such a statement, the role of finance `is often misunderstood and undervalued', and vicious circle takes over. "CFOs who fail to articulate their role and demonstrate their value to the business find it more difficult to win the resources required to create a leading finance function."

Rather than `spending time questioning data and reworking spreadsheets', CFOs will need to `increasingly serve as an organisation's public face,' spending `increasing amounts of time marketing the organisation' and `presenting a variety of information to third parties'. The CFO will then be `a business partner to the CEO and to the senior management team'.

A report that merits an urgent read.

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