Most of the world's chief financial officers (CFOs) plan major changes in response to the new economic climate.
This is according to an IBM study of over 1 900 CFOs and senior finance executives from 81 countries and 35 industries worldwide, which reveals that more than 60 percent of CFOs plan major changes.
CFOs and senior finance executives believe the already intense pressure on three fronts — reducing the enterprise cost base, making faster, more accurate decisions and providing more transparency to external stakeholders — will increase dramatically over the next three years.
The IBM study is the largest sample of CFO sentiment during the worst economic downturn in decades. As part of the impetus for change, Study participants ranked “providing inputs into enterprise strategy” number one when asked what was most important. Surprisingly, cost reduction was not at the top of the CFO agenda. However, they also revealed a major gap in organizational effectiveness, as only 50 percent feel their Finance organisations are currently effective in providing the necessary business insight to support these broader enterprise priorities.
“Never before has the importance of strong Finance capabilities been highlighted more than during the recent global economic downturn,” says William Fuessler, global leader, financial management, IBM Global Business Services. “Our study shows that CFOs are expected to provide fact-based leadership and strategic decisions grounded in sophisticated analyses to help navigate the enterprise through these new economic waters.”
Since IBM’s first CFO study in 2003, CFOs have continually stated their aspirations to shift more focus to analysis and decision support, however few have made significant progress shifting the workload. Among Finance’s effectiveness gaps, the largest is in the area of driving integration of information. CFOs’ responses indicate this is a major enabler for practically every area of business insight, but, at the same time, show just how difficult this kind of integration is to accomplish.
One group of CFOs, dubbed “value integrators,” were found to consistently outperform their peers in all key financial metrics by driving two key qualities across their organisation:
* Finance efficiency – The degree of common process and data standards across the organisation;
* Business insight – The maturity level of finance talent, technology and analytical capabilities dedicated to providing business optimization, planning and strategic insights.
Value integrators have found a way to excel and navigate an uncertain economic climate. The study indicates that enforcing process and data standards, integrating information and applying business analytics are key capabilities that enable improved business insight and risk management.
In fact, when compared to their peers, their enterprises outperform on every financial measure assessed, including return on invested capital (ROIC), revenue growth and EBITDA.
Since value integrators enjoy proportional representation across various dimensions of the data sample, their performance signals better practices and is not just a consequence of industry, geography or company size. Their finance operations reflect a pervasive corporate philosophy that encourages integration across functions to make smarter decisions that lead to better overall performance.
Many CFOs feel their finance organisations are more comfortable providing “tail lights” rather than “headlights.” With the appropriate analytical capabilities spanning process, technology and talent, results of the study indicate finance can turn this wealth of financial and operational information into business insights, where decisions are no longer made on intuition, but are fact based.
Many respondents indicated that these capabilities can help finance uncover correlations among seemingly unrelated pieces of information and find patterns nearly impossible to detect manually. In many ways, finance’s persuasiveness as strategic advisor hinges on having superior business insight capabilities.