There are few business roles in an organisation that have been transformed as extensively as that of the Chief Financial Officer (CFO). Today, the conventional model of the CFO as chief accountant or bookkeeper primarily focused on the firm's financial statements and capital structure is outdated and irrelevant.

The modern CFO is expected to be an adviser, scorekeeper, operations manager, team leader and strategist. They have to juggle donning these hats while ensuring their organisation's survival and expansion, and face internal, public and regulatory scrutiny that was once expected only of Chief Executive Officers (CEOs).

KPMG's latest Global CFO Research, "Being the best: Inside the intelligent finance function"1, shows that the journey of a finance function to becoming "best in class" in terms of operational efficiency, business support effectiveness and the ability to add real value to their organsations is often complicated by many challenges. Externally, it includes the challenges of rapid globalisation, increasing competition, new rules and regulations, disruptive technologies and the continuing fall-out from the last global financial crisis.

As if the external environment did not provide enough of a challenge, internally, there are pressures from a shortage of skilled finance staff, increasing organisational complexity, outdated IT systems and budget constraints.

 

Forbes CEO survey

A recent Asia-Pacific-wide survey jointly conducted by KPMG and Forbes Insights2 surveyed 178 CEOs, business owners and company chairmen from large Asia-Pacific-based companies on the performance of the finance function and the changing role of its leader, the CFO.

Interestingly, 72% of CEOs from high-performing companies believe that the role of the CFO will increase in importance over the next three years as compared to other C-suite roles.

On the other hand, almost one-third of the polled CEOs said they were unhappy with the performance of their CFO and a whopping 80% think that their CFOs could and should do a better job of managing their teams.

So it seems there is a growing expectation gap between CEOs and their finance chiefs, many of whom they regard as "lost in the numbers, mired in regulatory minutiae, distracted by the daily demands of different compliance, tax and financial requirements". This suggests a growing need for CFOs to rethink their priorities and underlying motivations and skills.

 

A need for strategic partnership

KPMG's 2014 report1 concludes that CFOs need to drastically redefine their traditional finance operating models, the objective being to deliver faster, more accurate reporting and insightful analysis while at the same time safeguarding compliance, managing risk and reducing cost. This is indeed a delicate balancing act that requires the CFO to be a trusted business partner rather than just a diligent scorekeeper.

To be able to achieve this transition, the age-old finance pyramid model, where much time and attention is devoted to the "basics" such as financial operations (50%) and financial reporting and control (30%) – and less to financial performance (20%) – needs to be turned on its head.

Today's leading practices tell us that these key finance activity ratios should be inverted, in a 20:30:50 ratio respectively, so that more strategic, value-adding finance activities can be undertaken and the less value-adding finance activities can be standardised, automated and even outsourced.

At the same time, the finance pyramid should also become smaller in terms of the overall number of finance resources that are required to run the finance function, so the finance team can devote more energy and time to support activities for the business, enabled by more sophisticated Enterprise Performance Management (EPM) tools and enhanced data analytics.

 

Finance Target Operating Model

So what does a world-class finance function look like, and what does a transformation into an "intelligence finance function" entail in practical terms?

The transformation journey starts with the creation of a comprehensive Target Operating Model (TOM) for the finance function, underpinned by a clearly defined finance vision that is aligned with the overall business strategy. It needs to take into account the existing organisational culture, finance processes and systems limitations. Six areas need to be considered to create a fit-for-purpose Finance TOM:

• Services how the services (such as financial reports) that the finance function offers need to shift from being internally focused to becoming a value driver for the organisation;

• Organisation How to govern the finance function and how the different departments within a finance function need to be integrated, moving away from operating in silos;

• People Finance teams need to become business partners rather than scorekeepers, which requires upgrading of skills and embracing cultural change;

• Processes Where possible, these should be standardised and optimised as opposed to being customised for different business units;

• Technology Implementing a central data repository model with integrated finance systems, and dealing with incompatible systems and legacy data models;

• Location Looking beyond merely decentralised processing of information towards strategic sourcing for finance operations through finance shared services and outsourcing.
  

An intelligent finance function

Depending on the maturity of the current finance function and how far along it is to becoming an intelligent finance function, our research and experience suggest that these are the most important steps going forward, once the Finance TOM has been established:

• Establish clear objectives and roadmap
  A well-defined Finance TOM not only defines the future state of the finance function but also offers a clear road map how to get there.

• Engage broadly with partners across the business
  It is important to communicate with stakeholders across the company to align finance's strategic goals with those of the business'

• Set realistic goals and timelines
  Ensure that the transformation is done in manageable steps, with clearly defined work-streams and reasonable timeframes that allow for flexibility.

• Lead with a clear "tone from the top" with a strong commitment from the CEO and CFO and, if necessary, the whole board and all executives in charge of other business units that stand to benefit from the transformation.

• Develop a transparent governance framework with clear roles and responsibilities and manage expectations judiciously.

• Build and manage the project's "brand"
  Develop tailored change-management communications highlighting incremental progress made, and sharing early successes.
  
  
• Manage talent during the transition
  Finance teams need to have the right number of finance professionals and the right mix of skills and experience at every step of the transformation journey.
  

A successful finance transformation calls for the CFO to become a steward of change. This will see CFOs assuming leadership roles as agents of change through the adoption of best practice, as gatekeepers who enforce governance and risk management, and as drivers of growth who help deliver value to the business.

Understanding and executing this transformation journey well will enable the CFO to support business growth, stimulate expansion and diversification, and resolve unforeseen concerns before they become real issues.

The article is contributed by Martyn van Wensveen is Partner at KPMG in Singapore and Global Leader for Financial Management. The views expressed are his own.

1 "Being the best: Inside the intelligent finance function", KPMG 2014, www.kpmg-institutes.com/institutes/advisory-institute/articles/campaigns/being-the-best-intelligent-finance-study.html
2 "The View from the Top: CEOs see a powerful future for the CFO. Are CFOs ready for the challenge?", www.forbes.com/forbesinsights/kpmg_cfo_asia/index.html