CFOs face multiple challenges in bid to build “vi... | KPMG | UA

CFOs face multiple challenges in bid to build “visionary” finance functions, finds new survey

CFOs face multiple challenges in bid to build “vi...

Rising demand from top management for high quality insight and advice Complexity, relationships, IT issues and skills shortages are widespread problems Better forecasting a key aim

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    30 March, 2011


    The demands of modern globalized business are forcing finance departments to transform themselves from efficient managers of transactions into “business visionaries”, providing boards with insight into true performance measures and guiding corporate investments and cost control decisions, says a new study from KPMG International and CFO Research Services.


    But problems with inflexible systems and tools, difficult internal collaboration structures and lack of appropriate skills, combined with the sheer complexity of modern organizations, are preventing good progress for many finance functions.


    These insights come from A New Role for New Times, a survey of nearly 450 senior finance professionals in large companies throughout the world, carried out by CFO Research Services in collaboration with KPMG’s global Financial Management practice.


    Nearly half of the respondents reported that their departments were playing a greater role in strategic decision making now than 5 years ago, and 62 percent said they expected this role to increase still further between now and 2015.


    Much of this change in role is being driven by the widespread consequences of the merger and acquisition boom of the years leading up to 2008, and the financial crises that followed.


    “Many respondents told us that they were dealing with much more complex organizations than in the past, and that an important part of their work now involves helping senior colleagues to understand the implications of this new complexity for the profitability of the company,” said Jochen Pampel, global leader of KPMG’s financial management practice and a partner in KPMG’s German member firm.


    “But the role now goes beyond just explaining. One Chief Financial Officer (CFO) in the US told us that a key role of the CFO today is anticipation of the key factors that move the business. He said that the finance function has to be “a visionary of the business, not just a ‘storyteller.’”


    Developing the ability to provide this insight is not proving to be a straightforward task.


    Executives give themselves high marks when it comes to processes that are internal to finance, including treasury activity, general accounting and financial reporting, and risk management activities. They are less confident with planning, budgeting and forecasting, where nearly a quarter regarded these as weaknesses.


    While survey respondents say they will seek to improve their capabilities for planning, budgeting, and forecasting, they also acknowledge that these processes are often the most difficult to transform.


    “A common problem,” said Mr. Pampel, “is that planning and budgeting involves the entire organization, but finance is not always seen as the leader of this process. Finance professionals may be acting as coordinators, but they often have difficulty bringing people together to change what are naturally highly political processes.”


    Improving these systems is made difficult by perceived problems in working with other departments. Only 43 percent of respondents thought that their own department’s ability to support major business decisions such as mergers and acquisitions was a strength, while approximately 40 percent cited as a strength the quality of their work with other administrative departments or the IT function.


    Difficulties with the IT function are a particular concern, since this seems to be the area which requires most work. Many respondents were concerned that their financial systems are not evolving fast enough to meet the changing needs of the company, describing their current systems as “antiquated”.


    “A key aim for many finance departments is to link strategic planning and rolling forecasting to improve investment decisions and cost control.” said Mr. Pampel.


    “But where the financial system infrastructure does not provide accurate, up-to-date and consistent information on all parts of the business, this is very difficult to do. A great deal of the work we see today in finance departments is directed at putting financial reporting onto a single, up-to-date platform across all parts of the business, particularly after a merger. Stories of major difficulties in this process are common.”


    CFOs also reported problems with finding the right people to staff their departments. One South African consumer goods company CFO said, “The people we hire are excellent management accountants, strong in governance. But they can be hopeless at conceptual/analytical matters and business decision support services.”


    Some companies have chosen to split the business support role out of the accounting department and run it as a separate part of the finance function. But others have found that this can lead to “silo thinking” and a sense of isolation between the accounting team and the business advisers.


    “We are finding that traditional skills are failing to match the requirements of a transformed finance function.” said Mr. Pampel. “There are many opportunities open to people able to match accounting skills with insight and good communications, but they are hard to find.“


    The core message coming out of this research and KPMG’s work with clients is that finance functions need to embrace a change of culture if they are to meet the demands placed upon them. Changing economic conditions are continually expanding the information and analysis that top management requires from finance, and the strategic tasks that flow from them.


    To meet these needs, finance functions are working to make themselves nimbler and better aligned with the company’s growth strategy. This is not a process that can be completed overnight.

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