Finance Must Evolve To Meet the Challenges of a “Perfect Storm”

There are big rewards for those who successfully make the transformational journey.

Finance organizations within global corporations face mounting pressures and increasing complexity in meeting external and internal reporting, budgeting and planning requirements.  Heightened scrutiny and financial regulations, more diversified business portfolios and complicated corporate structures, increased competition and market change, and greater economic uncertainty—these and other forces are creating a “perfect storm” for finance.

Yet out of this cauldron of rising demands and complexity, progressive finance leaders see a big opportunity to evolve their organizations and improve the value they deliver to management and other stakeholders.  Achieving that evolution will require finance teams to rethink financial reporting and planning processes, adopt next-generation performance management platforms, and look outside of traditional skill sets for needed talent.

Those are some of the key findings of a recently completed study based on discussions with finance executives from global corporations in Europe and North America.  The findings offer a counterpoint to a variety of recent studies showing that CFOs and other finance executives have lost confidence in their financial reporting processes and see increased regulations as impediments to innovation and growth.

The study, entitled “Progressive CFOs: Inspired by What’s Required,” developed by the Business Performance Innovation (BPI) Network in partnership with Tagetik, a leader in global performance management software solutions.

Participants in the study agree that there is mounting pressure from both regulators and internal stakeholders to close the books faster and with greater transparency then ever before. Regulators and internal management want to react more rapidly to what is happening in the business in order to effectively manage risk and growth opportunities through the planning, forecasting and budgeting process, they say.

Meeting those demands has become all the more challenging with increased regulatory reporting requirements and structural complexities brought on by record mergers and acquisitions and increasing globalization.

“We and our competitors operate in multiple domains and in multiple countries with different regulations and standards,” says Luigi Albini, CFO of Tagetik.  “The multiplicity of businesses and the multiplicity of platforms they operate on certainly create challenges. For all of this to come together in a perfectly orchestrated way is a complex undertaking.”

“Today’s competitive environment is leading to more mergers and acquisitions,” he adds. “Consolidation becomes much more challenging with figures coming from different sources, different ERP systems, even from different accounting principals. This is the kind of issue the office of the CFO now must commonly deal with.”

Carole Cran, CFO of Aggreko, a U.K.-based global leader in the rental of mobile power and adjacent product solutions, also acknowledges the challenge. “I like to think of the current environment not necessarily in terms of complexity but rather in terms of increasing pressure both in a regulatory form and from end markets becoming tougher and more competitive. This increases the pressure on finance leaders to be able to report both quickly and accurately,” she says.

CFO and board confidence in the accuracy and compliance of financial reports declined precipitously last year, according to a global survey of CFOs by Ernst & Young. Among the findings of that survey, only 55 percent of respondents were either “somewhat” or fully confident in compliance, versus 84 percent just one year earlier.  Board confidence was even lower and also fell dramatically.

Even so, while recognizing the challenges they face, progressive finance executives also see the proverbial light at the end of the tunnel. This is a transformational journey, they suggest, and those who successfully make the trip will be in a far better position to help their businesses succeed in the marketplace.  For example, while regulatory demands are rising, some say those requirements are often better aligned with the way businesses themselves need to adapt their financial processes—integrating financial, close, consolidation, and reporting more closely with the strategic planning process.

Massimo Romano, Head of Integrated Reporting for Assicurazioni Generali, one of the world’s largest insurance companies, sees the changes taking place as an “Evolution of the Species” for finance.

“This is a very disruptive period, which means it is a fantastic opportunity to evolve,” he says. “The finance community is dealing with something that is incredibly new and difficult, but it’s an opportunity to grow our role from simple bookkeeping to something much more valuable. Yet all that is possible only if you evolve your mindset and your capacity to manage through a perfect storm.”

Romano and other executives see that evolution requiring the automation of more of the “have-tos” of the financial process, such as required reporting, so that they and their teams can spend more time working with business and functional leaders and performing more strategic risk analysis and planning.  They also say new forms of data analytics, beyond financial data, will increasingly integrate into the reporting and planning processes. Big Data from connected equipment and processes, for example, will increasingly be used to predict maintenance and capital costs and perform more accurate budgeting. That, in turn, will require finance teams to bring new skills and capabilities into their organizations.

“As the CFO, I need the confidence to know that our reporting is accurate, easily segmented and analyzed, and agile. This is especially true now, when we are seeing an evolution in the skill set of financial leaders with an emphasis towards analytics. Financial teams can no longer be simply accountants. We need to be able to analyze data that extends far beyond the traditional requirements of finance,” says Cran.

The adoption of next-generation financial performance management systems will almost certainly be a requirement for the evolution of finance, these executives say. The adoption of modern and agile performance management systems will enable finance to more cost-effectively and confidently meet regulatory reporting demands, while also providing the capacity to provide better forecasting and analytics to help direct the strategic course of the business.

The study finds a wide range of benefits to organizations that are implementing new performance management systems. These benefits include:

  • Dramatic reductions in financial close and reporting times
  • Improved confidence and transparency in financial reports
  • Increased time and resources available for detailed analysis of results
  • Greater capacity for planning and forecasting, including rolling forecasts
  • Better integration of disparate data sources and systems
  • Reduced attrition and strain within finance teams
  • Improved involvement in and use of financial reports by internal stakeholders and business units

Explains Rob Fenne, managing director of accounting at Randstadt Holding, the global human resources consulting firm and a Tagetik customer: “Gone are the days of manually sorting through information in a massive Excel spreadsheet. An integrated reporting system generates all the required information through standardized reports, and creates clear transparency in terms of timeliness and quality of financial reporting as reported by the operating companies. The ability to pull ad-hoc reports increases not only reporting capabilities, but the time in which it takes to segment and analyze financial reports. We can easily pull reports on organic growth, revenue growth, gross margins, development with and without acquisitions, etc. This allows us to exchange and compare analytics and financials quickly and easily. So when it comes to business agility we have increased our functionality greatly.”

Finance transformation within global organizations is well underway in 2016. The challenges may be intensifying, but to progressive CFOs and finance executives, so are the rewards.

 

Dave Murray is Director of Thought Leadership at BPI Network.