Even in the best of times, Chief Financial Officers (CFOs) have several challenges to deal with. In the recent past, Sarbanes-Oxley compliance put a huge strain on the CFO community. The requirement to file financial statements in accordance with International Financial Reporting Standards (IFRS) brought about another challenge. To top it all off, the economic crisis hit, placing several additional, sometimes opposing or counter-acting demands on the CFO.
Almost immediately, CFOs had to get their arms around the direct fallout from the crisis. Many CFOs were challenged with keeping their companies' finances moving as their long-standing banking partners were failing, or at risk of failing. Others had to manage liquidity in an environment in which easy money dried up almost overnight. As the crisis progressed, CFOs had to look into their crystal balls to forecast the impact of the recession on their financial statements. Several CFOs had to wield the axe, working with senior management team to ruthlessly cut costs to make the business survive.
In November 2009, Oracle conducted a global survey of CFOs to understand how they were addressing these challenges—what their priorities were, what they saw as the key impediments to doing their job, and what they were doing to find solutions. The results were illuminating, and often surprising.
CFO Priorities The CFOs surveyed overwhelmingly (82 percent) agreed that improving financial visibility and enhancing decision-making support to the business was their top priority. This is understandable, given that the financial crisis placed unprecedented demands upon CFOs to explain their company's investments and their exposure to complex derivative instruments, and to reaffirm the financial position of their business. Internally, CFOs were called upon to provide significantly enhanced and actionable management information, covering both operational and financial items.
The next highest priority item for the CFOs (66 percent) was to provide the right tools and support to their management colleagues in order to manage the business through the recession. In many cases, this took the form of budget revisions, rapid forecasting and scenario planning.
Unlike in previous crises, spending control didn't figure at the top of the CFO agenda. This was probably due to the fact that most organizations already had reasonable spend management and monitoring procedures in place.
Finally, a third of the CFOs indicated that their top priority was around strategic finance activities, including mergers and acquisitions, indicating that these companies had weathered the storm well, and were aggressively planning for the rebound.
The Key Impediments Given that financial visibility was the top priority for the CFOs, it is no surprise that 71 percent of the CFOs rated an inability to model financial information contained in various financial systems and sources, and to pro-actively understand emerging patterns, as the top impediment to doing their job.
The reasons for this seem clear, and are also corroborated by the responses in the survey. Firstly, the fragmentation of financial systems throughout the enterprise continues. Two-thirds of the CFOs identified multiple, heterogeneous financial systems across different parts of the business as an impediment. This results in too much manual handling and reworking of information (59 percent) and an inability to execute a full business process through the systems (53 percent).
Secondly, the fragmentation of systems leads to poor data quality (65 percent), and in turn, an inability to trust the financial information available for decision making (59 percent).
Finally, most companies (65 percent) continue to have limited alignment and integration between their operational systems (e.g. Enterprise Resource Planning, Customer Relationship Management, Supply Chain) and financial systems (e.g. Financials, Management Reporting). This makes it very difficult to drill down and analyze business performance at sub-organizational levels (59 percent), and to get the relevant information in time to take corrective business actions before issues become critical (65 percent).
The Top Solutions CFOs reported undertaking a wide variety of actions to solve these issues. Although the actions vary widely depending on the company, there was a surprisingly high alignment on a number of the actions.
The vast majority of CFOs (82 percent) were re-engineering their budgeting process. All aspects of the process including budget setting, actual reporting, and variance management were being reviewed and enhanced. This is understandable, given that CFOs rated supporting business through the economic uncertainty as one of their top challenges.
Equally prevalent was a review of the financial processes. Eighty-two percent of the CFOs reported having undertaken streamlining and re-engineering of finance processes across the enterprise. We believe this highlights the continued pressure, made even more acute by the recession, of making finance processes—especially those related to budgeting, management reporting and financial analysis—more flexible and responsive.
Furthermore, 76 percent of the CFOs were working on integrating their financial information with the operational information to help management get a clear picture of the financial impact of operating decisions. This was being accompanied by several actions; the key ones were:
aligning the financial plans with the operational plans (76 percent)
Developing role-based dashboards and providing real-time Management Information (65 percent)
Redesigning existing management reports to better meet user needs (53 percent)
Clearly, success in the above initiatives requires critical IT support. CFOs are acutely aware of this—corresponding IT initiatives ranked equally high. Seventy-six percent of the CFOs reported that they were consolidating, rationalizing and integrating their disparate financial systems.
Finally a note about the actions that were not high on the CFOs' priority lists. Increasing offshoring/outsourcing of non-core finance activities ranked the lowest (18 percent), followed by reducing finance headcount (29 percent). This is consistent with CFOs reporting that finance cost reduction ranked only as their number three priority, significantly behind improving financial visibility and better decision making.
The CFO's Relationship with the CIO is... Evolving! Finally, we asked the CFOs about their relationship with their organization's Chief Information Officer (CIO). The results indicate that this is an area with significant potential for most CFOs—as well as CIOs. The biggest area of alignment between CIOs and CFOs was a common sense of urgency in implementing technology strategies (35 percent). However, the CFOs and CIOs don't seem very well aligned on how to leverage technology to meet strategic goals, with only 18 percent of CFOs indicating a high degree of alignment. No wonder that the degree of shared ownership between CIOs and CFOs for chosen technology strategies seems low (only 24 percent).
The economic crisis has made the role of CFO even more challenging. CFOs seem to be responding with clearly laid out priorities, and a deep understanding of the underlying impediments. They are taking a clear set of actions, leveraging technology as critical enablers in most cases. While the relationship and alignment of goals between CFOs and CIOs leaves room for improvement, they both share the urgency of implementing the chosen technology strategies to achieve the desired financial and business results.
Sudarshan Roongta is a Senior Director with Oracle's Industry Strategy & Insight program, based in Zurich, Switzerland. At Oracle, he has advised clients such as RBS, Old Mutual, Credit Suisse, ING, Raiffeisen International and Lloyds Bank on various performance improvement opportunities encompassing CRM, procurement, and financials. Learn more about the Oracle Insight Program.