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We have entered what could be the most volatile and uncertain economic period in decades. The EU referendum vote has brought instability to financial markets and currency exchange rates, which has in turn driven many companies to revisit their strategies both domestically and abroad. In America, a hotly contested race for the Presidency could result in two very different destinies for one of the world’s major economic powers. To add to this, a growing sense of social unrest and political instability on a global scale has shaken market confidence.
Each company will proceed differently in this uncertain environment. Some will rein in their growth activities until conditions are more favorable, others will carry on pushing through the turbulence, and some will do only what is necessary to stay afloat. In all these cases, it is the CFO that will be responsible for ensuring the company can follow through on its plans.
The finance department’s unique skills and strategic insight make it the business’ nerve center, which is why CEOs will turn to their finance leaders to help guide their company in the coming years. This closer relationship will be both a burden and an opportunity for CFOs, who will need to maintain a cool head and keep the business on-course through the uncertainty ahead.
In all these cases, it is the CFO that will be responsible for ensuring the company can follow through on its plans.
Adaptability is the secret to managing the unexpected. While there is no way to truly predict the future, finance teams can help the business anticipate and plan for multiple scenarios so it can meet any eventuality with confidence.
Consider an automobile company that relies on an overseas supplier for its brake pads. Fluctuating currency exchange rates, changes to international shipping regulation and taxation laws, and shifting demand for the vehicles themselves may all affect this relationship. The exchange rate may rise drastically, in which case the car manufacturer could choose to work with a domestic supplier instead. Equally, changing regulatory restrictions could delay shipments which would cause shortfalls in supply if not addressed.
Preparing for uncertainty requires a more nuanced approach to forecasting and planning. It has always required CFOs and their teams to analyze internal company data alongside historical market data, data on suppliers and customers, and unstructured sources such as historical news events and demographic information. But now it is also become very important to factor in forward looking indicators to help predict the potential challenges and opportunities ahead.
It is as important that finance teams are able to model the company’s strategy against various scenarios and fine-tune it based on the best data available. This does not make the future more certain, but being able to quickly and accurately forecast how the company can best manage future challenges does make the unknown less daunting.
Forecasting and planning processes therefore need to adapt to the speed at which current markets are changing. Traditional manual processes and spreadsheet analyses aren’t suited to this, which is why finance teams are beginning to automate their planning and forecasting approaches. Automation not only allows for the rapid consolidation of data sources and predictive modelling, it also reduces the risk of human error that is inherent to high-pressure work with large data sets.
For a company to navigate uncertainty with success, the entire organization must operate in unison. A lack of communication between lines of business is a major barrier to forward momentum, and certainly to keeping up with the digital transformations currently reshaping virtually every industry.
This does not make the future more certain, but being able to quickly and accurately forecast how the company can best manage future challenges does make the unknown less
The finance department is the hub around which all the organization’s spokes turn. It is ideally placed to communicate the boardroom’s vision to individual lines of business, and more importantly to work with line of business leaders to see this vision through.
Finance teams are aware that a gap currently exists in this regard. Oracle’s research has revealed that nearly one third of finance leaders say a lack of alignment between their department and the wider business is standing in the way of change. Greater collaboration with IT is essential, with nearly three-quarters (73%) of finance leaders saying closer CIO-CFO alignment is important to achieving their company’s transformation.
To unravel new opportunities in uncertain times, the company’s leaders need to be able to move nimbly together. Making digital transformation happen isn’t a free-for-all; it requires a collective vision as well as buy-in across every department, from marketing to sales to HR.
As previously mentioned, manual systems are not fast or accurate enough for the demands of a modern business. There is perhaps no process where this reality hits closer to home than financial reporting. Without clear, reliable and timely reports decision-makers in the boardroom will struggle to keep the business on track in an uncertain and fast-shifting environment.
Making digital transformation happen isn’t a free-for-all; it requires a collective vision.
Oracle’s own research found that 60% of companies still use manual systems for financial close and reporting processes. This results in what seems an almost random regime of emails, phone and face-to-face conversations, in addition to a frustratingly unclear audit trail. In an organization with many arms and operating in multiple markets, the inefficiencies can multiply quickly.
With regulatory requirements set to become increasingly complex and shareholders expecting more frequent and accurate reporting, organizations must automate where possible. Automated processes have a clear audit trail and provide greater transparency and accuracy. This makes it much easier to keep the business on track while speeding up reporting by significant margins.
Amazon recently automated 16,000 monthly reconciliations after having previously used a manual system that was entirely spreadsheet based. Eighty (80%) per cent of Amazon’s reconciliation is now automated, allowing it to complete its financial close in just one hour.
There are strategic benefits as well. Greater visibility into reporting processes makes it easier for decision-makers in the boardroom to identify which parts of the business are most (or least) efficient and address these issues proactively. It also allows them to spot workflow bottlenecks and manage them more tactically.
The challenges ahead, both familiar and unknown, will require the finance function to expand on its traditional skillset. In addition to data crunching and reporting experts, CFOs will need strategic thinkers, data scientists, and people managers on their team that can play a more active role in every arm of the business.
Similarly, existing members of the finance team may already have the right skills and just need a new challenge to put them on display.
As with any part of the company undergoing a digital transformation, a comprehensive understanding of data analytics and how emerging technologies will affect the organization is paramount to the modern finance department. This is yet another reason why CFOs and their teams will need to work closely with IT and data experts outside the finance department.
CFOs therefore require skilled professionals whose background may lie outside classic finance but who have a proven track record in managing people and projects. To complement their external search, CFOs should look inward and tap people from other lines of business who want to test their skills in a new environment. Similarly, existing members of the finance team may already have the right skills and just need a new challenge to put them on display.
Finance leaders will now be tasked with bringing clarity and consistency to the business at a time where so much outside its walls is in a state of flux. By being prepared to act on change, unifying lines of business, and speeding up internal processes the finance department will help the company chart its ideal course and be prepared for any surprises that lay ahead.