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Role and Objectives of Corporate Finance Officer

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					The Changing Role of the Finance Organization

Dan London, Stephen Culp, and Rosanne Williams, The Changing Role of the Finance
Organization in a Multi-Polar World: Accenture High Performance Finance Study 2008,
Accenture, 2008.

Topical Areas: Finance organization performance, CFOs and Risk Oversight, Integration of
Strategy and Risks, Benchmarking Data, Enterprise Performance Management

Main Theme: Today’s focus on the rapid embrace of globalization initiatives has substantially
increased the complexity and pace of change that risk executives face. Dealing with the volume
and complexities of these uncertainties is becoming one of the most pressing strategic concerns.
Responsibilities for addressing these challenges often reside with the finance organization within
an enterprise, often led by the chief risk officer (CFOs). This study not only summarizes insights
about the challenges CFOs face, but it also highlights best practices of finance organizations in
high-performance organizations. It notes that the finance organization in most global companies
is not sufficiently integrated into the businesses to promote strategy development or value
creation and very few are very satisfied with the performance of the finance organization in the
management of financial and non-financial risks. Masterful finance organizations identified by
the study excelled in creating a shared services structure, a strategic approach to outsourcing and
talent management, and the implementation of enterprise resource planning systems.

Summary of Article: The push for greater globalization is creating more and more complexities
and uncertainties over time. Multiple centers of economic power and activity are emerging from
around the world creating significant risk management challenges for executives held
accountable for overseeing these exposures. The speed of global market changes, rapid
volatility of multiple foreign currencies, and the complexities of managing multiple country
operations create a greater need for more robust and integrated risk oversight. In many
organizations, the finance organization, led by the chief financial officer, is at the center of this
oversight responsibility.

This study contains findings and observations from over 350 finance executives surveyed from
30 countries and more than 20 industries and from supplemental one-on-one interviews with
several finance executives. Among the findings, the study reports that the most successful
finance organizations follow a shared services model in which the finance organization is an
internal service provider to multiple business organizations within the enterprise. This model
reduces the cost of finance and allows the finance organization to integrate into strategy
development instead of addressing discrete finance issues from various business units.
Benchmarking against the finance organizations of comparable enterprises is critical to
measuring success and setting goals for the finance organization and the enterprise. The study
also notes that a large percentage of companies lack the capabilities that enable them to manage
risk in an integrated and transparent way.
Finance Organization Strategy and Structure

A company’s finance strategy should address organization, processes, technology, and alignment
with enterprise strategy. Finance executives believe that globalization provides the opportunity
to restructure the finance organization to support greater value creation for the business by taking
advantage of multiple sourcing options. Outsourcing in developing markets gives companies
access to a broader base of skilled workers at competitive costs. The shared services model also
aims to deliver better services at a lower cost. The finance organization in a shared services
model is integrated into various business units to provide cost savings made possible by
standardization and achieving the full value of synergies in mergers and acquisitions. Enterprise
resource planning systems provide an integrated view of a company’s financial reality and allow
users in various business units access to information necessary to make strategic decisions and
improve financial management.

Enterprise Risk Management

Despite facing pervasive risks, only eight percent of companies surveyed indicated that they have
fully integrated risk management capabilities and only seventeen percent indicated they were
close to achieving such capabilities. Very few companies indicated that they have a centralized,
fully integrated, and uniform risk management capability across the enterprise. And, only twelve
percent of companies surveyed were “very satisfied” with the finance organization’s
management of financial and non-financial risks.

Risk management in a global environment goes beyond managing corporate governance,
financial risks of operations, and regulatory risks. An enterprise operating globally is exposed to
greater regulatory requirements in an increased number of jurisdictions. To integrate risks into
enterprise decision making a company must undertake more regular and rigorous risk
assessments, align exposures with mitigation programs, and incorporate risk management into
corporate practices like strategic planning. The study describes enterprise risk management
(ERM) as a decision-making discipline that manages variations from company objectives and
reduces the likelihood of material, negative surprises. ERM takes a holistic view of the
enterprise that focuses on loss prevention and mitigation as well as aligning the company’s risks
with its strategic objectives to pursue a business advantage.

Benchmarking

Less than twenty percent of finance executives surveyed indicated that they are very satisfied
with the efficiency of their finance organization, which includes measures of workforce
effectiveness, organizational management of financial and other risks, the ability of the finance
organization to drive change in the enterprise, and the organization’s contribution to value
creation by the company as a whole. Only six percent of respondents indicated that they could
“very accurately” measure the annual cost of finance and the related cost drivers. Many finance
executives indicated that information necessary to manage performance and create value is not
widely available to, or understood by, company managers and executives. And, they have very
little information to assess how their finance organizations compares relative to others.

Benchmarking the finance organization against those of comparable enterprises allows the
finance executive to determine where his organization stands and to set improvement goals.
Benchmarking also establishes a baseline to evaluate future improvements. According to the
survey about one-third of companies conducted a benchmarking study to assess the quality of
their finance organization in the last two years.

Enterprise Performance Management is Lacking in Most Companies

Enterprise performance management (EPM) helps a company define and integrate critical
strategic and operational metrics into the focus of the business. EPM is an integrated approach
that spans business units and functions. Elements of EPM include replacing annual budgeting
with rolling forecasts linked to key drivers of current and future value, root-cause analysis, and
corrective action monitoring. Those companies that indicated that their EPM capabilities were
advanced were six times more satisfied with the contribution of the finance organization to the
enterprise’s financial performance. One of the greatest benefits of EPM is that it identifies the
performance metrics most critical to creating value.

Dan London, Stephen Culp, and Rosanne Williams, The Changing Role of the Finance
Organization in a Multi-Polar World: Accenture High Performance Finance Study 2008,
Accenture, 2008.

Abstract Prepared By: ERM Initiative Faculty and Lora Blackburn, 2009 Master of
Accounting Student.

				
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