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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