The Changing Role of the CFO

The end of the 1990s marked one of those recurring periods of temporary collective amnesia when lessons learnt are forgotten on the basis of some purported 'paradigm shift'. During these periods, whether this shift has a firm foundation in what is going on in the real world is less important than the willingness of corporations and markets to collectively share the belief.

The old adage that 'turnover is vanity, profit is sanity' was thus abandoned in favour of a scramble for top line growth, 'mindshare' and other less conventional performance measures.

This frequently extended to more convenient 'pro-forma earnings' calculations rather than those encumbered by the inconvenient strictures of GAAP, and allowed some organisations to adopt 'unorthodox' ways to inflate revenues and 'lose' costs and liabilities to prop up the bottom line and the balance sheet.

When it all finally unravelled in a number of high-profile corporate scandals, the backlash in the form of SOX was swift and severe. CFOs have thus spent much of the last few years repairing the damage to corporate reputations and balance sheets and on internal issues such as governance, internal controls and reporting.

The fact that for many finance organisations this coincided with the transition to IAS has meant that, for a number of years, the focus has been directed inward.

REASSESSING OUR ROLE

Now that SOX and the transition to IAS are receding into the past and M&A activity is picking up, the focus of the CFO is shifting back to some of the issues which were put on the back burner for the last few years. However, in the meantime there have been genuinely significant changes which mean that new solutions are available to resolve these issues.

From what was once considered an overhead and treated as such, the finance function is now increasingly being seen as a key organisational asset to drive business competitiveness and effectiveness. For the CFO, this represents a further step along the evolutionary path from yesterday's scorekeeper via today's business partner through to tomorrow's corporate change agent, when a key objective will be to enable the organisation not only to focus on its core businesses but also to help it identify and respond to changing market needs.

This latest development in the changing role of the CFO and of the purpose and organisation of F&A is a direct response to the set of common challenges facing CFOs today.

M&A ACTIVITY

With M&A activity recovering, both the enabling and the tracking of the value creation process frequently rest in the hands of the CFO. The CFO is required to play an active role in all phases, from strategic planning through opportunity identification and initial evaluation to execution and integration.

In doing so, the CFO must lay the foundations for increased efficiency and productivity, which will underpin value creation.

FOCUSED BUSINESS ANALYTICS

It is up to the finance function to consistently provide 'better information for better business decisions'. Detailed information about the current performance of the business, factors affecting future growth and new business opportunities cannot be gleaned from internal analysis of operations and the balance sheet alone.

Today's CFO must implement world-class financial and business analysis tools, providing a dashboard from which to monitor performance, in order to operate a proactive rather than a reactive business model.

RISK MANAGEMENT

Although the approach adopted in SOX is seen as heavy-handed and expensive to implement and maintain, a strong corporate infrastructure is essential to underpin whatever structures or requirements will be prescribed in the future, however the details of the approach might change.

Today's CFO recognises the importance of maintaining stakeholder confidence through visibly ensuring compliance with regulatory requirements, while building-in the flexibility to accommodate the next wave of change.

The changes in the business environment over the last few years have significantly broadened and consolidated the options available. The expansion of the EU to central Europe, the emergence of China and India as viable business locations and the ability of IT to deliver the operational solutions which have hitherto only been promised together represent a fundamental shift in the commercial environment in which a finance function operates.

Addressing this transformation of the finance function in terms of its role, as well as the tools and practices adopted, can ensure benefits through five key levers:

• Economies of scale (scale to reduce unit costs)
• Economies of location (co-location, labour arbitrage, language support, disaster recovery)
• Operational effectiveness (Six Sigma-plus, policy compliance, straight-through processing)
• Technology automation (self-service, automation, digitisation, service-oriented architecture)
• Value-added services (analytics and reporting, financial supply chain, etc.)

SHARED SERVICES

In the case of HP's own finance transformation, which began almost 15 years ago, the journey has been influenced by all of these factors. When organic and inorganic business growth led to increased complexity and scale of F&A activity, the company addressed these issues via internal shared services, embarking on an initiative to consolidate the then-decentralised processes to offshore service centres situated in strategic locations throughout the world.

This centralisation provided a springboard for further process improvement through the use of technology. The ongoing transformation programme resulted in:

• Consolidation of 32 company-wide general ledgers into a single ledger
• Improvement in on-time account reconciliation by 20%
• Reduction in AP/AR processing time by 30%
• Improvement in process quality by 30%
• Standardisation of operations onto a single platform
• Reduction in finance function costs by 30% to world-class levels

Today, HP operates a best-in-class global delivery infrastructure for F&A support with a cost structure that consistently outperforms key industry benchmarks. The company has benefitted in many ways: from the consolidation and simplification of F&A systems and processes to improve transparency, compliance and accountability, through the provision of value-added asset recovery services, to the global adoption of decision-support frameworks to improve ROI decisions.

HP believes that the shared service centre concept supports and enables the changeover from a traditional back office function to a real service provider. A true service provider not only relieves business partners from transactional processes and administrative tasks, but delivers services not previously viable in a decentralised structure, all the while significantly improving process and service quality at reduced cost.

A PROACTIVE FINANCE FUNCTION

In the past, being a reactive finance function was 'good enough'. But moving into the future, being proactive will allow CFOs to put their companies ahead of the competition. Today's successful CFO will anticipate what changes and challenges their company will most likely face as a result of their business plans and will be ready to help them respond accordingly.

The transformed finance organisation will focus on implementing global integration strategies, deploying cutting-edge technology and continuously working to upgrade the quality of its workers and processes in order to adapt to changing business requirements.