In the first installment of our Global C-suite Study, we spoke face-to-face with 4,183 top executives covering more than 20 industries to find out how they’re earning the loyalty of digitally enfranchised customers and citizens. In this report, we focus on the perspectives of the 576 CFOs we interviewed.
So what have we learned?
First, we’ve confirmed something we discovered in 2010, during our last Global CFO Study. At that time, we identified four different profiles for the finance organization. We also established that one profile – the Value Integrators, as we called them – outperformed all the rest. Our newest research shows that Value Integrators still stand out from the crowd.
Second, we’ve unearthed a small subset of Value Integrators that do even better than the other members of their group. We’ve named these finance organizations Performance Accelerators, and we’ll explore the key traits they possess. We’ll look, in particular, at what they’re doing to become more efficient, more forward-looking and more proficient at creating profitable growth.
The evolution of the CFO
The CFO’s role is a pivotal one, as all top executives recognize. CxOs say they work more closely with the CFO than with any other C-suite colleague except the CEO. And CEOs rely more heavily on the CFO than on the rest of the C-suite when they’re formulating business strategy. Recent events have reinforced the CFO’s elevated status. The CFOs we interviewed told us almost everything they do has become more important over the past three years. Their most critical task is measuring and monitoring their company’s performance. But providing strategic input comes a close second, and developing people with the right skills remains a top-of-mind issue.
Managing enterprise risk and integrating different sources of information to generate meaningful business insights have also soared up the agenda. In fact, only one activity – making continuous process improvements – has declined in importance, possibly because most CFOs regard it as basic practice and have made progress in this area.
But CFOs are dubious about how well their own finance organization fulfills some of these duties. Only 47 percent think it’s effective at measuring and managing performance – the task they ranked as most important. Only 51 percent think the finance organization is effective at planning and executing strategy, and only 64 percent think it’s effective at controls and managing risk.
Moreover, there’s a growing gulf between the importance CFOs attribute to certain activities and how well they think the finance team performs them. In 2005, for example, 35 percent of CFOs considered it vital to combine information from the different parts of their enterprise, and 16 percent believed the finance organization was doing this effectively.3 Today, 82 percent of CFOs see the value of integrating enterprise-wide information, but only 24 percent think their team is up to the task. This 58 percent gap reflects a 205 percent increase between 2005 and 2013.
So CFOs’ expectations of the finance organization have evolved quite markedly over the past few years, as have their views on technology. Macro-economic and market factors still head the list of external forces they expect to have most impact on their enterprises in the near future. But technology is now third on the list – up from fifth place in 2010.
That said, many CFOs don’t yet exploit the power of existing technologies as fully as they could. They use enterprise resource planning systems and analytical tools for about a third of their work. The rest of the time they rely on spreadsheets or old-fashioned intuition. Thus, the finance organization’s responsibilities are expanding, but most finance departments haven’t been able to keep up.
Value Integrators still ahead of the game
Yet the news isn’t all bad. Now, as in 2010, there’s a small cohort of CFOs with finance organizations that would get top marks from any college professor. We discovered in our previous Global CFO Study that these Value Integrators were more effective than their peers in every area we assessed. They were especially good at measuring and monitoring business performance, managing risk and generating predictive insights.
This particular blend of skills equipped them to help their companies make smarter decisions – and the proof was in the numbers. The enterprises they represented consistently delivered superior revenues and earnings before interest, taxes, depreciation and amortization (EBITDA), as well as higher returns on invested capital (ROIC).
The same is true today. The Value Integrators in our latest study are better than their peers at integrating information from numerous internal sources. They’re also better at planning, budgeting and forecasting, and continuously fine-tuning everyday financial processes. In fact, they’re better at everything except transaction processing, where Disciplined Operators likewise excel and the difference between the two groups is marginal.
Once again, this superior performance has produced concrete financial results. Over the past three years, Value Integrators have proved 38 percent more successful than other finance organizations, measured in terms of the revenues and profits earned by the enterprises they
represent.
Performance Accelerators push the frontiers
But our latest research shows there’s a small subset of Value Integrators with an even more impressive track record. We’ve dubbed these superstars Performance Accelerators because they’ve mastered their core duties so thoroughly that they’re far ahead of every other kind of finance organization – including their fellow Value Integrators.
Performance Accelerators push the frontiers
But our latest research shows there’s a small subset of Value Integrators with an even more impressive track record. We’ve dubbed these superstars Performance Accelerators because they’ve mastered their core duties so thoroughly that they’re far ahead of every other kind of finance organization – including their fellow Value Integrators.
Perfect your financial efficiency
One of the defining characteristics of Performance Acccelerators and Value Integrators is that they typically operate much more efficiently than other finance organizations. They are, for example, 43 percent more likely than the rest of our sample to have a standard chart of accounts. They’re also twice as likely to use common finance data definitions and processes. Similarly, more than half of all Performance Accelerators and Value Integrators have created a service delivery framework to guide the design, development and operation of key financial processes. And they’re more likely than other finance organizations to use a standalone, cross-functional shared services center for transactional financial activities.
But the majority of Performance Accelerators have gone one step further, with the adoption of enterprise-wide information standards (see Figure 9). And it’s this threefold combination – a clear service delivery framework and shared services model, together with common standards across the entirety of the business – that catapults a company into the next league. With a single point of responsibility and accountability for the consistent design and deployment of every financial process, regardless of business unit or territory, it’s much easier to automate manual procedures, detect variations in performance and disseminate best practices.
Taking action:
Unify and simplify: Create a single operating model. Establish centers of excellence to help ensure a consistent approach and generate economies of scale.
Get clean and lean: Consolidate and standardize. Develop common financial data definitions, processes and reporting procedures to deliver a single version of the “truth”; automate wherever possible; use a shared services center to become more efficient; and encourage a culture of continuous improvement.
Connect the dots: Forge seamless links between the different parts of the business, including customer-facing functions like marketing and sales, as well as back-office functions like manufacturing and distribution. Data and analytics are essential for efficiency, and both depend on common technologies and processes.
Capitalize on business insights
We’ve talked about efficiency, but that’s a prerequisite for something even more important: the ability to generate business insights. This is where Performance Accelerators start widening their lead.
Most have already put common planning platforms in place – as, indeed, have other Value Integrators. However, Performance Accelerators are also far more likely to have created a robust planning and forecasting process, and developed the analytical skills to partner with other areas of the business.
More than two-fifths of Performance Accelerators likewise combine internal and external data to produce these insights, whereas less than a third of all Value Integrators do so. The result? Performance Accelerators are more effective at conducting various forms of analysis. They’re better at tracking and forecasting supply chain financial data, for example; better at forecasting resource capacity; and very much better at conducting industry and competitor analysis.
This strong emphasis on analytics helps Performance Accelerators excel at scenario planning. A full 92 percent are good at working with colleagues to create timely, reliable forecasts for steering the business, and 74 percent are skilled at evaluating proposals from other parts of the organization. That compares with just 59 percent and 44 percent of Value Integrators, respectively. The percentage that are effective at assessing market trends and using predictive modeling to determine the best course of action is likewise much higher.
Taking action:
Hit the speed dial: Align your data platform with your business priorities, embed analytics in every process and automate recurring analytical processes. The faster you can analyze the information you collect, the faster you can make decisions.
Merge to surge: Integrate financial and operational data to get a deeper understanding of complex questions such as how much it really costs to serve individual customers, which ones are most profitable and what else you can offer them to generate sustainable increases in profit.
Read the signs: Use advanced analytical techniques to predict future trends and prescribe the best course of action. It’s impossible to be sure what tomorrow will bring, but analyzing all the variables provides a much clearer picture of the range of future possibilities – and your resulting options.
Create profitable growth
Lastly, Performance Accelerators use the deep insights they’ve unearthed to create profitable growth. They spend significantly more time than other Value Integrators on a wide range of activities, particularly forging an infrastructure to capitalize on big data, handling acquisitions and divestitures and developing new business models. They’re also more effective at managing risk and identifying new opportunities for revenue growth.
But what defines Performance Accelerators – and really differentiates them from Value Integrators – is not just that they’re better at tasks normally regarded as part of the finance organization’s sphere of responsibilities. They’re more willing to enter new arenas, and more competent when they do so. Indeed, more than twice as many are effective at demand planning and forecasting and product/service development.
Taking action:
Encourage analytical acumen: Foster the skills required to analyze integrated cross-functional financial and non-financial data. Some of these skills may sit outside the finance department – or, indeed, your entire enterprise – so you may need to look further afield.
Treat data as a natural resource: Use the financial and operational data you’ve integrated to unearth new sources of value. Evaluate the marketplace and incorporate information from social media sources to identify new revenue streams and opportunities for business model innovation.
Pull everything together: Model the strategic and financial implications of any such opportunities, select the best options (bearing the risks in mind when you evaluate them) and develop a roadmap. Then align your capital and other resources accordingly, and find partners to help you, where necessary or appropriate.
Entering new territory
In short, Performance Accelerators exert more influence on the enterprises they serve, and make a bigger contribution to performance, than any other kind of finance organization. And they do so because they are particularly adept at generating deep insights that can be used to stimulate profitable growth.
But that’s not the only reason for their success. The CFOs who head them also possess two distinguishing features. First, they have a much better grasp of the digital domain; nearly half work in companies with a seamlessly integrated physical-digital strategy. Second, they understand – and collaborate with – customers far more extensively than other CFOs.
In fact, we expect to see much more collaboration between CFOs and CMOs in the future, as companies search for new sources of profitable growth. Enterprises in which the CFO’s ability to analyze alternative scenarios is coupled with the CMO’s ability to look outside the enterprise will be far better equipped to exploit opportunities the digital era offers.
Currently, less than a fifth of all CFOs include the CMO in their inner circle, but those who have a good grasp of the customer’s perspective are much more likely to work closely with the CMO. This small cadre of CFOs is thus uniquely equipped to anticipate changes in the commercial landscape and help the enterprises they work for respond appropriately.
“Cost cutting isn’t the answer to everything,” the CFO of an Australian consumer products company wryly noted. “We have to make our products more relevant to the needs of our customers – and that means understanding them better.”
The CFO of a U.S. energy supplier clearly agrees. “Technology’s not only changing very quickly, new customers are using it in new ways,” he remarked. “What’s our most important customer initiative, moving forward? The one we haven’t thought of yet.”
There’s no easy method of creating a customer-activated enterprise because it’s very difficult to foresee – let alone fulfill – the changing needs and preferences of customers. But where the CFO is intimately involved in the process, the company seems far more likely to succeed.