Armanino CFO Evolution White Paper 2013


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This white paper introduces Armanino’s CFO Evolution thought leadership research. It defines a framework for consideration by CFOs and the key people within their organization as they think critically about their organization’s challenges and goals.

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Armanino CFO Evolution White Paper 2013

  1. 1. Elevating the Strategic Leadership of the CFO Organization CONTENTS Overview............................................. 2 Background ........................................ 3 Challenges .......................................... 5 Framework .......................................... 6 Achieving Success .............................. 9 Path Forward .................................... 11 About ArmaninoLLP ............................ 12 Prepared by:
  2. 2. Elevating the Strategic Leadership of the CFO Organization Overview This white paper introduces Armanino’s CFO Evolution thought leadership research. It defines a framework for consideration by “My CFOs and the key people within their organization as they think organization critically about their organization’s challenges and goals. spends 80% of our time on Accounting The CFO Evolution categorizes the CFO organization’s and we are responsibilities into three distinct roles: still working nights and  Accountant - oversees fast and accurate financial reporting; weekends just  Protector - ensures there are no surprises and that risk is to keep up.” appropriately managed  Business Leader - involved in the formulation, execution and support of the corporate strategy Armanino’s CFO Evolution is a set of initiatives focused on people, process and technology. It Streamlines the Accounting function, Optimizes the Protector role, and Elevates Business Leadership activities, enhancing the value of the CFO Organization.© ArmaninoLLP | Page 2
  3. 3. Elevating the Strategic Leadership of the CFO Organization Background Demands on the CFO and the CFO’s entire organization constantly pull them in different directions. Indeed, the CFO organization has both a lot on its plate and a lot of people to answer to. Stakeholders include the CEO and the rest of the C-suite, the Board of Directors and regulators. In addition, the CFO organization needs to play a guiding role to the rest of the organization by enforcing spend policies, ensuring business operations, accurately forecasting future performance and providing data back to managers to enable sound business decisions. Adding to this complexity is the organization structure. For many companies, IT, HR and Legal roll up under the CFO organization. Whether these groups report directly to the CFO or through a dotted line, the IT, HR and Legal groups can impact the effectiveness of the CFO organization. CEO and Management IT Effectiveness Legal Governance Training Daily Accounting Budgeting Compliance Payroll Contract Management Revenue Recognition Company Stakeholders Financing Risk Reconciliations Monthly Close Tax Planning HRMS Regulators Consolidations Planning Internal Controls CFO Weekly Accounting Business Architecture Cash Flow Projections IT Overview Internal Audit Board Meetings Asset Tracking Treasury Management Internal Communications FX Transactions Loan Covenants Business Intelligence Monthly Accounting Investor Relations Board of Directors Not long ago, the CFO was typically responsible for generating and explaining the numbers, helping with acquisitions and divestitures and taking the lead with risk management activities. The CFO also had to have a solid understanding of the company’s strategies and operations.© ArmaninoLLP | Page 3
  4. 4. Elevating the Strategic Leadership of the CFO Organization Then, as a result of the increased scrutiny on corporate governance caused by corporate failures and fraudulent acts, CFOs and their “Managers organizations were forced to spend the majority of their time on throughout the countless accounting, regulatory and risk management matters, business keep asking for and less time on more strategic, value added activities. In fact, one- more and more third of the CEOs, Audit Committee Chairs and Board Members information, that responded to a recent CFO survey concluded that their CFOs and we keep do not have the needed depth of understanding of strategic giving them business issues to effectively contribute to the development and more and more execution of corporate strategy. reports, but it is not enough.” Most recently, the role of the CFO has expanded so greatly that there is often intense conflict among all the competing demands for the CFO organization’s time. Given the ever changing environment in which businesses operate, we believe that CFOs must constantly reevaluate their organization’s Evolution to add strategic value to their CEOs, Boards and Shareholders. This is no easy task, particularly because there is no wide consensus as to where a CFO should ideally be spending his or her time and resources. Given these challenges, the critical questions are:  What is the mission of the CFO organization?  How best do we focus our resources to respond to all the demands put on CFO organization?  What activities do we perform to ensure success?  How much do we spend on developing our capabilities?© ArmaninoLLP | Page 4
  5. 5. Elevating the Strategic Leadership of the CFO Organization Challenges We have studied this issue for many years and have developed a framework that we believe can be applied to all companies, regardless of size, maturity, or business complexity. We have identified a way to make measurable improvement for every CFO organization in an effective and efficient manner. We have discovered through our years of consulting that three things typically prevent CFOs from striking the right balance between all the competing demands: 1. Accounting. Surprisingly, most CFO organizations struggle with the Accounting function. Most companies have too many people working on accounting, the timeliness of the accounting is in question or always under pressure, and the accounting staff is often frustrated due to a lack of clear policies and procedures or laborious manual processes. Further confusing the issue is what is considered accounting versus supporting the business operations. 2. Business Protection. This area continues to be a challenge to most CFO organizations and really has to do with “can the organization predict consistent performance” or, better said, can they protect the business from surprises. In most cases, the ability to meet compliance requirements, manage company risk and forecast financial results related to revenue and cost is not optimized. 3. Business Leadership. Every CFO wants to be a business leader and a partner to the CEO. However, all of the competing demands on the CFO and the CFO’s organization keep this from actually happening. While most CFOs will personally say they have a goal to be a business leader, the activities of the entire CFO organization are primarily focused on other activities such as accounting, internal controls and financial reporting.© ArmaninoLLP | Page 5
  6. 6. Elevating the Strategic Leadership of the CFO Organization Framework Drawing on our client experience and market research, The CFO Evolution framework outlined below is Armanino Consulting’s point- “We cannot get our employees of-view on the key business capabilities a CFO organization needs to follow the to focus on to be successful. spend policies put in place. Each of the three key roles must be addressed with a specific plan We continue to for its goals, expected outcomes, and the resources it will require: find managers throughout the organization 1. The Accountant role. The goal of the accountant role is to be doing what they fast and accurate. If your organization is accurate but not fast, want.” use of resources is suboptimal and less time is spent in other key areas. 2. The Protector Role. The goal of the Protector role is to manage the entire business with “No Surprises.” Examples include the ability to accurately forecast revenue, meeting budget to actuals. Additionally, the Protector role encompasses internal controls to prevent fraud, theft, and business loss, and adequately controlling the activities of all employees through documented policies and procedures. 3. The Business Leader Role. The goal of the Business Leader is to team with company leadership to accomplish overall business success. This role is focused on teaming with the CEO, the Board and the other operating departments to ensure they have the right information to make the right business decisions. This goal can best be summarized as being Forward and Strategic. Role Goal Accountant Fast & Accurate Protector No Surprises Business Leader Forward & Strategic Three key roles for focus and goal settingThe CFO Evolution is a set of initiatives focused on people, process andtechnology. It Streamlines the Accounting function, Optimizes theProtector role, and Elevates Business Leadership activities, enhancingthe value of the CFO Organization.© ArmaninoLLP | Page 6
  7. 7. Elevating the Strategic Leadership of the CFO Organization Armanino’s CFO Evolution. Does the CFO Evolution framework only apply to the accountants in the business? Absolutely not. For example, IT needs to supply systems that automate accounting to make it fast and accurate, provide systems that allow early warning detection to enhance the Protector function, and implement Business Intelligence tools that enhance Business Leadership. Other examples, such as HR and Legal, would include providing policies and procedures around people-processes to increase efficiencies across the business and proper employee policies to ensure compliance with laws and regulations to enhance the Protector role. Role Goal Key Elements  Accurate and timely financial reporting  Effective and efficient accounting Fast & Accountant systems Accurate  Trained and experienced accounting team  Company wide governance, risk and compliance  Proactive cost control and cost Protector No Surprises management  Effective revenue forecasting and predictability  Actively particpate in strategy setting Business Forward &  Team with business operations Leader Strategic  Forecast and plan the future of the business Three key roles for focus and goal setting Where Do You Allocate Your Resources Today? Most clients we work with tell us they currently allocate their resources for each role in the proportions outlined below – though not necessarily by design. They admit there is a lot more “fire fighting” and “squeaky wheel repair” going on than they would like. Role Current Company Allocation Accountant 61% Protector 24% Business Leader 15% Where are you spending your time? Now, before turning the page, ask yourself “Where would I like to allocate my resources?”© ArmaninoLLP | Page 7
  8. 8. Elevating the Strategic Leadership of the CFO Organization Where Would You Like to Allocate Your Resources? The interesting insight that most companies share with us is that they feel they spend too much time (out of necessity) focused on their Accountant and Protector roles, when they know it would benefit the company if they could focus more on their Business Leader role. The challenge of course is how, when so many seemingly urgent and important needs and responsibilities grab their attention instead. Role Current Allocation Optimal Allocation Accountant 61% 28% Protector 24% 29% Business Leader 15% 43% Making the most of your timeThe CFO Evolution is the set of initiatives that transforms the CFOOrganization into a Strategic and Forward-Thinking Business Leader forthe Company.© ArmaninoLLP | Page 8
  9. 9. Elevating the Strategic Leadership of the CFO Organization Achieving Success Let’s look at some real world examples where measureable“It is a mad improvement has been made by focusing on these three distinctscramble to pull roles:all theinformation The Accountant: A 400 person staffing agency converted from atogether prior to manual weekly time capture system to an internet-based selfa board meeting. service time entry and automated billing system. Once this wasWe nearly kill done and employees were properly trained, this business reducedourselves getting its accounting headcount by two-thirds while business revenuesready for each tripled over a three year period.meeting.” In our experience, the Accountant area provides some of the quickest, highest impact improvements a CFO organization can attain. In automating a frequently-used process such as order-to- cash or time and employee expense capture, one can drastically improve accuracy while freeing up significant staff capacity. For someone looking to make a pronounced impact on organizational effectiveness, the ROI comes in many forms - improved accounting close process, automation of manual processes, trained personnel and increased employee morale. The Protector: An $800 million technology company had received a material weakness within their revenue recognition business processes. By re-engineering key controls, taking advantage of automation and re-training key individuals, this company reduced manual processes, developed a stronger revenue recognition process and saved over $5 million over 24 months. Many CFOs and Risk Managers have told us that they often struggle to strike a balance between enhancing stakeholder value for their companies and protecting their companies’ assets. As a result, gaps can occur in risk coverage as the CFO organization is challenged to take a company-wide view of the risks that could get in the way of moving forward. Also, overly conservative processes and controls can inhibit growth and innovation and cause inefficiencies. Our view is that the role of the Protector must be optimized at all levels to allow for creativity and growth while preventing surprises.© ArmaninoLLP | Page 9
  10. 10. Elevating the Strategic Leadership of the CFO Organization The Business Leader: A $220 million contractor previously ran 400 monthly reports for its project managers. Many of these reports were old or stale by the time the managers received the data. This company deployed an internet-based business intelligence tool which allowed project managers to receive daily information on their projects. No longer were these managers waiting for accounting to produce the data. Managers were now given real-time, comprehensive information on the business. Each manager had access to their data and was empowered to make decisions like never before. The project payback for this initiative was less than four months. This area provides the opportunity for the CFO to be proactive in leading the company while raising the effectiveness of the entire CFO organization. A major impact can be achieved by focusing on the business operations needs and applying the key skills within the CFO organization to meet those needs. ROI for these initiatives are at the business level, improving margins, saving costs and identifying new business opportunities.© ArmaninoLLP | Page 10
  11. 11. Elevating the Strategic Leadership of the CFO Organization Path Forward Consider how your CFO organization prioritizes and actually spends its time and effort around each of the Accountant, Protector and Business Leader roles versus how you would like to. Think about the advantages of spending more time focused on the Business Leader role with the security of knowing your Accountant role is fast and accurate and the Protector function is optimized. The stakes are high – the demands on your time will not decrease nor will business complexity. Without a solid framework for improvement, much of your team’s performance is at risk. The CFO Evolution is your tool for transforming your organization into a Strategic Business Leader for the company. By providing fast and accurate accounting, minimizing business surprises, and being more forward-thinking and strategic, your organization can meet its growing challenges and expectations while creating efficiencies for the company and enhancing overall value.© ArmaninoLLP | Page 11
  12. 12. Elevating the Strategic Leadership of the CFO Organization About ArmaninoLLP Armanino helps companies succeed by enabling their CFO Evolution. ArmaninoLLP is the largest California-based CPA and Consulting firm offering a comprehensive portfolio of business and IT services to support the CFO organization at each stage of its company’s business development. Our challenge to you – define your CFO Evolution and go for it. Determine how you can streamline your accounting, optimize your business protection and empower your organziation to be a strategic and forward-thinking business leader in your company. If you’re looking for more insight on how to advance your CFO Evolution or how your CFO organization compares to others, we’re ready to help. For more information, please contact: Tom Mescall Partner In-Charge, Consulting ArmaninoLLP 925-790-2600 x2812 San Ramon Office San Jose Office San Francisco Office 12667 Alcosta Boulevard 50 West Fernando Street 44 Montgomery Street Suite 500 Suite 600 Suite 900 San Ramon, CA 94583 San Jose, CA 95113 San Francisco, CA 94104 925.790.2600 408.200.6400 415.568.3280© ArmaninoLLP | Page 12