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Accelerating performance: The evolving role of the CFO

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In the shadow of the global financial crisis, the 2010 IBM Global Chief Financial Officer Study introduced a group of financial outperformers called Value Integrators who excel at finance efficiency …

In the shadow of the global financial crisis, the 2010 IBM Global Chief Financial Officer Study introduced a group of financial outperformers called Value Integrators who excel at finance efficiency and business insight. In this update from the IBM Center for Applied Insights, we revisited the financial performance of these Value Integrators to find out how they fared across the larger economic cycle of expansion, recession and recovery. This elite group has continued to outperform, growing revenue and EBITDA significantly faster than other enterprises. However, today’s challenging environment is stretching Value Integrators and CFOs at large, expanding their influence beyond financial decisions to broader, strategic choices about their businesses. In this new era, CFOs will be responsible for helping accelerate performance by driving not only efficiency but also innovation and transformation.

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  • 1. IBM Center for Applied InsightsIBM Institute for Business ValueAcceleratingperformanceThe evolving role of the CFOIn the shadow of the global financial crisis, the 2010 IBM Global ChiefFinancial Officer Study introduced a group of outperformers called ValueIntegrators. These outperformers excel at finance efficiency and businessinsight. They apply business and analytical capabilities to help their enter-prise make decisions with forethought. They show skill in managing enter-prise risk and measuring and monitoring their business. Their companiesalso experienced 49 percent more revenue growth and 20 times theEBITDA growth of other enterprises between 2004 and 2008.1A few years have passed since the study, and CFOs continue to face a num-ber of significant, persistent challenges related to growth, risk, regula-tion and the scope of their role. During the crisis, CFOs focused onshoring up balance sheets until the global economy stabilized. Today,the tide has shifted. U.S. companies have collectively amassed a record$1.45 trillion in cash, requiring CFOs to manage increasing shareholderexpectations.2CFOs are also increasingly using the power of analyticsto inform their growth agendas and improve performance. Meanwhile,new technology platforms—such as cloud, mobile and social—havebecome more important.Summary:The 2010 IBM Global Chief Financial OfficerStudy introduced a group of outperformerscalled Value Integrators that excel at financeefficiency and business insight. This grouphas continued to show financial outperfor-mance—throughallphasesoftheeconomiccycle. However, today’s challenging envi-ronment is stretching Value Integrators andCFOs at large, expanding their influencebeyond financial decisions to broader, stra-tegic choices about their business. In thisnew era, CFOs will be responsible for help-ing accelerate performance by driving notonly efficiency but also innovation andtransformation.
  • 2. 2Accelerating performanceHow have Value Integrators fared through all of this disruption?Is their performance through expansion, recession and recoverysignaling a changing role for CFOs? We believe so. This newenvironment is stretching CFOs, expanding their influencebeyond financial decisions to broader, strategic choices aboutbusiness and operating models. And in this new era, CFOs willbe responsible for helping drive enterprise performance, not justreporting on it.Strong performance throughout the cycleThe 2010 IBM Global CFO Study revealed two dimensionsstrongly associated with outperformance: finance efficiencyand business insight. The interplay between these two capa-bilities yielded four archetypes for the CFO, including thegroup of financial outperformers dubbed Value Integrators.Value Integrators drive data and process commonality as wellas analytics capability, talent and technology to consistentlyoutperform. They excel at managing enterprise risk, measur-ing and monitoring business performance and deriving insightfrom information integrated across their organizations.The 2010 Global CFO Study indicated that by combiningefficiency and insight, Value Integrators experienced highercompound annual growth rates (CAGRs) in earnings beforeinterest, taxes, depreciation and amortization (EBITDA)and revenue as well as a higher average return on investedcapital (ROIC).Recently, we revisited the financial performance of these ValueIntegrators to find out how this group performed across thelarger economic cycle. Our goal was to determine whethertheir dual focus on finance efficiency and business insight helpedValue Integrators maintain superior levels of financial perfor-mance throughout a difficult decade.Corporate philosophy ofinformation standardsStandard chart ofaccountsStandard financialdata definitionsStandard financialprocessesOperational planning andforecasting capabilityFinancetalent developmentCommon planningplatformBusiness insightFinanceefficiencyLowLowHighHighDisciplinedOperators• Finance operationsfocused• Information provision• PerformanceinterpretationValueIntegratorsValue Integrators• Performanceoptimization• Predictive insights• Enterprise riskmanagementScorekeepers• Data recording• Controllership• Multiple versions ofthe truthConstrainedAdvisors• Analytics focused• Suboptimal execution• Fragmented dataAdvantages in:• Managing enterprise risk• Measuring and monitoringbusiness performance• Driving insight from informationintegrated across their companiesand governmentsFigure 1: Value Integrators are the most mature with respect to finance efficiency and business insight.SOURCE: IBM Institute for Business Value, The New Value Integrator: Insights from the Global Chief Financial Officer Study, http://www.ibm.com/services/us/cfo/cfostudy2010/
  • 3. 3Accelerating performanceWe looked at financials for four different five-year CAGRs(2004–2009, 2005–2010, 2006–2011 and 2007–2012). Lookingat the different time periods allowed us to understand how theorganizations fared during different phases of the economiccycle—expansion, recession and recovery.The results from our extended analysis show that the Value Inte-grators from the 2010 Global CFO Study continue to outper-form—exhibiting the same high-performing pattern across threefinancial measures. Their revenue was between 35 and 109 per-cent higher and their EBITDA at least 45 percent higher acrossall time periods. The Value Integrators surpassed other enter-prises through expansion, global recession and recovery—clearlyshowing that they are worth emulating.The emergence of the PerformanceAcceleratorHowever, as the customary financial disclaimer goes, past per-formance is no guarantee of future returns. So how will ValueIntegrators keep their edge in the coming decade? Given thepressures and challenges enterprises are facing today, how willthe role of finance and the CFO need to change? And what willstay the same?Through crisis and stability, the role of finance has revolvedaround three enduring traits: It has maintained an efficient andeffective operating model to deliver financial integrity. It hasdelivered trusted information. And it has always guided deci-sions about enterprise investments. These three responsibilitiesremain. But today, CFOs need to do more to stay competitive.Figure 2: Value Integrators continue to outperform other enterprises through expansion, global recession and recovery.NOTE: We examined a subset of companies that were analyzed in the 2010 Global CFO Study—those that were identified as Value Integrators as well as the otherthree archetypes. Across the three financial metrics evaluated, based on the years analyzed, the number of Value Integrators with available financial data rangedfrom 60–70, and the number of “All other enterprises” (the remaining three archetypes) ranged from 250–350.EBITDA(five-year CAGR)Revenue(five-year CAGR)Return on invested capital(single year)2009Expansion andglobal recession2010Expansion, globalrecession andrecovery2011Expansion, globalrecession andrecovery2012Global recessionand recovery2009Expansion andglobal recession2010Expansion, globalrecession andrecovery2011Expansion, globalrecession andrecovery2012Global recessionand recovery20092010201120125.6%0.3%10.1%5.8%10.2%6.9%8.7%5.8%7.3%4.0%10.1%7.5%16.1%7.7%12.4%8.8%9.8%7.5%10.6%8.0%10.7%8.0%8.8%6.8%Value IntegratorsAll other enterprises
  • 4. 4Accelerating performanceWe see signs of a new era—characterized by cash-rich balancesheets, growing shareholder expectations, higher levels of trans-parency and new analytical capabilities that weren’t availablejust a few short years ago. Spurred by these shifts, the CFO’srole is evolving into a transformative one—with greater influ-ence and responsibility to lead their companies toward changeand growth.Given their strengths in finance efficiency and business insight,Value Integrators are well positioned to capitalize on thesetrends. Armed with more analytical horsepower, Value Inte-grators are poised to accelerate the performance of theirorganizations, bringing new insights and greater disciplineto front-office decision making.As they transition from Value Integrators to Performance Accel-erators, these CFOs will use their advanced business insight andefficiency capabilities to turn insights into action, capturinghigher value for the organization. They will extend their scope,integrating more with the front office and the enterprise as awhole. They’ll instigate innovation, encourage smart risk tak-ing, enable enterprise transformation and help reinvent businessmodels. On top of operational duties such as closing the books,driving efficient performance and preserving cash, they will takeon strategic ones such as optimizing business outcomes anddriving profitable growth.FinanceefficiencyBusiness insightPushing beyondcurrent boundariesof efficiency—intothe enterpriseHarnessing new analyticalcapabilities unavailable justa few years agoPerformance Accelerator• Links strategy and execution• Instills innovation to spur profitablegrowth• Focuses on enterprise transforma-tion and business model innovation• Drives analyses and providesprescriptive insight• Captures higher value by turninginsights into action• Encourages smart risk taking• Optimizes resource allocationLowLowHighHighDisciplinedOperatorsValueIntegratorsScorekeepers ConstrainedAdvisorsFigure 3: Value Integrators may be pushing the boundaries of efficiency and insight, evolving into Performance AcceleratorsSOURCE: IBM Institute for Business Value, The New Value Integrator: Insights from the Global Chief Financial Officer Study, http://www.ibm.com/services/us/cfo/cfostudy2010/
  • 5. 5Accelerating performanceWhat’s next?The 2010 Global CFO Study stated that the combination ofbusiness insight and finance efficiency pushes organizationstoward smarter decisions and fuels better performance. Ourrecent reevaluation of financial measures shows this still to bethe case.However, CFOs are being asked to do more—to advance agrowth agenda and accelerate the performance of their organi-zations. Finance organizations that continue to bolster their ana-lytical capabilities and use their business and financial acumen todrive growth are on the path to becoming Performance Accel-erators. This evolution of finance—and the outperforming orga-nizations that are leading it—will continue to be at the center ofour research agenda. We look forward to sharing more as addi-tional insights emerge.About the authorsWilliam Fuessler, Americas leader for IBM’s financial servicesstrategy and transformation practice, has more than 25 years ofmanagement and consulting experience implementing enterprisetransformation projects for global companies. Bill was previouslythe global and Americas financial management leader for IBM.Under his leadership, Bill was the sponsor for The New ValueIntegrator, IBM’s 2010 Global CFO Study. Bill can be reachedat william.fuessler@us.ibm.com.David Jarvis, senior consultant at the IBM Center for AppliedInsights, specializes in fact-based research on emerging businessand strategic technology topics. In addition to his researchresponsibilities, David teaches on business foresight and creativeproblem solving. He can be reached at djarvis@us.ibm.com.Spencer Lin, associate partner on the IBM Global BusinessServices®team, serves as the finance and risk global businessadviser. In this capacity, he is responsible for strategydevelopment, planning, market segment development andofferings. He has a combination of financial management andstrategy consulting experience over the past 18 years. He wasthe coauthor of the 2005, 2008 and 2010 IBM Global CFOstudies. He can be reached at spencer.lin@us.ibm.com.Carl Nordman, program executive and account manager inIBM Global Process Services, has 25 years of experience infinancial services, including 15 years selling and deliveringconsulting services to clients. He has been involved in thetransformation of client finance organizations from operationsto the C-suite level. Carl led the efforts on IBM’s 2010Global CFO Study and continues to contribute to thoughtleadership in that domain for IBM. He can be reached atcarl.nordman@us.ibm.com.ContributorsAngela CaseyEric LesserCarlos PassiStephen RogersAbout the IBM Center for Applied InsightsThe IBM Center for Applied Insights introduces new waysof thinking, working and leading. Through evidence-basedresearch, the Center arms leaders with pragmatic guidanceand the case for change.ibm.com/ibmcaiAbout the IBM Institute for Business ValueThe IBM Institute for Business Value, part of the IBM GlobalBusiness Services business unit, develops fact-based strategicinsights for senior business executives around critical public andprivate sector issues.ibm.com/iibvFor more informationTo learn more about IBM’s views on the CFO and the evolutionof finance visit:ibm.com/finance
  • 6. © Copyright IBM Corporation 2013IBM CorporationNew Orchard RoadArmonk, NY 10504Produced in the United States of AmericaMay 2013All Rights ReservedIBM, the IBM logo, and ibm.com are trademarks of International BusinessMachines Corp., registered in many jurisdictions worldwide. Other productand service names might be trademarks of IBM or other companies. A cur-rent list of IBM trademarks is available on the web at “Copyright and trade-mark information” at ibm.com/legal/copytrade.shtmlThis document is current as of the initial date of publication and may bechanged by IBM at any time. Not all offerings are available in every countryin which IBM operates.THE INFORMATION IN THIS DOCUMENT IS PROVIDED “AS IS”WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUD-ING WITHOUT ANY WARRANTIES OF MERCHANTABILITY,FITNESS FOR A PARTICULAR PURPOSE AND ANY WARRANTYOR CONDITION OF NON-INFRINGEMENT. IBM products are war-ranted according to the terms and conditions of the agreements under whichthey are provided.1 IBM Institute for Business Value, The New Value Integrator: Insights from theGlobal Chief Financial Officer Study, March 2010, http://www.ibm.com/services/us/cfo/cfostudy2010/2 Agustino Fontevecchia, “U.S. Companies Stashing More Cash Abroad AsStockpiles Hit Record $1.45T,” Forbes.com, March 19, 2013, http://www.forbes.com/sites/afontevecchia/2013/03/19/u-s-companies-stashing-more-cash-abroad-as-stock-piles-hit-record-1-45t/  Please RecycleCIE03119-USEN-00

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