1BLOOMBERG BUSINESSWEEK RESEARCH SERVICES FEBRUARY 2013
Finance as Analytical
Partner to the Business
When major economies...
FEBRUARY 20132BLOOMBERG BUSINESSWEEK RESEARCH SERVICES
Table of Contents
Methodology. . . . . . . . . . . . . . . . . . . ...
FEBRUARY 20133BLOOMBERG BUSINESSWEEK RESEARCH SERVICES
Methodology
Bloomberg Businessweek Research Services (BBRS) launche...
FEBRUARY 20134BLOOMBERG BUSINESSWEEK RESEARCH SERVICES
Executive Summary
n
Although a majority of financial executives sur...
FEBRUARY 20135BLOOMBERG BUSINESSWEEK RESEARCH SERVICES
growth in China—casting shadows over business forecasts
globally (s...
FEBRUARY 20136BLOOMBERG BUSINESSWEEK RESEARCH SERVICES
Unsurprisingly, survey respondents show steady movement
toward tech...
FEBRUARY 20137BLOOMBERG BUSINESSWEEK RESEARCH SERVICES
SIDEBAR
Tighten Focus on True Costs and Increase Profitability
“The...
FEBRUARY 20138BLOOMBERG BUSINESSWEEK RESEARCH SERVICES
Becoming an Effective
Business Partner
Akin to developments at Bige...
FEBRUARY 20139BLOOMBERG BUSINESSWEEK RESEARCH SERVICES
That message is apparently not lost on survey participants,
the maj...
NOVEMBER 201210BLOOMBERG BUSINESSWEEK RESEARCH SERVICES
SPONSOR’S STATEMENT
How CFOs and Their Teams Can
Create Value
For ...
Finally, don’t forget that we are all partly responsible for
the lack of consumer confidence and the depressed demand
we s...
Finance as analytical partner to the business
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Finance as analytical partner to the business

  1. 1. 1BLOOMBERG BUSINESSWEEK RESEARCH SERVICES FEBRUARY 2013 Finance as Analytical Partner to the Business When major economies are constrained, business leaders find their growth engines stuck in low gear. At times like these, financial leaders need to collaborate more closely with their operations counterparts and drive precision in performance management. An exclusive survey and research report from Bloomberg Businessweek Research Services
  2. 2. FEBRUARY 20132BLOOMBERG BUSINESSWEEK RESEARCH SERVICES Table of Contents Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Evolving Role of Finance in a Constrained Global Economy. . . . . . . . . . . . . . . . . . . . . . . 4 Setting Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Getting Granular. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Sidebar: Tighten Focus on True Costs and Increase Profitability . . . . . . . . . . . . . . . . . . . . . . . 7 Becoming an Effective Business Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Growing Interest in User Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Managing Enterprise-Level Risk—Another Dimension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Sponsor’s Statement: How CFOs and Their Teams Can Create Value . . . . . . . . . . . . . . . . . . 10 Copyright and Disclaimer Notices Bloomberg Businessweek does not make any guarantees or warranties as to the accuracy or completeness of this report. Bloomberg Businessweek shall not be liable to the user or anyone else for any inaccuracy, error or omission, regardless of cause, or for any damages resulting therefrom. In no event will Bloomberg Businessweek nor other companies or third-party licensors be liable for any indirect, special or consequential damages, including but not limited to lost time, lost money, lost profits or lost good will, whether in contract, tort, strict liability or otherwise, and whether or not such damages are foreseen or unforeseen with respect to any use of this document. This document, or any portion thereof, may not be reproduced, transmitted, introduced into a retrieval system or distributed without the written consent of Bloomberg L.P. © Copyright 2013 Bloomberg L.P. All rights reserved. The names of actual companies and products mentioned herein may be the trademarks of their respective owners.
  3. 3. FEBRUARY 20133BLOOMBERG BUSINESSWEEK RESEARCH SERVICES Methodology Bloomberg Businessweek Research Services (BBRS) launched a survey and research program in summer 2012 to discover and analyze the views of C-level and line-of-business executives around the world on the drivers of operational performance and ways that decision support can be strengthened. The survey also sought to uncover what types of new information technology executives are deploying or actively considering to improve their financial and operational performance. The goals of this program included: n Better understanding how midsize and large organizations view the state of their operational performance at the present time and their plans for the next few years. n Examining the operational performance of five key corporate functions: sales, customer service, finance, operations/ production and supply chain. n Better understanding the level of involvement of operational and C-level officials in various functions outside their primary function. n Identifying the role of technology in supporting efforts to improve operational excellence. This research program included both quantitative and qualitative components: n A global survey of director-level or above executives at midsize and large companies from around the world. A total of 318 director-, vice president- and C-level executives responded to the July 2012 survey. For more information about the demographics of the survey, refer to the “Methodology” charts, at right. n In-depth telephone interviews with C-level and other senior executives at the following organizations: n Bigelow Tea n CBIZ n FM Global n Rush University Medical Center n The Dow Chemical Company n Telephone interviews were also conducted with: n A former CFO who now teaches at Harvard Business School n The Founder of The CFO Alliance n A CFO who is on the board of The CFO Alliance BBRS and the author of this report, Mary Driscoll, a senior research fellow at APQC, a non-profit business research firm, are grateful to all the executives who provided their time and insights for this project. This research project was funded by a grant from SAP but was written independently of this sponsor. The editorial department of Bloomberg Businessweek magazine was not involved in this project. Methodology Respondents by Region Respondents by Company Size Respondent by Industry Sector Respondents by Title *Total exceeds 100% due to rounding Respondents by Primary Function *Total exceeds 100% due to rounding Source: Bloomberg Businessweek Research Services, 2012 Asia: 34% North America: 37%Europe: 29% Small* ($100–$499 million): 15% Enterprise ($5 billion): 21% Large ($1–$5 billion): 35% Medium ($500–$999 million): 29% Other: 23% Retail/Wholesale: 16% Business Services: 11% Manufacturing/ Industrial: 34% Manager: 26% Vice President/ Senior VP/ Executive VP/General Manager: 29% Director: 13% C-Level: 33% Financial Services: 16% Customer Service: 15% Finance: 21% Operations/ Production: 24% Sales: 15% Supply Chain: 26% *1000 employees or more
  4. 4. FEBRUARY 20134BLOOMBERG BUSINESSWEEK RESEARCH SERVICES Executive Summary n Although a majority of financial executives surveyed expect the global economy will grow at a modest 3 percent per year or less, only 2 percent indicate a steep global economic decline is likely. n Similarly, the majority of executives (54 percent) expect their own organizations will remain stuck in a low-growth pattern for all of 2013. n While 57 percent indicate high unemployment to be the biggest factor hindering a significant pickup in global growth, 53 percent also cite the sovereign debt crisis as a major concern. n A large majority of executives regard decision support as a strategic lever, with 72 percent citing increased investment in IT to reduce costs, increase productivity and uncover new revenue opportunities as important to them. n Fifty-two percent of respondents are using dedicated analytical tools to enhance financial planning, forecasting and reporting, thereby improving the odds of achieving business goals. Meanwhile, 46 percent are involved in big data projects to utilize surging volumes of information. n Looking ahead two years, 40 percent of executives expect to speed decision-making by using real-time reporting rather than batch-processing data. And 37 percent expect to be using predictive analytics. Introduction The CFO’s role today has evolved well beyond traditional accounting/compliance duties and tracking which units botched or exceeded their revenue targets, according to an exclusive summer 2012 survey by Bloomberg Businessweek Research Services (BBRS). CFOs are now expected to play a central role in crafting strategy and creating value for investors and other key stakeholders. CFOs, and the professionals under their supervision, do this by serving as strategic business partners. And that involves collaborating with operating leaders throughout the organization to identify, quantify and compare opportunities and risks. It is important to put this expanded role of finance in the context of the world’s important economies, both the well- established ones and the emerging ones. Drawing on the findings of the BBRS survey, it is clear that executives do not expect to see a return of robust growth levels anytime soon. Key survey findings include: n Most executives expect to be contending with low economic growth (3 percent or less) for all of 2013. n The majority also expects their own organizations to remain stuck in a low-growth pattern for all of 2013. Despite the lackluster economy, well over half the executives surveyed report they are turning to advanced financial forecasting approaches to help them sort through the maze of challenges posed by the current business climate. Nearly as many expressed interest in acquiring new tools, such as real-time reporting software, to strengthen their positions. This research report provides insights, examples and recommendations on how finance professionals can collaborate effectively with operating managers to find the right strategic edge. The Evolving Role of Finance in a Constrained Global Economy The expanding role of finance as a strategic partner is particularly germane today with continued economic uncertainty in the United States and Europe—and slowing Figure 1 Economic Growth Globally—Just OK The world economy is expected to remain merely moderate. (Total does not equal 100% due to rounding.) Q. What is your expectation regarding the global economic outlook over the next 18 months? Strong global economic growth (more than 3% per year) Moderate global economic growth (less than 3% per year) No global economic growth Moderate global economic decline (less than 3% per year) Steep global economic decline (3% or more per year) Uncertain Source: Bloomberg Businessweek Research Services, 2012 26% 52% 11% 7% 2% 1%
  5. 5. FEBRUARY 20135BLOOMBERG BUSINESSWEEK RESEARCH SERVICES growth in China—casting shadows over business forecasts globally (see Figure 1, “Economic Growth Globally—Just OK,” on page 4). In this climate, the strong planning and analytical skills typically found in the finance department are needed to bolster decision-making more than ever. But so, too, is the need to equip business-unit managers with the financial information and new technology they need to pursue growth strategies. There is simply no room for error when economic growth is not buoyant. What types of business pressures will CFOs have to contend with in the near term? Concern over how to manage corporate budgets with minimal revenue growth is high on most senior executive lists. The majority of these leaders anticipate that their organizations will experience growth of just 3 percent or less over the next 18 months (see Figure 2, “Company Growth Stuck in Low Gear,” below). Setting Strategy The strategy of profit protection is the course many businesses have been on for a while. But now, with the most obvious opportunities for cost savings already taken, finance executives will have to hunt harder for profit boosters. They will have to work harder with operating managers and conduct detailed analyses of cost trends. In addition, they will need to look closely at which products or services are the most profitable and find ways to boost the return of those found wanting or possibly shut them down. This is not to say that targets for revenue expansion will be ignored. Working together, finance and business managers will have to devise sound plans for developing new revenue streams where opportunities exist and decide where best to invest in new technology. But this is where they will face the strongest headwinds. The dominant financial risk for the businesses represented in the survey is continued high unemployment in major world economies (“Biggest Global Risks—Unemployment and Sovereign Debt,” above). Insufficient income levels, or worries about getting laid off, tend to depress consumer spending, which is a major driver of industrial growth. To aid in the search for new revenue streams, senior finance managers are reaching for new tools. Clearly, the message is getting through that an effective finance team does more than just hit the brakes on spending in times of uncertainty. This team partners with business decision-makers to develop realistic forecasts of where the business is heading relative to its goals. Figure 2 Company Growth Stuck in Low Gear The vast majority of respondents will not see revenues soar anytime soon. Only one in three expects to be generating growth above 3 percent. Q. What is your expectation of the economic outlook of your company over the next 18 months? Strong economic growth (more than 3% per year) Moderate economic growth (less than 3% per year) No economic growth Moderate economic decline (less than 3% per year) Steep economic decline (3% or more per year) Uncertain Source: Bloomberg Businessweek Research Services, 2012 31% 54% 8% 5% 1% 1% Figure 3 Biggest Global Risks—Unemployment and Sovereign Debt People are still concerned about jobless rates around the world. Q. Which of the following poses a major risk to future growth for the global economy over the next 18 months? (Pick all that apply). High unemployment continues to stifle consumer spending Sovereign debt crisis Uncertain political landscape Reduction in the growth rate of emerging markets Increased competition for business in emerging markets Weak real estate market Increased scarcity of natural resources Lack of talent, aging society Source: Bloomberg Businessweek Research Services, 2012 57% 53% 49% 40% 40% 35% 32% 31%
  6. 6. FEBRUARY 20136BLOOMBERG BUSINESSWEEK RESEARCH SERVICES Unsurprisingly, survey respondents show steady movement toward technology innovation that aims to strengthen performance management. The majority says they now use dedicated software applications to improve forecasting, analysis and reporting. Almost half say they are turning to new data management technologies to cope with so-called big data (see Figure 4, “Half of Respondents Using Advanced Tech to Achieve Business Goals,” at right). Looking ahead two years, the survey shows strong interest in sophisticated performance analysis and driver-based planning—an approach that bases financial forecasts on operational performance indicators that are non-financial. However, many large, complex corporations will have to overcome the obstacles presented by management information systems that are not well integrated. For example, when operations planning systems do not feed data to financial forecasters in an automated fashion, it can be difficult to move up the maturity curve of driver-based planning. A lack of systems integration can also stymie predictive analytics. Expect to find movement toward additional investments in IT solutions that address the perennial systems integration challenge. Meanwhile, interest is growing in new IT tools that can deliver even more financial intelligence into the enterprise management ranks (see Figure 5, “Which Techs Are They Betting on Next?” on page 7). Topping the list of new tools that finance executives expect to deploy over the next two years are real-time reporting and expanding the analytical capabilities of existing finance systems. Giving employees access to financial information over mobile devices is also favored by 25 percent of respondents. Getting Granular The ability to detect and analyze emerging trends in consumer demand is particularly essential to retail businesses. Take the food and beverage industry, which must please customers who are highly sensitive to both price and quality. In the tea sector, for example, Bigelow Tea CFO Don Janezic explains that tea drinkers are generally loyal to their favorite flavors and brands. But when consumers pare their grocery lists in times of economic worry, the pressure mounts for suppliers to manage opportunities and risks with maximum precision. This calls for tight alignment between operating managers and the finance team worldwide. “We are fortunate in the sense that all function managers at Bigelow are very good at collaboration. It’s very much a part of our culture,” says Janezic, adding that Bigelow is well practiced in the use of business analytics. “We use analytics extensively, and we [in finance] have ongoing dialogue with operating managers about what incoming data means in terms of business performance.” At Bigelow, the finance team speaks regularly with operating managers about productivity trends (such as the level of labor cost incurred to meet customer satisfaction goals) that may actually undermine financial performance targets. “We have to be very cost-conscious if we’re going to compete on price, so we look at productivity on a lot of levels,” Janezic says. Among other things, the tea maker looks at productivity by flavor or product and may decide to alter distribution plans to keep productivity trends in line. Putting a fine point on this, “profit sharing at this company is tied to productivity,” he notes. Figure 4 Half of Respondents Using Advanced Tech to Achieve Business Goals There is a growing fondness for moving from analysis to analytics. Q. Which of the following technology functions or practices does your company currently use to achieve its business goals? Upgrade financial planning, forecasting and reporting applications to enable performance management New data management technologies to address the surging volume of information from multiple sources, or big data Standardized financial platform across the enterprise Adding analytics functions to existing financial systems Consolidate decentralized financial systems Predictive analytics to anticipate outcomes rather than just better understanding past performance Preconfigured and standardized reports Access to financial information via employees’ mobile devices Real-time reporting rather than waiting for batch reports Ad hoc reporting capabilities delivered via self-service without needing IT intervention None of the above Source: Bloomberg Businessweek Research Services, 2012 52% 46% 43% 42% 40% 40% 39% 39% 38% 33% 3% continued on page 8
  7. 7. FEBRUARY 20137BLOOMBERG BUSINESSWEEK RESEARCH SERVICES SIDEBAR Tighten Focus on True Costs and Increase Profitability “The ability to identify and manage your true costs of operations is a requirement for the 21st Century finance team,” says Blythe McGarvie, a former CFO who is now a senior lecturer at Harvard Business School. “Doing this properly means working with business leaders to understand what accountants call TDABC, which stands for time-driven activity-based costings.” TDABC is generally used to understand the entire range of costs associated with a given product or service. TDABC requires a project team to map out every administrative and operational process over a complete product or service cycle. Indirect costs, such as overhead, are not allowed to slide under the radar. In this way, TDABC can help to support strategic decisions such as pricing, outsourcing, and identification and measurement of process improvement initiatives. “A lot of people may have forgotten how powerful a tool TDABC can be,” McGarvie says. It was introduced in the manufacturing sector over 40 years ago but lost favor in the 1990s, when other approaches to cost management came along. “With the global economy growing weaker, it’s crucial to get a detailed and highly reliable picture of what you’re spending your time and money on and what can be trimmed,” McGarvie adds. Profitability Planning TDABC and related analytical approaches are crucial when the time comes to make decisions about the deployment of capital—financial, human and technological. The point is to develop reliable views of how various factors correlate in various ways to generate net operating profit after tax (NOPAT), a financial metric that lets business leaders and equity analysts make judgments about one company’s operating efficiency compared to its industry peers. On a tactical level, here are a few examples of how business decision-makers use profitability modeling to get the highest possible return on each dollar of revenue generated: n Marketing managers want to compare the profitability of product lines or various distribution channels so they can focus marketing budgets on the campaigns with the best yield. n Sales executives want to know which customer segments deliver the highest margins so they can fine- tune their customer retention drives. n Supply chain managers who source from multiple regions like to analyze more than just what raw materials or components cost. They need to factor in transportation, labor and warehousing costs. n Line-of-business managers will want a view of how variations in seasonal demand impact their plans for hiring contract labor and the associated costs. n Hospital leaders who want to improve patient outcomes while reducing costs and providing better service. Armed with granular details about the drivers of cost, “a manager can think like the entrepreneur who doesn’t have extra cash or easy access to capital and has to have all his or her assets work harder and deliver more,” McGarvie says. Surely, in the current economic climate, that mindset can make all the difference. •
  8. 8. FEBRUARY 20138BLOOMBERG BUSINESSWEEK RESEARCH SERVICES Becoming an Effective Business Partner Akin to developments at Bigelow, business partnering with line managers is in full swing at CBIZ, a professional services firm that provides traditional accounting, audit and tax services to midsize organizations. From 2003 to 2008, CBIZ—which trades its shares on the New York Stock Exchange—experienced strong top-line growth. But by 2009, when the recession was hitting CBIZ clients hard, the firm started to experience a modest decline in revenue that latest through 2010. Ware Grove, the CFO at CBIZ, now reports: “Economic activity is now stable, but growth is slow, in the 1-to-2 percent range for organic revenue growth. It’s very clear to us that our clients have learned how to cope with a flat economy. Small and midsize businesses are not hiring and not expanding. As a result, we have had to play some defense with respect to protecting margins.” It is hard to grow margins in a low-growth economy, so cost management is key for many companies. As CBIZ’s Grove puts it: “One of finance’s most crucial roles today is being that good business partner. It means encouraging operating managers to use our operating key performance indicators to plan resources and control costs so they can, in turn, serve our clients well.” Advanced business partnering, planning and performance analysis is not confined to the realm of for-profit entities. Chicago’s Rush University Medical Center has a finance group with strong views about the need to collaborate with other function heads to plan and manage the financial vitality of the organization. Patricia O’Neil, vice president and treasurer, explains: “We have a regular inter-disciplinary review to discuss any emerging financial risks. For instance, if we are in a big capital spending cycle, we’ll work with other functions to analyze at a pretty detailed level when we can expect payments from all sources, including philanthropy. If you are not attuned to the analytical needs of your internal business partners and their goals, then you are not doing your job.” John Mordach, the CFO at Rush, puts it this way: “To be an effective business partner, a finance person has to be able to tell a clear story. ‘Here’s the problem, and here are suggestions for solving it.’ Critical thinking and problem solving are involved. It’s not just presenting numbers.” He stresses the importance of building analytical and communication skills within the finance group. “The more we, as finance, can nurture and evolve these skills, the better business partners we will be.” Growing Interest in User Tools Tools such as financial dashboards are crucial in this effort, according to the finance pros at Rush. “You want to create a performance dashboard that’s easy for operating people to use,” O’Neil offers. “You want them to easily ask and answer: ‘Are we on target or not when it comes to net income or liquidity?’ We have a dashboard like this. And our goal is to have operating people use it and understand it, even if a finance person is not standing over their shoulders.” Figure 5 Which Techs Are They Betting on Next? Serious interest in real-time reporting, greater use of analytics in existing systems and predictive tools that anticipate outcomes are coming on strong. Q. Which of the following technology functions or practices does your company plan to use in the next two years to achieve its business goals? Real-time reporting rather than waiting for batch reports Adding analytics functions to existing financial systems Predictive analytics to anticipate outcomes rather than just better understanding past performance Standardized financial platform across the enterprise Consolidate decentralized financial systems New data management techniques to address the surging volumes of information from multiple sources, or big data Ad hoc reporting capabilities delivered via self-service without needing IT intervention Upgrade financial planning, forecasting and reporting applications to enable performance management Preconfigured and standardized reports Access to financial information via employees’ mobile devices Source: Bloomberg Businessweek Research Services, 2012 40% 39% 37% 36% 36% 36% 35% 32% 31% 25% continued from page 6
  9. 9. FEBRUARY 20139BLOOMBERG BUSINESSWEEK RESEARCH SERVICES That message is apparently not lost on survey participants, the majority of whom indicate their organizations have invested in technologies that enable line managers to exercise strong discipline in both revenue generation and cost control (see Figure 6, “Information Quality Is Crucial,” at right). One company with a deep commitment to using IT wisely in the pursuit of business objectives is The Dow Chemical Company. According to Finance Manager Sandy Hartman- Holbrook: “We’ve been giving our operating leaders performance dashboards to enhance their ability to make effective decisions quickly.” The allure of information mobility is also a theme at Dow. “We’re looking now at ways our executives can use iPads and attractive graphics in meetings to communicate more effectively with peers,” Hartman-Holbrook says. Moreover, Dow recently invested heavily in financial management process automation, which boosts the reliability of financial data because manual data entry is completely avoided. Managing Enterprise-Level Risk—Another Dimension Jeff Burchill is CFO at FM Global, one of the world’s largest providers of commercial and industrial property insurance. With headquarters in the United States and 65 offices around the globe, FM Global earns approximately one-third of its annual premium income (about $1.5 billion) outside North America. The sovereign debt crisis in Europe, which could result in property damage by demonstrators, is one of many risk factors for FM Global and its customers across the continent. To identify, quantify and manage major risks such as this, Burchill’s finance team provides what he calls “‘a whole host’ of predictive analytics to senior management. We do complex modeling of possible correlations. For example, we ask: ‘What if several risk events materialized at once?’” FM Global is, by nature, a risk-assuming business. “So, we’ve always had some quantification of risk on the insurance side and on the investment side,” Burchill says. “But during the last few years, we’ve institutionalized this knowledge and capability.” Now, he adds, “our focus is identifying major risks and getting people comfortable with the idea that if we had a significant, one-in-a-thousand-year event that we’d still be financially vibrant. “ Summary Several powerful forces are converging in a way that elevates the role of the CFO and the finance organization. There is intense pressure on business leaders to make calculated bets on new products, services and markets. But this is playing out at a time when growth does not come easily. It is clear that operating managers need finance professionals to help them analyze, quantify and compare opportunities and risks. At the same time, information management tools and techniques are maturing at a fast pace. So, it is not surprising that the BBRS survey finds the majority of executives keen to upgrade their enterprise performance management capabilities. In this environment, finance has a perfect opportunity to serve as a true business partner—one that uses advanced tools and techniques to anticipate potential outcomes, clarify the economic value of each and recommend the course of action that offers the best shot at success. Figure 6 Information Quality Is Crucial Sound decision support is seen as a strategic lever. Q. How important is each of the following tactics to help your company achieve its top business goals and manage risk? (Percent who indicate it is important.) Increasing investment in IT to reduce costs, increase productivity, find new revenue opportunities, improve employees’ access to information, speed analysis and/or provide more transparent decision-making Investing in developing new products or services to take advantage of market opportunities Changing corporate revenue or net income targets Additional financial hedging to offset global risks Diversification, of either products or geographic markets Divesting underperforming unit(s) Changing business model—more outsourcing, downsizing, shared services, divesting of poorly performing businesses, products or services Source: Bloomberg Businessweek Research Services, 2012 72% 67% 64% 62% 61% 61% 60%
  10. 10. NOVEMBER 201210BLOOMBERG BUSINESSWEEK RESEARCH SERVICES SPONSOR’S STATEMENT How CFOs and Their Teams Can Create Value For many people in Finance, the economic crash of 2008 was the first time in their careers that they had experienced a serious recession. It was simply no longer business as usual, and facing up to it needed special resilience. The anxiety and stress involved in realigning their businesses with the new reality and having to let staff go left deep scars that no one wants to suffer again soon—and let’s hope that is the case. In the months immediately after the crisis, what needed to be done was obvious. Many companies took the knife to expenses and discretionary spending. The result is many of those firms sitting on cash reserves that collectively run to trillions of dollars. However, four years later, consumer demand remains weak, with many Western economies still struggling to deliver sustainable economic growth. So, burdened with burgeoning cash reserves needing to be invested on one hand but faced with low growth and persistent economic uncertainty on the other, it is no surprise that CFOs are concerned about the future, as this report clearly shows. The only thing obvious today is that times were easier a decade ago. Challenged But Confident But if there is any good to come out of the last four years it has to be that the crisis has accelerated the transition of the role of Finance from custodian and bean counter to business partner. It has been written about in the journals of the accounting profession for decades but only realized in recent years, so that today CFOs and their teams are expected to take a leading role in developing and delivering strategy to create value for investors and other key stakeholders. It is clearly a challenging time to be thrust into such a prominent position, but CFOs are confident—nearly 80 percent of the respondents interviewed for this report expect growth to recover over the next 18 months. The more recent quarterly figures coming from some countries give support to their optimism. But to identify and capitalize on emerging growth opportunities—and to steer their companies through the challenges endemic in the current business climate—many CFOs have come to realize they need to invest in performance management solutions that are ‘up to the job.’ That means implementing planning and budgeting cycles that can be counted in days rather than weeks or months and having management reports that give insight into the operational variances underpinning the numbers and possibly leading to better decision-making—and having all of this information as fast as possible, while there is time to act on it. Somewhat fortuitously, the advent of better performance management solutions, new technologies such as in-memory processing that are fundamental to real-time reporting and the ability to proactively provide information to managers on their mobile devices, no matter where they happen to be, are all available today within the SAP portfolio. So much so that when people come to write the history of the information technology industry in the first quarter of the 21st Century, it may well be referred to as a ‘golden age.’ What’s more, they may write that it came at a very opportune moment. Retrospectively, it may also be the golden age of the CFO and the Finance department, too, when—after years of promises— they finally occupy a more central role in the business. They can work alongside their operational colleagues to help them analyze, quantify and compare growth opportunities and risks, in addition to ensuring that sufficient resources are made available to them so they can execute effectively and efficiently to deliver optimum profitability. But we shouldn’t fool ourselves into thinking that it’s always going to be a harmonious partnership. Finance will always be a custodian of cost controls, both in driving down the cost of its own department and in critically reviewing the costs and profitability of the resources, products and customers in individual business units, as is discussed in this research. Central Role for Finance Likewise, Finance will have a central role in allocating resources and even rejecting or curtailing someone’s cherished business opportunity in favor of another that is able to demonstrate a greater return. Sometimes, Finance will have to simply say, ‘No.’ But, ultimately, supported by performance management solutions that provide better insight and timely decision support, their operational peers will recognize the undeniable value Finance brings to the business.
  11. 11. Finally, don’t forget that we are all partly responsible for the lack of consumer confidence and the depressed demand we see today. It is too easy to point the finger at bankers, overzealous real estate salespeople and derivatives traders, when all the time we were only too happy to reap the benefits of escalating property values that fuelled much of the consumer spending during the boom years. The good news, contained in the pages of this fascinating piece of research, is that CFOs are intent on restoring our economies to growth that will benefit a great many people beyond their companies’ stockholders. And with the help of solutions from SAP, they can. Three functional pillars describe the tasks and tools Finance should adopt to support their colleagues: 1. To ensure regulatory compliance and effective risk management, companies can embed risk management and access and process controls all the way through from transactional processing to financial reporting and disclosure. 2. To outperform financial objectives and create sustainable value, organizations design a 360-degree view of both financial and operational performance across their organizations so managers can take better decisions more quickly by breaking down traditionally siloed functions. 3. To deliver superior service at reduced cost, companies can streamline all financial functions—from transaction processing all the way through to financial reporting—and leverage self-service analytics and built- in content. SAP offers a comprehensive portfolio of applications and end-to-end processes that support these pillars, including SAP solutions for enterprise performance management (EPM); SAP solutions for governance, risk and compliance (GRC); and the SAP ERP Financials solution. SAP can help you achieve financial excellence with strong cash flow and liquidity, compliant and accurate financial reporting, and maximized profitability while reducing the cost of finance, thereby freeing up time to partner with the organization to drive value creation. For More Information Learn how to achieve a 360-degree view of the enterprise and drive financial excellence at the CFO and Finance Leadership Center, featuring thought leadership, solution details, case studies and customer events. Visit the site at www.sapcfo.com. SAP Solutions for Finance SAP’s portfolio of applications to support financial processes is deliverable via any or all of four channels— on-premise, on-demand, on a mobile device or in-memory.

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