Finance function in global business scenario


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Finance function in global business scenario

  1. 1. Finance function in global business scenarioFinance is the lifeblood and nerve center of a business, just as circulation of blood isessential in the human body for maintaining life; finance is a very essential to smooth running ofthe business. It has been rightly termed as “universal lubricant” that keeps the enterprisedynamic. No business, whether big, medium or small can be started without an adequate amountof finance. Right from the very beginning, i.e. conceiving an idea to business, finance is neededto promote or establish the business, acquire fixed assets, make investigations such as marketsurveys, etc., develop product, keep men and machine at work, encourages management to makeprogress and create values. Even an existing concern may require further finance for makingimprovement or expanding the business. Thus the importance of finance cannot be over-emphasized and the subject of business finance has become utmost important both to theacademicians and practicing managers. The academicians find interested in the subject becausethe subject is still in its developing stage and the practicing managers are interested in the subjectbecause among the most crucial decisions of a finance.Finance functions:The functions of finance that includes tax, treasury, risk management which will contribute to theachievement of the strategic objectives and goals of the company.Importance of finance functions:The importance of finance has arisen because of the fact that present day business activities arepredominantly(Much greater in number or influence) carried on company or corporate formof organization. The advent of corporate enterprises resulted into:The increase in size and influence of the business enterprisesWide distribution of corporate ownership andSeparation of ownership and management.The above factors have further increased the importance of corporate finance. As the owners in acorporate enterprise are widely scattered and the management is separated from the ownership,the management has to ensure the maximization of owner’s economic welfare. The success andgrowth of a firm only by maximization of principles and procedures as lay down by corporationfinance.The knowledge of the discipline of corporation finance is important not only to the practicingmanagers, but also to others who deal with a corporate enterprise, such as investors, lenders,bankers, creditors, etc., as there is always a scope for the management to manipulate and‘window dress’ the financial statements.In the present day capitalistic regime, the size of the business enterprises is increasing resultinginto corporate empires empowered with a lot of social and political influence. This makescorporate finance all the more important.
  2. 2. Further, if we refer to corporate finance as the financial management practices by business firms,the importance of financial management can well be described as the importance of corporatefinance.Role of finance:The role of finance has been emerging from a conventional viewpoint to an innovation viewpointin current competitive business world.Conventional view – It is operational and risk focused.ReactiveEfficientNumber crunching quantitativeRisk averseInnovation view – It is lateral and forward thinking skillsVision – orientedOpportunity and growth focusIntuitiveRisk-takerImpact of finance function:In ever changing competitive business environment, its vital to re-examine the role of financefunction due to the following change drivers:Gaining importance of finance in strategic roleHigher volatilityFinancial evaluation of Mergers & AcquisitionsInformation economyMitigation of evolving business risksNew organizational hierarchy roles and requirementsIssues – Finance role:In today’s competitive world, the roles and responsibilities of finance and accounting functionsare facing key knowledge and skills related issues such as:Lack of consistency in the current process which in turn will impact the transparency offinancial reporting abilitiesEver growing demand for knowledge workers in finance and accounting field in the marketplaceLack of focus on internal compliances and control issues like Sarbanes-Oxley and Basel II lawframework
  3. 3. Focus on aligning the finance and accounting role as a strategic advisors and also businesspartners in order to understand clearly operational realities to identify future growth andopportunity in the business.Modern finance function :There are 4 key roles in any organization in present day scenario:Steward – Has control over assets of the organization with meeting all compliance standardsto mitigate business risks involved in the processOperator – Create a strategic framework to monitor the efficiency of finance process which inturn will drive cost effectiveness factor across the organizationStrategist – Acting as a strategic advisor to align the organizational goals in tandem withachieving the operational realities by means of measuring and analyzing organizationperformance with interpretation of financial information in the organization.Catalyst –Acting as change agent to execute and monitor necessary changes to achieve theoverall strategic objectives of the organization be means of aligning all the above 3 key roles intandem