IBM: The CFO's Role in Driving the Recovery

by Vincent Wong, IBM, 14 October 2009

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cash flow first mover advantage IBM recession recovery Vincent Wong

With Hong Kong’s economy moving out of recession, growth in China accelerating and signs of an emerging recovery in North American and European markets, you could be forgiven for thinking that the role of the CFO was about to become a lot easier than it has been over the last 12 months.

In fact the opposite may well be true: it’s about to get even more complex as CFOs now face tremendous challenges in forecasting the recovery as they prepare business plans for FY2010, while dealing with weak balance sheets, managing working capital and coping with tight credit conditions.

Finance will be a critical part of company strategy as the economy transitions.When markets turn, the best returns go to those companies that respond quickly – now is the time for bold moves, disruptive strategies and positioning to win. CFOs have never been better positioned to help create a more intelligent, dynamic and integrated enterprise to navigate the new economic environment as they help their companies seize opportunities available in the recovery.

Leading in Turbulent Times

Over the last decade, the role of the CFO has been steadily morphing towards a more strategic position driving greater value in the enterprise and holding more statutory responsibilities. Then, in the third quarter of 2008, CFOs were thrown into the spotlight to implement emergency measures as markets and economies began to slide. Until this point, CFOs had traditionally focused on maintaining their income statements, but the rapid deepening of the recession shifted this focus to the balance sheet.

In the current business environment, cash flow is central to survival and strategic flexibility. A company’s current and expected cash position is just as important as its income stream when considering most purchasing decisions. As a result, CFOs are applying more scrutiny to spending and investments and more power is shifting to them as they become key players and leaders in major decisions. They are looking at every investment that the company considers and asking “Is this investment really necessary right now?”

A recent global poll of CFOs undertaken by Duke University provides some insight into how CFOs are answering that question. According to the survey, CFOs in the U.S. expect capital spending to decline by three percent over the next 12 months with tight credit markets continuing to dampen recovery efforts. More than half of U.S. CFOs surveyed say the credit market has proven detrimental to their business.

By comparison, CFOs in China are generally more optimistic than their U.S. and European counterparts and plan to increase capital expenditure by six percent over the next year, reflecting the earlier recovery in Asia. During this period of economic transition from recession to rebound, Hong Kong and China CFOs have an opportunity to lead a plan for the business that identifies opportunities to restructure, preserve capital and streamline operations, as well as tap into growth opportunities.

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