IBM has announced the findings of a major new study of over 1,900 CFOs and senior finance executives from 81 countries and 35 industries worldwide, which reveal that more than 60% of CFOs plan major changes to respond to the new economic climate. Across the ASEAN countries, close to 50 organisations participated in the study.
Global CFOs and senior finance executives believe the already intense pressure on three fronts — reducing the enterprise cost base, making faster, more accurate decisions and providing more transparency to external stakeholders — will increase over the next three years. The study's results show that ASEAN CFOs see the need for faster decision making as their number one external challenge for the next three years, as opposed to pressure to reduce the cost base. The fact that ASEAN is a growth market probably explains the greater emphasis on speed and growth, although 72% of ASEAN CFOs do expect “pressure to reduce the cost base” to increase. ASEAN CFOs understand the need for profitable, sustainable growth and also recognize the threat posed by low-cost competitors from China, India and other emerging economies.
The IBM study is the largest sample of CFO sentiment during the worst economic downturn in decades. As part of the impetus for change, study participants ranked “providing inputs into enterprise strategy” number one in the global results, when asked what was most important. Surprisingly, cost reduction was not at the top of the CFO agenda. However, they also revealed a major gap in organizational effectiveness, as only 50% feel their finance organizations are currently effective in providing the necessary business insight to support these broader enterprise priorities.
The study also found that ASEAN CFOs are in line with their global peers, who take a prominent role in enterprise decision and rank it as highly important — making, acting as an advisor or decision maker, rather than just as an information provider, especially within the areas of enterprise decision-making, such as business model innovation/reshaping. The ASEAN CFO, like his global peer, recognizes that significant performance gaps still exist. An area highlighted as a challenge which needs to be improved was driving information integration across the enterprise. It will be challenging as much less than half of the ASEAN respondents believe that their finance organisation is effective at it. CFOs need to work with the CIO and other C-level executives to improve the way financial and non-financial data is captured, stored and used across the enterprise, as this problem cannot be solved without the collaboration of the entire leadership team.
In the area of providing business insights, ASEAN CFOs were found to be much less effective than their global peers. For example, three-quarters of ASEAN CFOs were not satisfied with their finance organization’s operational planning and forecasting analytical capability and more than 60% believe that they are poor to average at anticipating external forces. ASEAN finance organisations are much more likely than their global peers to manually produce operational and
financial metrics produced manually.
Given that ASEAN CFOs expect demands for faster decision-making to increase, they need to invest in new capabilities, including developing their staffs’ analytical skills as well as fixing data, technology and process barriers to providing better insight. Unfortunately, we found that only one-third of ASEAN CFOs believe that they are effective at developing their people, compared to half of CFOs globally.
Since IBM’s first CFO study in 2003, CFOs have continually stated their aspirations to shift more focus to analysis and decision support, however few have made significant progress shifting the workload. Among Finance’s effectiveness gaps, the largest is in the area of driving integration of information. CFOs’ responses indicate this is a major enabler for practically every area of business insight, but, at the same time, show just how difficult this kind of integration is to accomplish.
The CFO study results indicate that the issues identified in the global study are just as relevant to midmarket companies as they are to large enterprises. “Midmarket CFOs and their finance organisations are finding a much louder voice in corporate decision making,” says Tim Wong, Vice President for General Business, IBM ASEAN. “This makes it all the more important for
CFOs to provide deep insights around their companies’ financial performance which can be used to drive their companies’ agenda for growth.”
The mid-market cut of the CFO Study results (Global) show that Mid-Market CFOs struggle just as much as their peers in larger enterprises in the areas of finance efficiency and business insight. (Mid-Market enterprises are defined as those with annual turnover of less than US$500 million.) Despite being smaller, Mid-Market enterprises find it just as hard to maintain common
data definitions and processes, common reporting and planning platforms, They are no more satisfied than other CFOs with their operational planning and forecasting analytical capability or their ability to anticipate external forces.
From the banking cut of the CFO Study Results (Global), 85% of banking CFOs expected "demand for external transparency (e.g., Board, shareholders, taxpayers, regulators)" to increase in the next three years, compared to only 69% of CFOs across all industries. This is not surprising given the role of banks in the global economic crises. The challenge for banking CFOs is to decide how to respond to demands for greater transparency – focus on compliance with rules and regulations or proactively provide stakeholders with more information. Another interesting finding is that 30% of banking CFOs do not play a role as advisor or decision maker in risk management. This is probably due to the fact that many banks have separate risk functions with their own chief risk officer, but such a result is still a surprise as this means that many banking CFOs play no role beyond that of information provider.
One group of CFOs, dubbed “value integrators,” were found to consistently outperform their peers in all key financial metrics by driving two key qualities across their organization:
- Finance efficiency – The degree of common process and data standards across the organization
- Business insight – The maturity level of Finance talent, technology and analytical capabilities dedicated to providing business optimization, planning and strategic insights.
Value integrators have found a way to excel and navigate an uncertain economic climate. The study indicates that enforcing process and data standards, integrating information and applying business analytics are key capabilities that enable improved business insight and risk management.
In fact, when compared to their peers, their enterprises outperform on every financial measure assessed, including return on invested capital (ROIC), revenue growth and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).
Since value integrators enjoy proportional representation across various dimensions of the data sample, their performance signals better practices and is not just a consequence of industry, geography or company size. Their finance operations reflect a pervasive corporate philosophy that encourages integration across functions to make smarter decisions that lead to better overall performance.
Many CFOs feel their finance organisations are more comfortable providing “tail lights” rather than “headlights.” With the appropriate analytical capabilities spanning process, technology and talent, results of the study indicate finance can turn this wealth of financial and operational information into business insights, where decisions are no longer made on intuition, but are fact based.
Many respondents indicated that these capabilities can help finance uncover correlations among seemingly unrelated pieces of information and find patterns nearly impossible to detect manually. In many ways, finance’s persuasiveness as strategic advisor hinges on having superior business insight capabilities.
Businesses and governments need more advanced data analyses, scenario planning and even predictive capabilities to contend with rising complexity, uncertainty and volatility and, in certain regions, sustained lower growth.
Becoming a Value Integrator
The study findings indicate that CFOs are increasingly playing a significant role on strategic and operational matters to help the business make better decisions faster. Value integrators, at their core, integrate both efficiency and insight.
"Value” conveys finance’s contribution to helping manage the enterprise, while “integrator” conveys the importance they place on standardizing and integrating information and processes, necessary enablers to partner effectively with the business.
Value integrators are more than just information clearinghouses. Finance’s mission should be helping the company think as an overall business instead of individual areas. Not surprisingly, Value integrators indicated that a top priority was attracting and retaining the right talent and developing people in finance in support of these increased demands.
The IBM study says that value integrators – more than any other group – are equipped to advise at an enterprise level. They are positioned to evaluate business opportunity and risk in an end-to-end context and recommend difficult trade-offs among units, markets and business functions.