How to Become a King of Financial Management

As the operations of enterprises continue to grow in complexity and regulatory compliance becomes more challenging, the demands placed on the finance function increase dramatically.
 
To respond to those demands, finance organisations must become increasingly productive and sophisticated. In other words, ‘finance mastery’ — achieving excellence or the right level of skill needed to support the business model and enterprise strategy — is now a critical driver of overall enterprise success and high performance.
 
What does it mean for a finance organisation to be a ‘master?’
 
In Accenture’s 2011 global study (Delivering Value in a Complex World: The Next Battleground for the Finance Organization), we determined mastery largely based on a series of comprehensive finance performance metrics reported by participating companies and governments.
 
The Accenture research team then applied an algorithm to determine mastery using performance in three key areas of finance: core accounting, cost of finance, and delivering value.
 
Enterprises outperforming the overall group were classified as masters, while those underperforming the overall group were designated as non-masters. ‘Underperforming’ meant the organisations scored relatively low on core accounting and/or cost of finance and scored nothing on delivering value.
 
Having defined the characteristics of finance masters, and identified the respondents in our study that met those qualifications, we explored how masters and non-masters compared in their enterprise’s strategic focus, as well as their perspectives on the factors affecting the finance organisation and ways in which they were addressing those factors.
 
Strategic Focus
Finance masters were more likely to be focusing on an even split between growth and cost control (39%), compared with non-masters (26%). Non-masters were more apt to be geared toward cost control (48% versus 39%).  
 
Asked what they planned to do in the next 12 months, 54% of finance masters said they would strengthen the focus of their finance function on a balance between cost control and growth. Only 12% said they would be focused on cost control.
 
Conversely, nearly three in 10 non-masters still planned to have their finance organisation focused on controlling costs, despite the fact that just 16% believed their overall enterprise will be focusing on that objective in a year’s time — placing non-masters out of step with the greater enterprise’s growth agenda.
 
Maturity of Finance Capabilities
In our analysis, we sought to understand if masters by nature were more likely to have more advanced capabilities — perhaps explaining why these organisations were masters.
 
As we compared the inputs of masters and non-masters to the maturity of their capabilities, it became apparent that there were areas in which the two groups were similar and others in which they diverged, sometimes substantially.
 
Masters generally are more likely to be satisfied with their finance capabilities across the five broad categories of finance (see chart below). The biggest gaps are in enterprise performance management (13 points), finance function management (12 points) and corporate finance (12 points).
 
Click image to enlarge
Masters vs. Non-Masters: Satisfaction with key areas of finance
 Source: Accenture
 
Digging more deeply into each of these categories, we found masters and non-masters were similar in how they rated the maturity of the capabilities that could be characterized as the basics of finance (see chart below).
 
Click image to enlarge
Masters vs. Non-Masters: Advanced capabilities in finance basics
 Source: Accenture
 
Conversely, masters were more likely than non-masters to have advanced capabilities in the areas we would consider more value adding — such as finance function strategy and structure, value-centered culture, strategic planning, target setting, budgeting and forecasting, performance reporting and analytics, treasury, and financial risk management (see chart below).
 
Such value-adding capabilities are instrumental in enabling the finance organisation to transcend the confines of its own domain to engage with and help the broader enterprise substantially improve its overall financial performance—and they are areas in which masters excel.
 
Click image to enlarge
Masters vs. Non-Masters: Advanced capabilities in value-adding areas
 Source: Accenture
 
Value-Oriented Practices
Beyond improving value-oriented finance capabilities, finance organisations can more effectively support the business by engaging in the practices that business leaders expect from a sophisticated, high- performance finance organisation — and that masters are more likely than non-masters to employ (see chart below).
 
Click image to enlarge
Masters vs. Non-Masters: Practices to deliver value
 Source: Accenture
  
These practices include:
 
  • embedding the finance organisation in the larger enterprise
  • improving finance capabilities
  • proactively addressing regulatory changes
  • expanding into strategy and high-level decision making
  • delivering more data and providing analytics to the enterprise
  • identifying growth opportunities
 
The responses from masters suggest taking too narrow of an approach to addressing key finance challenges may be detrimental to the finance organisation’s overall performance.
 
We found that masters generally leveraged more of the practices and capabilities available to them to help address and manage volatility, responded to an increasingly difficult regulatory environment, and developed and maintained the advanced finance skills they require.
 
Similarly, we discovered that masters were planning a broader array of initiatives in the next two years to improve finance organisation performance. Masters were especially focused on:
 
  • implementing or extending shared services
  • investing in standard and advanced enterprise performance management capabilities
  • deploying new workforce programs
 
Implications for the Future
The relative success of the best finance organisations in the past three years is largely the result of effective cost and risk management. While these will remain essential capabilities, they will not be enough to ensure continued high performance.
 
As markets stabilize and growth opportunities return, finance must balance its focus on cost and risk with additional capabilities to capture the opportunities and meet the challenges of the next few years. Considering the findings of our study and our experience working with leading finance organisations around the world, we see seven themes driving the finance agenda.
 
Growth Agenda: Many global organisations are seeking to drive growth across a broad range of markets. In today’s ‘multi-speed’ world, where economic growth rates vary widely, finance has a key role to play in balancing an organisation’s focus on slower-growing, more mature markets with the desire to tap into the faster-growth prospects in emerging markets.
 
Among the strategies available to organisations is aligning performance metrics, reporting and analysis to the characteristics of different markets, while also looking to optimize overall enterprise performance.
 
Flexible and Responsive Finance Operating Model: Our study clearly indicates that both business and finance leaders consider volatility to be a permanent feature of the global marketplace. To deliver value in a consistent and timely fashion in such an environment, high-performance finance organisations are developing a flexible and responsive operating model that allows for the early identification of changing business conditions and rapid response to unforeseen events.
 
Finance can continue to drive enterprise value creation by creating a balanced global/local model that combines scalable, cost-effective core finance services and capabilities with high-caliber, front-line talent possessing deep local market knowledge and strong finance advisory skills.
 
Top-Flight Finance Talent: As companies continue to upgrade their basic finance capabilities by investing in infrastructure and technology, the determining factor of finance value increasingly is becoming the skills and knowledge of finance professional staff.
 
Front-line finance support is moving from a transaction processing, accounting and control focus to a strategic, market-driven, forward- looking perspective that demands different skill sets.
 
Our experience working with finance organisations across the globe supports Accenture’s position that investing to attract and develop talent can provide high-value support to business leaders across diverse markets and geographies.
 
Data into Insight: The ability to effectively manage the ever-increasing volume of data available to an organisation is a key requirement for rapidly identifying and acting upon opportunities or threats that emerge over time.
 
Business leaders are increasingly looking to their finance team to filter, synthesize and analyze financial data to distill the key information and insights that can impact current and future performance.
 
Consequently, finance organisations may find themselves having to upgrade their performance management and analysis processes to rapidly turn data into forward-looking insight that enable business leaders to make fast, confident decisions.
 
Operational Excellence: Our work with leading finance organisations indicates continued efforts to drive cost and productivity improvements across core finance operations. This also helps to free up professional staffs and equips them with the time, tools and information to be a valued partner to senior business executives.
 
But finance also has a broader responsibility to ensure that the organisation as a whole does not relax its focus on operational and cost efficiency as markets improve. Finance must ensure that complacency and waste do not creep back into the organisation.
 
Regulatory Compliance: Two forces are driving the need for finance to focus more on assuring regulatory compliance. First, as companies expand their global footprint, the regulatory requirements they must meet become more numerous and complex.
 
Second, new regulations continue to emerge and must be addressed. Finance has to make regulatory compliance a non-issue by ensuring that finance can understand and apply new or changing regulations in a timely and cost-effective manner without those regulations becoming an impediment to the business.
 
Cash and Capital Allocation: Permanent volatility and uncertainty will make long-term planning and resource allocation challenging, yet critical. With many companies sitting on large cash reserves, finance has a responsibility to ensure that cash and capital are effectively managed and deployed. They can do this by helping to determine the right mix of re-investment in the business, M&A, debt servicing, and return of capital to shareholders through dividends and share buybacks.
 
Conclusion
The criteria for high performance are changing, and merely doing the basics well at low cost is not enough. Business leaders want their finance organisation to deliver increasingly sophisticated levels of service and continue its evolution as a true partner in the business.
 
Forward-looking CFOs are setting a clear vision to meet those expectations, and putting in place the practical actions to position their finance organisation for success in today’s increasingly volatile and complex world.
 
About the Author
Accenture is a provider of management consulting services worldwide. This article is an excerpt from the Accenture research report Delivering Value in a Complex World: The Next Battleground for the Finance Organisation in the ASEAN Region, and was re-edited for clarity and conciseness.  
 
Photo credit: shutterstock   

    

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