Forecasting has always been an inexact science, and the incredibly uncertain nature of today’s political and economic environment has certainly not made it any easier to set out a vision for 2017. And yet that’s what all CFOs are required to do as they develop projections for the new year, and work proactively with commercial leaders to set testing but realistic goals for their businesses.
As they plan for the next 12 months, one of the first ports of call for many CFOs is the CEB International CFO Forum, the peer group that brings together the finance heads of the Asian operations of multinational companies.
The Asian subsidiaries of multinationals spend an incredible amount of time integrating global acquisitions, and 2017 is likely to prove a busy year, with expectations that M&A activity worldwide will continue at a high level
The common questions are “What are you hearing?” and “What are the expectations, not only in my industry, but in the broader foreign business community?” Our members – representing the Asian operations of some of the world’s largest companies – consistently use the group to poll their peers on business conditions, economic expectations and finance-function best practice.
Volatility in the economic and policy arenas is clearly occupying the minds of CFOs of multinationals operating in Asia; equally, developing the capacity of the finance team to proactively address uncertainty and deliver unique insights to commercial teams is high on the agenda for 2017.
I regularly sit down and write a note detailing what I’m hearing from our members and other finance heads in the Asian region, together with the wider network we maintain among journalists, observers, political leaders, policymakers and investors, and distribute this among members and select CFOs that I’d like to engage in the group.
Here’s what our members are telling us about their agenda for 2017.
One: Know the challenges
One of the most significant challenges CFOs faces from a commercial viewpoint – apart from actually delivering on goals – is setting them accurately in the first place.
Significant political upheaval in major global markets such as the US and Europe is already impacting the decisions of the parent company. Add to this challenges and change in many Southeast Asian markets, and it becomes increasingly difficult to forecast demand on the one hand, and costs on the other.
Benchmarking your expectations with those of a broad group of peers thus becomes a very worthwhile exercise.
Two: Educate the head office
CFOs are also telling us they face challenges in helping head office identify and address opportunities in Asia. Guiding the parent company to correctly segment markets is critical to ensuring that investment teams at the headquarters level have a good understanding of market dynamics, and can correctly identify growth opportunities.
There’s no shortage of information to hand, whether it be from groups like our own, from the media, or from consulting firms. What’s difficult is identifying what’s important, translating it so it makes sense from a company point-of-view, and then highlighting the critical data for head office consumption.
Having done this, CFOs find they have to spend significant amounts of time reinforcing the learning. Educating head office is not a ‘set-and-forget’ process.
Three: Prepare for post-merger integrations
The Asian subsidiaries of multinationals spend an incredible amount of time integrating global acquisitions, and 2017 is likely to prove a busy year, with expectations that M&A activity worldwide will continue at a high level, particularly in technology and healthcare.
It’s a common joke that M&A means jobs for lawyers and accountants, but the amount of internal activity generated is also incredible. The CFO focus for 2017 is making sure these integrations proceed smoothly without derailing day-to-day business activities.
The same applies to the frequent and often-convulsive restructures multinationals go through: country/region to global/business unit; Asia Pacific to emerging markets; and back again. Making it work quickly is critical, and being prepared for more change is part of the job specification.
CFOs are focused on ensuring the finance team concentrates on activities that deliver value, and has the right mix of skills to do so
Four: Drive the growth agenda
Identifying how finance can best drive the business’ growth agenda will definitely occupy CFO time in 2017. As arguably the most collectively numerate organizational function within the company, finance has a special responsibility for identifying growth opportunities and keeping business decisions reality-based.
One of our member CFOs warns that includes helping the commercial side of the organization see the bigger picture: “This is a sales-driven organization – the thinking is often short-term. It’s down to us to create the sustainable growth story for the company”.
Another CFO member describes this process as “bringing strategy down from the clouds”. This is done by “making it relevant to people, through carefully selected performance measures … this is what connects teams to the company vision.”
Five: Ensure the right mix of skills
Finally and most importantly, CFOs are focused on ensuring the finance team concentrates on activities that deliver value, and has the right mix of skills to do so.
Business partnering implies more cross functional teams, more collaboration, more collective decision-making, more negotiation, and more shared responsibility for business outcomes – a long way from the traditional, arms-length, ‘yes or no’ organizational logic of the past.
The kind of attitudes, skills, tools, processes and behaviors that make for an effective finance function are changing, and CFOs are working with their teams to make sure they are ahead of the curve. Some finance functions will thrive in this new world, while others may wither, and the leadership CFOs provide will be decisive.
A willingness to question conventional wisdom, build and make the case for change – while not forgetting the basics – and an ability to execute with energy, enthusiasm and commitment are the requirements – while an occasional touch of inspiration is always welcome.
That’s a pretty hefty agenda. Points 1 and 2 can be addressed by increasing exposure and understanding of macro factors through speaking broadly to peers in different industries, reading widely and engaging with outside observers.
Points 4 and 5, the internal demand for a great finance function, are best addressed by informal benchmarks not only against ‘best practice’ but against other multinationals making similar shifts.
About the Author
Simon Hayes is based in Singapore as Director of CEB's International CFO Forum, a peer network and briefing service for the chief financial officers of multinational subsidiaries. He can be contacted at [email protected].