Chief finance officers around the world face a delicate balancing act in 2016 as they seek to address multiple and often conflicting priorities. Finance must enhance its ability to support corporate strategies through analytics and information integration in the face of reductions in budgets and staff, according to new Finance Key Issues research from The Hackett Group, Inc.
The research also identified the five most common transformation initiatives finance organizations expect to use to address these priorities in 2016: improving leadership skills; re-engineering processes; improving performance management capabilities; developing a finance technology road map; and rolling out of business intelligence and analytics applications.
"Looking at the top finance strategy priorities for 2016, it's not hard to see how they are related," said Jim O'Connor, Principal and Finance Advisory Practice Leader. "The number one priority is to focus on integrating enterprise information in support of better analytics and improved corporate decision-making."
O'Conner notes that finance is in a unique position within the company, with access to all of its financial and much of its operational data.
"By better integrating this data through Enterprise Performance Management and business intelligence systems, finance can help companies understand performance, improve forecasts, and take action to close gaps and take advantage of opportunities.
"In order to accomplish this, finance needs to improve its capabilities in business partnering, relationship management, predictive forecasting, and its facility with analytics," said O'Connor.
"And they need to do this in the context of challenges to revenue growth and an array of increased business risks, which hang like a dark cloud over the business environment in 2016. Companies are focusing on cost reduction across the enterprise, and this is clearly an area where finance can take a leadership role."
Cost reduction remains a priority
The Hackett Group's research found that cost reduction remains a priority, with finance budgets projected to shrink by 0.5 percent in 2016. Staffing is projected to fall by 2.7 percent. In the context of expected revenue growth of 3.7 percent, this creates a growing gap in productivity and efficiency that finance must address in tandem with any improvement efforts.
One key element of the focus on finance cost reduction is the implementation and expansion of Global Business Services (GBS) operations. Finance leadership look to their GBS organization to take on more activities and deliver both cost savings and productivity gains.
"Many companies have now maximized their ability to cut labor costs through offshoring and outsourcing," says Martijn Geerling, The Hackett Group Associate Principal and GBS Executive Advisory Practice Leader. "But the GBS operating model continues to be a way to drive additional value."
Geerling notes that in addition to enabling companies to realize economies of scale, the GBS model allows companies to deploy digital technologies more effectively and deliver the productivity gains demanded by finance leaders and company leadership.
"Moreover, it allows companies to implement end-to-end processes more effectively, and find value in collaboration and integration with other functions such as procurement, HR, and IT," says Geerling.
5 specific transformation initiatives
In all top priority areas – integrating enterprise information, achieving a competitive cost structure, and formulating strategy with the business – The Hackett Group found significant shortfalls between their importance and finance's capabilities, and recommends that leaders narrow their focus to five specific transformation initiatives in 2016:
Improve Leadership Skills – Finance needs to move beyond the long-standing approach of promoting based on technical accounting and technical financial skills, and take a long-term approach to building skills that demonstrate business acumen, including persuasion and motivation, planning and organization, taking initiative, and decision-making.
Reengineer Finance Processes – With no additional funding, finance functions will need to free resources from lower value areas in order to deliver on higher value services, such as enterprise performance management (EPM). The concept of reengineering has been around for decades, but advances in technology are game changers for finance as it looks for ways to revamp processes and be more responsive to customers.
Improve Performance Management Capabilities – Improving performance management capability helps finance identify areas of opportunity in strategy, integration, and cost reduction. It also helps finance improve its own as well as enterprise agility. Companies with superior EPM capabilities outperform their peers across an array of financial metrics.
Develop a Finance Digital Transformation Roadmap – A roadmap is vital to navigating the array of technology innovations available, including social media, mobile, analytics, cloud. Finance organizations must clearly detail goals and potential customer benefits, and ensure that decisions are aligned with the direction of the company's overall IT architecture, business strategy, and the current and future needs of internal customers.
Roll Out BI/Analytics Applications – The principal area of planned investment in new technology within finance involves extending the value of business intelligence and analytics by unlocking the value residing in companies' vast stores structured and unstructured data, which goes far beyond traditional financial data.