Journey to a ‘value integrator’

Role of a CFO in the current market, challenges and risks discussed at CA Sri Lanka forum

By Cheranka Mendis

In the ever-changing, increasingly competitive business landscape of the world, the role of a Chief Financial Officer (CFO) is expanding at a rapid pace, moving away from the traditional role of preparing books and reporting performances of enterprises to a wider role that is better integrated in the operations of the organisation.

Amidst fluctuating energy costs, price increases in commodities, currency fluctuations, cost cutting and diversification, the role of a CFO is a demanding one with his or her key priorities lying in reducing cost, improving efficiencies and becoming a better strategic partner in the business.

At a CFO forum organised by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) in association with IBM Sri Lanka on Tuesday, Director and Partner of GBS Enterprises and Geo Expansion Leader of IBM Global Services India/South Asia Sachin Seth shared his insights on the growing role of CFOs and the current trends that CFOs should keep an eye on.

Sharing the findings from the ‘Global Chief Financial Officer Study’ by IBM in 2010 which was conducted by studying 1,900 CFOs from the world over and a follow-up study in 2012 with 15 of those companies, Seth noted that there are currently four types of finance organisations in the market.

The quadrant market of CFOs

The IBM 2010 CFO study shows a quadrant of performers in the CFO market in which the value integrators displayed a top-tier performance above and beyond the others. When analysing the groups of companies, the four categories were from the least mature profile, those that act as scorekeepers, constrained advisors, disciplined operators, and at the very top, value integrators.

Seth noted that moving to move away from the ‘record keeper’ tag, the basic requirement was that a CFO organisation must be a scorekeeper. The organisation must have data recording, have control of the various policies of organisation and multiple versions of ‘truth’ – a version of the revenue side, income side, etc.

“CFO organisations most of the time struggle to get a single view of the organisation in terms of where they stand as a company at ant given point of time,” he said.

Constrained advisors on the other hand are the type of organisations that have analytical capabilities but who are not good at executing them with fragmented data and lacking focus on performance. These are operations that focus on the trend in the past few years and looks at cost reduction, how to optimise, and other initiatives such as shared services.

The disciplined operators are focused on finance operations. Even though it has a lot less analytical data, organisations in this category are taking the best possible measures to control cost, manage resources in a minimum finance function, and manage a low cost operation vis-a-vis total revenue of the organisation.

“The value integrators are the organisations that are highly focused on performance optimisation,” Seth said. These organisations have predictive insights, a ‘what if’ kind of analysis, enterprise risk management tools, and good business decision making coupled with financial insights.

From the survey conducted 33% falls in to the category of scorekeeper, 12% in to constrained advisors, 32% disciplined operators, and 23% value integrators.

Differentiation factors at the top

Seth expressed that from the feedback received during the survey, value integrators were identified to excel in two key areas – finance efficiency and business insight.

“CFO organisations typically focus on finance efficiency. However there is still a need to take it up to another level. Many of the clients were conglomerates and therefore need to follow the corporate philosophy of the standards as well,” he said.

On to providing business insights many Chief Financial Organisations were focusing on the job of providing efficient finances to the business and being in certain parts of control and compliance, Seth expressed.

“They were not really integrating themselves in to the business. Companies need to get in to operational and forecasting capabilities, and finance development. They must also look at a common platform that could be used from sales to operations to finance.”

In other words value integrators are placed high on both dimensions having strong business insights coupled with finance operations that are competent and utilises optimal practices to streamline silos of information and critical processes.

Catalysts for transformation

As value creators these companies (value integrators) have certain value catalysts which have driven them to look at a value driven approaches.

Seth listed four catalysts for finance transformation:

Growth in margin management – focuses on improving financial functions across organisations, looking at globalisation and rightsizing administrative functions.

Crisis survival mode – organisation that have taken transformational initiatives due to economic, industry, and internal disruptions threatening ongoing survival of the enterprise.

New leadership – Changes  in CFO leaderships could work well when those with previous experience of doing transformational exercises elsewhere comes in and drives the performance of organisations

Entity restructures – business model innovation through M&A, spin-offs, IPO, and restructuring has helped global companies transform their businesses.

“It was like a playbook for finance transformation,” he said. “Many of the companies did not plan to do transformations. However most did very similar things which had to be done. Most companies dedicated sources to improve certain areas, and received support from the top management.” Technology simplification is the most common starting point and the common path is transparency and then insight.

There is also a focus on the people. Seth noted that a commitment from top to bottom is vital and that success in this field requires open-mindedness and a relentless execution focus. Execution sponsorship and rigorous planning are also essential.

Finance transformation business cases

The finance transformation business case has broader enterprise benefits beyond those in a traditional finance centric business case.

In a traditional finance centric business case, organisations look at reducing cost of finance as a percentage of revenue, and finance standardisation and automation to achieve benefits.

In an enterprise business case the finance benefits can be achieved by reducing indirect procurement sourcing against spending, improving working capital against receivables and payable balances, enhancing risk, controls, compliance and business agility, and better strategic investment decisions. “Finance people bringing the right perspectives to guide the business in investing in new business models, use of capital, and risk involved can help the business improve.”

Seth expressed that the most prevalent transformation path is to move up and build commonalities and then invest in analytics and consultative skills. Workflow-enabled single instance technology, process ownership by super process, and advanced alternatives delivery models for transactional activities will support the idea of building commonalities, he said.

To create a path to higher value, organisations must look at data warehouse coupled with automation of data and business rules engine, advanced alterative delivery models for decision support, and talent and leadership development which is a key agenda that supports growth of an organisation.

Levers to achieve high performance

To become a value integrator, there are five levers organisations must look at. They are technology, process, analytics, target operating model, and skills of people.

Under technology, one must look at leveraging common finance applications to accelerate standards and use proper analytics technology, while under process driving finance process commonalities and using process ownership to accelerate standards needs to be adhered.

“Driving financial and non-financial data commonalities and integrating information across enterprise is vital to become a value integrator,” Seth asserted. While that falls directly under analytics, under technology, controlling common finance applications to accelerate standards and use proper analytics technology lists under the lever of technology.

Seeking the proper balance of skills and capabilities for finance transactional, control/risk and decision support is also an essential factor to become a Value Integrator. The distinguishing success factors are the soft side of people and culture, he said. “Strong resources at an executive and project level, full time core implementation team containing some of the top talent, execution focus, and a culture of continuous improvements are vital for the development of soft skills in a company.”

Seth said: “In the future each of the value integrators will continue to drive improvements across the five transformational levers.”   

 – Pix by Upul Abayasekara