An in-depth survey of more than 300 CFOs and senior finance executives was released by CFO Research Services and Cap Gemini Ernst & Young. The quantitative survey, which was supplemented by interviews with CFOs of today's leading companies such as Cargill, Cisco Systems, FedEx Express and Wendy's International revealed that a new paradigm in the finance function is forming across Corporate America. A copy of the full report can be obtained at www.us.cgey.com/transformfinance.
Contrary to popular belief and despite tighter regulations mandated by Sarbanes-Oxley, CFOs and financial executives cited decision support and the ability to be a true partner in corporate operations as the top driver of finance function investments. In fact, some leaders in finance have broken through the barriers of average performance and are meeting new regulatory requirements without difficulty. This is achieved through the relentless pursuit of the management insight required to provide operational and strategic decision support, defined as the function that enhances business planning with detailed analytical information and is actively engaged in managing the business strategy for the long-term. Fully three-quarters of survey respondents cite better decision support as the basis for their business case for improving finance, and only about half cite a need for better regulatory compliance.
"While this statistic may be somewhat surprising at first glance, the logic behind it is sound," said Ian Downes, vice president and Americas' Finance and Employee Transformation Practice Leader at Cap Gemini Ernst & Young. "Focusing only on Sarbanes-Oxley compliance is for short-term, quick-fix focused executives. In contrast, focusing on world-class decision support capabilities yields the changes required to comply with Sarbanes-Oxley and much more effectively positions companies for long-term profit improvement."
The survey also indicated that companies who have already invested in strong decision-support capabilities are more likely to be able to meet real- time disclosure requirements mandated under Sarbanes-Oxley than other companies. For example, of those who can report material changes to their financial status within 24 hours, 71 percent have already improved their management reporting processes or systems (versus 45 percent for survey respondents overall) and 52 percent have improved their forecasting processes or systems (versus 43 percent overall).
"Sarbanes-Oxley is separating weak finance departments from the strong," continued Downes. "Those finance groups who are starved for development resources are feeling the most heat from new regulations. By contrast, finance groups that have been steadily improving management's insight by building strong decision-support capabilities, and becoming value-added business partners are meeting the new requirements without having to endure a major upheaval."
In pursuing meaningful management insight for operational and strategic decision making, companies are leveraging four areas which are covered in whole or in part throughout the report:
- Shared Services and Outsourcing
- Deployment of Technology (specifically focused on ERP systems such as SAP, Oracle and PeopleSoft, analysis tools such as Hyperion and Cognos and finance Web-enablement)
- Moving Transaction Processing (to more appropriate lower cost centers and outsourcing)
- Development of Human Resources
Despite progress, CFOs are still under significant pressure and are continuing to push for improvements. Among survey respondents, more than half say they're making incremental improvements to their people, processes and systems; and 38 percent say they're making major coordinated changes. Still, while more than 75 percent of the CFOs responded that they are very confident they are meeting regulatory requirements now in effect, the research suggests a clear gap in the ability of many finance groups to meet all the requirements of future regulations. For example, 66 percent of survey respondents say they still need more than two days to disclose material changes to their financial condition, which may not be sufficient to meet the real-time disclosure requirement in Section 409 of the Sarbanes-Oxley Act.
"CFOs are clearly focused on ensuring compliance with regulators but they are also seeking to supply their businesses with decision support services and thus become an integral part of the strategy-setting process," said Rich de Moll, vice president at Cap Gemini Ernst & Young. "The fact remains, however, that the majority of respondents are dissatisfied with their visibility into key operational drivers of revenues and expenses, and less than one-third are satisfied with their visibility into those drivers for purposes of forecasting."
With this in mind, companies are planning to improve forecasting over the next 18 months by developing rolling forecasts, moving to standardized and centralized IT systems, improving their driver-based forecasting models, upgrading their business performance management processes and software, and aligning forecasting responsibility at the level of control and accountability.
There are a number of steps that CFOs are implementing to reach this new level of intimacy with the broader operations of their companies. These include: instituting multi-level certification of financial results, creating disclosure committees, and improving internal controls. Within 18 months, many of those who have not taken these steps today will have done so: for example, 88 percent plan to have improved internal controls (compared with 52 percent today), and 81 percent plan to have multi-level certification (compared with 69 percent today).
As the finance function evolves, CFOs see technology playing a major role. However, while technology is an important key to transforming finance, three technologies that yield the greatest savings are still being underutilized. Today, only 25 percent use Web-based self-service, 36 percent have standardized processes and systems, and 38 percent are leveraging data warehousing. Respondents who have used these technologies, however, report that they are more likely to generate savings than others.
Although CFOs are continually trying to improve the finance function through increased vision and technology, 37 percent of the survey respondents say it has become very difficult or nearly impossible to secure the budget they need to make changes; only 20 percent believe it was that tight two years ago.
More than 13 industries are represented in this study, including manufacturing, financial services, professional services and the high tech sector. All of the respondents are from companies with over $500 million in annual revenues 28 percent are $500-$999 million, 51 percent are $1-$10 billion, and 21 percent have over $10 billion in revenues.
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