Firing on all cylinders
“The CFOs are in the boardroom and executive level discussions and carry more weight than ever,” says Gary Obbes, consultant in financial management practice, IBM New Zealand.
Finance in the past was seen as one of the back-office functions, now it is something that can drive value for the enterprise, says Obbes, who conducted the local surveys for the IBM 2010 Global CFO Study.
The survey involved 1900 senior finance executives in 81 countries, with 27 New Zealand finance chiefs included.
The survey reveals more than 70 percent of CFOs provide advisory roles or are in decision-making roles. But while CFOs find their roles elevated, the study finds they face intense pressure on three areas — reducing the enterprise cost base, making faster and more accurate decisions and providing more transparency to external stakeholders. The pressure in these areas is expected to increase dramatically over the next three years.
While there are signs of stability, the new economic environment is likely to be a period of low economic growth. The question for CFOs, he says, is how to make the enterprise smarter during this period of uncertainty.
Implication for CIOs
A key finding in the survey is that since 2005, the enterprise focus of driving integration of information across the enterprise has more than doubled — from 35 percent to 73 percent.
The need for faster decision-making and demand for external transparency — which together with cost has been identified as the top pressures for CFOs — are linked together, says Obbes.
“The CIO absolutely has a fundamental role to play in that, because it is a demand from the CEO and the organisation to provide this information and answer these questions,” says Obbes. “Therefore, I see his priorities aligning with the priorities of the CEO and the CFO in that regard, the driving of integration of information.”
There are two fundamentals to achieve this, says Obbes. First is standardisation of data definitions, the governance around data and putting a framework around data governance and finally providing the analytical tools in place.
He says around 50 percent of finance’s time is still spent on transactional activities and CFOs are trying to drive that down to 30 to 35 percent, and divert that effort into analytics and analysis.
Therefore, the CIO has a role to play in helping drive the automation of, for example, “systems talking to each other”.
The CFOs responded generally, particularly in New Zealand, that their finance systems and financial information have a high degree of reliability and is highly automated, says Obbes. Operational information, on the other hand, is lower down in terms of automation and in the degree of confidence.
“This whole idea of integration of information is really about joining those two together,” he explains. “It is really associating our finance number with whatever the activity or unit was behind that to get a ratio or a measure of sorts which makes sense of the number and the data.”
He says while there has been “a little more room for investment” compared to the past year, the pressure to manage the cost base remains. For the CIO, says Obbes, there are two things to consider: How does the CIO contain costs in his own organisation and how to meet the expectation that productivity will increase amidst flat or reduced costs.
“What does the CIO have to do in order to manage that cost base?”
Obbes says the CIO needs to “think creatively”. This includes looking to create a variable cost base. This could be through outsourcing, partnering, leasing, use of external datacentre and shared services.
He cites at least two financial companies that have gone further — creating a ‘centre of excellence’ in New Zealand to also support Australia. The government, on the other hand, is doing this through shared services.
While he says the ‘centre of excellence’ model and shared services overlap, there are distinct differences. Obbes explains a shared services model will be along the lines of getting similar processes together and putting people working on them in one area. With a ‘centre of excellence’, a high degree of expertise that is required in one area is centralised and can serve the parent company. In finance, for instance, this will be a group of finance analysts producing information and doing the analysis for the business. In IT, this can also mean concentrating IT resources in one place to look after the parent company offshore.
The four types of CFOs
The IBM study listed four different profiles of CFOs: constrained advisors, disciplined operators, scorekeepers and value integrators.
The last group — the value integrators — was found to consistently outperform their peers in all key financial metrics by driving two key qualities across their organisation: Finance efficiency through the use of common process and data standards across the organisation, and business insight capability.
So what is the implication for CIOs?
“Because he controls the purse strings, the CIO absolutely has to have a good relationship with the CFO. The CFO will have a say on how much money is spent, whether some things are affordable or not; therefore he needs to understand the benefit of taking certain courses of action.”
The relationship, however, must be “symbiotic”, says Obbes. “Similarly the CFO can partner with the CIO to help him understand his cost space, to help him understand where he may be able to save.
Drilling in on the four types of CFOs, Obbes says none of the local respondents were in the constrained advisors quadrant, compared to 12 percent of global figures [see graph below]. The New Zealand results show 63 percent of respondents (compared to 32 percent globally) are disciplined operators. The figures for both the two other types of CFOs — scorekeepers and value integrators are the same — 19 percent.
Obbes says the scorekeepers are those who “haven’t really got great finance efficiency” with a fair degree of manual intervention in getting the data out. “They probably do not have one general ledger, they have several general ledgers.”
The bulk of the New Zealand organisations are disciplined operators. “Which means our finance operations are run reasonably well.”
For Obbes, these results make sense because local organisations have invested “quite a bit” over the years in ERP systems. He believes, however, that New Zealand is “slightly low” in the value integrators, the top rank. “The value integrators will have the right kind of planning tools in place, both for operational planning and for financial planning. They also have the right level of analytics in place and the right level of talent in place within finance.”
Working with the information team to achieve this is absolutely fundamental, he says. “Of the organisations that do this well, you will find they have a good business intelligence system and they are looking at putting in a good planning platform on top of that to be able to forecast accurately.”
The CIOs in these organisations work well with the CFOs. “You have to, you need to,” he says. “To stay ahead of the market, you need to have some of these tools in place. You need to have the information to know which customer is profitable, which product is profitable and what our revenue looks like six months out, 12 months out, from now. You need to have that analytical stuff in place and what is going to come next.”
The world is now exploding with data, he says. “The people that can actually make use of this information are going to win.”
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