The fast-changing roster of finance chiefs in the FTSE 100 index is an
expression of the increasing pressure on finance directors to cut costs. But
they have a much more significant responsibility – to drive shareholder value –
which is reshaping their role and their domain.
The FD needs to be positioned at the heart of strategic decision making, to
guide an organisation towards its goals and deliver a ‘world class’ finance
Today, most costs in the finance function come from running transaction
processing. Use of enterprise resource planning systems and shared service
centres have helped some organisations halve the costs of their finance
functions by automating, standardising, simplifying and consolidating
But the finance function should be about more than simply reducing cost. Its
raison d’être should be helping manage the business more effectively. The City
recognises the importance of quality in financial management and this is often
reflected in share prices.
The finance function needs to be less about efficiency of processes and more
about providing the right data, at the right time, for critical decision-making.
FDs have long talked about wanting to drive the strategic future of their
companies. Now they have the chance to do just that.
Behind this shift is the latest generation of ERP systems, which threaten to
take away some of the functions traditionally under the control of the finance
director and the finance department.
As process-driven operations are rationalised and automated, they need less
supervision from finance departments. Some shared services processing operations
now fall under the control of a shared services director who reports directly to
the chief executive. Likewise, automation technology now enables three-way
matching without any need for human intervention.
But this loss of book-keeping functions need not be a loss of control for
finance directors and their departments, but rather an opportunity for them to
drive value for shareholders by taking a full part in strategic decision-making
and business measurement.
In the past, the complex patchwork of IT systems and processes made
extracting and comparing data across divisional and international boundaries and
generating a transparent view of the entire finance function practically
impossible. The latest generation ERP information systems enable corporations to
look across their global operations and have a more informed view of its
performance. ERP systems can drive the way a business sets its plans and
measures progress in order to plan better.
But to adapt and stay competitive a business must use this information to
make better business decisions than its rivals, or make the best decisions
faster. Ensuring this happens will become a key preserve of the FD of the
Multinational groups that have 300 or 400 separate entities around the globe
can now obtain a global view of their operations in one set of data. They can
easily tell who are their most and least profitable customers.
Similarly, suppliers now have opportunities for procurement savings through
strategic sourcing. Best practice is more easily identified and spread to other
operations. Customer relationship management assumes even more importance.
With the arrival of this powerful new technology, the FD will have the task
of analysing and understanding the data. He or she becomes the strategic partner
of the chief executive – effectively usurping the chief operating officer, who
will concentrate on executing the decisions made.
So what is hindering this vision of the finance director of the future from
becoming real? Slow investment in the new ERP systems for a start. Take-up of
the latest systems from suppliers, such as SAP and Oracle, has been weaker than
expected, despite the potential to gain a real advantage.
Another issue is the capability of finance operations to make the most of the
latest systems. Doing so requires finance staff to upgrade their skills beyond
the process-driven mentality of previous systems.
The finance director will be the leader in assessing new business ideas and
alternative strategies, and in determining where the business delivers, or fails
to deliver, at acceptable levels of risk for its shareholders.
This new business model will require much change and investment in both
people and technology, but the finance director will be placed at its heart.
Goodbye book-keeper, hello world class strategist.
Hugh Evans is a partner and Iain Farnsworth a principal in Deloitte’s
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