A new breed

The evolution of the finance function has been carefully monitored and
several studies have been published on how accountants and financial directors
can successfully become valued business partners, rather than just financial
score-keepers whose principal focus is simply to control the company purse

Gaining efficiencies through technology and aligning the finance function,
with the business to create value, became the foundations of the finance
function in the 1980s. Finance rose through the ranks of support functions and
the CFO enjoyed increasing involvement in key decisions.

Then in 2002, as the aftershocks of the corporate scandals of Enron and
WorldCom rippled across the globe, CFOs were forced to retreat to
‘back-to-basics’ accounting as politicians imposed regulations such as the
Sarbanes-Oxley Act.

The last two years have seen the rebirth of the finance function, with twin
priorities firmly placed on developing robust internal controls to meet
regulatory requirements while also producing transparent financial reporting to
rebuild investor trust and confidence. While these were necessary steps there is
a danger that dramatic increases in regulatory reporting responsibilities will
distract CFOs from their other responsibilities, and the inroads the finance
function made in being accepted as a business partner become lost as the
function reverts to its traditional technical role.

Now, as an increasing number of organisations head towards the final stages
of their compliance journey, CFOs are asking‘where do we go from here?’

The answer becomes self-evident when considering the role of the CFO in its
purest form: to safeguard the company’s assets and to create value. The first
element will be achieved through the compliance agenda, and the second is the
foundation for the next generation of the finance function – one that focuses on
generating shareholder wealth and delivering value to the enterprise.

It is important to emphasise that shareholder wealth creation should not be
prioritised over the stewardship of assets; nor vice-versa. Both elements are
fundamental to the CFO being able to fulfil his role successfully.

A crucial objective of the finance function, should be to identify the data
that makes a commercial difference and ensure it becomes information that
delivers strategic value and ultimately increases shareholder wealth.

So what’s the problem? How is it possible that after huge expenditure on
enterprise resource planning, customer management and supply chain initiatives,
as well as on data management, business intelligence and information management
solutions, today’s business leaders are not getting the information and
knowledge they need to make key decisions?

The key is to understand what ‘value’ means for the enterprise. Talented
finance teams understand an organisation’s value drivers. They have detailed
information on products and customers, and historical insights on past campaigns
and the business effectiveness of previous technology implementations.

It’s the role of finance to define what area of the business delivers the
most crucial value. This insight will allow the finance team to determine
whether focus on a particular part of the enterprise will deliver shareholder

The intelligent finance function will have the necessary information, tools
and technology to advise on the best timing to deliver competitive advantage and
shareholder value.

But, maximising value can only be achieved when this understanding of the
information is driven deep into the organisation so that decisions and actions
at all levels are focused on it. The challenge for finance is to be close enough
to the enterprise to really understand the organisation’s value drivers without
losing its independence as a steward of assets.

Once the appropriate finance structure is in place, the next challenge is to
embed value metrics into everyday strategy appraisal. To do this successfully,
finance must be able to easily explain what is meant by shareholder value, adopt
the necessary tools and techniques to support the analysis, and most importantly
– the benefits of adopting the techniques.

The key to active value management is demystifying what value analysis
entails. At first glance, value drivers and measures appear complex, however
shareholder value analysis is simply discounted future cash flows, appropriately
adjusted for the associated risk. The future cash flows will be generated either
from profits or by investment in new assets that will deliver future growth.
Defining value will be unique to every organisation; however there are some
common value drivers and measurements that can be used across different

An accomplished finance function will be able to easily create this value
framework and embed the techniques into the organisation. The successful CFO
will be one that can use the information to gain competitive advantage. It is no
longer enough to be technically brilliant; by selecting strategies that will
contribute towards the long term growth of the business and by choosing
appropriate financing for these strategies the CFO can ensure the organisation
will be ahead of the gam.

While many finance functions continue to be internally focused, those that
lead the way in satisfying external analysts and investor communities will reap
large rewards.

Farida Hashim is a managing consultant at CapGemini

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