The World is Not Flat: The Changing Role of Finance in Today’s Global EconomyManagement Consulting Podcast Series

Hello, I’m Bill Moller, your host for the Accenture Management Consulting Podcast Series and today I’m speaking with David Axson, he’s the Executive Director in the Accenture Finance & Enterprise Performance consulting group and David’s here to talk about the changing role of finance in today’s global economy.

David, you’ve recently authored a white paper on this topic, discussing key focus areas for next-generation finance to help companies win in the global marketplace. Before we get into specifics, why don’t you give us a sense of why the role of finance may need to change?

Certainly. It will come as no surprise to listeners that the world continues to become more complex and unpredictable, that the trend to globalization means many businesses will encounter new, diverse, and often volatile markets. In fact, according to Accenture’s most recent High Performance Finance Study, finance executives see a state of permanent volatility as one of the major issues they face today.

Contributing to this volatility are divergent economic growth rates, distinctive consumer preferences, varied competitive environments, as well as different currencies, cultures, tax regimes and regulations. All can require new strategies, management processes and operating models that are designed to adapt to diverse market environments.

Further, the degree to which organizations are now connected to the rest of the world is demanding new approaches to management—particularly in the finance function.

The next generation of finance may want to consider embracing a new scope focused on growth and operational excellence, that can help generate value beyond the walls of the finance department.

Well how does the finance function go about providing that value?

Well first, finance may want to take a close look at its operating model.

Traditionally, companies grew globally by establishing a local presence in a target market with a full complement of business support services specific to that country. As you can imagine, this approach was often both expensive and inefficient.

In the past 20 years, many companies have moved to a more regional model, with financial shared services centers providing support to business units in multiple countries. But this model often links costs to the economic fate of a particular region—which can expose global companies to volatility-related risks and limit scalability and responsiveness.

Many high performance finance organizations are taking a different approach. They’re moving to a truly global and cross-functional model of Integrated Business Services, or IBS. IBS can leverage the geographic footprint of the overall organization and its strategic partners to deliver consistent, high-quality services at a competitive cost while still maintaining proximity to the customer. This can allow resources to be rapidly redeployed to match the changing revenue profile of the business. Here’s an example: Instead of having a European center carrying excess capacity

while an Asian center struggles to cope with rapid growth, a company deploying IBS can balance the workload more effectively across the global business.

So the idea, then, is that a company may need an operating model that can flex in response to volatility and unexpected market disruptions—which can make finance more agile and able to support the business more effectively as business conditions change.

Exactly.

But I gather that addressing the operating model is just the start?

Right. We’ve identified four critical dimensions CFOs can benefit from focusing on—areas they may want to consider as a part of their effort to achieve true market leadership. One is balancing the focus between cost control and growth; a second is building repeatable integration capabilities that can support effective Mergers & Acquisitions; a third is implementing robust performance management practices; and the final one is unlocking the full potential of finance talent.

Well let’s talk about the first dimension. For the past several years many companies have worked to simply survive the last downturn by focusing on cost control and cash conservation. How do they shift the focus as the economy slowly recovers?

I think the key insight for many leaders emerging from the downturn and looking to execute a successful global growth strategy is controlling costs or investing in growth. This is often not an “either/or” discussion but an “and” discussion.

To succeed, many companies will need to sustain a globally efficient cost structure regardless of where that growth occurs. Discipline around cost optimization can not only provide funds and resources to invest in growth but also promote profitability. Finance leaders can play a crucial role in establishing a disciplined approach to cost containment while also verifying whether growth-oriented investments receive appropriate scrutiny throughout their lifecycle.

Well how does M&A activity fit into this balance?

For many companies, a key element of global growth has been making targeted acquisitions to gain market share and drive top-line growth. Unfortunately, however, M&A does not enjoy a solid track record of driving such value.

Many leading companies are developing more systematic and repeatable acquisition integration capabilities that can help companies not only realize the projected value of the transaction, but also deal with the many cultural and behavioral challenges involved in combining two different organizations, which often are operating in very different markets across the globe.

Finance teams can positively impact M&A success in a number of ways, from conducting early-stage research on new markets and related acquisition targets, to providing disciplined due diligence. It can be critical, though, that they support a repeatable acquisition integration capability that spans pre-closing, day-one operations, and long-term synergy realization.

Well David intuitively that makes sense, but we all know how difficult it can be for companies

to achieve this balance in a highly volatile—and, really, quite globally dispersed economic environment. How do companies address that?

For sure, managing performance across a broad range of markets can be a real challenge. There are definitely different characteristics inherent in mature, fast-growth, and emerging markets that companies may need to address to penetrate each effectively.

For example, companies can drive growth in mature markets via innovative new products that customers will value and will pay for. Conversely, in an emerging market it may not matter how great the product is or how much is invested in marketing if the per capita income of the population is too low. In this situation, growth expectations are often governed by the rate of income creation.

Finance can help companies manage these dynamics by matching performance measures to the relative maturity of products and services in each market. By considering the combination of product maturity and market maturity, finance teams can often identify the most appropriate business drivers and metrics, and select the right analytical tools to evaluate performance.

Finance also can help translate strategy into local action. This means orchestrating a performance management process that can address uncertainty and volatility through the use of scenario planning and sensitivity analysis. These tools can allow business managers to have confidence in their ability to make rapid decisions as opportunities and threats present themselves.

Well of course all the things you’ve just mentioned can go nowhere unless finance has the right people in place doing the right things well. Are there opportunities for CFOs to improve the productivity of finance professionals?

There definitely are. One of the biggest problems we see is that far too much finance professional staff time is still consumed by mundane tasks—collecting and consolidating data, organizing it into spreadsheets, creating formulas to analyze it, and formatting the output into reports for business management. In the typical finance organization, we can assume that these tasks can consume about 50 percent or more of professional staff time.

Minimizing mundane tasks can enable finance professionals to spend more time delivering more valuable reports and analyses—supplying the high-quality critical decision support information required to succeed in fast-moving emerging markets, support effective local and global risk management, and deliver timely reporting needed by different managers in different markets to be successful.

Can you translate this improvement into real numbers?

Sure. The payback for improving such finance staff productivity can be significant. Consider a hypothetical $25 billion global company with 2,500 finance staff—a roughly average headcount for an organization of that size. Based on our research, the equivalent of 750 full-time employees would be performing strictly mundane tasks. Assuming

About AccentureAccenture is a global management consulting, technology services and outsourcing company, with 257,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012.

a conservative fully loaded cost of $100,000 per year per employee, that adds up to $75 million annually. It follows that simply reducing the time spent on low-value tasks by 50 percent can generate productivity improvements worth $37.5 million.

How do you do this—get more finance professionals working on higher-value initiatives?

That involves three important things: First, gaining leadership commitment to build a talented and scalable finance function that attracts, develops and retains high-caliber finance professionals who are capable of delivering insightful guidance and advice to business leaders. Second, focusing enterprise performance management processes—in other words, strategic planning, operational planning, budgeting, reporting and forecasting—on those elements that drive growth at acceptable risk. And third, providing finance professionals with the time and tools to do the job effectively.

Given all that you’ve just said, how would you characterize the plight of today’s CFO?

Well, we all know that it’s certainly a challenge to navigate today’s stormy and unpredictable global markets. We also know the demands on finance have changed, expanded, and grown more urgent. That means CFOs for the foreseeable future really are going to be on the hot seat.

But there’s also a huge potential upside in all this for CFOs. Today’s economic conditions and business challenges provide an exciting opportunity for CFOs to create the next generation of finance. They are in the driver’s seat to elevate the contribution their function makes toward growth, value, and high performance across the larger enterprise.

So, big challenges for CFOs but also big opportunities to truly make a difference in the business. David Axson, thank you so much for your thoughts and for you listening we invite you to read the full white paper as it contains more insights from Accenture on the finance organization’s important role in helping to drive high performance.

And for more information related to the topics discussed in this podcast, or to learn how Accenture can help you achieve high performance, visit us on the web, we’re at accenture.com/managementconsulting and you can email us at consultingpodcasts@accenture.com. Thank you.

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