CFOs: Finance teams’ strategic capabilities must improve
CFOs want finance teams to improve their strategic planning capabilities.
Strategic planning was the top priority for capability improvement identified by North American CFOs in Deloitte’s CFO Signals survey for the fourth quarter of 2012.
When the 86 CFOs participating in the survey were asked to name the three capabilities they most want their finance teams to improve, strategic planning was the only capability named by more than half the respondents. The urge to improve strategic capabilities was particularly important to CFOs in manufacturing, according to the survey.
The survey supports anecdotes provided often over the past year by CFOs. During an interview late in 2012, James R. Blake, CPA, CGMA, said the most significant change he has seen in the role of finance over the years is its emergence on the operations side of businesses.
Finance professionals are getting more involved in decision-making in addition to performing their traditional job of reporting results, said Blake, the CFO of Morey’s Piers & Beachfront Waterparks in Wildwood, New Jersey. He said young people entering the profession need to be trained to deliver the numbers to management as effectively as they crunch the numbers.
“Communication, in the presentation of data in a clear and understandable format as well as verbal communication, is extremely important,” Blake said.
Delivering information to support strategy to management is a critical responsibility for the finance function, according to Deloitte’s survey. In each of the last four quarters, providing metrics, information and tools needed for sound business decisions was identified most often as the No. 1 challenge for finance.
Another item related to finance’s strategic mission – influencing business strategy and operational priorities – was rated as the No. 2 challenge for the finance team.
“They need to be a part of the business team,” Jim Morrison, CPA, CGMA, the CFO of Pawtucket, Rhode Island-based materials science company Teknor Apex, said in a recent interview. “They need to be a partner. They need to be the one that helps facilitate decision-making. And for them to be there, they need to be integrated within the organisation. … The more our finance people think of themselves as a business analyst – and I mean every one of them up and down the line – the better we’ll be serving the business.”
Just charting a course for the business isn’t enough, either. In the era of big data, finance executives are charged with determining whether the strategy is creating the proper results. CFOs identified ensuring that initiatives achieve desired business outcomes as the No. 3 challenge for finance. That item was identified as important by an increasing number of respondents in each of the last three quarters.
Other top challenges included aligning budgets and capital expenditure decisions with priorities and strategies, and securing and retaining finance talent.
What’s worrying finance leaders?
Meanwhile, a lack of clarity with regard to strategy emerged as a major job stress for CFOs in the second half of 2012 after having a less significant presence earlier in the year. Strategic ambiguity rose to No. 3 among CFOs’ job stresses in the fourth quarter.
Two factors related to change – major change initiatives and changing regulatory requirements – were identified as the top job stresses by CFOs.
A stress that became significantly more prevalent over the course of 2012, rising throughout the year, was CFOs’ relationship with and demands from the board. This occurred as surveys showed board members want to spend more time overseeing strategy and that CFO expertise is increasingly in demand for corporate boards.
UK optimism rises
The gloom over the state of the European economy faded a bit in the UK version of the CFO survey.
CFOs assigned a probability of 22% to the likelihood that one or more existing members of the euro area would depart from the single currency in the next 12 months. That’s down from a 27% probability in the previous quarter and 36% in the second quarter of 2012.
The probability CFOs assigned to the UK economy’s falling back into a recession in the next two years also dropped for the second straight quarter, to 40%. Meanwhile, the confidence of CFOs about their own companies grew for the second consecutive quarter.
But defensive balance sheet strategies rose for the third consecutive quarter, and 50% rated reducing costs as a strong priority for their business in the next 12 months. That’s just a bit more than the 49% who rated increasing cash flow as a strong priority.
—Ken Tysiac (firstname.lastname@example.org) is a CGMA Magazine senior editor.