Scaling new heights.CFO Survey Results - 2008

Introduction 1

Survey Hypothesis 2

Finance Function Priorities 3

The Role of the CFO 4

Finance Value Drivers 5

Finance Organisation 6

Systems and Information 7

Performance Management 8

Conclusion 10

How can we help? 11

Thought leadership 12

Contents

Scaling new heights

IntroductionThe Deloitte CFO Survey is designed to understand the challenges andpriorities of chief financial officers, and the major trends in financialmanagement practices employed by them. This year’s survey had 118participants from a cross section of Irish business including technology,media, consumer business, energy, construction and financial servicescompanies.

The key areas addressed within the survey were:

• Finance Function Priorities – where the finance function willfocus over the next 18 months.

• The Role of the CFO – how the role of the CFO is evolving.

• Finance Value Drivers – some of the key metrics that define theperformance of the finance function.

• Finance Organisation – how the finance operating model isevolving.

• Systems and Information – the benefits being realised frominvestment in technology.

• Performance Management – views on the quality ofperformance management practices and systems.

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2

Survey Hypothesis

CatalystStimulate behavioursacross the organisationto achieve strategic andfinancial objectives

StewardProtect and preserve the assets of the organisation

StrategistProvide financial leadership in determining strategic business direction and align financial strategies

OperatorBalance capabilities, costsand service levels to fulfil the financeorganisation’s responsibilities

Leading edge

Threshold performance

Financefunction

Execution Perfo

rman

ce

Control Efficiency

At the outset of the survey we set out to validate the view that the role of the chieffinancial officer (CFO) is now more complex and varied then ever. Many CFOs aregrappling with an expanded breadth of responsibility while they drive or adapt tostrategic changes in their company’s business model. At any given time CFOs will bemanaging activities around stewardship and control, finance operations, strategyexecution and corporate performance, a view personified in our ‘Four Faces of theCFO framework’.

Figure 1. The Four Faces of the CFO framework

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Finance FunctionPriorities

CFOs were asked to identify the topthree priorities facing the financefunction over the next 18 months.Figure 2 sets out the results for thenumber one priority identified.‘Providing better information to supportthe business’ was a clear front runnerand is reflective of a more dynamicbusiness environment where qualitymanagement information and analyticcapability are critical. It was also thehighest ranking number two priority.Interestingly, ‘controlling costs in thebusiness’ was ranked lower than might

be expected, perhaps reflecting that thesurvey was conducted in the early part of2008, before the fallout from the ‘creditcrunch’ took hold.

These results contrast significantly withthe 2005 CFO Survey, where the toppriorities focused on stewardship andcontrol i.e.

• Controlling costs in the business• Improving risk management andinternal controls and meetingregulatory demands

What do you believe are the top 3 priorities for your finance function over the next 18 months? - #1 Priority

Providing better information tosupport the business

Partnering with the business to drivestrategy execution

Controlling costs in the business

Enhancing information systems

Meeting the demands of regulatory and reportingrequirements (Sox; IFRS etc)

Structuring finance’s operating model tomeet business needs

Promoting informed and intelligent risk taking

Improving risk management and internalcontrol environment

Linking business activities to shareholder value

Improving analytical capability

Reducing finance function costs tobest practice levels

Acquiring, developing and retaining finance talent

Other

0% 5% 10% 15% 20% 25% 30% 35%

33%

18%

10%

6%

6%

6%

4%

4%

4%

2%

1%

1%

5%

Figure 2. The top priority for CFOs’ finance function over the next 18 months

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The Role of theCFO

How do you see the role of your finance function changing over the next 12 to 18 months?

Catalyst 63%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

35%

75% 23%

42% 51%

52% 45%

Strategist

Operator

Steward

More Emphasis No Change Less Emphasis

*Anything not labelled is 3% or less

7%

Respondents were asked to identify how they see the role of the finance functionevolving over the next 18 months against the ‘Four Faces of the CFO framework’.Figure 3 summarises the responses and clearly shows much greater focus on the‘Strategist’ and ‘Catalyst’ roles. Our engagement with CFOs has identified a numberof common themes that arise under these roles – linking business activities toshareholder value through investments that yield the best returns, distinguishingbetween rewarded risks (e.g. acquisitions) and unrewarded risks (e.g. regulatorycompliance), and engaging with other senior managers to execute strategy.

When asked to assess current capability against these four roles now and the desiredstate in three years time, a potential need for up-skilling within many financefunctions was identified (see Figures 4 and 5). This is quite consistent with thefindings from a recent global survey conducted by Deloitte in conjunction with theEconomist Intelligence Unit (EIU) - The Finance Talent Challenge: How leading CFOsare taking charge. This survey revealed how CFOs need to use a new breed of financetalent to go beyond the traditional role of the steward and become a more strategiccontributor to the business.

In your opinion, how developed are the roles of the finance function in your organisation today?

Catalyst

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

7% 32% 39% 15% 4%

52% 20%6% 20%

45%11% 35%

47%14% 28% 9%

Strategist

Operator

Steward

*Anything not labelled is 3% or less

Non-existent DevelopingBaseline StandardProcess

Advanced LeadingPractice Introduced

Leading practices thoroughlyembedded in processes and tools

Not Applicable Don’t Know

5%

What level of maturity do you expect these roles to have in 3 years?

Catalyst

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

23% 47% 22%

47% 27%18%

44%21% 30%

52%15% 29%

Strategist

Operator

Steward

*Anything not labelled is 3% or less

Non-existent DevelopingBaseline StandardProcess

Advanced LeadingPractice Introduced

Leading practices thoroughlyembedded in processes and tools

Not Applicable Don’t Know

Figure 3. How CFOs’ see the role of the finance function changing over thenext 12 to 18 months

Figure 4. The level of development of the roles in finance functions today Figure 5. The level of maturity CFOs’ expect these roles to have in 3 years

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Finance ValueDrivers

In order to gauge the level of performance of thefinance function, we asked respondents to providedata in relation to three metrics:

• Percentage of time spent on a range of definedactivities

• Finance costs as a percentage of total revenue

• Time taken to perform month end close

Percentage of time spent on activities

The majority of the finance function time is still spenton the traditional finance activities - transactionprocessing (36%) and close, consolidate and report(20%). Although, we can see that the time spent onthese activities is gradually reducing and more timeallocated to performance and decisions, when wecompare these results to the 2005 CFO Survey.

Finance costs as a percentage of total revenue

Finance costs were defined as staff costs, overheads,contractors and outsourcing, and finance relatedtechnology. As a general rule of thumb finance costsof less than 1% is seen as high performing, while1-2% is a good average. Over half the respondentswere within these ranges. Anything above 2% mightbe considered high, but definitions andcompany/industry specific factors need to beconsidered.

Time taken to perform month end close

‘World class’ targets for closing the books are typicallyone to five days, with a small number of organisationsgoing for the lower end of this scale. Five to ten days isa more typical average.

Overall, almost half of respondents finance functioncosts as a percentage of revenue are higher thanaverage and more than 50% of time is spent on coreactivities (transaction processing and month end close,consolidation and reporting). This suggests that thereare significant opportunities to transform the financefunction i.e. achieve greater efficiencies and movetowards a more strategic finance function.

What percentage of finance function time is spent on the following high-level areas of activity?

Transaction Processing

0% 5% 10% 15% 20% 25% 30% 35% 40%

Close, Consolidate& Report

Performance &Decisions

Risk, Controls& Capital

Regulation &Governance

Strategy &Execution

36%

20%

15%

11%

11%

11%

Worldclass < 1%

Average 1% - 2%

Lagging 2%+

Finance costs represent what percentage of your organisation’s revenue?

46%

16%

38%

How long does it take to perform and complete the month end close process at the following levels?

BusinessUnit

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

64% 25% 5%

52% 37%

45% 30%

Division

Group

15+ Days1-5 Days 5.1 - 10 Days

6%

7% 4%

10.1 - 15 Days

19% 6%

Figure 6. Percentage of time spent on a range of defined activities

Figure 7. Finance costs as a percentage of total revenue

Figure 8. Length of time it takes to perform and complete the month endclose process at the folowing levels

6

FinanceOrganisation

One of the areas of greatest change in finance functions in recent years has been tothe finance operating model, i.e. the structures and processes through which financeworks. Shared services, outsourcing and offshoring have led to significant evolutionin the finance operating model. Traditionally, these were seen as a means of reducingSG&A costs – principally in the “back-office” functions. However, their scope is beingexpanded into more complex activities, and quality and service levels are now critical.

We sought to understand how many finance functions had undertaken or areconsidering these initiatives in order to ascertain how well positioned they are tofocus on the Strategist and Catalyst role. Approximately, one half of respondents haveimplemented such initiatives, with the remainder considering these. This suggests thatthere is significant scope for both the implementation of these initiatives and forfurther evolution into centres of expertise and excellence, and business partnering.

Which of the following organisation elements have you implemented or are under consideration within your organisation?

Shared servicescentres

51%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

49%

51% 49%

63% 37%

55% 45%

Centres ofexcellence

Outsourcing tothird party providers

Self serviceoperators

Implemented Under Consideration

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Figure 9. Implementation or consideration of organisation elements

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Systems andInformation

70% of respondents to the survey have implemented ERP (Enterprise ResourcePlanning) or financial systems over the last five years. Of these approximately 50%indicated that they are getting the anticipated benefits and 43% believe that they arepartially realising the anticipated benefits. When asked to identify the types ofbenefits being realised it was evident that the less quantifiable, though none the lessimportant, areas figured most prominently (e.g. improved information, improvedcontrols and standardised processes). More tangible benefits such as procurementand operational cost reductions were ranked significantly lower.

Overall it is clear that almost all organisations are deriving very significant benefitsfrom investments in ERP and financial systems. However, to truly drive the return oninvestment it is not enough just to implement or upgrade a system. It is critical thatorganisations take a holistic view of the finance operating model, people andprocesses. For example, procurement cost savings enabled by technology also requirechanges to the organisation model and processes, such as centralised buying. Arobust business case, change management and benefits realisation will assist inmanaging and measuring the benefits.

0% 20% 40% 60% 80% 100%

Personnel reduction

Faster financial close cycle

Improved information visibility and reporting

Achieved Not relevant Not achieved

Which of the following benefits has your organisation achieved from your investment in these financial/ERP systems?

Other

Procurement cost reduction

Improved control environment

Better cash management

Standardisation of processesand financial information

Profit enhancement

Operational cost reduction

Greater flexibility

28% 50% 22%

66% 20% 14%

80% 10% 10%

78% 11% 11%

22% 45% 33%

49% 34% 17%

74% 16% 10%

29% 46% 25%

37% 31% 32%

61% 22% 17%

9% 85% 6%

Figure 10. Benefits organisations achieved from investment in financial/ERP systems

PerformanceManagement

Priorities of providing better information and closer alignment to the business areclearly driving a need for real-time information to aid decision making within thebusiness. Previously we noted how there was a desire on behalf of CFOs to increasetheir focus on the ‘Strategist’ and ‘Catalyst’ roles. This sentiment was echoed in thespecific questions on the role finance plays in performance management (Figure 11),but a clear indication that better tools and techniques will be needed to support this(Figure 12).

The most striking observations from Figure 11 below are that CFOs strongly believe(94%) that finance should focus on non-financial performance measures in additionto financial data. Furthermore, the majority of CFO’s (60%) feel that finance spendstoo much time on financial management and not enough on understanding what isdriving the business. The implications, therefore, are that in order to enable finance tobe more business-orientated, a broader set of skills and capabilities may be required.

Please state whether you agree or disagree with the following statements on performance mangement:

The finance function spends too much time on financialand management reporting rather than onunderstanding what’s driving the business

The finance function has a good understandinginto the organisation’s future performance

Business managers have a good set of performanceindicators (financial and non financial) to aid

decision making

Finance should focus on financialreporting and let the business focus

on non financial measures

The finance function should provide business managerswith the facility to develop adhoc reports on

finance and operation performance

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

60% 40%

Agree No opinion Disagree

81% 2% 17%

67% 3% 30%

4% 2% 94%

79% 5% 16%

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Figure 11. Level of agreement/disagreement with the following statements on performancemanagement

8

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99

Please state whether you agree or disagree with the following statements in relation to your organisation’s management reporting and information systems:

Finance uses forward-booking analytical tools that the business relies on to

make key strategic decisions

The organisation has a single consolidatedsystem that is standardised to ensure

data accuracy

The system is well integrated, automated andaccessible through finance portals with on-demand

access to information that helps assess business conditions

Risk assessment tools and technologiesare used to perform planning

and mitigation of risk

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

45% 16% 39%

Agree No opinion Disagree

58% 6% 36%

34% 9% 57%

27% 18% 55%

Figure 12. Level of agreement/disagreement with the following statements on organisations’management reporting and information systems

Overall, it is highly encouraging to see that compared to the 2005 CFO Survey,finance functions are gradually becoming less reliant on spreadsheets and morereliant on reporting and consolidation tools for their performance managementrequirements.

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Conclusion

Finance Function PrioritiesFinance functions are developing from the traditional financial and managementaccounting role to becoming business partners who work closely with the business toachieve it’s objectives, deliver strategy and shareholder value. It is critical thereforethat finance has the right capabilities and a broad and flexible set of skills, which arenot only maintained, but continuously developed in line with the business needs.

The Role of the CFOThe CFO role is so complex because it really is four jobs as seen in our ‘Four Face ofthe CFO’ framework. CFOs face many challenges in fulfilling all of these roles, but thesurvey and our engagement with clients have clearly shown that they are prepared totake on these challenges. To fulfill these challenges and ensure focus on value-addingactivities, CFOs must drive greater automation and process efficiency in back officefunctions and initiatives such as shared service centres, outsourcing and offshoring goa long way to achieving these.

Financial Management SystemsERP and other financial management systems can greatly improve the efficiency ofthe finance function. However, in order to fully realise and manage the benefits, it isimportant to invest time and effort in the pre-implementation processes ofrequirements definition, process design, change management and developing arobust business case.

Performance ManagementThe results show that there still exists considerable scope to enhance the tools andsystems finance use to enable more time to be spent on performance management.Our Integrated Performance Management (IPM) framework takes a holistic view ofinformation, processes and technology and in our experience enables organisations toimprove decision-making and respond more quickly to changes in the businessenvironment.

Scaling new heights

How can we help?

Our CFO Services Team assists clients in improving the efficiencyand effectiveness of their finance operations, performancemanagement structures, systems and processes, including:

• Shared services design, implementation and optimisation

• Outsourcing advisory

• Finance function transformation

• Integrated performance management

• SAP and Oracle ERP implementation

Through our integrated consulting, audit, accounting,enterprise risk, tax and corporate finance services wehave the true breadth of capability to deliverintegrated solutions to the finance function.

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ThoughtLeadership

We regularly produce cutting edge research and thought leadership on the key topicson the CFO’s agenda. Recent examples include:

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Understandingthe challengesIntegrated PerformanceManagement/Strategy Execution

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