Q: What are some of the priorities that CFOs face today?
Ans: I think some of the priorities that the CFO faces today really stem out of what’s been happening to global economy for the last couple of years; businesses have been under pressure,liquidity has been tighter and this has led to the CFO being very much more brought back into the center of running day-to-day business in organizations.Cash has become king again, liquidity is tight, therefore decision making has become far more important from the point of view of insuring future success, long-term survival, call it what you will,at least it has brought CFO right into the heart of the business. So it has been less about sales growth, long-term development and much more about effective business decision making and ensuring that those decisions are going to secure the future of the business rather than a short-term hike in revenues may be at the expense of long-term sustainability.
So the CFO is back into the middle of the business, very much at the heart of what the business he is doing and he has or she has to impose him or herself right in the central business inorder to ensure success for tomorrow.
Q: What are the challenges CFOs face in meeting these priorities?
Ans: I think the challenges facing the CFO today are quite considerable. Organizations generally have a number of issues to contain with. They have very challenging market conditions, they have new competitive threats, new competitors coming in, challenging traditional markets that got a much more educated customer base, more demanding internet services and products in the market place. They have to maintain their competitive edge, striving-moving forward, they are also faced with issues around technology changes, peoples’ habits have changed, the availability of the internet - those allowed people to, may be, buy things in a new way. And that has led to whole changes as priorities imposed new pressures on the organization.There are also changes around with environmental issues, green issues, sustainability issues,carbon, all of which inevitably come back into the office of the CFO. At the same time the CFO is facing convergence issues around the IFRS, differences between IFRS and US GAAP reporting,which results in two sets of books needing to be produced and reported upon.
But also the investor community is looking much more at economic value in the business and ensuring that when they read the financial statements in an organization that they can get an assessment of how well that business is doing, how well the executives and the business are driving the business and what is the long-term value in that business.
So, all these pressures are coming back into the office of the CFO and he needs to be focused on the business, where he has got to be making the right decisions. Driving value in the organization is very much less of keeping the books, undertaking the statutory and regulatory reporting, it is much more about being dynamic in the heart of the business and helping the fellow executives drive the business forward.
Q: How do you see the finance function evolve over the next 3 to 5 year?
Ans: I think the next 3-5 years is going to be quite exciting. I was the CFO many years ago when we were still using manual ledgers, we still have multiple platforms we had to utilize, there was no real linkage of technology between different platforms. It was a long process to bring accounts together.
We have seen a radical change in recent years, we have seen clearly the globalization of economies, which has led to geographic borders coming to end, language borders coming to end.All really around technology enabled change, which is allowing the finance functions to be located remotely from physical operations of the business. It becomes a very virtual world then, but the benefit of that is it opens up access to a new talent pool around the world.
People have changed their educational habits, many are adopting courses study now around international finance qualifications, servicing people going after CPA qualifications, CFA qualifications, certified and chartered accounting qualifications, all of which are universally recognized and acknowledged.
This is becoming very attractive throughout all parts of the world whether it be Latin America,Central and Eastern Europe, Africa, India, Russia, China and so on. So the benefit for organizations is firstly, technology is starting to reduce the burden around undertaking basic transactional activities. The term like chartered accounting is being used, which really means simply that technology will very much streamline the basic end-to-end transactional flows and reduce the need for manual intervention. So, gone are the days when somebody would write out a purchase order and send it to somebody else for approval. When the goods were received in an organization, they will write out the goods receipt note and it was sent somewhere in the organization and then when invoice finally came in, you would match the invoice with the goods receipt note, with the purchase order. All that now is very much done on the screen using word flow and other tools and that has really speeded up the whole interim process, but it has reduced the needful physical intervention as well. That will continue and that then will lead to the finance function becoming very much more focused on value creation, working on strategic decision making, tactical decisions, effective budgeting, forecasting, analysis and helping the executives of the organization to drive the business forward.
So we are seeing the CFO coming out of the score box, if you want to use the corrected analogy,he is no longer sitting out there keeping the scoreboard, he is down on the pitch, he is helping to drive the game, he is moving the players around the pitch to insure that the organization is fit for striving for future business success.
So we are in for interesting 3-5 years, it is a changing world out there, the CFO of tomorrow is very different from the CFO of the past. He is not just the finance man anymore, he is a businessman, he has such strong communication skills, he needs to be a strong project manager, he needs to drive change and he has got to be at the heart of business as it evolves to be fit and lean and secure to great sustainable future success.
Q: Why should CFOs look at FAO?
Ans: I think F&A outsourcing is still in some respect relatively new phenomena. Some of the older arrangements have been around for 20 years, but really it is in the last may be 6-7-8 years that more organizations have considered outsourcing. So let’s break that down and look at the various components of what that means.
I think initially outsourcing; the obvious benefits are stated around cost, quality and control. So what I mean by that is from a cost perspective, if you can move work to a cheaper location and access a cheaper talent pool and you can centralize and consolidate that activity, drive process end-to-end efficiency then inevitably you are going to drive down the cost of your organization. An organization can do that itself or it can get a third party to do it for you. And we will come back to that in a minute. From a quality perspective, obviously technology can help in part to improve quality. But again if you got an organization, which is really focusing on quality as part of its core operational methodology then you are going to be looking for best practice, best process end-to-end efficiency, and you are bringing tools and methodology that is the best such as Green Six Sigma to really ensure that you are driving out the maximum efficiencies.
Now again an organization can do that itself or it can contract with third party to ensure that those sort of quality improvement measures abet into the contract and that there is certain incentives to ensure that outsourcing provide and drive those benefits. The third component is around control. Many people worry in a financial accounting outsourcing arrangement that they are going to lose control of the activity. This really stems from the point of view that account is naturally a fairly conservative and cautious. They have to ensure that we fulfill our statutory and regulatory obligations and they want to feel that they can actually control the inputs going into those processes.
Now, if you are moving activity away from the office next door, the floor downstairs, the building opposite, there is just a tendency to feel that you are starting to lose control. When you give that to a third party then there is increasing urgency and nervousness about undertaking that activity.But what we are seeing now is when you bring in a third party provider, you have to remember this is their core business, they have got the skill base to undertake these activities, they have got the contract in place. It is very clearly defined what the outputs and requirements of their contracts are.
You need a very strong governance, methodology in place, so that both organizations are talking on a day-to-day basis, you need to ensure that the outsourcing service provider, the third party provider is really a natural extension of the client’s business. Through all intents and purposes,the team providing the service within the outsourced service provided is part of the client organization and they must have that kind of empathy with the business ethos.
So all that taken together, it provides an opportunity actually for the CFO to improve the level of control in the business. So you are getting an organization to undertake a large amount of your activity, but in a very managed and controlled way and a very structured way that the organizations are working together. And it is enabling to retain the organization for focusing on the high level value creation activity, which is where they should be and we started talking about that earlier on.
I just now want to come back to the issue about cost savings and where we are today. In the last 6-7-8 years we have seen more finance and accounting outsource arrangements taking place around the world. This is inevitably going to continue. Many organizations have moved to a shared service model, where they have done their own consolidation and coordination. But now the opportunity to move to a third party provider is going to provide an opportunity for further cost savings to be taken out.
But I think the key at the moment is around organizations within the current global economic liquidity crisis although we are emerging from it in many respects. Organizations need to see quick value. When you have competing pressures on the organization, they can seek to drive that value through some off-shoring activity, through bringing in some new technology to drive savings. But bear in mind, they still have to run their core business and that is taking management time and effort to do that.
So by bringing a third party in, you are asking somebody else to take on that activity and undertake it for you, which of course is their core business, so they are good at that stuff.Therefore, you are looking for that organization to drive benefits. But the key now at the moment is to drive benefits more rapidly than if you do it yourself.
So, I think where finance outsourcing is really going to gain in the next couple of years is the ability of both providers to come up with innovative, interesting, quite challenging solutions, which are not only going to strip cost out of the functions but improve quality, improve control. But also bring it in certain speed, which is very attractive from the point of view of a cost efficiency structure and helping the client organization to see real true P&L savings earlier rather than later.But at the same time freeing that organization, you have to look at value creating activities and helping business strive for future sustainable success.