Strategy & Operations » The evolving finance function

The evolving finance function

Senior financial executives are actively adapting and re-shaping the finance function, to help businesses to manage current day complexities, writes Jose Carvalho from American Express.

In today’s fast-paced world, business leaders face a myriad of complex challenges. From navigating international supply chains to keeping abreast of transformative changes in the digital world, there’s no shortage of disruption.

Where some people see unsolvable problems however, others see opportunity. This is certainly true of senior financial executives. They are actively adapting and re-shaping the finance function, to help businesses to manage these complexities.

At American Express, we recently conducted our Global Business and Spending Outlook in partnership with Institutional Investor. This global study of leading Finance Directors and CFOs (more than half work for companies with more than $5 billion in annual revenue) explores their strategic direction and investment priorities.

This year’s research highlighted that corporate finance chiefs globally are relatively upbeat.

In fact, the UK sample in this year’s report are among the most confident in Europe:

  • Nine in ten UK CFOs anticipate domestic expansion, with well over a third predicting this to be substantial
  • Three-quarters experienced revenue growth over the last year.

This confidence is created by the fact that businesses have adapted. It’s clear that recently, finance professionals seek to navigate business changes and the subsequent risk that this can present.

Balancing long-term strategy with short-term needs

CFOs and FDs in our research revealed the function can best be described as a ‘strategic advisor’, adding much more value than administrative number-crunching. It’s delivering the tools and the discipline needed to develop and execute the business strategy itself.

Of course, these transactional tasks remain part of the job, however, they are now being automated and delivered digitally. This is not the only value that tech can offer the finance function. Almost two-thirds of CFOs argue that they have implemented new technology to help with planning, budgeting and forecasting.

Although, this planning is far from straightforward. CFOs argue that they have to adapt to support the agility required by the business. Smaller businesses and even enterprise level organisations must now be able to demonstrate rapid responsiveness and change. As a result, FDs argue that they have been required to adapt the function to cope with reduced planning cycles and become more flexible.

In turn, this creates other challenges and balancing short and long-term objectives is not as easy. Many are in agreeance throughout the research and it is often considered as a problematic distraction from the important day job of supporting the business.

Flexible finance

While CFOs remain confident, they are still mindful of unanticipated economic or political events that may negatively affect their business.

Moderate and controlled spending is anticipated to help mitigate this risk, with time and resources being focused on enterprise-level risk management systems.

Flexible CFOs are also staying close to their customers who are most likely to fuel change in their businesses, and are investing in new products and services to better meet their needs.

In addition, protection against data breaches is the most important IT-spending priority over the coming year, with finance leaders directing more resources to protect their organisation’s data.

CFOs also have new and emerging technologies to consider including AI and the Internet of Things. Instead of the wholesale disruption many have predicted, the majority see these as having an incremental impact on their business and industry over the coming years.

There are tactical steps being taken too, with CFOs in the UK indicating that volatility in currency markets will spur them to manage FX risk more closely in 2018.

Finally, CFOs also expect to increase headcount – and are taking steps to ensure the organisation is well-prepared to retain and attract staff.

While today’s finance functions are striving to remain flexible, this is not preventing CFOs from investing in areas that will generate a clear competitive advantage. After a period of caution, it’s encouraging to see CFOs and FDs are planning ahead and shifting back to operational norms.

Partnering with the business

These spending priorities are fuelled by a strategic and responsive approach to the finance function. The idea that the finance team sits siloed from the business is no longer practical. It needs to act as an analytical partner and critical friend in every area of the organisation.

Finance executives indicate that they are including more individuals from across the business in activity planning with the aim of responding to change quickly.

There may still be room for improvement however, as the research indicated that CFOs believe the marketing team could benefit from a closer relationship to finance.

While political and economic uncertainty remain important concerns, it’s clear that UK CFOs feel optimistic about growth and confident about revenues. This confidence has been generated by building a strategic finance function, one that is more proactive at managing risk and uncertainty, that can adapt to a changing world.

 

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