Survey profiles corporate thinking in scandal-plagued business climate

CFOs seek to transform finance function but legacy IT, staffing and costs are major roadblocks

NEW YORK, August 12, 2002 – In a major in-depth survey released recently by Cap Gemini Ernst & Young, most CFOs of 265 large U.S.-based corporations indicate that, while accounting scandals and the recession are driving the transformation of finance departments, their departments may not be able to meet the challenge.

Inadequate processes, legacy information technology (IT), insufficient skills sets, and the need to build senior management support are the key issues that need to be addressed.

While 81 percent of CFOs agreed that accurate revenue and earnings forecasting is either a “high or the highest priority” in the present business climate, and 93 percent believe they are complying with all external reporting requirements, 63 percent indicated they are saddled with inadequate budgeting, forecasting and decision support IT systems.

“Today’s CFO needs to provide senior executives with insightful financial and operational information – the tools that can help them make effective decisions and defy current economic volatility,” said Rich de Moll, vice president in the Finance and Employee Transformation practice at Cap Gemini Ernst & Young, one of the world’s largest management and IT consulting organizations. “CFOs also need to build CEO and board support for a transformation blueprint that will enable finance to adapt to immediate and future demands.”

Cap Gemini Ernst & Young collaborated with CFO Research Services to conduct the survey in May 2002. Respondents included chief financial officers, corporate controllers and other senior financial officers of large companies in various industries, including manufacturing, retail, chemicals, energy, telecommunications, financial services and healthcare. The findings are reported in “CFOs: Driving Finance Transformation for the 21st Century.”

The report also captures the individual perspectives of 12 senior finance executives from such leading companies such as American Express, Intel, Chevron Phillips, and Allergan.

The Challenges

The CFOs cited a number of roadblocks that hamper their efforts to improve the quality of information delivered by finance: near-term pressures such as operating in the weak economy; increased scrutiny of accounting and reporting practices; greater demands for up-to-date information that can be acted on immediately; and demand for almost immediate positive return on investment.

Because they are, in essence, being asked to do more with less, respondents cited costs and time commitments, and organizational and cultural barriers, including upgrading staff, as the main challenges to the transformation process.

The survey reveals the following:

“- 84 percent plan to have budgeting and forecasting processes that are partially or fully dynamic and based on operational drivers within three years (vs. 52 percent recently)
“- 64 percent cited a need to develop, change or upgrade the skills of their finance staffs
“- 59 percent said they need greater support of senior management to transform their departments
“- 56 percent cited a general need to acquire new technology, especially IT systems
“- 53 percent said they need to build the perception among their internal business units that finance should be a partner in their business development

“Ultimately, I think that the 10 percent or so of the companies in America that have really transformed their finance departments have done it by changing people,” said Kent Potter, CFO of Chevron Phillips, the chemicals joint venture between Chevron Texaco and Phillips Petroleum, and one of the 12 who agreed to in-person interviews.

Without the appropriate skills, even a “successful” technology or process implementation could be negatively perceived because finance was unable to demonstrate its value-added benefits to the rest of the business.

Financial Transformation: Road To Success

When asked what tools were needed to fully deploy financial transformation, many respondents cited shared services, outsourcing and Web enablement. The most common finance activities for shared services included cash management, fixed asset management and payroll; benefits, tax and payroll activities represent those that are mostly outsourced.

“CFOs: Driving Finance Transformation for the 21st Century,” for example, indicates that one company, American Express, successfully contains much of its costs by consolidating nearly all of its transaction processing into three shared services centers. American Express is also in the process of consolidating its reporting functions.

The company’s CFO Gary Crittenden, who agreed to an in-person interview for the report, said, “Let’s eliminate time that we spend on repetitive reporting and free up time so we can spend more time focusing on the business and on what the future performance of the company is going to be.”

IT tools were also seen as key to the success of financial transformation. For example, only 23 percent of companies recently have partially- or fully-integrated ERP systems for handling transaction processing. In three years, 77 percent of these companies expect to move toward implementing systems that are partially- or fully-integrated.

The CFO’s Role in Strategy

The survey found that CFOs in general are deeply engaged in driving long-term company growth. Sixty percent of those polled see their role in the development of corporate strategy as a priority.

Even though senior financial executives indicate they are personally engaged in strategic activities, only 25 percent believe the rest of the organization views finance as a value-added function to be consulted on key decisions. Further, only 39 percent are very satisfied that finance consistently influences the strategic decisions that drive shareholder value.

To succeed at finance function transformation, CFOs believe the active support of the CEO and board is crucial. Gaining their support will require creating business cases with built-in metrics to gauge results of the transformation, according to the survey.

Although CFO roles have shifted somewhat over time, finance transformation has taken on a new urgency for many companies. Many of the most pressing issues CFOs face – including greater forecasting accuracy and transparency, which 58 percent cite as a top priority – depend on enhancing finance’s capabilities, according to the survey respondents.

Methodology

CFO Research Services conducted a written survey of almost 30 questions (many with subset questions) in May 2002 of 265 senior finance executives at U.S. companies with over $500 million in annual revenues. More than 80 percent came from companies with over $1 billion in revenues. Over half the respondents held CFO or senior vice president of finance titles. Others held posts of controllers or vice presidents of finance.

In-person interviews with 12 CFOs from leading companies were conducted and provided additional context for the survey data. Fairchild Semiconductor, ING US Financial Services, Hillenbrand Industries, and Cinergy were among the companies represented.

For more information about this survey or to download a copy of the report, please go www.us.cgey.com/transformfinance.

About Cap Gemini Ernst & Young

The Cap Gemini Ernst & Young Group is one of the largest management and IT consulting organizations in the world. The company offers management and IT consulting services, systems integration, and technology development, design and outsourcing capabilities on a global scale to help businesses continue to implement growth strategies and leverage technology. The organization employs around 56,500 people worldwide and reported 2001 global revenues of more than 8.4 billion euros.

More information about individual service lines, offices and research is available at www.cgey.com

About CFO Research Services

CFO Research Services is the sponsored research unit of CFO Publishing Corp., which publishes CFO magazine. This team of research professionals dissects emerging trends in business strategy and financial management using mailed surveys and personal, on-the-record interviews with respected chief financial officers and other senior financial executives.

Published white papers and research reports often provide a backdrop to conferences and seminars produced by CFO’s Executive Programs group. For more information, please go to www.cfo-research.com.


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