Trying to go two ways at once

Fears of loss of control and a general undermining of standards and influence are part of the uncertainty surrounding the future of the finance function. According to the second annual survey of senior finance executives by Financial Director magazine, in association with Business Intelligence, 90% of respondents are convinced that changing business demands will force them to take on new roles over the next two years.

There is far less agreement, though, on exactly what these roles will be and what response is called for.

A preliminary analysis of the findings of this summer’s survey reveals that the finance community continues to be divided. While some are actively responding to the need for change, many more are holding back, either from nervousness or uncertainty about how to react to the business pressures.

Overall, there is no doubt that the key trends identified by the 1996 survey are intensifying with more finance directors implementing, or planning, changes in the way they run their operations and contribute to the management of the business. But they remain in the minority.

Within the finance function, this is reflected in the small increase in the proportion of companies that have completed major re-engineering or re-structuring projects – 40% compared to 34% in 1996. However, more seem prepared to consider radical reorganisation rather than outsourcing on a grand scale. Despite a small number of widely reported initiatives involving the wholesale outsourcing of accounting activities, this practice has yet to gain more than low-key support. Although the 26% of companies that do outsource represents a 6% increase over 1996, this is largely confined to predictable payroll or payroll processing, and occasionally accounts payable, invoice processing or internal auditing. Nor is there solid confidence in the accounting industry’s ability to handle this type of business. Only 44% of respondents agree that the major accounting firms are capable providers of outsourced finance services.

The demands for new finance skills

While some finance functions are re-examining the organisation of their operations, business change is registering on other aspects of management.

Concern with customer service and accountability has rippled through to a small but growing minority of finance functions. Of the respondents, 27% now have a formal process for assessing feedback from their customers, up from 19% in the last survey.

As might be expected, where finance has accepted the need to take on new roles and responsibilities, this is reflected in a recognition of the need for additional skills. The majority of respondents, 98%, believe finance professionals must develop a broader set of business skills including risk management, strategic financial analysis and negotiation skills.

There is also evidence of heightened interest in new forms of performance measurement. Over half the respondents say that expertise in new measurement frameworks is being added to their skills set. This suggests that broader-based measurement frameworks, such as the balanced scorecard, which combines market, customer, process and innovation measures with traditional financial analysis, will play a more significant part in the finance department’s future. Currently, half the survey sample say they have had to develop new types of performance measures and 33% have implemented a balanced scorecard framework, a third more than in the previous year. Looking at the issues behind the statistics, many respondents are ambivalent about the changes which most accept as inevitable. Confidence about adapting to a rapid rate of change are balanced by concerns about the possible erosion of control.

On the upside, the most important opportunity was the chance of greater involvement in the development of business strategy. Becoming a facilitator of change and of development on a corporate scale was the underlying theme of a vast majority of the answers: “Finance becoming a true business partner and a force to initiate change, rather than support it,” is one respondent’s vision. Another wants to see “a greater participation in setting the strategic direction.”

The chance to take the initiative flavoured many other suggestions. These range from the opportunity to improve financial literacy throughout the company to add value, and making a greater contribution to business effectiveness.

Europe was cited as an opportunity by only a few. Most focus on issues relating to their own departments or elsewhere in their own companies in mapping out their future.

Change for change’s sake?

Of all the risks, the most frequently cited centres on the fear of a loss of control resulting from a plethora of changes. Several saw the danger of chasing too many objectives in terms of “taking the eye off the ball”. In other cases there is a fear that changes may weaken the traditional powers and responsibilities of the finance director: “Dilution through devolution” said one; the perception that “change is needed because it is fashionable” said another. A few noted risk factors external to the company.

The year 2000 problems along with other “system changes imposed from outside the company” are seen as potential threats to future plans. A number see the advent of the single European currency in similarly ominous terms. However, most are worried that they will become victims of over-arching ambition resulting from senior management expectations being unrealistically high, or, as one respondent wrote: “Attempting too much and losing all”.

Given the scale and speed of current changes such mixed feelings are not surprising. Excitement about improved efficiency and performance are offset in some cases by anxieties about such factors as skills shortages, IT constraints, or the natural insecurity about the threat of change itself.

Unfortunately, the professional institutes who represent finance professionals continue to lag behind their members’ needs to come to terms with the challenge of change.

Only 2% of respondents regard their institute as “extremely effective” in this respect, marginally fewer than last year, whereas as many as 41% now regard their institute as either “barely adequate” or “completely inadequate”, a significant increase on last year. Undaunted by the extensive difficulties that they see ahead, senior finance executives are nonetheless largely self assured about their prospects. Seventy-two per cent expect the influence of the finance function to increase under their command, with only 4% expecting it to decrease. But that will all be determined by their ability to ride the changes that they all regard as inevitable.

The results of the survey are being used to guide and inform future finance events and reports by Business Intelligence, and as the basis of further editorial research by Financial Director.

The full survey results and analysis will be presented by the editor of Financial Director magazine in a talk on The Evolution of the Finance Function at a conference in London on 13-14 November 1997 entitled The Finance Scorecard. For further event details call the Business Intelligence information line on (0181) 879 3355 or e-mail: [email protected].