Corporate finance has long had a diverse, if predominantly backward-looking, charter: track revenues and expenses against the budget, manage the balance sheet, build the income statement, and report results. Today, finance is being asked to play an increasingly important forward-looking role in formulating strategy and providing decision support to the business units.
Organizations slow to embrace this change can find themselves at a disadvantage. Investors burned by the accounting scandals of the past few years are demanding not only that public companies implement bulletproof financial controls and report unimpeachably accurate financial results, but also that they provide faster and more reliable forecasts about where the business is headed. Similarly, CEOs are requiring that CFOs offer not just better insight into how the business is performing, but deeper and more meaningful guidance on translating trends and key developments into strategies that will drive profitable growth.
Only finance has the broad organizational reach, the rich understanding of the numbers behind the business, and the analytical training necessary to provide this support. The missing ingredient, in many finance organizations, is the right enabling technology: the tools that can provide a complex, fast-moving, and often far-flung enterprise with ready access to reliable information, and a structure for translating that information into actionable strategies with measurable outcomes. “Without that in today’s environment, we wouldn’t be able to formulate any meaningful strategy based on any historical trends or extrapolation,” says Roland Meinzer, chief financial officer for Siemens Information & Communication Networks U.S.
In a recent survey by CFO Research Services (a sibling of CFO.com), respondents showed that they clearly appreciate the changing landscape; nearly two-thirds say they have been taking a more active role in strategic planning over the past three years. However, only about 30 percent of respondents see their primary role in that activity as advising the CEO on long-term strategic direction, versus setting and monitoring metrics or understanding and reducing costs. Yet two years from now, more than half anticipate that advising the CEO on long-term strategy will be their primary function. In many cases, their goal will be to inject a more fully informed, financially rigorous planning methodology into what has been, for many companies, little more than a seat-of-the-pants undertaking.
Improving the View into the Future
As they seek a more meaningful seat at the strategy table, finance executives understand that one of their greatest challenges is finding a way to improve their view into the future. “I worry about what comes next,” says Paul Harrison, vice president of financial planning and analysis for Krispy Kreme Doughnuts. Accurate forecasting, adds Mitchell Goldstein, SVP and CFO for grocery retailer The Great Atlantic & Pacific Tea Company (also known as A&P), is important not just to retain credibility with investors, but to ensure that the business allocates resources prudently. “To set ‘pie in the sky’ goals,” he explains, “could leave you with inappropriate financing to achieve those goals.”