Jeremy Johnson

Background Recent Global Economic Downturn New Role of Finance Organizations Becoming a Value Integrator CFO Quotes Discussion Quiz Outline

Background IBM CFO – Mark Loughridge Study conducted with over 1900 CFO’s worldwide The purpose of the study is to determine how Finance organizations are being reshaped by the new economic environment that has emerged over the recent years And to identify/analyze the leading enterprises that have both a high level of efficiency and an expanded capacity to provide meaningful business insights that meet the new challenges (These Finance organizations are called Value Integrators)

Background (Cont.) Value Integrator Finance organizations On every measure, these enterprises outperform their peers They do so in large part because they excel at integrating information company wide, analyzing it and converting it to a competitive new asset – new intelligence This ability allows them to become the leaders of their firms and ultimately lead the strategic direction of the company Yet too many Finance organizations have seized this opportunity within their respective organizations While, CFO’s generally want their divisions to influence the decision making and strategic direction of their firms, they are too often limited to performing transactional activities

Recent Global Economic Downturn CFO’s were placed in the spotlight during the downturn in order to address urgent capital acquisitions, cash flow and revenue challenges due to uncertainty and volatility CEO’s and Boards are looking more to the CFO’s now for insight into the strategic direction that the company should be headed in As a result, CFO’s are emerging with far more influence at the enterprise level

New Role of Finance Organizations Today, CFO’s are being pulled in two different directions. They are being asked to… Provide/report high quality information about the past (Sarbanes-Oxley) As well as to provide valuable forward looking information for the future

New Role of Finance Organizations (Cont.) The Finance organizations that are able to excel in both of these areas are the Value Integrators Value Integrators are able to excel due to (2) primary capabilities that set them apart: Finance Efficiency – The degree of process and data commonality across finance Business Insight – The maturity level of Finance talent, technology and analytical capabilities dedicated to providing optimization, planning and forward-looking insights

Becoming a Value Integrator The IBM case identifies (4) types of Finance organizations using the (2) primary capabilities as measures: Scorekeepers Constrained Advisors Disciplined Operators And Value Integrators

Becoming a Value Integrator Scorekeepers – primary focus is on consolidating financial data and reporting results Constrained Advisors – have started working toward becoming Value Integrators by developing strong analytical capabilities, but are constrained by incomplete and inconsistent data Disciplined Operators – perform financial control and reporting in a highly automated, efficient manner, but do no yet have the capabilities to assist with the strategic decisions

Becoming a Value Integrator Driving integration of information is the major outlier that separates Value Integrators from the rest This is done by establishing and enforcing common processes and data definitions through the use of: Process ownership Standard accounting applications And Alternative delivery methods

Becoming a Value Integrator Process Ownership – assigning responsibility for specific processes drives integration and consistency, thereby simplifying and standardizing activities, eliminating duplication and reducing errors Standard Applications – moving to common systems within departments insures that data provided to decision makers is consistent and accurate Alternative Delivery Methods – outsourcing particular finance functions relating to transactional activities in some situations can allow the Finance organization to focus more on the analytical side of finance, thereby putting it in a position to be in more of an advisor type of a role

CFO Quotes “The World the CFO now lives in is different – technical accounting skills are not as important. Finance must get closer to the business and partner with them to achieve objectives. Finance must also be confident enough to challenge the decision-making process.” – Paul Whelan, CFO, Telefonica O2 Ireland “We can anticipate and respond effectively because we have the foundation in place. Finance is embedded in the business and is a broad-scope function, which enables end-to-end process improvement and strong process integrity and controls.” – Iain Macdonald, CFO, BP “In the next three years, change will drive the criticality of decision support. Therefore, we must find better ways to do transaction support and control activities with improved processes and more automation.” – Bob Driessnack, CFO, Intermec Inc.

Discussion The IBM case study provides guidance to CFO’s and Finance organizations on becoming “Value Integrators” in very general terms. What specific actions do you think CFO’s should be taking in order to process information more efficiently to produce valuable insights for strategic decisions? (or actions that you have seen CFO’s take)

Quiz Question Who is the CFO who organized this CFO study? A) Peter Oppenheimer B) Mark Loughridge C) Peter Klein D) Patrick Pichette