This article originally appeared in the 2012, No.

1, issue of

The journal of high-performance business

Masters of finance
By Paul A. Boulanger, Christian Campagna, James M. Ellis and Chuck Wise

Finance & Enterprise Performance

M  ost CFOs are trying to drive value in todays turbulent markets, but only a few are succeeding. Here are five advanced capabilities that sustain their achievement.
a  ccenture.com/outlook

Stop worrying so much about cost control within the nance function and start focusing on growth instead. Before you say, Financial heresy! consider this: When Accenture recently surveyed more than 500 senior nance executives across 14 industries and more than 20 countries to discover how well they are coping with virtually continuous market volatility (see sidebar, page 4), we found that organizations with the leanest nancial functions are also performance laggards. Indeed, our research indicates that in their zeal to downsize as demand for their companies products or services declined, some nance organizations may have reduced costs too much underinvesting in their function to the point where its ability to create value for the larger enterprise is being seriously compromised. Half the nance executives we surveyed told us that they remain focused on reining in costs. But our research also revealed a signicant shift in thinking as companies grapple with the complexities of todays global marketplace. Some 38 percent of chief nancial ofcers and 46 percent of the broader C-suite they serve now believe that the nance function should start relaxing its obsession with cost control and concentrate more on collaborating closely with fellow executives to nd protable growth opportunities for the enterprise as a whole (see chart, page 3). Finance, in fact, is well posiitioned to act in a more central and strategic manner within the company by assuming three key roles: provide critical guidance on how and where to allocate resources and invest to drive growth; identify and minimize risk; and help shape a strategic response to market volatility. Of course, excelling at such nancial basics as core accounting is critical to delivering such value. And our research conrms that nance orga-

nizations generally have improved core capabilities substantially over the past three yearsso much so that nearly three-quarters of the nance functions C-suite customers say they are satised with its contribution to the broader strategic goals of the enterprise. Still, since 53 percent of our survey respondents say that regulatory change has a very high impact on the function, accounting and compliance capabilities will continue to face ongoing pressure to adapt. And neither nance executives nor the broader C-suite are satisfied with the finance organizations performance in the areas they say matter mostits effectiveness for the business, the quality of its workforce and its management of risk. Our research revealed, however, that few nance organizationsless than 15 percent of responding companies are delivering higher value to the enterprise; we have designated them masters of nance. We identied them by analyzing performance metrics provided by participants across three key areascore accounting, cost of nance and delivering valueto see which organizations were outperforming the overall group. And when we investigated further we found that the winners are not only well integrated with the enterprise as a whole, they are also masters of five specific, advanced financial capabilities.

1.  Finance function strategy and governance

Having an ongoing nance function strategy is considered a core capability for high-performance nance organizations. And while all the organizations we surveyed have improved in this area, nance masters take a signicantly more sophisticated approach to the overall management of their function.

2
Outlook 2012
Number 1

Focus of finance: Different perspectives

At many companies, there is a clear difference of opinion within the C-suite about what role the finance function should play. For example, whereas only a little more than a third of CFOs believe the finance function should focus primarily on growth-oriented activities, nearly half of other C-level executives think growth is where the focus should be.
Which one of the following should be the finance functions overall focus in 12 months time?
38% 46% 41 36 21 17 CFO Other C-level executives, including CEOs, COOs and CIOs
Source: Accenture analysis

Primarily on investment in growth-oriented activities

About evenly split between cost control and growth

Primarily on cost control

Winning nance organizations focus on the continual development and enhancement of their capabilities and enterprise growth is high on their strategic agenda. For example, only 12 percent of nance masters told us that they would still be focused primarily on cost control a year from now, while more than half said that at that time, growth would be of equal importance. Leading nance organizations also have an exceptionally clear governance structure, organized to maximize competencies in support of their strategic agenda. For example, nance masters make a clear distinction between nancial planning and analysis on the one hand and accounting operations on the other, and they organize accordingly. Moreover, each individual part of the nance function clearly understands its rolenot only internally but also in relation to the enterprise as a whole.
3
Outlook 2012
Number 1

enterprise, and thus is able to contribute directly to the strategic priorities of the company. Consider, for example, the case of a leading global steel group, which transformed its previously decentralized nance function into a single, global entity as the rst step in a process designed to enforce groupwide responsibilities. The transformation, which resulted in a new operating model and strategic vision for nance within the enterprise, also created new reporting capabilities and capital expenditure and helped drive a signicant improvement in return on invested capital.

2. A value-centered culture
Finance masters understand that the creation of shareholder value is the goal of all enterprise activities. Whats more, they play a central role in driving that value. Indeed, thanks to their role in planning and analyzing business

Most critically, the nance organization as an integrated entity holds a key position at the heart of the larger

About the research

The 2011 Accenture High Performance Finance Studythe rst such research project since 2008 and part of an ongoing investigation into high-performance nancewas based primarily on a survey Accenture conducted between January and August 2011 among 536 nance executives across 14 industries and more than 20 countries. In addition, a complementary survey of 297 C-level customers of nanceCEOs, COOs and CIOswas conducted in May 2011. And we supplemented the research by interviewing nance executives and COOs representing large, global organizations across industries. We analyzed performance metrics provided by participating companies across three key areascore accounting, cost of nance and delivering value. Companies outperforming the overall group were classied as masters, while those underperforming the overall group were designated as non-masters. We found that companies that consistently delivered moderate or high value were more likely to report having advanced capabilities across 15 key areas of nance: nance function strategy and structure; workforce management; value-centered culture; strategic planning; target setting; budgeting and forecasting; performance reporting and analytics; transaction processing; internal controls; capital planning and management; treasury; tax; investor relations; nancial risk; and business and operational risk. This was especially true of target setting, value-centered culture, strategic planning, performance reporting and analysis, capital planning and management, treasury, budgeting and forecasting, and workforce managementa nding that led us to identify ve such capabilities as especially key differentiators (see story).

performance, nance masters inuence the broader culture of the enterprise. And by proactively embedding nance in the larger enterprise, ensuring that nancial thinking, metrics and analytics are pervasive, they participate directly in high-level decision makingenhancing their ability to respond to constantly changing markets, which 46 percent of our survey respondents cited as one of their most signicant challenges. At the smoke-free-products maker Swedish Match, for example, the nance function played a key role in developing such a value-centered culture by instituting the change management processes needed to help embed a value creation mindset across the company. As a result, the Stockholm-based company has enhanced its growth execution capabilities (see sidebar, page 5).

3.  Strategic planning and target setting

Finance masters are intimately involved in the ongoing process of identifying an appropriate business strategy and translating that strategy into specic objectives, value drivers and key performance indicators as well as in creating the strategic planning documents and strategy maps that drive the business forward. They participate directly in target setting, driving value by translating vision and strategy into rigorous operational and nancial targets. Finance masters help analyze both the portfolio of businesses that make up the enterprise and their expected contributions, and they collaboratively set top-down performance targets for each segment of the business.

4
Outlook 2012
Number 1

Swedish Match: Creating a nance-driven, value-centered culture

As the worlds largest supplier of snus, a Scandinavian snuff that has become increasingly popular with cigarette smokers seeking a different nicotine kick, Swedish Match seemed set for stock market stardom. Tobacco users, however, can be as ckle as any other consumers in todays markets. And when agile new competitors started pouring into smoke-free tobacco products in the early 2000s, the Stockholm-based company soon realized that it could no longer take for granted the brand loyalty it had enjoyed. With investors concerns mounting, Swedish Match decided to take a new approach to doing business across its Northern European heartlandan approach that would make customerdriven value creation, led by finance, the central concern of everyone in the enterprise (see story). The company knew that its core problem was insufcient process rigor. Its business processesand nance processes in particularjust werent aligned with long-term strategic goals. Moreover, without robust long-range planning and forecasting capabilities, it couldnt meet investor demands for annual free cash ow growth. But Swedish Match also recognized that a transformation of its corporate culturehaving the right people with the right attitudeswould be key to its value-creation goals. And led by then-CFO of the North Europe Division Jonas Nordquist and a network of champions, several of them controllers from the finance function, the company set about showing employees that by applying analytical thinking to their actions they could directly contribute to strategic outcomes for the enterprise as a whole. Like all such exercises, this cultural transformation, which used storytelling and visual techniques designed to explain complex accounting concepts simply, as well as scorecards to align individual performance indicators with clear business targets, is a long-term project. But coupled with the companys business process and enterprise performance management overhaul, it is already yielding results. Swedish Match can now allocate resources based on its strategic priorities in a more focused way. And it is enhancing its overall protability by continuously ensuring that what is most important to the company is run in the most efcient way and by prioritizing products and "markets. In short, a company that has been in business for almost a century is serving customers more efciently and meeting investor expectations more effectively in unprecedentedly turbulent times.

Case in point: Lantmnnen Energi, a division of Lantmnnen, a $5 billion Swedish farming cooperative that operates in 18 countries. The company has four business units that commercialize environmentally friendly gasoline, biofuel, grain-based ethanol and wheat products for the food industry. The company wanted not only to establish a clearer link between its long-term strategy and day-to-day operations but also to be able to assess client and product protability within each business unit in order to optimize its portfolios. By working with nance to identify key performance indicators for each unit, Lantmnnen Energi was able to set individual targets that collectively contributed to stretch goals for the company as a whole.

4.  Forecasting, reporting and analytics

Forecasting is the ongoing process of making projections of future-period business performance, usually on a monthly basis, while reporting and analytics looks at what actually happened, why it happened and what to do about it. Many nance organizations, accustomed to tackling both tasks in a more predictable environment, are struggling to do so in the new era of permanent volatilityespecially if they are insufciently integrated with the larger enterprise. Our experience suggests that the degree of integration tends to have a direct impact on the quality of insight into the reporting and analytics critical to line management. And nance masters have taken signicant steps to integrate their function.

5
Outlook 2012
Number 1

Accenture: An integrated approach to forecasting

Accurate forecasting is a business imperative. But in todays volatile markets, it can be exceptionally elusive, especially for nance organizations without an integrated approach to the challenge (see story). Until recently, Accenture, too, was struggling. To be able to marshal its global resources for optimal performance, the company needed to match revenue and contract cost projections with labor and payroll needs for multiple lines of business with approximately 140,000 employees serving clients across more than 30 industries and 75 countries, as of the end of scal year 2006, when the program commenced. But its existing nance application just wasnt up to the task. On the demand side, it lacked both modeling capabilities and bottom-up client team input. On the resource planning side, the widespread use of isolated spreadsheets that were not connected to a central database and an incomplete view of the companys multiple workforces wasnt providing the actionable level of detail needed to connect supply with demand. Accentures solution, which combines aspects of business intelligence, business process management and enterprise resource planning, is believed to be the rst and only instance of a professional services rm using a single, enterprisecaliber tool to ne-tune forecasts and proactively manage the business. The key to its success: an integration design initiative that brought together nance and HR, and a clear, single view of the companys data. The solution took almost two years to design, build, test and implement. But its algorithms, which compared historical outcomes with model projections, outperformed prior approaches from the initial pilot tests onward. Revenue projections proved 5 percent more accurate, headcount projection accuracy increased by 11 percent, and the accuracy of payroll projections improved by 10 percent. Meanwhile, nancial teams have eliminated almost all of the 40 percent of their time that they used to spend gathering data and can thus focus more on critical analysis and data mining. A more accurate forecasting methodology has enabled the company to save on labor costs. Tailored reporting facilitates better decision making. And with all of the data now visible in one place, busy managers are able to improve service delivery, boosting client satisfaction while controlling variable costs.

At one Southern Europe-based global retail bank, for instance, the CFO gained greater control over forecasting and analyticsand enhanced his organizations role in driving value for the enterpriseafter the company aligned its forecasting and reporting to focus on the achievement of the overall group strategy. The banks new, group-wide processes are not only faster and more efcient, they also allow all business units to see exactly where they are against their specic objectives within the overall group strategya much more thorough perspective than traditional accounting and budgetary views. Accenture, similarly, leverages its own nancial and operational data and enterprise resource planning platform technologies to drive an integrated forecasting capability that its various operations lean on heavily for day-to-day business decision making (see sidebar, above).

Meanwhile, the nance function at one European food company has dramatically improved its reporting and analytics capabilities. The companys effort, which involved eliminating duplicate reporting and establishing structures to improve the quality and usefulness of information, has given the company both greater transparency into nancial data and better data-capture capabilitiesin short, more consistent reporting, better decision making and, thus, results.

5. Financial risk management

Specic nancial risks have traditionally been addressed within specic areas of the nance functionforeign exchange risk within treasury and cash management, for instance. But in todays wildly unpredictable business environment, the management of risk must change accordingly.
(Continued on page 8)

6
Outlook 2012
Number 1

Understanding total cost

By Les S. Stone, Doug Derrick and George Marcotte In todays volatile markets, accurate cost accounting and inventory valuation capabilities are more critical than ever. Yet many companies dont have a clear understanding of what their true costs are. Isolated within the nance department, the typical cost accounting function doesnt have access to the timely, all-inclusive data that drives optimal decision making. As a result, key questions remain unanswered, such as what prices to set in order to maintain margins, or how cost increases could be passed on to specic customer segments without damaging sales. At those companies with an enterprisewide approach to cost accounting, however, its an entirely different matter. By integrating their cost accounting capabilities right across the enterprisefrom engineering through human resources to sales and marketingleading companies have been able to capture a more complete picture of their total costs. And armed with that knowledge, many have moved with condence to mitigate (and even benet from) the impact of soaring costs and unpredictable change. Thus, for example, a number of packaged food companies have been able to shrink their container sizes while maintaining unit price levels. Procter & Gamble has raised the prices of some products while substituting less expensive materials in the manufacture of others, while poultry giant Tyson Foods has proted from a rare inversion in feed prices by adding cheaper wheat to the more expensive corn traditionally fed to chickens. Meanwhile, Monro Mufer Brake, the US auto-repair chain, has leveraged its thorough understanding of the rubber market to develop a much more sophisticated
7
Outlook 2012
Number 1

sourcing strategy for its tiresboosting inventory as a hedge against rubber price hikes in the future.

SG&A cost allocations are simplied in order to better reect economic realities. Variances are the result of differences between actual cost and planned cost due to changes in product mix, yield, volume, labor rates and the acquisition cost of materials all of which can uctuate wildly in todays markets. But by using a contribution margin approach, which differentiates between variances that managers can control and those that they cant, companies can gain truly granular insights and accountability identifying exactly what plant managers are responsible for and can control, for instance, versus the responsibilities of purchasing managers. These insights not only deepen the companys understanding of its total costs, they also encourage functional areas to share cost data upfront and support the cooperation and interconnection that enable and sustain enterprisewide cost accounting. For example, collaboration and the sharing of cost information between sales, nance and manufacturing helped one high-tech company better match the cost components of its products and services with the expectations of its customers. Accurate and comprehensive data analysis revealed that how the manufacturer was spending money on customer service was misaligned with its customers perceptions of value. More than half of customer-service investment was devoted to producing user manuals, though customers wantedand were far more willing to pay foraccessible and responsive hotline support. Once the company had stopped producing so many manuals and scaled up the valueenhancing service support its customers actually craved, margins improvedand so did customer satisfaction.

The best accounting method

In addition to integrating capabilities across the enterprise, companies need to choose the right method of accounting to allow them to manage the business effectively. There are, to be sure, different ways of valuing inventory for internal management reporting purposes. But in Accentures experience, standard cost accounting is by far the best method largely because it values inventory consistently over time. By taking full account of uctuations in input costs, it captures true value at a particular moment in time, and thus allows management to price inventory accurately in order to achieve target margins. By contrast, moving-average (or weighted) cost accounting, though typically easier to manage, recalculates inventory value after each receipt of goods or invoice, or after each production order settlement. It tends to capture out-of-date data and masks input-cost uctuations, disguising the true value of inventory to the company, exacerbating the impact of volatility and making it much harder to reconcile internal with external reporting. When properly administered, the standard cost method should closely mirror actual cost and is increasingly used by manufacturing and distribution companies because of its acknowledged strengths in cost control. Whats more, by enhancing transparency in the manufacturing process and making it easier to analyze customer and product protability, standard cost accounting provides a basis for increased accountability throughout the organizationassuming, of course, that variance distributions and

Future growth
In areas that should make a significant difference in the future growth prospects of the company in a volatile environmentsuch as target setting and strategic planning finance executives at organizations that we determined to be masters rate themselves higher than non-masters.
Percent of respondents who rate their function a 4 or 5 on a 5-point scale
74% 47% 60 45 60 46 60 48 60 49 58 50 50 44 50 44

Target setting

Performance reporting and analytics

Treasury

Budgeting and forecasting

Strategic planning

Value-centered culture

Finance function strategy and structure

Financial risk management

Masters Non-masters
Source: Accenture analysis

(Continued from page 6)

8
Outlook 2012
Number 1

Finance masters recognize that they must manage risk both more proactively and more holistically, building strategic, enterprisewide capabilities that focus on preemption and help identify how to derive business benets from risky situations. As a result, they are involved in the identication, assessment, measurement, management and mitigation of nancial risks right across the enterprise.

For nancial services companies directly hit by the credit crisis of 2008 and its aftermath of capital and liquidity constraints, such an enterprisewide approach to risk management has clear benets. Indeed, consolidated risk management can benet most organizations. One diversied metals and mining company, for example, has minimized its market risk and improved credit and operational risk management by consolidating its processes and aligning its business

For further reading

Accenture 2011 High Performance Finance Study: Delivering Value in a Complex World: http://www.accenture.com/us-en/ Pages/insight-nance-study-deliveringvalue-complex-world.aspx For this and other articles, please visit www.accenture.com.

strategy with operations. As a result, the companys nance organization is better able to manage volatile cash ows and currency uctuationsand

the enterprise as a whole is better able to monitor the risk exposures that might translate into nancial operational losses.

Nothing is certain in todays turbulent markets. But by embedding their function at the heart of the enterprise, ensuring that nancial rigor pervades decision making, and developing advanced planning, forecasting, reporting and risk management capabilities, some CFOs are showing that mastery of nance is not only achievable, but also a key value driver for the business as a whole.

About the authors

Paul A. Boulanger is the managing director of the Accenture Finance & Enterprise Performance group. He has more than 20 years of management consulting experience working with clients worldwide across many industries, helping them develop nance function strategy and plan and implement large-scale nance transformation and change programs. Mr. Boulanger is based in Atlanta. paul.a.boulanger@accenture.com Christian Campagna is the Frankfurt-based managing director of the Accenture Finance & Enterprise Performance group in Europe, Africa and Latin America. Dr. Campagna, who has more than 20 years of cross-industry management consulting experience worldwide, focuses on nance function strategy, integration and transformation programs, and the design and reengineering of nance and other general and administrative functions and processes. christian.campagna@accenture.com James M. Ellis is the managing director of nance operations in the Accenture Finance & Enterprise Performance group. With 25 years of management consulting experience across several industries, Mr. Ellis works with multinationals in strategy and organization design, M&A and post-merger integration, shared services, process reengineering and business process outsourcing. He is based in Atlanta. james.m.ellis@accenture.com Chuck Wise is an Atlanta-based senior principal in the Accenture Finance & Enterprise Performance group, leading Accenture Benchmarking Solutions. For nearly 20 years, Mr. Wise has worked with clients across many industries on cost and performance benchmarking, nance functional strategy, nance organization design, enterprise performance management, post-merger integration, shareholder value analysis and strategic cost reduction programs. charles.p.wise@accenture.com Les S. Stone is a New York-based senior director in the Accenture Finance & Enterprise Performance group. He has more than 35 years of nance experience, including holding senior nance roles in a Fortune 150 rm.
9
Outlook 2012
Number 1

les.s.stone@accenture.com

Atlanta-based Doug Derrick, who leads Accentures North American Management Consulting in automotive, industrial equipment, infrastructure and transportation services, works with clients in strategy, logistics, operations and dealer development. r.douglas.derrick@accenture.com George Marcotte leads Accentures Enterprise Performance Management Strategy group globally as well as the companys Enterprise Analytics group in Europe, Africa and Latin America. He is based in London. george.marcotte@accenture.com The authors would like to thank Robert Bergstrm, a Singapore-based executive principal in the Accenture Finance & Enterprise Performance group, for his contributions to this article.

Outlook is published by Accenture. The views and opinions in this article should not be viewed as professional advice with respect to your business.

The use herein of trademarks that may be owned by others is not an assertion of ownership of such trademarks by Accenture nor intended to imply an association between Accenture and the lawful owners of such trademarks.

For more information about Accenture, please visit www.accenture.com

Copyright 2012 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.