Featured Discussion on Toolbox for Finance on Wednesday, May 18, 2011

I will be hosting a featured discussion on Toolbox for Finance on Wednesday, May 18, 2011.  The topic will be globalization and its impact on the development and execution of finance strategy.  The discussion will be located in the Strategy Development group.

Please join us and contribute your questions and comments.

Business Outlook Survey Shows CFO Optimism

A recently released survey by Duke University and CFO Magazine shows that CFOs are becoming increasingly optimistic about the business outlook.  The survey reveals that finance leaders expect increased earnings and investment for their organizations.

Some of the highlights include:

• Fifty-six percent of finance chiefs in the United States say they are more optimistic about the economy than they were last quarter, up from 50% in December.

• They plan to increase capital spending by 12% on average over the next 12 months, a robust rise that marks the highest level of capital-spending growth since 2004.

• CFOs say spending on technology will increase by 6%, research-and-development spending will rise 4%, and marketing and advertising outlays will also grow by 4%.

• On average, [Finance chiefs] plan to increase their domestic full-time workforce by just over 1% in the next year.

• The growth in consumer demand tops the list of concerns external to their organizations.

• Maintaining margins is the top internal concern.

You can read the full article on the CFO.com website here:  Spring Fever? CFO Optimism Returns to Pre-Recession Levels

Finance as a Catalyst for a Successful Merger or Acquisition

Editor's Note: This is the first of a multi-post series discussing the impact that Finance can have in a merger or acquisition.

Your company has just announced a pending merger or acquisition, and the Finance organization has a key role in the successful integration of the acquired asset.  As part of integration effort, the Finance organization must develop and execute a plan that effectively integrates the new business while controlling cost and risk.  The decisions Finance makes are critical to realizing the anticipated value creation and its ability to communicate that value to stockholders, creditors and other relevant stakeholders.  

The challenge is bucking the historical trend of mergers and acquisitions.  Studies have shown that many mergers and acquisitions fail to deliver the anticipated increase in shareholder value.  In fact, some mergers and acquisitions have been known to actually destroy shareholder value.  It doesn’t have to be that way.  Thoughtful planning and careful execution of the integration program can increase shareholder value and create the scalable platform necessary to support future growth.

Leadership at all levels of the Finance organization is required to successfully drive the integration effort.  Executive sponsorship will be most effective when it is visible and committed to providing the necessary resources for a successful integration.  Leading companies also commit dedicated leaders to each focus area to ensure that proper attention is given to the integration program while maintaining the leadership and staff necessary to run the existing organization during the integration period.

The table below highlights six focus areas that are essential to any merger or acquisition.  Proper planning and methodical execution are the keys to a successful integration.

Table 1: Top Focus Areas for Finance Integration

  In subequent posts I'll discuss each of these areas in more depth.

The New Normal: A Spot Check from CFO.com

CFO.com has posted the results of an interesting survey that polled executives about the impact of the recession on their organizations.  In my opinion, some of the interesting statistics are:

1. Over 1/3 of those polled believe they'll see an uptick in their services as late as the 4th quarter 2010.
2. 40% of companies believe that the downturn has resulted in a worsening of their relationship with employees.  Remember, this is the executive's perception.  I'm inclined to believe that the number is actually higher.  Even if the 40% number is accurate, it still represents a talent management issue when the economy turns upward.
3. 56% believe the recession yielded a reduction in overall headcount while preserving talent.  This statistic might be true, but I'd like to remind those executives that it's relatively easy to reduce headcount while preserving talent when a sluggish economy makes it difficult for that talent to jump ship.  Similar to point 2, the real proof will be when the economy picks up.

Overall, an interesting survey.  Thanks to CFO Research Services and American Express for publishing it.

Source: CFO.com - The New Normal: A Spot Check

New survey shows support for Finance outsourcing

A new survey by WNS, a provider of Finance outsourcing services, shows that senior Finance executives support outsourcing.  Shocking, I know.  Seriously though, the survey backs up what I've seen in my own consulting work - that Finance organizations are rapidly shifting to a global delivery model that incorporates resources beyond their own direct organization.  Finance chiefs are looking for stronger talent, a competitive cost structure (read: offshore) and a more flexible cost structure to create a more nimble Finance organization. 

Some of the key findings include:

• Over 75 percent of the finance executives plan to expand their outsourcing programs in 2010,
• Driving corporate cost cutting efforts and improving internal controls are the two most crucial issues in 2010,
• Forty-four percent of the finance executives believe growing the business will be an organizational imperative in 2010,
• Over 85 percent of the finance executives are satisfied with the benefits from FAO (Finance & Accounting Outsourcing).

Here a link to the press release at the WNS website.

Rethinking the Finance cost structure

As a result of the economic downturn, Finance organizations are rethinking the way they structure their service delivery model.  Specifically, CFOs are evaluating their cost structure to determine what fixed costs can be transformed into variable costs.

In a growing market a fixed cost structure is popular.  A Finance organization with a high fixed cost structure can be very productive, limiting the growth in costs (i.e. adding a few FTEs) as the company grows revenue.  However, in a down market, these same fixed costs can quickly eat into the company's profits.

As we've seen all too well, companies can lay off people and they do, but the continuing cycle of hiring and firing is leading CFOs to evaluate new models.

One model is to outsource specific functions to a 3rd party service provider.  This provider can be onshore or offshore, but realistically, the cost savings by moving offshore are pretty compelling.  As a result, we have seen and will continue to see a growth in the oursourcing of various Finance functions.  This is certainly true for transactional activities such as accounts payable, but also extends to more complicated processes such as the monthly accounting close.

Another option that is gaining steam is the outsourcing of almost the entire Finance function, save certain governance-type positions such as Controller.  The recent sale of banking giant UBS' captive shared service center to Cognizant is one such example.  This was a relatively quick way for UBS to convert their fixed costs into a variable cost. 

 As CFOs become more comfortable with this type of delivery model, we should look to see it grow even when the economy recovers.  Many companies will have learned from this economy that it pays to have a flexible delivery model and a flexible cost structure.