Shifting ground: How CFOs are shaping business strategy

Transcription

1 Shifting ground: How CFOs are shaping business strategy

2 About ACCA ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. It offers business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. ACCA supports its 178,000 members and 455,000 students in 181 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 95 offices and centres and more than 7,110 Approved Employers worldwide, who provide high standards of employee learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accountancy continues to grow in reputation and influence. As the first global accountancy body entering into China, ACCA now has over 24,000 members and 61,000 students, with 8 offices in Beijing, Shanghai, Chengdu, Guangzhou, Shenzhen, Shenyang, Hong Kong SAR, and Macau SAR. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. It believes that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. ACCA s core values are aligned to the needs of employers in all sectors and it ensures that through its range of qualifications, it prepares accountants for business. ACCA seeks to open up the profession to people of all backgrounds and remove artificial barriers, innovating its qualifications and delivery to meet the diverse needs of trainee professionals and their employers. More information is available at: This report brings together the discussions from ACCA s CFO Summits held in Shanghai on 20 October 2015, and in Hong Kong on 6 November These events have provided an unrivalled platform for CFOs from across the region to share their insights and perspectives on the key issues facing business and finance leaders today. Visit and for more details of the Summits. The information contained in this publication is provided for general purposes only. While every effort has been made to ensure that the information is accurate and up to date at the time of going to press, ACCA accepts no responsibility for any loss which may arise from information contained in this publication. No part of this publication may be reproduced, in any format, without prior written permission of ACCA. The Association of Chartered Certified Accountants January 2016

3 Introduction 3 The role that finance professionals play within companies has been redefined in the last few years. The role that finance professionals play within companies has been redefined in the last few years. This transformational process is likely going to continue. While there are certain fundamental traditional tasks that remain a priority for Chief Financial Officers (CFOs), the amount of time and the level of attention dedicated to these traditional activities are likely to give way to more macro-level activities. Almost every day, CFOs and finance professionals within companies and organisations are expected to provide more strategic and commercially focused input and advice, acting as true business partners and owners. Statistics from a recent joint survey done by ACCA and Harvard Business School suggest that finance professionals are themselves shifting their own perceptions of their roles. As many as 73% of finance professionals surveyed by ACCA and Harvard Business School say that cost management and profitability related analysis are their most important task followed by planning, budgeting and forecasting. More than a quarter of finance professionals now see their role as more strategic. Of course you still need to make sure that numbers are not lying, but I think part of the profession is to also care of the moral fibre of the corporation you serve, said Dr Raymond Ch ien Kuo-fung, chairman of both MTR Corporation and Hang Seng Bank at the time when he was speaking as Guest of Honour of ACCA Hong Kong CFO Summit 2015 (he retired from MTRC in December 2015). You have to strike a balance. Do you dare to speak up? Or do you dare to go up to the CEO and say we should do things a bit differently. A group of 485 executives were interviewed in mainland China and Hong Kong, with 87% interviewed in Chinese and 13% in English and the group was split in half between men and women. These executives represented organisations across the world, with more than half of the organisations headquartered in mainland China, 61 in the United States and 70 in Europe, and with the top sectors being manufacturing, finance, banking and insurance as well as consulting and market research. 73% of finance professionals surveyed say that cost management and profitability related analysis are their most important task Figure 1: Certain tasks are fundamental to finance Even though their priority is expected to decline in the future, they remain the top areas of focus. 73% Cost management and profitability 59% 57% Planning, budgeting and forecasting 46% 47% Compliance and risk 43% 0% 10% 20% 30% 40% 50% 60% 70% 80% Past 2-3 years Next 2-3 years

4 More links to business 4 About half of CFOs say the agendas for the next two to three years for senior and mid-level finance professionals will be filled by a combination of operation and stewardship roles. About half of CFOs say the agendas for the next two to three years for senior and mid-level finance professionals will be filled by a combination of operation and stewardship roles. The operation roles include balancing levels of capability, talent, cost and service offerings within companies. The stewardship comes in the need to protect and preserve critical assets of a company and accurately report on financial position and operations to stakeholders. There is, however, a clear shift in what it means to be a finance professional. THREE FACTORS COME INTO PLAY One is the much stronger relationship that has come to the force between finance professionals and groups outside of finance. Some 58% of finance professionals surveyed say there is much more cooperation with other business units. CFOs and other C-suite executives are much more likely to work together now than ever. There are much greater expectations for finance professionals to look beyond the numbers and have the ability to work well with others. CFOs should go beyond finance and touch every single other function in the company as well, since CFOs need to transform the company, said Sun Zhenyao, the chairman of HiSoft and former president of HP China. For CFOs, emotional intelligence (EQ) never weighs less than IQ. 58% of finance professionals surveyed say there is much more cooperation with other business units Figure 2: Stronger relationships with groups outside of finance were reported Changes in Working Relationships 60% 58% 50% 51% 48% 40% 46% 30% 34% 36% 20% 10% 0% 10% -7% -4% -2% -6% CIO CFO COO Business CHRO CMO Unit -9% -9% Increased cooperation and working together Less cooperation

5 Shifting ground: How CFOs are shaping business strategy More links to business 5 A second factor is a shift in priorities, away from strict accounting or finance and towards more strategic thinking. There is much more visible integration of C-suite roles and the blurring of boundaries between finance and other functions. Nearly 40% of finance professional surveyed said in the future their most important task will be to provide strategic analysis to management, that s up from the 29% who would have put such strategic roles as their top job role over the past two or three years. There is also a greater demand for CFOs to stretch beyond their traditional roles to support other business endeavours such as business transformation. CFOs have to cross fields, whether they want to transform or not, because CFOs must observe the whole business including research and development, purchasing, sales and logistics from the perspective of the CEO or general manager, said Gu Feng, CFO at Shanghai Automotive Industry Corporation (SAIC Motor). A third factor is the changing expectations that management has of the finance function. Companies and board members increasingly expect CFOs to act both as catalysts and value integrators, delivering insights to other decision-makers and working closely with groups outside of the finance function. A CEO hopes that a CFO uses a wealth of financial information to evaluate new markets, improve efficiency, and play a more strategic role in the process of business re-positioning. We all see the future development trend of the CFO beyond the mere financial functions, said Daniel Chan, a senior partner at KPMG. Nearly 40% of finance professionals surveyed said in the future their most important task will be to provide strategic analysis to management Figure 3: Increased integration with the C-suite and business units results in shifting priorities for finance Growth supporting and funding Analysis/advice to management for strategy Business transformation/change management 25% 29% 32% 32% 38% 39% Finance transformation 15% 23% 0% 10% 20% 30% 40% Past 2-3 years Next 2-3 years Figure 4: In this context, the roles of Strategist and Catalyst assume greater importance Strategist: Provide financial leadership in determining strategic business directions, financing, capital market and longer-term strategies vital to the future performance of the company. Catalyst: Execute strategic and financial objectives while creating a risk-intelligent culture. Strategist Role Catalyst Role How much time should be spent 17% How much time should be spent 31% 6% How much time is spent currently 11% How much time is spent currently 22% 33% 44% 41% Only very large (darker segments) and large (lighter segments) amounts of time shown.

6 Change is in the air 6 Although most finance executives intend to stay in finance for their next role, 10% would like to explore the role of CEO and 4% would like to try their hand at C-level roles. Finance professionals have generally welcomed these changing expectations. As many as 72% of respondents to the ACCA survey believes they should spend large amount of time developing strategy to provide more financial leadership and facilitate decision-making, improve financing, tap into capital markets and consider long-term business goals that are vital for the future performance of their companies. At the same time, as many as 61% of respondents think more attention should be paid to executing strategic and financial objectives while creating a risk-intelligent culture. Volatility, risk, data, technology and talent are the five essentials of influence, from which we know the changing requirements for CFOs. Since our business landscape is constantly evolving, we need to clearly understand these changes. Only by employing them can a finance leader triumph in the future, said Leo Lee, Vice President of ACCA. 61% of respondents think more attention should be paid to executing strategic and financial objectives while creating a risk-intelligent culture Figure 5: Finance remains the career choice for most, even as they seek to advance About 3 out of 4 finance executives intend to stay in finance for their next role. Next Role CEO Other C-Suite 10% 4% Unit Head 22% CFO 9% Other Stay in role 8% 47%

7 Shifting ground: How CFOs are shaping business strategy Change is in the air 7 It is not just companies and company management who expect more from finance professionals, many CFOs have ambitions of their own to morph into successful CEOs or to take on other C-suite roles as the next career step. Although most finance executives intend to stay in finance for their next role, 10% would like to explore the role of CEO and 4% would like to try their hand at C-level roles. This is not an easy shift. Finance professional who make their way into other areas find that the odds are against them. Statistics are not encouraging. Among chief executives in the Forbes 2000, a listing of the world s largest publicly held companies, only 13% are former finance chiefs. I do think the CFO has an advantage being a good leader, like a CEO. However, CFOs have to spend so much time doing analysis that interacting with people is not their main function. So a CFO does not have the real experience to attract clients and consumers and that is a constraint for a CFO to become a CEO. I am not trying to underrate CFOs, but there must be a transformation process, said Patrick KW Chan, Executive Director and CFO at Sun Hung Kai Properties. Knowing what skills are needed for this transformation is one thing. Actually acquiring those skills is a different thing altogether. Only 44% of finance professionals are spending large time on playing a catalyst role and less than 28% say they are currently spending the majority of their time in strategy-related roles or tasks. Part of the problem may be the sheer amount of time it takes to develop a finance specialisation. Become an expert in one area often means a person has less time to develop a familiarity with other fields. This might explain why finance professionals often feel less than confident contributing on strategic issues. 13% of chief executives in the Forbes 2000 list, are former finance chiefs Table 1: Location of next role While senior and mid-level finance executives have similar career plans, senior executives expecting to change jobs are more likely to change organisations in this next move. Location of next role (among those expecting to change jobs) Mid-level Senior Current organisation 35% 28% Corporate or group level of current organisation 29% 24% Different organisation 37% 48%

8 Reach and grasp 8 There is a big gap in finance s ability to satisfy the need for strategic contributions. 47% report that finance plays an important role in their organisation for strategy 36% are confident in their ability to contribute on strategic matters 46% report understanding their organisation s strategies only moderately well and another 5% don t know it well. As expected, more senior finance executives report understanding the strategy better, but not by much. An even larger gap exists for innovation. 42% say that finance plays an important role for innovation, while only 26% are confident in their ability to contribute A gap remains between the desire of finance professionals to make more strategic level contributions and their ability to do that. As many as 46% of respondents say they have a moderate understanding of their organisations as opposed to the thorough understanding needed to develop strategy while as many as 5% admit frankly that they just do not know their companies that well. On the other hand, about half of respondents say the finance function should play a more important role in strategy. An even larger gap needs to be filled in terms of innovative capability. While nearly half of professionals understood the need to take a more proactive approach to innovation, only 26% are confident in their ability to contribute in this area. This may be partly the result of the built-in constraints associated with the accounting and finance professions. Our profession requires we observe and follow rules and regulations. But when it comes to business, we are always encouraged to think out of the box. We have to be innovative and creative, but that may not be our strength, said Patrick KW Chan, Executive Director and CFO at Sun Hung Kai Properties. Most CFOs are disciplined and resultoriented professionals, characteristics that tend to make them more cautious than their peers within the C-suite and harder for them to adapt to other roles. Another way to look at these traits is that, in the words of Paul Mok, Group Financial Controller at Orient Overseas Container Lines, Accountants are always risk-averse and rigid. Finance professionals tend to be more conservative which sometimes can save the companies or ensure they are profitable. Given these traits, CFOs are encouraged to step beyond their traditional comfort zones more often. In order to make products and services invincible, to keep up with the latest technological development advancements, and to address the challenges under the new normal, a CFO must strive for a breakthrough, changing the inherent trajectory of thinking, and innovating with the CEO and the business to create more opportunities for himself, said Daniel Chan, a partner at KPMG. Many within the profession are working to facilitate this process by catalysing a shift in attitudes towards risk-taking and innovation within finance divisions and among finance professionals. A majority of organisations have set up innovation related performance measurements and incentives to boost awareness of the importance of creativity among finance people. Half of professionals interviewed said their companies are trying to cultivate a culture of innovation. Figure 6: Despite a large gap that exists for innovation, a number of finance efforts designed to foster innovation are in place Structure incentives and performance measures to reward innovation Promote an innovative culture Encourage finance team to expose and support during the entire innovation process Provide robust and reliable data analysis for effective decisions Maximise profit opportunities when implementing innovations Develop quantitative and qualitative measures to assess the progress of innovation Set up a relative risk-tolerant strategy across a portfolio of projects 25% 31% 35% 41% 45% 50% 60% 0% 10% 20% 30% 40% 50% 60%

9 Wider skill sets 9 The upshot is that CFOs should get ready for a radical transformation within the finance profession. The upshot is that CFOs should get ready for a radical transformation within the finance profession. This transformation includes changes that range the gamut of possibilities from the career development of individual professionals to entire finance functions moving to operate as more active business partners and new challenges faced by industries and different markets. The ACCA s study shows that nearly 90% of finance professionals agree that the shift from focusing strictly on financial performance to more emphasis on management of strategy and innovation is one of the most difficult challenges for CFOs today. All these respondents also agree that this ongoing shift is making a career in finance much more attractive on one hand but it also means that professionals who spend their entire careers in finance are often at a disadvantage compared to those with more rounded business backgrounds on the other. Each person s ability, selfconfidence and leadership are closely related to their experience. We learn from our own experience, absorbing nutrients, improving our capacity for learning, response and problem solving, said Li Xiangrong, CFO at Homeinns Hotel Group. An expanded CFO role is generally considered more attractive than one that is purely finance-oriented but, to fill such roles, the finance professionals will need more education in a wider range of both hard and soft skills. Some of the most successful companies in the world have 90% of finance professionals surveyed agree that the shift from focusing strictly on financial performance to more emphasis on management of strategy and innovation is one of the most difficult challenges for CFOs today Figure 7: Expanded role requires expanded skills The shift from financial performance to management of strategy and innovation is one of the most difficult CFO challenges Broad strategy and leadership training could help today s CFOs handle tomorrow s challenges better Metrics beyond financials are becoming incresingly important for CFOs The CFOs own KPIs have not kept pace with the broadening of the CFO role 43% 47% 42% 49% 37% 53% 23% 54% The evolving CFO role with more strategic responsibilities and higher profile has made it a more attractive career aspiration Prospective CFOs who spent their entire career in finance are at a disadvantage to those coming from business backgrounds Executive education in leadership, strategy and innovation is becoming increasingly important for CFOs 42% 48% 29% 42% 48% 44%

10 Shifting ground: How CFOs are shaping business strategy Wider skill sets 10 made a point of encouraging this type of more rounded development. Almost all finance professionals interviewed say executive education in leadership, strategy and innovation is increasingly critical for them. An example of how this can work for individuals and the companies they work for is Disney, perhaps the most successful entertainment company in the world. Disney s leadership philosophy emphasises a highly cooperative team spirit and we also have a Disney University specialising in leadership and soft skills training to ensure our employees are well-trained and understand the same process, said George M Gross, CFO at Shanghai Disneyland. About two thirds of finance executives say they have attended or have plans to attend an executive education programme of one kind or another. And the more senior executives are, the more willing to participate in training programmes. About a third of professionals surveyed say they have taken some kind of action on this front. Some 36% of top-tier finance executives say they have already participated in some kind of training. Just as interesting, these veteran professionals are likely to participate in longer programmes, usually more than three weeks, with an eye on rounding out their skills and become more effective business leaders. At the same time, about 30% of mid-level finance professionals have attended various types of leadership training. Unlike more senior professionals, however, those in the middle of their careers are more interested in short-term programmes, usually lasting between three and five days. About half of these mid-level professionals is likely to choose external classroom programmes, executive coaching and online programmes. The obvious trend is that popularity of executive development training among finance executives is much higher than that among non-finance positions, showing the awareness among CFOs of the need to play a role that stretches beyond finance and the need to develop skills beyond their specialist field. >33% of senior finance executives have taken programmes, with 19% having taken a comprehensive or long-format programme Figure 8: Finance executives are more likely to have taken an executive education programme than those in non-finance positions There was no real differences by ownership model except for Foreign-invested firms where there was less executive education experience. No, and no plans to do so in the near future 29% 31% 36% No, but plan to do so in the near future 41% 33% 42% Yes, for short programmes (typically 3-5 days) 16% 17% 12% Yes, for comprehensive leadership programmes (typically 3+ weeks) 14% 19% 10% Mid finance Top Finance Non-finance

11 Conclusion 11 Much more is expected from CFOs and other finance professionals today than ever. Much more is expected from CFOs and other finance professionals today than ever. Managing the numbers alone is not enough. Doing a good job of keeping costs under control, managing risks and ensure timely and transparent reporting are the basic requirements, apart from which finance professionals are required to take a more active role in managing business and companies. CFOs are meant to steer business strategies, provide innovative insights and work more closely with other business units as full-fledged partners. More finance professionals are also using their skills to pursue careers in other areas of business, moving out of their traditional comfort zones. To meet this need and acquire the skills they need, more finance professionals are seeking out new areas of responsibility and looking for the training they need, using more innovative strategies and tailoring their learning to the realities of their jobs. Zhu Guolin, CFO of Yong Hui Group, a Shanghai-listed hypermarket and supermarket operator, says a career in finance today requires careful planning: Not everyone will work in a company for a long time, but we do need long-term career planning. It doesn t matter whether you plan to be a CFO or cross the chasm, you must remember that you are learning and working to fulfill yourself.

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