Unlocking Potential: Finance effectiveness benchmark study 2013
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Unlocking
Potential:
Finance effectiveness
benchmark study 2013
October 2013
Today’s top tier finance
functions are increasingly
called upon to fill diverse roles.
In addition to their traditional
accounting and reporting
duties, today’s modern finance
groups must now provide
thought leadership, generate
insights from increasingly
diverse data, spearhead
finance-business partnerships,
and assume a more central
role in corporate business
strategy. How are top tier
finance functions evolving
to meet these challenges?
Contents Introduction ������������������������������������������������������������������������������������������������������������������������������ 6 Overview������������������������������������������������������������������������������������������������������������������������������������ 9 Finance supporting the business ������������������������������������������������������������������������������������������ 10 Business insight������������������������������������������������������������������������������������������������������������������������ 14 Human talent ��������������������������������������������������������������������������������������������������������������������������20 Technology ������������������������������������������������������������������������������������������������������������������������������28 The key to future finance evolution��������������������������������������������������������������������������������������36 The nexus of insight, efficiency and human talent��������������������������������������������������������������43 The model of success ��������������������������������������������������������������������������������������������������������������46
Case studies & insights PG&E—Driving actionable insights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 BD—Business leaders, not just partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Facing adaptive challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Finding & nurturing talent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Workforce intelligence—Stepping stones to improved workforce ROI. . . . . . . . . . . . . . 24 British American Tobacco—Unlocking time and value. . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Skandia—Streamlining the system. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 A silver lining for every cloud?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Jaguar Land Rover—Cashing up the plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Corning—Successfully bringing shared services to China. . . . . . . . . . . . . . . . . . . . . . . . 38 Treasury in emerging markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Lean into finance—A different way to lead a finance organization. . . . . . . . . . . . . . . . . 44
The cost of finance at average firms is
more than 60% higher than at top
quartile firms.
Median budget reporting times have
improved about 14% in the past year.
80% of finance professionals report that the
accuracy of forecasts is critical to their business.
But only 45% believe that their company’s
forecasts are reliable.
1 3
Only in organizations indicate that
employee development plans are standardized.
Top companies have automated more
than twice the number of key controls
vs. typical companies.
Only 6% of finance leaders attending
a recent PwC summit report being
comfortable with the status of their
current finance technology.
Introduction
Welcome to Unlocking The challenge for finance has not globalization of organizations and new
fundamentally changed over the years. integration and risk management
Potential: Finance Providing more for less, streamlining challenges.
effectiveness benchmark and reducing transactional costs,
This report draws together trends we
study 2013, PwC’s fifth providing an effective control
observe in the benchmark data, and
annual benchmark report, framework, and helping the business
identifies practices that support top tier
make the right decisions to improve
which outlines the latest business performance—we know all
performance. We have also spoken to
findings of our analysis of finance leaders in a number of
this. The challenge is in execution. The
organizations to explore what they are
more than 200 companies PwC benchmark data confirm that the
doing that makes a difference, what
that have participated in leading finance teams are achieving
they have been able to achieve, and
results that are very different from the
benchmarking projects. The norm. In this report, we focus on
their future plans. We have included a
number of these interviews in this
report draws upon detailed organizations that are achieving
year’s study.
data from these significant change and improvement.
organizations, together
with observations of the
leading practices that drive “Successful transformation starts with a measured
top performing finance baseline and assessment of the opportunity, and
functions. prioritization of what is important to enable finance
The data confirm that the to better support the business strategy.”
leading finance functions
are different from the rest, —Andrew McCorkell, PwC EMEA, Director of Benchmarking
and provide more valued
insight to the business. The opportunities for finance to assume Organizations portrayed in this report
They manage talent more a more central role in corporate have made real progress in a number of
effectively, and have the business strategy and planning are areas. Their challenges and successes
right people in the right almost limitless, but the barriers to full are unique to their situations. There are
partnership are many. Companies many paths to success, but there are
roles. They spend less time saddled with outdated technology and also common themes. The most
gathering data, and much poor data quality still struggle to fulfill successful finance organizations are
more time understanding traditional core finance responsibilities providing more effective business
in an efficient way, leaving little time partnership and business intelligence.
what it means. And their
for insight generation. Many also have They are changing their operating
costs are much lower than difficulty defining the skills needed for models to be streamlined and efficient.
the average. higher-value activities, and finding And they are using technology in
qualified professionals to step into these innovative ways to provide better data
changing roles (or re-training existing and to break down departmental data
Mike Boyle personnel) remains a real challenge. silos. Companies are also re-evaluating
At the same time, the rapid evolution of their strategies in emerging markets—
Partner now valuable business opportunities
data-gathering and advanced analysis
(617) 530 5933 presents the finance professional with rather than part of the supply chain.
mike.boyle@us.pwc.com an overwhelming amount of data that This report looks at how finance is
needs to be rationalized and turned into responding to these challenges and
useful information for customers, both designing the finance operating
Ed Shapiro internal and external. This complexity models that are a fit for the future.
Director is compounded by the continued
(678) 419 4513
ed.shapiro@us.pwc.com
6 Finance effectiveness benchmark study 2013
How we rate finance functions
As finance functions seek to keep pace Compliance and control examines benchmark services covering a range of
with mounting business and regulatory such areas as tax compliance, treasury, integrated support areas. In addition to
demands, our benchmark analysis can audit and risk management. finance benchmarking, PwC also
provide a clear assessment of strengths, provides benchmarking services
weaknesses and areas for improve- The resulting analysis not only specific to:
ment—a baseline from which to compares these ratings against your
peers, but also seeks to assess whether • SG&A
measure progress. The analysis
combines a qualitative assessment they are operating in equilibrium and • Human Resources
and comparative metrics across the are meeting the overall objectives of the
business. For example, over- • Information Technology
complementary dimensions of
business insight, efficiency, emphasizing cost may, in some • Procurement
compliance and control. companies, inhibit the function’s ability • Supply Chain
to provide insight and value.
Business insight looks at evaluations • Innovation
such as a comparison of time spent on Benchmarking is an important
component of PwC projects, and If you would like to complete a
analysis and data gathering and an
involves gathering (in strict confidence) benchmark assessment or would like to
assessment of budgeting and
a full and accurate baseline of efficiency discuss any of the issues raised in this
forecasting processes and the quality
and effectiveness metrics related to the report, please contact your local PwC
of their outputs.
client’s finance function. In each case, representative.
Efficiency analyzes transactional we work with clients on a process-by-
processes using a range of key process basis to understand how these
determinants including the complexity results are achieved. The benchmarking
of systems and time to close/report. of finance forms part of PwC’s wider
Unlocking Potential 7
PwC’s finance assessment framework
How do you align with the business to
provide an effective performance
PwC’s standard finance processes
management and challenge mechanism?
Business insight
Business insight
• Strategy & planning
• Budgeting & forecasting
• Business analysis
• Performance improvement projects
Do you have the right Do you have the
governance model to optimal sourcing Transactional efficiency
partner with the strategy? • Accounts payable
business? • Travel and expenses
• Accounts receivable
• General accounting
• Financial / external reporting
• Management reporting
Compliance and control
Control How well do you Efficiency • Treasury
How do you ensure that leverage technology? What initiatives could you
• Internal audit
you have the appropriate undertake to improve the
• Process controls & compliance
balance of robust controls efficiency and
without constraining the effectiveness of the • Tax accounting & compliance
business? function processes?
© 2013 PricewaterhouseCoopers LLP. All rights reserved
How do you balance the competing demands of insight, efficiency and control?
8 Finance effectiveness benchmark study 2013 Unlocking Potential 8
Overview
The potential gains to be realized by
the synergy between a fully evolved
finance organization and the The cost of finance at typical firms is more than 60%
business at large are compelling. higher than at top quartile firms.
Unlocking this potential is a task
that requires attention to a number
of critical components. Companies
that are able to lead this evolution
will likely realize cost efficiencies, Figure 1: Finance cost as a percentage of revenue
more timely and accurate
forecasting, truly informative 1.2%
management reports, and 1.02%
significant operational gains 0.93% 0.93%
1.0%
through improved decision making
0.82%
and a real partnership between
finance and the business units. 0.8%
Achieving this leading performance
0.6%
does not necessarily mean that 0.61%
finance costs need to rise. Finance 0.54% 0.56% 0.56%
cost as a percentage of revenue has 0.4%
stabilized this year following
several years of growth (see 0.2%
Figure 1) but still remains a
significant investment for 0.0%
companies. Average performers are 2009 2010 2011-12 2012-13
operating at 60% higher costs for
finance than top quartile Median Top quartile
companies. Organizational
Source: PwC finance benchmark data
efficiencies, such as outsourcing and
shared services centers, are
continuing to drive down the cost of
finance while opening the door for Figure 2: Budgeting and forecasting cycle (days)
an increased focus on business
partnership and insight generation. 140
Gains are also being made in the 120 120
drive toward efficient and timely 120
reporting. Median budget reporting 103
100 94 90
times dropped about 14% while 90
small improvements were also seen
in the forecasting cycle (see 80
Figure 2). These gains are largely
due to incremental improvements in 60
technology and automation. The gap
between median and top quartile 40
organizations (which typically have 20 19 17
more advanced technology and ERP 20 7 7 7
systems) is significant. Across the
years, companies with top quartile 0
2010 2011–12 2012–13 2010 2011–12 2012–13
performance exhibit similar
reporting times—these are stable Budget Forecast
thresholds or goals for companies Median Top quartile
striving for top-tier performance.
Source: PwC finance benchmark data
Unlocking Potential 9
Finance supporting the business
Finance functions today are
generally succeeding in their “The C-suite and business line leaders are increasingly
traditional role of supporting the
business. Finance professionals and asking for their finance organization to play a higher
the consumers of their services strategic role in the company’s overall business plan,
within companies view finance
departments as strong in their evaluating and recommending changes to business models,
standard functions of general and seeking innovative ways to improve profitability.”
accounting (i.e., reconciling and
consolidating corporate financial —Carol Sawdye, PwC US Vice Chairman & CFO
information) and external reporting
(i.e., preparing consolidated
financial information to meet Although gains have been made, area will fuel finance’s continuing
external regulations). Three in four particularly among top performing evolution in support of overall business
companies also see business and organizations, the centralization and effectiveness. Some organizations are
finance strategies sharing the same distribution of financial and non- already making real progress in
objectives and being closely aligned. financial data is still not happening as tackling these data and technological
However, finance functions are effectively and efficiently as it might. In challenges, and have a clear vision of
struggling in two significant areas many organizations, whether due to where they are headed. Later in this
related to business insight. One deficiencies in technology or functional report, we will hear first-hand accounts
place this is revealed is in PwC siloes, information does not flow as of how some companies are moving
benchmarking engagements, where freely or quickly through the business proactively to address these challenges.
finance professionals and their as it needs to. Further advances in this
“customers” across the business
are asked to rate the various
services that finance provides for Figure 3: Finance professionals’ importance & performance rankings
importance, and for performance.
“Management reporting that Management reporting that informs decision making
informs decision-making” is rated
as one of the most important finance
functions. But performance in this
area is rated much lower (see 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
Figure 3). LESS Importance MORE
The second finance area with a
significant importance/performance Management reporting that informs
decision making is near the top of
gap is “providing analysis and financial professionals’ priority list.
support to business partners.”
Finance professionals and their But performance in this area
clients consistently rate the is ranked much lower.
importance of this area to be high,
but performance is lower. Internal
consumers of finance see a
significant need for finance to step 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
up and improve performance in WORSE Performance BETTER
formulating financial strategy and
developing the organization’s
Source: PwC finance benchmark data
strategic business plan.
10 Finance effectiveness benchmark study 2013Finance’s evolution from
support service to
change agent
Finance has traditionally served as a
corporate support function, reacting to
the company’s tactical needs, rather
than acting as the creative force behind
insight and change. However, many
companies have experienced finance
taking a more active role in driving
business performance and strategy.
About 2 in 5 (42%) companies see
finance as a facilitator in the strategic
planning process, rather than merely
playing a supporting role. Meanwhile,
about half (53%) of benchmarking
clients see finance working closely with
the CEO in developing the company’s
business strategy.
Finance organizations are transitioning
from a focus on accounting to advanced
budgeting and planning. By successfully
mastering the necessary closing tasks
and increasing both speed and
accuracy, finance has been invited to
address broader questions, such as
“what are the best KPIs for measuring
success?” and “how can the
organization match the budgeting and
planning process to client needs?”
Additionally, organizations are
realizing that they cannot effectively
manage the business by finance metrics
alone. Many additional pools of data are
becoming available (both internal and
external to companies). More insightful
finance functions are increasingly using
non-financial data (such as customer
satisfaction and product information) to
identify areas where company
performance can be improved or costs
can be reduced. The finance team at one
innovative PwC client forecasts call
center traffic, and utilizes that as one of
the factors to optimize staffing levels.
Other innovative clients track their
consumer preference rankings, and
conduct modeling to identify the factors
that can improve their rank.
Unlocking Potential 11PG&E—Driving actionable insights
The finance organization PG&E is one of the largest energy utility order level” than at the detailed “work
at Pacific Gas and Electric companies in the United States. order level,” and it’s better to forecast
Approximately 20,000 employees carry overall ancillary employee-related costs
(PG&E) has evolved from out its primary business—the supply, and not items such as specific employee-
a transaction-based transmission and delivery of energy. The level parking costs. The finance team
reporting organization company provides natural gas and changed the granularity of their
electric service to approximately 15 forecasts and spent the saved time
to a provider of actionable million people throughout a 70,000 developing greater insights into the
business insights. Jason square mile service area in northern and factors driving the costs.
Wells, Vice President of central California. Mr. Wells explains that PG&E has
Finance, talked with us PG&E has a leading finance organization continued to build on this decision and
about this transformation that has begun to reap the rewards of centralized its finance personnel to
moving past governance and reporting create finance center of excellence. This
and about the benefits that
to realize the benefits of truly partnering reduced costs and improved the sharing
PG&E is reaping as a result. with the business to drive performance. of leading practices. Now, the company
Jason Wells explains that several years continues to build on that success,
ago PG&E realized that the finance rolling out new finance improvements
organization was spending too much quickly via this centralized center. Mr.
time on transactional activities, monthly Wells stressed that, while the center is
reports, annual budgets and forecasts. centralized, finance personnel are
This got in the way of providing encouraged to maintain a strong
actionable insights to the organization. relationship with the rest of the
Mr. Wells describes how two years ago organization through field visits,
they began to simplify the planning ride-alongs, and trips to power plants
process. PG&E upgraded to a new SAP and substations. This keeps the finance
product and then took a step back to staff connected to the rest of the
redesign the planning process, spending company and improves understanding,
a year and a half on system performance which supports finance’s evolving role as
and stabilization to make both the a business partner.
processes and the technology work PG&E has also adjusted hiring and
faster, better, and more efficiently. training practices, as the new drive
Through this transformation, Mr. Wells toward providing insight demanded
explains, the most significant employees with new skill sets. In
improvements were process-driven, addition to individuals with the core
rather than technology driven. PG&E base of traditional finance, PG&E began
considered what was being tracked, as to hire finance employees from different
well as how. disciplines, creating a more diversified
For example, the finance organization team. Individuals from operations
found that they had previously devoted research and IT backgrounds were hired
substantial time to forecasting a number to bring a more data-driven focus, as
of items at a very granular level. well as the background to improve
However, the granular forecasts were systems and find more efficient
not very accurate, and really not methods of reporting.
necessary for decision-making. The organization also created a culture
Forecasting at a less granular level was focused on staff development to help
very simple, much more accurate, and existing employees fulfill their career
more appropriate for decision-making. aspirations. Corporate-wide training
Mr. Wells listed several processes that was offered in areas such as ethics,
this granularity issue applied to: it’s management and completing employee
better to budget projects at a “planning reviews. In addition, targeted training
12 Finance effectiveness benchmark study 2013was also developed and offered in achieved this through pilot projects with possible codes. They worked with
technical finance skills, as well as skills receptive business units. Initial successes employees in the field to help them see
such as communicating vast amounts of built upon themselves and helped the which parts of their non-billable time
data concisely and influencing broader organization see finance in a acted as roadblocks getting in the way
effectively. Training was geared for new light. of them doing their jobs effectively. The
employees at every level of the One early project involved external new codes also resulted in better data.
organization, increasing in complexity benchmarking to identify areas where Now the business units and finance are
as individuals moved through the PG&E was not contracting effectively. better able to track productivity and
program. This was a significant This allowed the company to negotiate determine what drives productivity
investment for PG&E, but has allowed more favorable terms when contracts problems, address those problems,
for steady improvement of the came up for renewal. Finance was also and improve efficiency.
finance function. able to help guide the consolidation of Risk management has also been a
contracts for better buying power. significant area of focus for the new
Finance as a strategic Through this effort, PG&E was able to finance organization. Three years ago,
partner drive $50M in annual costs out of the company’s budgeting process was
These changes throughout the finance business. The success of this project criticized for being too financially
organization allowed it to become more enabled the business units to see finance focused and not taking sufficient
of a strategic partner to the business as a partner, rather than simply a account of operational risks. Finance
units. Over time, finance is moving reporter of financial results. drove the effort to overhaul its budget
more and more into performance Other successful projects involved process, more formally incorporating
management and away from simple optimizing travel time for maintenance discussions of risk and operational
reporting of financial results. As a crews, unitizing and optimizing the costs strategy into the process. Today, there is
result, PG&E finance is evolving of routine work such as electric pole a formalized budgeting process which
deliberately examines operational risk
well before the technical budget
discussion occurs each year. Quantifying
PG&E finance is evolving from a transactional and reducing risk, and helping to inform
organization to one focused on generating a risk-based prioritization of resources,
have been significant steps forward
actionable insights. for PG&E.
Through its efforts in the areas of
from a transactional organization replacements, addressing customer organization, automation, and employee
to one focused on generating satisfaction issues, and gaining a better development, PG&E has realized the
actionable insights. understanding of non-billable time. For transition of finance from a reporter of
this last project, finance noted that financial results to a provider of
Initially, Mr. Wells explains, the finance maintenance crews had about a half actionable insights. As a result, the
organization needed to reorient the billion dollars of non-billable time each organization has realized significant
image of finance as being a basic year. However, the existing timekeeping gains in operational efficiency, strategic
governance-focused organization to system only allowed knowledge capture prioritization, and revenue. However,
that of a valuable insight-generating for about 35% of that time. Over 65% Mr. Wells is also quick to point out that
partner supporting the business. Finance was bucketed in an “other” category. the finance improvement process
needed to help stakeholders understand Finance assisted the business in continues, as the organization applies
what they were trying to achieve establishing better timekeeping codes. these principles to additional areas.
operationally and that finance was Finance partners spent time in each They have come a long way, but there is
looking at all avenues to help its partners division to better understand the optimal still a lot of work to be done.
in all business units. This took time, but balance of codes to capture activities
finance slowly built credibility. They without overloading employees with
Unlocking Potential 13Business insight
Today’s CFO must move beyond
Figure 4: Percentage of finance FTEs in business partnering
budgeting and control and assume
the role of a “Chief Performance
Officer”—to take responsibility for 19% 19% 19%
20%
driving company performance and 18%
delivering strategic analyses to key
stakeholders, both internal and
external to the organization. 15%
13% 13%
In a recent PwC publication titled 11% 11%
“Finance Matters: Finance function
of the future,” we noted that finance 10%
leaders need to create the conditions
for effective navigation, which
means that rather than acting as a 5%
support function, leading finance
departments must actively drive the
organization to its chosen 0%
destination, while at the same time 2009 2010 2011-12 2012-13
acting as mediators to a much
Median Top quartile
broader set of stakeholders, with
varied points of view and differing
Source: PwC finance benchmark data
expectations1.
PwC benchmarking shows However, intention is often far ahead opposed to analyzing it (see Figure 5).
movement towards this ideal, but of achievement for most companies. This figure has not changed much over
remaining challenges as well. As The proportion of full-time equivalents the past several years, despite the
mentioned previously, over 2 in 5 (FTEs) focused on business partnering promise of “lights out” processing that
finance professionals currently see is relatively unchanged over the past has been an ongoing organizational
finance as a facilitator of strategic 5 years (see Figure 4). What is apparent goal. But there are organizations that
planning rather than being is that some high performing companies have been able to be very efficient,
relegated to a reporting role or only are out ahead of this trend, with top taking positive action to reduce data
performing the monthly accounting quartile companies allotting 30%-40% gathering time to near zero.
close. Yet, unrealized opportunities more FTEs to business partnering than Less than 1 in 5 (18%) benchmarked
for increased coordination between the typical company. But the companies report that their
the finance function and the understanding of what business organization has a Performance
business at large clearly remain, partnering means is evolving. Improvement Team. And where there
with potential gains in the areas of
high-level corporate strategy and
leveraging additional efficiencies
within the finance function itself.
Despite efforts to increase efficiency, in typical firms, nearly
Over 2 in 5 (43%) of nearly 1,500
finance professional benchmark
participants surveyed believe that
twice as much time is spent on data gathering,
improving collaboration related to compared to the time spent on analysis.
internal finance processes would
help make the current finance
Despite recent gains, finance is such a team, it was generally created
process in their organizations
organizations continue to get bogged for an ad hoc project, not as an ongoing
more efficient.
down in standard tasks or “crises of the role. Without specific, focused efforts
moment,” rather than focusing on the to oversee and drive continual
long-term factors that drive business improvements in efficiency and quality
performance. Analysts are still of analysis, efforts to move forward in
spending (on average) nearly two- these areas often stagnate.
thirds of their time gathering data as
1 ‘Finance Matters: Finance function of the future’, published by PwC, 2013
14 Finance effectiveness benchmark study 2013Since 2009, the percentage of time Figure 5: Percent of time spent on data gathering versus analysis
allocated to insight-focused activities
has increased almost 40% (see
Figure 6). There is also a widening gap 100%
between companies that are evolving
toward a mature business partnership 36% 40% 36%
80% 48% 47%
model and companies that are stuck in 50%
traditional reporting. Top quartile
companies are currently spending 60%
nearly a third (32%) of their time on
insight-related activities.
40%
64% 60% 64%
52% 50% 53%
Finance teams now devote 20%
25% of their effort to 0%
insight-focused activities—a Median Top Median Top Median Top
quartile quartile quartile
40% increase since 2009. 2010 2011–12 2012–13
Data gathering Analysis
Source: PwC finance benchmark data
In “Finance Matters: Finance function of
the future,” the hypothesis is that by
2030, top tier companies will spend no Figure 6: Percentage of finance effort
time on data gathering. Financial data
available to all stakeholders in real-time
and from a robust data source.2
2012–13 60% 15% 25%
2011–12 61% 16% 23%
2010 70% 14% 16%
2009 67% 15% 18%
0% 20% 40% 60% 80% 100% 120%
Efficiency Control Insight
Source: PwC finance benchmark data
2 ‘Finance Matters: Finance function of the future’, published by PwC, 2013
Unlocking Potential 15BD—Business leaders, not just partners
The finance function at BD is a global medical technology finance personnel at BD have spent the
company that is focused on improving past year analyzing the factors which
Becton Dickinson and
drug delivery, enhancing the diagnosis drive total shareholder return at the
Company (BD) has evolved of infectious diseases and cancers, and business. They observed casual and
beyond business partnering advancing drug discovery. BD develops, correlational relationships and ran
to being business leaders manufactures and sells medical regression analyses in an attempt to
supplies, devices, laboratory link organizational metrics to overall
within the organization. instruments, antibodies, reagents and enterprise value. They wanted to give
Analyses of the drivers of diagnostic products through its three BD the ability to focus on the right KPIs
shareholder value guide segments: BD Medical, BD Diagnostics to ultimately drive shareholder value.
their focus. Recently, and BD Biosciences. It serves Previously, while the business was
healthcare institutions, life sciences
reacting to a slower growth researchers, clinical laboratories, the
growing rapidly, finance’s focus
had not been on cash management.
environment, they have pharmaceutical industry and the Now, however, in a slower growth
focused on cash metrics. general public. environment, finance’s shareholder
Suketu Upadhyay, Senior In a recent interview with PwC, Suketu value driver analyses revealed some
Vice President, Finance Upadhyay described finance’s surprising results: revenue and
leadership and close partnering with earnings per share growth are less
spoke with us about the the business units. Mr. Upadhyay related to shareholder value than cash
role of finance at BD, the explained that the finance function at metrics such as return on investment
positive impact of their BD is very committed to business capital (ROIC) and return on total
finance leadership, and partnering and approaches their assets. Through their analyses, they
partner relationships with the business discovered that ROIC is highly
reactions from Wall Street. on a concierge basis. They do a lot of ad correlated with overall firm value
hoc reporting for the business units in (R 2 > 0.90). To take action on this,
addition to standard reporting. They BD’s finance team worked to determine
also tailor reporting to meet the needs the levers that drive ROIC. They wanted
of BD’s six business units and eight to know what each business unit could
global regions. Finance at BD has a lot do to improve performance. So they
of credibility in the organization, which dissected the key drivers and partnered
has been built up through their with the business units to determine
excellent work across several decades. actions individual employees could take
Now, Mr. Upadhyay states, finance to improve those metrics. Finance
personnel need to be business leaders, personnel then worked to communicate
not just business partners. They have a throughout the company why ROIC
stake in driving the strategy of the matters and that everyone has a part
company. Their role is not just to to play in its improvement.
provide insight, but also to formulate Mr. Upadhyay explains that a year ago,
opinions and strategy, and help guide employees would not have heard of
the company based upon their ROIC. Today most employees know
fundamental understanding of about ROIC, and that cash is related to
financials and how they are linked to shareholder value. In fact, he claims
investor return. With that in mind, that most would be able to tell you
16 Finance effectiveness benchmark study 2013the key levers will free up cash for working on change management
investment. BD has developed engagement is crucial. Without it, there
reporting, increased reporting will be widespread resistance that will
transparency, and even incorporated ultimately decrease the effectiveness,
cash flow metrics into the organization’s or even the viability of any finance
employee incentive system. transformation initiative.
Mr. Upadhyay believes that to The current ROIC-focused initiative at
successfully drive organizational change BD has been quite successful for the
on such a large scale, one needs company so far. Mr. Upadhyay described
evangelism, creating a clear sense of how BD managers have spoken with
purpose that the initiative is something investment analysts about their new
that the company needs to do, coupled ROIC-based compensation metrics and
with clear, widespread communication. Wall Street is excited about them. “BD
You need to give the leadership team stock has appreciated this year, and
Traditionally, finance professionals are trained to acquire
analytic skills which, along with contextual knowledge
allow them to make key decisions for their organizations.
These organizational challenges, which are solved via the
application of knowledge and analysis of data, are
known as technical challenges.
and key employees the data that while it cannot be directly attributed to
supports your initiative and keep the new focus on ROIC, if BD continues
putting the information in front of them. to out-index its peer group, it will
He states that you need to be able to tell ultimately translate into market
your story in a meaningful, engaging capitalization expansion.” Additionally,
and entertaining way, and you need to BD’s peers and primary competitors
tell it every chance you have. You also have begun speaking the language of
need “surround sound,” so that key ROIC. There is growing awareness on
employees are hearing the message from Wall Street about the importance of cash
multiple sources. To this end, Mr. flow metrics, and Mr. Upadhyay believes
Upadhyay states that you need to have BD’s finance initiatives have positioned
key members of the management team, BD well to excel in this area.
the CEO, and the CFO on board early in
the process. Creating the burning
platform for change is a critical first
step. Also, across the organization,
Unlocking Potential 17Facing adaptive challenges Mark Dawson, PwC UK Partner, has The CFO of a global engine Despite a general lack of data enabling highlighted the distinction between manufacturer spoke recently at a PwC traditional analytics, the organization technical and adaptive challenges. event, describing an adaptive challenge decided that this contract had the He points out that as the finance that he faced more than a decade ago. potential to be extremely successful function evolves, finance His challenge was to bid on an engine and profitable in the long-term. They professionals are increasingly contract for the next generation went forward with their bid, and won presented with adaptive, rather than wide-body jets. There were several the contract. Today, their engines lead technical challenges. Traditionally, aspects of uncertainty that made the the wide body market and the finance professionals are trained to bidding decision a high-stakes adaptive organization has realized billions in acquire analytic skills which, along challenge. First, at the time, airline cash flow for investors due to this with contextual knowledge allow manufacturers were driving a hard courageous decision. them to make key decisions for their bargain on price. They were asking Mark Dawson confirms that today’s organizations. These organizational their engine partners to agree to prices CFOs require different skills to handle challenges, which are solved via the that, using traditional analytic adaptive challenges. “It is a paradox application of knowledge and techniques, appeared to leave no that we have more and better organized analysis of data, are known as potential for profit. Additionally, they data than ever, but the nature of big technical challenges. required guarantees that the engines decisions requires CFOs to move However, more and more, especially (which were in the design phase, so beyond using data to provide answers. among the higher levels of finance they did not yet exist) would meet Of course data is fundamental in organizations, professionals are certain performance standards. supporting judgment, but this judgment required to make decisions about Further, they knew they would need to often seeks to reconcile conflicting or situations for which the data either finance the airlines’ ultimate purchases, incomplete data. The role of the CFO is doesn’t exist, is contradictory, or is which required projections about the to have the best-informed hunch simply overwhelming. They must financial markets several decades into around the executive table and to make extrapolate beyond their data, the future. explicit the decision making process of sometimes making large strategic The adaptive challenge was to the whole team.” decisions, relying on their incorporate uncertain future experience and intuition to choose technological step changes into the cost an optimal solution among a series and risk profiles that must underpin the Mark Dawson is a PwC UK consulting of possible solutions, some slightly best offer price. In addition, industry Partner who advises boards and CEOs better and some worse. They must trends suggested that failure to enter of FTSE 100 firms and global leaders in learn to face these adaptive the wide body market at the start of the financial services, oil and gas, and retail challenges—to manage this transition to the next generation design industries seeking to align strategy and uncertainty and find a comfort level would lock the company out of the leadership with supporting business in decision-making in the absence of fastest growing sector of its market and HR processes and practices. firm data. for decades. 18 Finance effectiveness benchmark study 2013
Unlocking Potential 19
Human talent
To build on reliable data and Figure 7: Average cost per finance FTE ($USD)
reporting and turn that in to real
insight, companies need
experienced, creative and highly
skilled finance professionals. Yet
companies continue to struggle to 2012–13 $90K
find and maintain the right mix of
personnel for the finance function
as it evolves. Salaries in finance 2011–12 $86K
continue to grow (see Figure 7)
at least partially due to finance
departments having an increasing
number of people in higher impact, 2010 $78K
more highly compensated positions.
This increased investment in
high-level roles underscores the 2009 $83K
importance of ensuring that the
right individuals fill these positions.
Personnel who can glean insights $0 $20K $40K $60K $80K $100K
from volumes of data and
communicate effectively across Source: PwC finance benchmark data
a wide range of audiences
are rare. Significant effort must
be made to identify and train the
right people.
Finance professionals recognize the Additionally, 57% of finance
Finance staff with good importance of having the right people professionals surveyed believe that
and skills, but they also see the upgrading the skills and competencies
insight and partnering challenges in finance staffing. Among of people involved in the finance
skills are in heavy 1,500 finance professionals surveyed function is a primary vehicle for making
as part of our benchmarking activities, finance processes more effective
demand—innovative “finance having the right skills and (second only to improving technology).
organizations are capabilities in place” received high While the gap between the capabilities
importance ratings (ranked 5th out finance departments currently possess
competing for talent, of 19 dimensions). Yet when asked versus where they need to be is
seeking non-traditional about actual performance, finance apparent, the commitment to bridging
professionals indicated that their this gap is not. Only 1 in 3 (34%)
hires, improving training functions did not have the right skills benchmarking organizations indicate
and capabilities (ranked 17th out of 19
programs, and dimensions). Internal consumers of
that employee development plans are
standardized and linked to the goals
increasing the use of finance agree with the finance of the manager or department.
professionals—there is a big gap
shared services. between importance and performance
in this area (see Figure 8).
20 Finance effectiveness benchmark study 2013Figure 8: “Consumers of finance”—importance & performance rankings While the development of internal
talent can be a major factor in
addressing staffing issues, many
Finance has the “right capabilities” in place (i.e., critical thinking, technical skills, companies have found that trying to
managerial skills, organizational discipline, etc.) repurpose accountants to function as
analysts can be challenging and
potentially counterproductive.
Organizations are recognizing that
19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 many traditional CPAs are not naturally
LESS Importance MORE gifted as Financial Planning & Analysis
(FP&A) analysts, as they are typically
trained to follow rules and structure,
Consumers of finance think there rather than think outside the box, as
is significant room for finance to would a skilled FP&A resource. Some
improve its skills and capabilities. PwC finance transformation
assessments find that as many as 60%
of people in the current finance
organization are not suited to the
evolving roles that finance is being
asked to fill.
19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
WORSE Performance BETTER This current shortage of financial
professionals who match the changing
Source: PwC finance benchmark data needs of organizations for greater
insight generation has left many CFOs
displeased with their current mix of
Developing internal talent to meet the among key finance professionals is the people. They see finance practitioners
challenges of more sophisticated cross-pollination of individuals within who are focused on governance and
analysis is daunting in itself, but the firm. For example, at one company, compliance versus business
without a carefully designed roadmap, a regional treasurer was rotated into a performance. Their staff has strong
it is a nearly impossible goal. group audit and risk function in order to technical skills, but often lacks insight.
Organizations need to assess the skill provide him with a breadth of The current market requires the
sets required, and look beyond the
traditional model of a finance employee,
not for specific accounting skills and
backgrounds, but for individuals who Many traditional CPAs are not naturally gifted as
are good analysts, intellectually
curious, and good at building FP&A analysts.
relationships.
Some organizations with a particular
experience that would help him to identification and development of a
focus on continuous improvement.
understand his function in a greater cadre of finance professionals who are
(e.g., The Coca-Cola Company and
context. Companies that think more more heavily biased toward learners
Diageo) are creating Finance Training
about the strengths of each employee, and doers versus strategists and
Academies which help those in
and less about their specific role, have advisors. The ideal qualifications for a
traditional finance roles develop
the opportunity to very effectively CFO have also shifted radically over the
abilities in the areas of business
identify and grow talent internally. past several years. Some of the best
collaboration and insight generation.
CFOs do not have traditional finance
Another technique for enhancing the
backgrounds.
breadth of understanding and abilities
Unlocking Potential 21Meanwhile, the outsourcing of basic A few unique and forward thinking data analytics and even traditional IT.
finance functions to shared services organizations are applying human These professionals often have greater
and lower cost offshore environments capital analytics to forecast internal proficiency in the identification of
continues apace, as organizations talent needs and identify skill sets not hidden opportunities in both financial
look for ways to fund their increased currently in the organization. Some spreadsheets and other organizational
need for insight generation and successful finance organizations are datasets which can lead to true forward
management. The need for lowering making investments in individuals with progress for the business.
costs has never been more apparent: the backgrounds in operations research,
average cost for a Finance FTE in the
past year was $90,000 and the average
cost for an “insight” FTE was $140,000
Figure 9: Average cost per finance “insight” FTE ($USD)
(see Figure 9). While a movement
toward shared services has provided
some enhanced efficiencies, this
evolution has not addressed the need $173K
for more efficient work flows to free 2012-13
$140K
up resources. In many instances, the
long-term culture of the organization is $171K
getting in the way of this evolution. 2011-12
$136K
Often, shared services and outsourcing
can partially offset the finance talent $155K
gap. As time is freed up to focus on 2010
insight, existing staff can be moved $125K
into these roles. Sometimes, lackluster
performers are just in the wrong $146K
positions, and excel in a new role. 2009
$115K
That said, the difficult reality for many
companies today is that a large number $0 $50K $100K $150K $200K
of existing team members are not able
to function in the new finance Median Top quartile
environment that the company needs
to build. Many just do not have the Source: PwC finance benchmark data
fundamental abilities needed for their
evolving roles.
22 Finance effectiveness benchmark study 2013Finding & nurturing talent
As the finance function A 2011 staffing survey found that mix of financial and non-financial
evolves, organizations have positions in finance and accounting were compensation—including flexible
among the top 10 jobs that US employers working hours, quick career progression
come under increasing say are the hardest to fill. CFOs say one of and rotational job assignments, even
pressure to attract, retain, the key challenges is finding candidates outside finance. Organizations and their
and motivate top talent. with business knowledge and communi- employees are also becoming
Today, it is not enough for cation skills. Hiring in finance is made increasingly global, leading to further
more challenging by the complex challenges. Finance chiefs need to rotate
finance personnel to have demands of rapid growth, acquisitions, their human capital resources across the
strong accounting and and changing finance regulations. globe, and embrace international talent
transactional skills. They Additionally, CFOs’ teams are bogged as part of their people strategy.
down with the finance essentials of
must be able to glean transaction processing, compliance and
Finally, building a strong finance team
actionable insights from starts with the CFO. According to
control. They’re often supporting overly Percival, a “strong” CFO is one who is
data, communicate well with complex business, management and legal proactive, seeking to build solid
business leaders and reporting structures that may need to be communication with other parts of the
simplified. Additionally, today’s finance
partners in the business department is expected to spend more
company, from the shop floor right up to
units, and engage others to the chief executive’s office—in ways that
and more time outside of finance, lending clearly articulate the business
support change management their expertise to company-wide strategy expectations of the finance organization.
company-wide. CFOs must and growth. “Today, the CFO doesn’t wait for the CEO
learn how to find the right With talent shortages an ongoing concern, or business unit manager to say, ‘Here’s
finance teams need to focus on staff an issue; I’d like you to go do some
people and motivate them development. Human resources experts analysis,’” says Percival. “The CFO needs
for the demands they will often refer to a rule of thumb: 70% of to decide (on his or her own) what the
face in the finance function learning transpires in the course of issues are, and bring them to the table
as it evolves. day-to-day work, 20% through informal and say, ‘We haven’t discussed this, but
learning and coaching, and 10% through it’s an important part of our future and
formal classroom-based instruction. The we need to be talking about it. Here’s an
good news is that there are a number of analysis and what some of the potential
learning approaches that can be tailored solutions are.’” CFOs also need to
to a CFO’s team—and CFOs can delegate reinforce a sense of mission throughout
some responsibilities to other team their finance teams. Successful CFOs
members. Practical on-the-job coaching, provide a vision that excites people about
for instance, can be provided through coming to work. A sense of purpose often
team-based learning—such as having motivates people more than money, and
junior staff “shadow” senior managers. the CFO is responsible for providing that.
CFOs must also work to find the right Wharton management professor Adam
talent for the roles that need to be filled. Grant has examined what motivates staff
Team members are needed who can build in numerous settings over recent years
trust and “collegial” relationships across and has found that employees who know
the company, according to John R. that their work has a meaningful,
Percival, a Wharton adjunct finance positive impact on others are not just
professor. They need a team that happier than those who don’t—they are
“technically is very good but can think vastly more productive, too.
beyond the pure accounting aspects of
the business, think about the future and Ed Ponagai is a Principal in PwC’s
deal with issues like organic growth Finance Effectiveness practice, where he
versus acquisition.” focuses on Finance Transformation and
CFOs also need to meet the needs of a helping CFOs operationalize
diverse pool of employees. Many hires will transformation priorities. This discussion
come from the Millennial generation and is based on a previously published paper
have career aspirations, attitudes about by PwC and Knowledge@Wharton
work, and knowledge of new technologies entitled “People Performance: How CFOs
that are far different than those of older can build the bench strength they need
generations. The finance organizations today . . . and tomorrow.”
that are the most attractive to this
generation are able to provide a new Unlocking Potential 23Workforce intelligence—Stepping stones
to improved workforce ROI
Workforce intelligence stands poised meaningful dynamics come into play, create a far more robust set of
to deliver something finance leaders such as the ability to filter by information. These more sophisticated
have all longed for—a way to demographic groups, show trends and analytical techniques can deliver
manage, measure, and demonstrate drill into detail. Typically, the move to insights such as:
return on investment for their analytics also requires you to move to a • Improving linkages between
largest cost—the workforce. ‘single version of the truth.’ For engagement results and business
In our experience, a successful example, it’s not acceptable for various results. For example, what’s the
workforce intelligence program stakeholders to use individual engagement score for your client-
requires building capability through definitions for ‘turnover’ or for finance facing teams, and what’s the linkage
a series of increasingly sophisticated and HR to report divergent results for between the engagement of these
offerings following a maturity curve the same number. teams and revenue growth, customer
model (see Figure 10). To create real Benchmarking—Provide a satisfaction, and the like?
sustainability of your talent comparison of external metrics • Performing statistical analysis of
resources you must systematically (comparing you to other companies’ clusters by segmenting your crucial
start at the beginning of the curve results) or internal metrics (for employee groups based on mindset
and work up towards full workforce example, comparing your hospital in a or approach to work. For example,
intelligence. Most large, complex system to others in the system). Moving consider what patterns might emerge
finance functions face numerous up the analytics maturity curve makes in classifying call center employees
challenges, including data quality, the benchmarking effort a valuable into first-job, mid-career, second-
source systems, standards and experience in understanding your own income, and post-career groups.
governance, talent processes, global data. The comparison with market
availability, business partner standards frequently exposes the lack of • Modeling employee opinions across
capability, business case credibility, internal standards and data quality the lifecycle to determine, for
HR department inertia, operations issues that might not otherwise surface. example, if the discontentment of
expectations, and more. your high performers in the
employee engagement survey
matches the reason for separation
The models compile hundreds of pieces of information identified in the exit survey, or
considering how engagement might
on individuals, often from a variety of sources or are evolve as tenure increases.
calculated based on source data. Predictive modeling—Provides a
statistical approach to modeling future
outcomes based on prior outcomes.
Consequently, you are better served Dashboards—Provide a summary- Individual models are developed for
by chipping away at basic issues first level statement of your results that each outcome, such as models for
to create simpler workforce allows for a quick assessment and predicting turnover, retirement, safety,
intelligence deliverables, and then serves as the basis for further health or absences, performance,
using the muscle developed from conversation and inquiry. Typically, the engagement, and more. The models
these exercises to address dashboards that a workforce compile hundreds of pieces of
increasingly sophisticated uses of intelligence unit produces are oriented information on individuals, often from
workforce information. toward your company’s operational and a variety of sources or are calculated
functional leadership. based on source data. For example, a
While you will mature to develop
additional capabilities over time, the Survey and survey analytics— flight risk model of a finance leader
typical elements include: Provides additional insight into your might evaluate pieces of information
workforce survey results beyond the including bonus amount, performance
Reporting and analytics—
standard reporting the survey might rating, manager, commute distance, or
Provides a comprehensive list of
generate. Many organizations view salary against midpoint range.
results on a specific topic (classic
engagement, exit, and onboarding Various statistical analyses are
turnover and headcount reports)
surveys as stand-alone activities, when performed on your data sets to
allowing for summary, detail, and
in reality, they are critical sources of determine the impact that each piece
root-cause analysis. Reporting
analytical information. By linking of information historically has on
evolves into analytics when
survey data to classic metrics, you can
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