African economies expecting higher growth than world average
As the leaders of today’s finance functions continue to work hard to boost their relevance and value to the business, they are shifting their focus outward to those financial management activities that contribute the most to better business decisions that improve the bottom line.
Their biggest challenges lie in creating the efficiencies needed to gather and process basic financial data and continue to deliver traditional finance outputs while at the same time redeploying their limited resources to enable higher value business decision support activities.
Since 2006, KPMG International has conducted biennial global surveys of senior finance executives. Our purpose is to examine how finance functions are evolving over time and identify their key challenges going forward. With Africa playing a greater role in the global economy, an additional survey which focused on African Finance Executives was performed and then compared to the results of the Global Survey.
Our 2013 survey has enabled us to establish the current state and future aspirations of finance functions and how things have changed since our previous global CFO research conducted in 2011 and the years before. In particular, we polled senior finance executives at over 704 organisations worldwide (264 from Africa) to capture their views on various aspects of the industry. Below we summarise some of the key findings from that endeavour:
Compared to our 2011 Global CFO survey results, respondents’ confidence in almost all of their finance activities has significantly increased. The highest increases are visible in the “order to cash” and “planning and budgeting” finance processes.
Per the Global Survey, more than 60 percent of all respondents in this year’s study are generally satisfied with the performance of their finance function and agree it is “highly credible with line-of-business and functional management, the C-suite, the board of directors and other stakeholders”. The finance function’s biggest strength is most commonly the treasury process.
This differs to African and CIBM (China, India, Brazil and Mexico) respondents who feel that their biggest strength lies in processes for general accounting and statutory reporting.
“Talent management and the technical knowledge of staff” are generally viewed as the biggest weaknesses of the finance organisation.
Respondents name these people-related areas and sets of capabilities as the most difficult to improve. One potential reason for this may be that “collaborating with the human resources group” is the finance activity most often cited as a weakness or neutral capability.
This seems to be a common challenge, regardless of geography as African finance executives and their CIBM counterparts viewed these two areas as their biggest weakness as well.
While talent management is difficult to master, respondents rank it as the most important factor to the value-adding success and sustainable competitiveness of the finance function. Over 50 percent of respondents expect to see dramatic changes in the people-related processes of “retaining staff” and “increasing technical knowledge” within the finance function in the years to come.
African respondents feel that processes around risk management and planning and budgeting would see the most dramatic change.
Over 50 percent of global respondents (46 percent in Africa) feel embracing and adopting lean finance in their finance organisation is significantly important. A similar number feel their finance organisations are already somewhat or very skilled at lean finance. “Extensive use of data analytics” and “highly optimised finance processes” are viewed as the most important enablers of a lean finance function. Sixty percent of African organisations feel that they are unskilled in the area of lean finance.
Characteristics of ‘high performers’
Drawing conclusions about the finance attributes of high performers is complicated due to the varying sizes and maturity of firms in the various geographies covered in the research. That being said, generally speaking, the respondents from high-performing organisations — in this case, those whose revenue and EBITDA (earnings before interest, taxes, depreciation, and amortisation) increased by more than 10 percent over the past three years — clearly put more effort in and value on talent management than those from poorer-performing organisations. The same holds true for the perceived importance of lean finance.
From decentralised to centralised
Most finance functions in countries with more mature economies are evolving towards more centralised operating models. African companies whether emerging or established are overwhelmingly running activities centrally.
Finance and risk alignment
Half of the respondents feel their organisation’s finance and risk management policies are already fully or significantly aligned. At the same time, most companies recognise the importance of ongoing alignment and better embedding of finance and risk activities as a key lesson learned from the recent global financial crisis. Many factors can contribute to better alignment and/or integration of finance with other non-finance back-office activities, including “better software and tools” and “better staff training and education”.
Fifty-six percent of African respondents feel that financial risk management policies are not significantly aligned to cover market risks. CIBM respondents reflected a higher focus and to a certain extent a higher maturity in risk management practices with 63 percent having shown significant or fully integrated risk management policies aligned across market risks. This compares to 45 percent for Africa with a further 23 percent of African respondents having not aligned to such risks at all.
Future focus shifts and investments
Senior finance executives want to increase efforts on improving their decision support capabilities and reduce efforts on transaction processing in the next two years, a perennial goal often difficult to achieve. Major investments in finance workforce optimisation and talent management are expected in the next few years to support the transformation of finance into a broader business partner role.