The days when finance departments served solely as passive commentators on their companies’ performance are numbered. Traditional lines between departments are becoming ever more porous, and new topics are coming to the fore. Greater expectations are being placed especially on value creation. Executive personnel should be actively shaping this transformation already, in order not to be confronted with a fait accompli. Considering the viewpoint of a (fictitious) investor can help in setting the right priorities.
In the summer of 2023 Porsche Consulting discussed current trends and developments with more than twenty CFOs and finance executives from a wide range of industries.1 This paper provides insights into their views of the future, and also derives recommendations for action.
New view of value creation by finance departments
Economic crises, supply chain problems, and energy shortages are exerting ever more pressure on companies. Technological competition is on the rise, especially from Asia. Current leaders in technology and hidden champions will not be spared tougher competition, either. To address these developments and remain viable for the future, organizations need to undergo comprehensive transformation. This is one reason why stakeholders ranging from C-suite members to investors are calling on finance departments to play a greater role in creating value. Eighty-two percent of CFOs and other executives surveyed by Porsche Consulting indicated that they will be according more weight to the perspective of (fictitious) investors in the future. This stems from the conviction that it is more advantageous to create value throughout the entire company than just to continue streamlining internal processes. In the future, finance departments will need to measure their performance more against quantifiable metrics like their contribution to EBIT and Net Cash Flow improvements as well as the rise of the company valuation.
Finance departments face new topics and stakeholders
Based on this new perspective, 82 percent of the finance executives surveyed stated that the lines of their disciplines will be redrawn at the classical edges of controlling and accounting. Corporate venturing, the control of new business models, ESG reporting, investor relations, corporate governance, data privacy, M&A, and other topics are gaining ever more relevance. They intersect with the activities of finance departments, and it is precisely these areas that offer potential for synergies and give finance executives the opportunity to position themselves early on. IT-related topics will also be moving closer to the domain of finance, prompting even closer collaboration between CFOs and CIOs. As business intelligence and data analytic solutions become more user-friendly, they will be applied more often at finance departments. In the course of these developments, finance departments will also be assuming greater responsibility for data governance and data models.
In addition to these changes within organizations, external factors will also play a role. In contrast to earlier trends toward “green controlling,” legal requirements in areas such as corporate sustainability reporting (CSRD2) bring binding standards. ESG controlling will thereby fall under the jurisdiction of specific roles. Seventy-seven percent of respondents agree that the “sweet spot” for finance departments will shift to a position at the intersection of classic financial duties, IT, and incipient governance issues. CFOs need to incorporate these developments into their overall strategies in order to establish the relevant forms of expertise early on and in targeted ways.
Nearly all the finance executives surveyed find it highly relevant to further develop their departments on an ongoing basis. However, some have concerns about how to integrate a process of continuous improvement. Consistent implementation of certain internal guidance measures (such as “future radar” systems and trend scouts) can provide support. Once established in the governance role of a finance department, this type of financial foresight can help the department remain agile and responsive at all times. Foresight measures can take many forms, including regular participation in networks and expert committees at industry associations, meetings with tool providers, and attendance at conferences as well as traditional desk research—and thereby enable employees to play more active roles in further developing their fields of action.
Synergies and roles guide the organization of finance departments
The classic lines between “controlling” and “accounting” are increasingly being called into question. At the same time, synergy enhancement, stakeholder orientation, automation, E2E responsibilities, and employee skills are becoming structural and organizational factors for finance departments.
Role-based organizational concepts are already in demand today. These new roles focus on matters such as governance issues, transactional services, and consulting and control activities as well as data and analytics. Sixty threepercent of respondents state that such concepts will be shaping the future or are already being established. Even the rigid finance committee cultures at some corporations are becoming more agile via the use of boards—which can be individually constituted depending on the agenda. Governance is given the task of orchestrating these new forms of work. Data scientists are one example of the new skills and role-based organization at finance departments. Initially regarded more as “exotic” members of “labs” than actually integrated, they will become key members of centers of excellence for centralized finance organizations, or of product teams tackling concrete questions in close collaboration with business contacts for decentralized organizational structures. Recruiting new employees is one of the top three priorities for 75 percent of respondents. Talent management initiatives will be important here, as will both upskilling and reskilling, in order to fill these new roles in the future.
Gaining an edge with strong department strategies
CFOs need to put more effort now into guiding their departments in order to shape transformations as opportunities for stakeholders and value creation. The classical approach of “target operating models” is too limited, because it leaves finance personnel confined within traditional boundaries. Addressing topics in isolation will not yield successful results, either. Instead, holistic finance strategies are needed to achieve the top priorities on CFO agendas—nearly all the respondents agree on this point. However, only around half of them report actually having this type of departmental strategy. It is of crucial importance not only to pursue carefully selected priorities, but also to develop a convincing narrative that helps usher in the target organizational structure. The narrative serves as a guiding light for employees and also helps to motivate stakeholders.
Finance departments face the second wave of digitalization
“Let’s automate transactional processes via digitalization and free up more time for analysis and consulting” is an oft-heard refrain at finance departments. But 73 percent of the interviewees have shown disappointment with digitalization initiatives thus far. Fifty-nine percent consider present levels of data availability and quality to fall short of those needed for targeted analyses and recommended actions. Although recognizing the risks of spreadsheet applications for standard processes, 86 percent of respondents agree that critical financial processes could not be conducted without Microsoft Excel. During the first wave of digitalization, many companies experimented with prototypes for pilot operations, robotic process automation, and initiatives to harmonize system landscapes. These often were isolated solutions without an overarching strategy. The second wave will focus more on integrating existing solutions in order to bring loose ends together. This will apply not only to front-end BI tools but also to foundational data. It will lend flexibility to the transformation of rigid diagnostic models and foster scenario-based decisional aids.
Around 80 percent of respondents are also planning to use artificial intelligence in the near future, or are using it already. Off-the-shelf cloud solutions often include predictive functions as standard features. These applications are already capable of assessing and analyzing available but often impenetrable data sets. This generates additional insights and findings, and lays the groundwork for finance communications to be more compelling by delivering the components of contemporary storytelling. Advances in data analytics will enable targeted analyses, which can be further developed based on decisions to be made for the questions at hand.3
Seventy-three percent of the CFOs and executives surveyed hold a positive view of the future, while also realizing they need to pursue their top priorities even more vigorously (68 percent) to position their departments favorably for the future. They expect completely or near completely automated finance processes to rise by an average of 22 to 63 percent over the next 10 years. New topics such as investor relations, M&A, venturing, and ESG are gaining ground. As such, generating real insights, advisory potential, and scenario solutions will therefore remain important finance-related activities. Finance departments will utilize role concepts to become less restrictive and adapt more easily to new framework conditions. They are already focusing to an unprecedented degree on data-based and AI-driven decisional processes, while also applying their own leverage to contribute directly to company value. Especially prominent roles will be played by CFOs who effectively apply levers such as zero-based budgeting,4 working capital management,5 or CAPEX Excellence6 to raise the value of their companies overall. Transformation of this type requires strong governance and rewards CFOs who can provide convincing guidance and communication.
Porsche Consulting conducted a qualitative survey from May to August 2023, with interviews of more than twenty CFOs and finance executives (heads of controlling/group controlling) from different industries such as energy, chemistry, mobility, and transportation. Some 63 percent of the companies represented post annual sales of more than 500 million euros. The aim was to gain a deeper understanding of finance organizations, digital finance processes, and finance strategies. The approximately 45-minute interviews included discussions of hypotheses and analyses of trends.
CSRD (Corporate Sustainability Reporting Directive): an EU directive that comes into effect in 2024
White Paper: Generating Impact with AI, November 2021 | Porsche Consulting
Zero-based budgeting: Questioning and reassessing existing cost positions to generate transparency within budget structures and yield new budget optimums.
Working capital management: Safeguarding sufficient liquidity for growth while avoiding liquidity shortages.
CAPEX Excellence: A foundational component of investment planning (optimum capital allocation) for projects to achieve long-term added value.
Consulting that works
You want to get in touch with our experts? Reach out to us.