CFO Barometer: A Time of Opportunities?

News Article -- May 02, 2011

A Strong Demand for Responsiveness

This performance illustrates an admirable ability to adapt to a deteriorating environment with reduced visibility. However, in certain sectors there are still only two to three months of orders on the books, as opposed to six to twelve before the crisis.

The cycles of the business (R&D, production, sales, etc.) have also been shortened correspondingly, and time is currently the key factor in decision making processes. This holds true more or less everywhere, and has been felt particularly strongly in the automotive industry, which is accustomed to long cycles and is now having to adapt to shorter cycles, greater variability in demand and high volatility in raw materials prices.

Businesses need to be responsive in order to revise their resource allocation at a moment’s notice. And this dominance of the short term of course has an impact on finance. CFOs are expected to be able to respond to requests for information in real time. In general, they need to rethink and adapt their management and forecasting processes in order to boost their own responsiveness and compensate for poor long-term visibility.

This results in an increased need for management tools that make it possible to take strategic decisions in a very short time. In this context, “organisation 2.0” seems increasingly to be the solution that will enable applications and reporting tools to be connected via collaborative portals, and make it possible to gather data while at the same time responding to greater demands for analysis, compliance with standards and norms, and key performance indicators.

The Need for Long-Term Strategic Vision

Finance departments must of course master all the factors that influence forecasting in order to provide top management with the elements necessary for decision making. But the crisis has confirmed one fact: managing on the basis of costs and margins is insufficient. More than ever before, CFOs need to be involved in the long-term strategy of the company. Developing the ability to redefine plans for growth and investment is one of the major challenges of the economic upturn. Now that cash reserves have been spectacularly built up again in 2010, they need to be invested in line with the long-term strategic vision of the company. For example, in emerging markets where growth is still to be found.

The goal of finance departments is not only to manage treasury operations and short-term survival, but rather to look beyond the crisis and capitalise upon the opportunities offered by the disruptions currently underway. This implies a new state of mind that could take shape in the form of closer support of operational departments, to help them act on growth opportunities while giving them greater responsibility thanks to a more decentralised organisation.

Developing management forecasting

forecastingHere too finance departments need to equip themselves with appropriate tools. In an environment with limited visibility, marked by changes in the nature of risk (increased volatility of currencies, skyrocketing raw materials prices, lack of confidence in banking counterparties, the analytical complexities of hedging operations, emergence of new environmental risks, etc.) and changes in regulatory frameworks, the demand from top management for insight into the future and alternative scenarios is becoming ever stronger.

Although the demand for detailed reporting is still present, it is accompanied by the search for forecasting tools that augment the company’s strategic vision. In addition to short-term management in response to accelerating business cycles, management forecasting must enable the business to identify new opportunities and steer an appropriate course in function of financial and operational factors. The goal is to support the company in its strategic decision making and judgement in terms of investments, acquisitions and divestments, enabling it to be selective when evaluating projects and to safeguard the return on capital employed.

Mastering the Time Horizon

For 72% of the CFOs surveyed, mastering the time horizon in management forecasting is a priority. They need to take into account both short-term risks and long-term opportunities. Top management needs ever greater insight into the future and to be able to evaluate alternative scenarios. Although the demand for detailed reporting is still present, it is accompanied by the search for forecasting tools that augment the company’s strategic vision. It is thus no surprise that major corporations such as Société Générale or Valéo have just unveiled 5-year strategic plans.