Globalizing Performance Management in an Uncertain World David A.J. Axson
Its been a crazy few years Global Financial Crisis US Debt Eurozone meltdown Volcanic ash Oil prices Terrorism Commodity prices Healthcare H1N1 Greece, Ireland, Spain Egypt, Libya etc. Tsunamis & Earthquakes 2
Volatility is here to stay; creating real challenges for Finance Volatility Crude Oil Prices 1970-2011 Material Trends/Events Variable economic growth rates Regulation Sustainability Global l supply chain disruptions Changing global trade patterns Technology Challenges Setting long term capital investment priorities Establishing credible targets and annual plans Developing credible forecasts Analyzing the impact of material events on near term resource allocations Effectively managing cash
The Research High Performance Business Research In 2003, Accenture launched l a research study t to empirically determine the key ingredients of a high-performance business. Thus far, over 6,000 companies have been studied, including more than 500 that meet our criteria as high performers. High Performance Finance Research Phase I & II (2004/06) Investigated the role of finance in overall high performance Over 150 CFO interviews globally and 170+ companies benchmarked. Ongoing study of the relationship between the finance function and high performance.. High Performance Finance Research Phase III (2007/08) Explored the most pressing global challenges for finance executives. How they addressed these challenges. The strategies and practices leading organizations employed to contribute to high performance in finance and the enterprise at large. High Performance Finance Research Phase IV (2011) Explored how Finance is adapting to the dramatic environmental changes Online surveys of 536 senior finance executives and 297 C-level customers of finance In-depth qualitative interviews with Chief Financial Officers and senior finance and business executives. 4
CFO s understand the challenges Top 5 Finance Challenges 1 Managing risk 2 Managing needs of stakeholders 3 Supporting complex operating models 4 Limited time to spend on value-adding activities 5 Complexity of legacy systems environment Source: Accenture 2011 High Performance Finance Study 5
There is broad consensus s on the capability gaps Capability Gaps 87% 16% 84% 84% 16% 17% 83% 82% 12% 12% 79% 12% 71% 68% 71% 70% 67% 67% Finance Function Effectiveness Workforce Effectiveness Risk Management Driving enterprise performance Finance Function Efficiency Preparing for growth Importance Satisfaction Source: Accenture 2011 High Performance Finance Study 6
Finance has a lot on its plate Planned initiatives over the next two years Complete finance process standardization di i Implement/extend ERP systems Enhance compliance processes Develop and implement finance function strategy Implement new workforce programs Standardize EPM processes & tools Upgrade performance management capabilities Implement/extend shared services Conduct benchmarking Implement advanced risk management 43% 40% 39% 37% 36% 36% 36% 34% 33% 32% Implement/expand use of outsourcing 26% Source: Accenture 2011 High Performance Finance Study 7
Overall Finance is in a good position but a lot of work remains to be done Finance organizations have substantially improved their capabilities and performance in the past three years Alignment with the c-suite is at an all-time high Increasing complexity is a fact of life: New and changing regulations, Continued market and economic volatility, Attracting and retaining top talent, and Managing the avalanche of data being generated CFOs need to balance their focus on finance cost reduction with the need to invest in capabilities that create value The best performing finance organizations excel in the capabilities and practices that help the enterprise grow in a volatile global economy Study comprised online surveys of more than 530 senior finance executives across 14 industries and approximately 300 C-level customers of finance ( CXOs), as well as in-depth qualitative interviews with chief finance officers (CFOs) and chief operating officers (COOs). 8
Implications for the future Attributes of a High Performing Finance Organization 2012 and Beyond Support a growth agenda Develop a flexible and responsive finance operating model Ensure optimal cash and capital allocation Attract t and retain top-flight finance talent t Assure regulatory compliance Translate data into insight Continue to focus on operational excellence Source: Accenture 2011 High Performance Finance Study 9
The world is not flat! Maturity Growth rates Access Channels Customer behavior Market practices Regulation Logistics Credit quality Emerging Mature Growth 10
Leading companies have high expectations of growth markets* 40% sales growth from BRIC markets 70% of growth from Asia Pacific and Africa over 10 years 40 % of sales from emerging markets by 2015 Double revenue in Pacific region by 2020 *Data obtained through externally available sources including annual reports and investor presentations. 11
Build a flexible and responsive operating model Mature Fast Growth Emerging Strategic Business Partnering Local Local Local/ Pooled Proactive, forward looking decision-support Decision making participant Reporting & Analysis More advanced analytical skills Translation of financial goals into operating plans Global Market- Aligned Local/ Regional Control & Reporting Basic analytical skills reactive and historical Dual focus GAAP and business units Global Market- Aligned Transaction & Control Global Shared Transaction processing Business Services/ Closing Services Outsourced Closing Basic cost center and P&L reporting Local/ Regional Outsourced 12
Tie metrics to business and market evolution Business/Product Lifecycles Market share Earnings growth Sales per customer Growth Sales growth Brand awareness Cash Market Type Mature Customer retention Market share Share of wallet Pricing power Cash flow Margin Operating leverage Cost minimization Time Fast Growth Customer attraction Sales growth Brand recognition Cost to market Terms of trade Retention Margins Productivity Time to market Sales growth Emerging GDP growth rate Customer demand Ability to pay Market access Cost to serve 13
Walking the talk at taccenture Emerging High Mature Growth (Priority) (87%) (11%) ASEAN Brazil Greater China Penetrated Under-penetrated India Mexico Middle East UK Germany Russia Australasia Japan South Africa South Korea Turkey Growth Market Focus Double business in priority growth markets by 2015 Metrics: Top-line growth, market share, brand strength Emerging High Growth (Watch List) Central & Eastern Europe Rest of Latin America Defined by: GDP growth Population growth Market opportunity Client presence Can we get paid? Will our people be safe? 14
Align tactics ti with market characteristics ti Type Mature Fast Growth Emerging Markets North America Brazil SE Asia Western Europe Japan Australia New Zealand Russia India China South Africa E. Europe Latin America Africa Characteristics Slow growth Competitive Multi-channel Fast growth Emerging local competition Variable access Volatile Immature Fragmented Open markets Weak IP protection Small but growing middle class Value Margin/Cash flow Sales/Share Opportunistic Growth Marketing/Innovation Market Access/Channel GDP Innovation Technology/Feature /Function Glocalization Re-deploy Cost Driver Minimization Scalable Minimization 15
Optimize i investments t Base Scenario Upside/ Strong Downside/ Continued Growth Weakness Moderate pickup in Strong growth Continued weak economic growth in alternative more economic growth with second half that typical of a robust inflation trending continues with economic recovery toward zero. Results in sustained low inflation; with rising demand the longest period of steady uptick in across all markets economic weakness commodity prices since the 1930's 2012 2.1% 4.3% 1.0% 2013 2.5% 4.6% 0.4% 2014 30% 3.0% 49% 4.9% 80% 8.0% Investment Project Base Scenario Upside/ Strong Growth Downside/ Continued Weakness A X X X B X C X D X E F X X G X X Develop different scenarios under which plans and forecasts should be built Test the value of planned projects under different scenarios 16
Deploy tools to better manage volatility Strategic planning Operational Planning Financial planning/budgeting Forecasting Utilize scenarios Reporting Develop contingency plans Driver-based Rolling time horizons Transparency from financial results to operational actions Align metrics to internal strategies & external markets Decouple incentives from plans and budgets Integrated planning process EPM technology platform 17
Clear linkage from goals to tacticsti Goals Strategies Tactics Revenue growth Sell more through existing channels Trade promotions Product innovation Develop new channels Private label Partner/distributor Where from? How profitable? How much does it cost? What is the lead time? Which tactics work? At what margin? 18
Traditional reporting offers little insighti Travel Spend Actual Budget Variance Air 12,725 8,500 (4,225) Surface 3,400 3,250 (150) Hotel 2,150 2,000 (150) Meals 600 700 100 Entertainment 2,375 2,250 (125) Total 21,250250 16,700 (4,550) 19
Report what matters Travel Spend Actual Q2 Q1 Q4 Q3 Developing new accounts 5,700 6,000 8,000 8,500 Growing existing accounts 4,500 5,000 7,000 7,000 Training 500 600 600 1,000 Total growth oriented 10,700 11,600 15,600 16,500 Mitigating service issues 9,000 7,500 4,500 3,500 Administrative 1,550 900 300 400 Total cost oriented 10,550 8,400 4,800 3,900 Total 21,250 20,000 20,400 20,400 New orders 195,000 240,000 235,000 228,000 Growth as % of total spend 5.5% 4.8% 6.6% 7.2% Growth/cost ratio 50% 58% 76% 81% 20
Develop rich analytic capabilities Optimization What s the best that can happen? Competitive Advantage Predictive Modeling What will happen next? Forecasting/ extrapolation ti What if these trends continue? Predictive Analytics What could happen? Statistical analysis Why is this happening? Alerts What actions are needed? Query/drill down Ad hoc reports What exactly is the problem? How many, how often, where? Descriptive Analytics What happened? Standard Reports What happened? Analytic Sophistication 21
Are you ready? Behaviors Market focused Analytic Tolerant of ambiguity Collaborative Questioning Decisive Capabilities The Basics Transaction processing Consolidation Reconciliation Reporting Control Compliance The Differentiators Insight Analytics Collaboration External focus Risk awareness Agility Time Allocation Monday Tuesday Wednesday Thursday Friday Monday Tuesday Wednesday Thursday Friday Collecting data Collecting data Maintaining Spreadsheets Developing Reports Other Activities Performing Analysis Collecting data Performing Analysis Interacting with Decision Makers Interacting with Decision Makers Other Activities Strategic Initiatives Maintaining Spreadsheets Developing Reports Performing Analysis Developing Reports 22
The best differentiate t across five dimensions i Finance function strategy and governance Continuous investment in capability development Clear governance structure Finance holds a key position at the heart of the larger enterprise A value- Recognize that shareholder value is the goal of all enterprise activities centered Participate directly in high-level decision-making culture Directly link all strategies and tactics to measures of value Strategic planning and target setting Forecasting, reporting and analytics Clear line of sight from business strategy to specific objectives, value drivers and key performance indicators (KPIs) Explicit recognition of uncertainty in developing strategies and setting targets Integration of forecasts projecting future performance, with reporting and analytics looking at what actually happened and why Transparency from changes in the key internal and external drivers of business performance and their financial impact Risk management Manage risk pro-actively and holistically, building strategic, enterprise-wide capabilities that focus on pre-emption and mitigation 23
Bottom line: constantly tl add value Percent of executives agreeing that finance is contributing in each area Identifying growth opportunities 27% 47% +20% 33% Input to strategy +21% 54% Managing regulatory changes 40% 56% +16% 36% Finance drives business value +22% 58% Non-Masters Masters Source: Accenture 2011 High Performance Finance Study 24
Thank you for your time! For more information: Contact me at david.a.axson@accenture.com Read the report This document is produced by Accenture as general information on the subject. It is not intended to provide advice on your specific circumstances. If you require advice or further details on any matters referred to, please contact David Axson. This document makes descriptive reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of such trademarks by Accenture and is not intended to represent or imply the existence of an association between Accenture and the lawful owners of such trademarks. 25