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FP&A INNOVATION JAN 2016 | #9
Companies Are Creating Finance Centers Of Excellence The center of excellence is a concept that has really caught on over the past year in all departments, but particularly finance. But why is it proving so popular? | 22
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Top 5 Tech CFOs Silicon Valley is awash with money, and it’s growing fast. CFOs at tech companies face a complex challenge, but it’s one they are mostly meeting with aplomb. We run down the five most successful | 8
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ENHANCING CORPORATE PERFORMANCE THROUGH STRATEGY
Corporate Performance Management Summit June 8 & 9, 2016 | San Diego
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ISSUE 9
EDITOR’S LETTER Welcome to the 9th Edition of the FP&A Innovation Magazine
Last year, we saw leaders in the finance function dealing with a variety of problems, and incorporating a new set of technologies into their operations to deal with them. As we enter 2016, CFOs will have a new set of issues to cope with, and new resources to help. Among the most problematic areas for CFOs is likely to be recruitment. In this issue, Emma Taylor discusses how CFOs can work to ensure that they are finding the right people. Not only this, but how they can make sure that they are retaining them effectively. Millennials are approaching their careers in a different way to previous generations, and they are treating jobs almost like a whistle stop tour, using each one as a chance to accumulate new skills that will drive their career forward. In this vein,
Financial Centers of Excellence are the in-thing at the moment, and Kirsty Donovan takes a look at what these are, why they are increasing in popularity, and how to set them up. The central issue that many CFOs are facing when looking for staff is that the skill set they are searching for is simply not there. It has been argued by a number of people that this is the fault of universities, who are failing to adequately prepare their students for the real world. However, the world is, fast moving, and the influx of new technologies means the business environment has changed irrevocably. The cloud, the Internet of Things, and big data - just for starters - means that the skill set many CFOs are looking for may actually be out of date. Millennials have different qualities that perhaps go unappreciated by older generations, but being born
into digital, so to speak, means that they are often far better equipped to deal with technological change. In this edition, Bryce Kenny looks at how the IoT will impact the finance function, and I ask if technology will put an end to banking. It is likely to be another tumultuous year for finance, and CFOs will have to be prepared. Hopefully this magazine goes some way to helping. As always, if you are interested in contributing or have any feedback on the magazine, please contact me at jovenden@theiegroup.com.
James Ovenden Managing Editor
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contents 6 | CHALLENGES FACING FP&A PROFESSIONALS: TALENT ACQUISITION AND RETENTION
14 | TOP TRENDS IN FINANCE
Aaron Fraser gives us his predictions as to what he thinks will be the majors issues facing CFOs in the coming year
There is now a profound difference in the skills the finance function need in prospective employees, and what’s available. Emma Taylor looks at how finance leaders can attract, and keep, the best candidates
19 | 3 THINGS 99 CFOS HAVE TAUGHT ME ABOUT THE INTERNET OF THINGS
The Internet of Things is arguably yet to reach its full potential, and there still seems to be a lack of awareness around how to use it. Bryce Kenny tells us what he has learnt on the subject from CFOs
8 | TOP 5 TECH CFOS
Silicon Valley is awash with money, and it’s growing fast. CFOs at tech companies face a complex challenge, but it’s one they are mostly meeting with aplomb. We run down the five most successful
22 | WHY COMPANIES ARE CREATING FINANCE CENTERS OF EXCELLENCE
11 | WILL TECHNOLOGY DESTROY BANKS?
The banking industry has not had a great nine years, dealing with first the financial crisis, then the regulations that followed. Now technology is knocking on their door
Companies have embraced the idea of centers of excellence over the past year in all departments, and particularly finance. But why is it proving so popular?
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CHALLENGES FACING FP&A PROFESSIONALS: TALENT ACQUISITION AND RETENTION
Emma Taylor Deputy Head Of Finance
There is now a weight of evidence, both anecdotal and empirical, that those leaving school and university are lacking the skill sets desired by employers. According to a survey from the Chartered Institute of Management Accountants of firms taking on school leavers, three-quarters of such recruits needed significant training before they were ready for work. This skills gap is not restricted to one sector or industry. Many fields are suffering, and nowhere more so than FP&A Analytical and people skills have been noted as particularly lacking among the new breed of workers. A CEB report noted that ‘Finance and its HR partners have become adept at recruiting accountants and [other] technical professionals who have learned how to apply new regulations quickly to financial statements and manage short-term variation in their careers. However, very few professionals have been taught the skills that will help them succeed in
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a more judgment-based role, which also requires advanced analytical and interpersonal skills.’ People skills are now particularly important for those in finance because of the need to develop partnerships with other departments, so they can work effectively together. Many of the traditional ‘bean counter’ roles are also now taken by technology, and finance staff are required to be more analytically minded than they were before and add value in other ways.
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However firms choose to seek out talent, the key is outlining what is needed from employees and helping them to get there.
The skills gap is only likely to increase in the upcoming years. As baby boomers begin retiring, their contribution to swelling the workforce will come to an end, and they will pass the baton to Generation X and Y workers. According to new research by leading recruitment specialist Robert Half UK, 74% of finance directors worry that the skills gap resulting from this mass retirement will have a negative impact on their organizations over the next two years. There are a number of reasons behind the discrepancy between the skills needed and those existent in candidates, and there are a number of ways that firms can help narrow this gap. For example, they can partner with universities to ensure that students in the necessary field are being taught things genuinely valuable to the workplace. They can also offer apprenticeships and mentoring, as well as training and development programs to current workers. These are, however, longer term solutions. They take time to implement and carry out, and in the fast moving world of finance, this is time that they do not have. In the short term, organizations require a strategy that allows them to compete for the little talent that is available, and retain what they have. Before developing this strategy, it is important to establish who is in charge of recruiting finance professionals. CFOs and others in the finance team need to be involved in the process alongside HR. They also need to answer a number of questions about what they are looking for. What are the most important skills finance leaders of tomorrow need today? These are constantly changing as technology develops so fast, and many millennials have the skills in place to better deal with this shift. It is possible that you are looking for a candidate to have skills that simply won’t be needed in a couple of years.
Attracting candidates is also important with so many fish competing for so little plankton. Companies must cater for the different expectations that millennials have of their employer. Millennials have a reputation as lazy and narcissistic, but surveys suggest that this is not the case. They have still been shown to want professional development and have a clear path up the ladder. They are more than willing to work as hard, and a work/life balance is often not the primary thing they are looking for. Most millennials actually cite higher compensation as their top priority, followed by ‘more comprehensive benefits’, and ‘career opportunities.’ The alternative to seeking out millennials is putting your efforts into holding on to the older employees that you already have, at least until longer term solutions like training programs have born fruit. Keeping baby boomers in work is a challenge, but things like enhancing benefit programs and offering flexible and/or part-time work arrangements are often successful. However firms choose to seek out talent, the key is outlining what is needed from employees and helping them to get there. This cannot be left to HR, and the two departments must work closely together to ensure that the right candidates are coming in.
As baby boomers begin retiring, their contribution to swelling the workforce will come to an end, and they will pass the baton to Generation X and Y workers.
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Top 5 Tech CFOs Noto has had to take on the task of helping drive marketing efforts, and faces a challenging period as they launch a push to get more tweeters signing up.
Amy Hill International Events Director
The laid back culture at many tech companies might not seem like a world the traditional CFO really fits into. The suited and booted accountant obsessing over the balance sheet doesn’t seem to fit in with the tie-less daydreamers trying
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to think up the next way the web can change the world, and adapting to the culture is a new challenge for many. Here, we’ve looked at 5 CFOs who have managed it the most successfully.
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Anthony Noto, Twitter The best paid CFO in the world in 2014 with a total compensation package totaling $72.8 million, Twitter CFO Anthony Noto has taken over at a strange time for the social network. Q3 financials were on target, with a profit of 10 cents a share on $569 million in revenue for the period - an increase of more than 58% yearon-year - but stalling user numbers have many worried. Noto has had to take on the task of helping drive
Ruth Porat, Alphabet (Google) Ruth Porat is one of the most famous CFOs on the list, and her infamy is well deserved. After helping steer Morgan Stanley through the financial crisis, she was lured from Wall Street to Silicon Valley in April 2015 with a hiring deal that includes financial incentives that will reportedly amount to $70 million by 2016.
marketing efforts, and faces a challenging period as they launch a push to get more tweeters signing up. Noto does, however, have a wealth of experience behind him that should mean he’s more than up to the task. He was formerly the CFO of the National Football League, and was reportedly on the shortlist to become the next commissioner at one stage.
tech behemoth, Google’s market value has jumped by $126 billion, while Morgan Stanley seems to have suffered in her absence, with revenues falling in Q3 this year. Porat’s work ethic is notorious, with an attitude that there’s no such thing as a work/life balance. According to The New York Times, when Porat was giving birth to her first son in 1992, she was even making calls to clients from inside the delivery room.
This appears to be money well spent. Since Porat arrived at the
Safra Ada Catz, Oracle Worth an estimated $525 million, Safra Ada Catz is technically co-CEO of Oracle with Mark Hurd, but she retains many of the duties of the position that she used to hold. As CFO at Oracle, Ms. Catz played a role in closing over 85
acquisitions over five years to help cement Oracle’s position at the top of enterprise technology. She was promoted when longtime leader Larry Ellison stepped down, but noone was brought in to fill the CFO role so finance still reports to her.
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Ken Goldman, Yahoo On October 20, Yahoo Inc. reported an 8.4% drop on its quarterly revenue, in another setback to CEO Marissa Mayer’s efforts to improve the company. This despite CFO Ken Goldman noting in his statement that they had ‘reduced spending in areas such as workforce, facilities and discretionary expenses, and in our ongoing efforts to control expenses, we’ll continue to focus
Luca Maestri, Apple Apple, the world’s most profitable company, needs a CFO who’s widely admired, and they have that in Luca Maestri, who has over 25 years of global experience in senior financial management. Maestri won nearly 25% of votes among top Fortune 500 CFO’s of the world in Model N’s annual rankings to win the mantel of Most Admired CFO in
our headcount on growth initiatives’. Yahoo may not be the force it once was, but they could still afford to pay CFO Goldman a total compensation package of $13,045,056 in 2014. Goldman joined the firm in October 2012, and is a technology-industry veteran with three decades of experience in software and Internet companies, most recently as CFO of network-security provider Fortinet Inc.
the world, having only been named to his position in June 2014. He worked his way up at the firm from corporate controller, having taken a step down in positions from his last role as CFO of Xerox to join Apple. His total compensation package in 2014 was $14,002,801.
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Will Technology Destroy Banks? James Ovenden Managing Editor
SMASH
Tech companies have caused massive disruption in every industry, chiseling away at entrenched stalwarts with innovative new ways of doing things. In a digital world, they hold a clear advantage. Having been born into it, they have lean, fluid working practices, and they are experienced in dealing with rapid growth and infiltrating new sectors. They are also unrestrained by the legacy systems that often encumber the competition they’re up against as they move in. Financial services is one area where tech companies have already been making moves, but there is a still vast scope for them to grow their operations. At the moment, the bulk of their maneuvers have been in payments. Apple and Android
both offer people the ability to pay for things using their smart phones, while Facebook also allow users to make payments to one another easily using its messenger platform. Many believe that plastic cards will disappear entirely in the next 10
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12 years, not only to be replaced by smartphones, but also payment chips embedded in clothing, watches, and other items. This should - and is - worrying banks. According to research from the Economist Intelligence Unit (EIU), fending off the threat from technology companies like Google and Amazon is their most pressing concern. Payment insights have been the most important big data stream for banks, and taking hold of it provides access to tremendous amounts of information about their user base that was previously unavailable to them. There is also substantial demand for tech to get involved with finance amongst consumers. Trust in banks remains low, with the 2015 Edelman trust barometer finding that Technology remains the most trusted of all industry sectors at 78%. The chemicals, financial services, banking and media industry sectors continue to be the least-trusted, with trust levels less than 60% for all four. According to another recent study by banking company Fintonic, one in seven millennials believe that tech giants like Google and Apple will replace traditional banks and become financial institutions themselves, and that they will be better at it.
Digital disruptors like Google are disruptive because they don’t play by the rules. Instead, they use digital technologies to deliver better or entirely new ways of meeting customer needs … often bypassing regulation and redefining a given industry in the process. fp&a innovation
The motivation for offering financial services such as a payments facility is clear, and there is obviously demand there. But how far is tech willing to look to disrupt banking’s more traditional operations, such as accepting deposits and lending funds? Will we see a Google Bank in the coming years? Despite having access to the capital, a substantial user base, and the apparent demand, it is highly unlikely for a number of reasons. The central one of these is the regulatory burden that those in banking face. Technology companies have already shown themselves to be adept at circumnavigating regulatory concerns in other
how far is tech willing to look to disrupt banking’s more traditional operations, such as accepting deposits and lending funds? Will we see a Google Bank in the coming years? industries, but it is unlikely that this will fly in the financial sector. They are likely to greatly hold back the flexible business models that tech companies prefer to operate using. There is also an issue with profitability. Revenue sources and the narrow interest rate spread mean that banks are now taking in far less than they once were, raising the question of whether or not it would actually be worthwhile getting deeper into banking. It is also not guaranteed that they would be successful. General trust in an industry is one thing, but it will not necessarily translate into trust with people’s money. The major tech companies are likely to continue to offer various financial services that impinge on banking’s profitability, many of which we will not have even thought of yet. As Oliwia Berdak, Forrester analyst and author of Why Google Bank Won’t Happen, notes, ‘Digital disruptors like Google are disruptive because they don’t play by the rules. Instead, they use digital technologies to deliver better or entirely new ways of meeting customer needs … often bypassing regulation and redefining a given industry in the process.’ It is unlikely that they will try and compete with the industry in terms of its core services, but banks will have to adapt quickly to keep the threat to their general profitability in check, and make sure they are working to meet the demands of a digital-only world.
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TOP TRENDS IN FINANCE 2016 Aaron Fraser Head of Finance
The CFO is overseeing a sea change. New digital technologies are putting paid to the way that finance departments have traditionally operated, enabling greater productivity, and a new role within organizations. According to analysis carried out by Accenture, by 2020, 80% of traditional finance services will be delivered by cross-functional integrated teams. Over the course of 2015, we saw CFOs navigating the early stages of this seismic shift. Next year will see finance departments face new challenges in driving organizational change. We’ve looked at some of the trends that we are likely to see have an impact on finance over the next year.
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CFO & COO Roles Becoming One The role of the COO is in decline, with just 35% of companies now employing one - down from 48% in 2000. The position has been in decline for some time. General Electric,
15 for example, got rid of the COO role in 1983, and spread the duties across the C-Suite. McDonalds is another. Its COO, Tim Fenton, left the fast-food firm last year for health reasons, and instead of bringing in a direct replacement, McDonalds handed operational oversight to CFO Pete Bensen. As more and more tasks are automated and the CFO adds value in different ways, it makes sense that companies looking to become leaner assign many of the COO’s duties to them. Of 200 of the world’s largest companies, 15% of CFOs are already involved in operations, and they are best positioned to deal with the economic and governmental pressures. As companies look to become leaner and more agile, this trend will continue in 2016, and CFOs must be prepared to cope with the new responsibilities. Use Of Big Data Increases According to a survey by Deloitte, 18% of organizations say that their CFO is now in charge of analytics - coming second only to the ‘business unit or division head’. The applications for finance departments are many, including forecasting, financial performance, pricing products and services, strengthening operations, identifying new markets, improving margins, as well as assessing and monitoring risks. These are all the responsibilities of the CFO, and advances in the
associated technologies over the next year should see its adoption by finance teams increase further. Growth Of FinTech The great recession of 2008 was a turning point for banking, bringing the level of trust consumers held with brand name financial institutions crashing to its lowest ebb. Recovering from this has been difficult for banks, but it has also created a huge opportunity for FinTech companies. Recently, in its monthly global payments report, McKinsey determined that the industry will continue its growth, following ‘an extraordinary year in 2014.’ Investments in FinTech startups quadrupled from just over $3 billion in 2013, to over $12 billion in 2014. Payments, in particular, should see significant upheaval, as startups pounce on clear opportunities for increased efficiency and inclusivity. Financial Data Moves To The Cloud Take-up of Cloud technology has grown at an incredible rate over the past few years, and it’s been embraced by a number of business functions, from payroll to HR. However, finance is proving to be behind the curve. In 2014, The Chartered Institute of Management Accountants found that just 19% of firms use Cloud technology to record daily finance transactions, compared
Take-up of Cloud technology has grown at an incredible rate over the past few years, and been embraced by a number of business functions, from payroll to HR. However, finance is proving to be behind the curve. fp&a innovation
16 with 31% for CRM and 59% for other business processes. There are a number of reasons for this, particularly fears surrounding data privacy. However, these fears are increasingly being allayed by Cloud providers, and CFOs are realizing the benefits. Accenture research found that 85% of CFOs say they plan to increase their investment in the Cloud in the next two years, and over a third expect the investment to increase by over 25% during that time. Hiring Challenges To Worsen Almost all industries are facing a skills shortage of some variety, but FP&A and technical accounting skills are proving particularly difficult to come by.
Almost all industries are facing a skills shortage of some variety, but FP&A and technical accounting skills are proving particularly difficult to come by.
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A Savant Recruitment report, ‘2016 Employment & Skills Outlook for Accountancy and Finance’, has revealed that half of UK senior finance professionals expect attracting and retaining key talent to get harder in 2016, despite a 16% rise in the number of finance and accounting jobs across the UK. The report also found that 75% of hiring managers expect the rising difficulties in finding these professionals to increase over the course of the year, and, as a result, 71% will struggle to cope with rising workloads next year. Only 5% expect the situation to improve.
These figures should worry finance leaders, but there are solutions that they could be looking at. New technologies mean that many of the skill sets still being looked for among candidates are now irrelevant, and it could be that a simple adjustment is made in expectations. Finance centers of excellences in organizations can help resolve these skills shortages, and it is likely that we will see organizations take steps to implement such schemes over the next year.
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3 THINGS 99 CFOS HAVE TAUGHT ME ABOUT THE INTERNET OF THINGS Bryce Kenny Senior Associate at Charles Aris, Inc.
Wow. I knew the Internet of Things (IoT) was enormous, but I’m catching on to a few trends after having meaningful conversations with 99 active financial leaders for companies from $20 million in revenue up to $1.6 billion.
company’s industry. Since the second week of January, we’ve been actively searching for a Chief Financial Officer for a Machine2-Machine connectivity solutions company based just outside of Chicago.
Going into a CFO search for any of our corporate clients in private equity requires a lot of studying and education around the portfolio
What is machine to machine (M2M) connectivity? M2M could be unlocking the front door of your house from your smartphone or
watering your lawn remotely. It’s just one machine communicating with another. The CFOs and VPs of Finance who I’ve been calling have all been involved in companies with some type of connected device capability, from wearables to traffic management systems. Here are three trends I’ve become aware of after 99 conversations with these financial leaders:
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Very few companies have concrete plans on how to develop in this area. This shouldn’t come as a surprise to anyone, but I can’t over-exaggerate: A lot of companies know they need to expand into this space, but their ideas aren’t that great. Light bulb: There is a massive difference between products/devices which provide information and ones which provide solutions. If you own a snow blower, you can now connect that to your smartphone. It gives you the make and the model, and informs you that your spark plugs will fire at 700 degrees right now. That product will fail because it is not providing a solution to anything. You’re not a snow-blower expert. Alternatively, let’s say your snow blower is connected to your smartphone, and your phone is connected to snow-blower experts who say you have a major chance of the plugs misfiring at 700 degrees. Result? You won’t be able to start your snow blower to clear your driveway this weekend. However, your phone is also connected with Lowe’s, for instance, and Lowe’s has a virtual button you can press to purchase the exact spark plugs you need and even a spec sheet showing you how to change them. Now this M2M connection becomes a solution to keep your family safe and your driveway clear – it is not just a product.
There is a massive difference between products/devices which provide INFORMATION and ones which provide SOLUTIONS.
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Companies which are purely an M2M or IoT focused organization have a huge advantage. Companies with an existing product not currently in the connected devices (not-so-smart snow blower) space but hope to expand into it (i.e., sort-of-smart snow blower) are not appropriating the amount of resources they need to be. What is the No. 1 resource to get into this space? New inventory? New products? Nope. It’s their people. You have to have the right people on the team to do this. Out of 99 CFO conversations, it is amazing how many are now being asked to ‘learn about this IoT and M2M thing’ and somehow are expected to become experts within a few articles and conferences. That’s a mistake. Hire people who have a few wins in this area already. That is rare for being so early in this exciting new phase for the global economy, but it is your best chance at not being late to the party. Light bulb: If you are an active CFO without any knowledge or experience in this space, you need to find some. Do it on your own if you have to. In five years, I’ll call you for a CFO/CEO role and without any experience in IoT or connected devices, you’ll become obsolete for the best roles out there. It will basically be the equivalent of being a CFO/CEO in the year 2006 who doesn’t know how to write an email.
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This is the future of the global economy. No question about it. Just the M2M space, not including the overall IoT space, grew by 20% from 2013 to 2014, and it is expected to be at $41 billion overall by 2020. This feels like watching Steve Jobs and Steve Wozniak working in their garage while sipping on a Starbucks coffee delivered via drone ordered from an iWatch. Light bulb: I’ve officially decided I am an IoT nerd! Thinking about the white spaces in this area and the innovative pathways our clients are and will be taking in the coming two to five years is mind-blowing! I want to be part of it. Will you be? Big question: Are you awake? What are you doing today to set yourself up for success in this area in the next two to five years? In my humble (but probably accurate) opinion, if you aren’t rethinking how your current company might provide you with the appropriate experiences in this space, your company may be my client soon in finding your replacement! Don’t
Out of 99 CFO conversations, it is amazing how many are now being asked to ‘learn about this IoT and M2M thing’ and somehow are expected to become experts within a few articles and conferences.
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WHY COMPANIES ARE CREATING FINANCE CENTERS OF EXCELLENCE Kirsty Donovan FP&A Consultant
The risk laden and fast moving nature of the modern corporate world is such that enterprises need to react to changing events instantly. As such, responsibilities that were traditionally the preserve of finance departments - such as budgeting, forecasting and analysis - have become more fluid within the company, and many different departments must now have a keen awareness of them to optimize decision making processes. This requires a number of things. Firstly, that those who need to, have the necessary financial acumen to make sense of any information that they may be required to make sense of. Secondly, that they have access to the data and the technology they need, and the skill set to understand them and garner and leverage insights. Lastly, and fp&a innovation
most importantly, they all have to share the same vision and be working towards the same ultimate goal. It is to these ends that many organizations are now operating a ‘Finance Center of Excellence’ (FCOE’s). A center of excellence is a group of people who collaborate in order
23 to drive best practices in a specific focus area for successful business outcomes. In the case of FCOEs, this is led by both finance teams and IT departments, who provide staff with the training, reusable knowledge, disciplines and best practices in finance. The benefits of this are many and persuasive. It promotes alignment between IT, finance and other departments for better communication, higher rates of efficiency, and reduced costs from maintaining budget, plan and forecast consistency and use. Routine planning and analysis workflow are also used to streamline integration across the organization, and it helps increase the success of finance technology and its deployment by helping them deliver more value, at less cost, quicker.
Arbitron has succeeded in establishing an effective FCOE because they have planned carefully and brought in the right people, processes and technology. This has enabled everyone who uses it to develop their financial knowledge. Not only this, but a successful FCOE also enables a reciprocal knowledge trade, with finance learning from the other departments. This leads to better decision making, and creates an agile business ready to deal with anything in the tumultuous business climate we find ourselves operating in.
A center of excellence is a group of people who collaborate in order to drive best practices in a specific focus area for successful business outcomes.
An example of the FCOE in action is at Arbitron. Arbitron, an international media and marketing research firm, has an FCOE with a team of four people who hold a number of responsibilities. They support the firm’s enterprise planning, budgeting and forecasting functions through a bottom-up program of budgeting and forecasting templates. They also support the identification of business drivers and key metrics, develop the majority of the planning applications, provide assistance with all reporting throughout the company, and review data models, planning and forecasting education.
It promotes alignment between IT, finance and other departments for better communication, higher rates of efficiency, and reduced costs from maintaining budget, plan and forecast consistency and use. fp&a innovation
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