As demands on CFOs continue to grow, outsourcing can be a viable form of support.

by Stewart Clements

The role of the CFO has undergone significant and dramatic change since the early 1980s, with some of the biggest changes taking place in the last decade. Businesses have grappled with a range of developments in the economic and regulatory environments since the late 1990s, including:
•Technology investment. In the run-up to Y2K (the year 2000), companies invested heavily in preparing their IT systems—many opting for enterprise resource planning (ERP) systems to ensure a smooth date-change transition.
•The brick wall. The bursting of the dot-com bubble, in combination with the events of September 11, put the brakes on the global economy in 2001. Businesses were forced to squeeze as much as they could from their past investments, with many eschewing growth initiatives in favor of cost-cutting.
•Brighter skies, but more regulations. In the most recent business cycle, growth and economic optimism have replaced retrenchment. Yet the emergence of new regulations such as Sarbanes-Oxley and Basel II and their attendant compliance costs has kept cost containment on the front burner, while putting pressure on companies to implement more effective internal controls and corporate governance.

Given these changes, it is not surprising that the CFO’s role is often far from easy or predictable. During the 1990s, CFOs were expected to assume the role of business partner, helping the CEO to develop and execute successful growth strategies. Then, as the economic slump took hold, CFOs had to switch their focus to efficiency and cost control. Today, the CFO’s role is more complex and challenging than ever, as he or she is expected to make significant contributions in three key areas:
•Providing strategic business advice and guidance to the CEO;
•Improving the company’s organizational controls to comply with new regulations;
•Ensuring the cost efficiency of the finance and accounting function.

Many CFOs have focused first on control issues, as laws and regulations require them to do so. Then, they choose to emphasize the business partner aspect of the role, although in many cases this has become more difficult because of the demands of control issues. Since Sarbanes-Oxley, relationships within finance and accounting (F&A) departments have changed, with companies realizing that they could not afford an informal reporting line within finance to the CFO. While such change certainly reinforces a more stringent control environment within finance, it has diluted the finance professionals’ ability to have a strategic impact on the business units and has also increased the overall costs of the F&A function because of the additional headcount now reporting into the function. The related challenge of tackling cost control within F&A is something that typically gets short shrift, if it is addressed at all.

CFOs know what they want and what they need to do—be a strategic partner, run a very effective control environment, and reduce operating costs. But the fact is, it is difficult to do all three well, which explains why many CFOs have been able to effectively address the control issue, but have had less success adequately driving forward the business agenda or dealing with costs.

This is a critical problem because CFOs are ultimately evaluated by the company’s overall performance. If performance falls short, the CFO is usually the scapegoat—one reason why CFO tenure is growing shorter each year. According to a report from the CFO Executive Board, the turnover rate for CFOs in U.S. Fortune 100 companies is now 17 percent, and only 25 percent of CFOs have been in their current jobs for more than five years. Besides losing their jobs, failure to successfully address compliance requirements could have legal ramifications as well.

One potential solution to the CFO’s challenges is to outsource F&A processes. Indeed, according to Accenture research, F&A outsourcing is rapidly gaining favor as a way to deal with a job that has simply grown too big for most CFOs to handle on their own. F&A outsourcing can help CFOs in a number of ways:
• Infusing flexibility. Outsourcing gives finance organizations the flexibility
to change with the marketplace—especially as it relates to maintaining profitability. Through outsourcing, fixed F&A costs become variable, which makes it easier for a company to scale down costs when revenues are slow. This helps companies maintain shareholder value even during slow economic cycles.
• Effectively executing the company’s growth strategy. F&A is the heart of the business, and any growth initiative ultimately has to be linked tightly to F&A to succeed. In outsourcing F&A to a qualified third party, companies can capitalize on standard system platforms and processes that more easily accommodate new acquisitions and ventures into new channels or markets.
• Gaining access to skills and expertise. In addition to providing lower costs, FAO offers access to a range of experts who can deliver higher-value services. While this helps all types of companies, it is especially beneficial to organizations in industries that are suffering from a dwindling talent pool.
• Helping to address regulatory compliance issues. In an outsourcing arrangement, all processes are standardized and automated by the outsource provider, creating an environment in which highly accurate data is readily accessible—precisely
what is needed to help satisfy compliance requirements. A company outsourcing F&A also benefits from a vast network of professionals who are experts in understanding all the regulations and interpreting them for specific companies.
• Reducing overall F&A costs. Outsourcing F&A typically results in lower costs because costs are spread across the outsourcing provider’s entire client base, thus generating economies of scale, and the provider has automated standard F&A transactions, which reduces the cost per transaction. In our experience, companies outsourcing F&A typically have shaved F&A costs by 25 percent—some as much as 60 percent.
• Free CFO time to concentrate on other issues. By helping to address costs—and to some extent, the compliance and control issue—outsourcing can free up time for the CFO to pay more attention to his or her role as a strategic business partner.

While some may think that the role of CFO has shifted away from strategic advisor to more of a cost-cutter and controller, that’s simply not true. The CFO role, in fact, has not become less of anything; it’s just become more of several things. By outsourcing F&A processes, the CFO’s time is used wisely to make the right decisions, balance the changing demands of the CFO role, and help the company on its journey toward becoming a high-performance business.