Increased effectiveness drives integration of information as a key

by Chris Gattenio

In a global marketplace, CFOs need organizations to perform well and want to outperform their peers with strong growth and big profits. An IBM study of more than 1,200 senior finance professionals (“Balancing Risk and Performance in an Integrated Finance Organization—The Global CFO Study 2008”) showed that one hallmark of successful companies is a focus on driving integration of information across the enterprise.

What drives information integration? IBM’s research points to: common data definitions, a standard chart of accounts, common standard processes, and globally mandated standards. Fewer than one in seven enterprises govern and manage integration of their finance organizations by combining these criteria, which are the components of good governance and result in an Integrated Finance Organization (IFO).

Enterprises with IFOs in the study had revenue growth rates nearly double those of industry peers, and IFOs are better prepared for risk, as they are more aware of it.

• Enable with Global Process Ownership: Establishing global standards through global process ownership (as opposed to process enforcement or process participation) is a key enabler to getting past organizational and cultural barriers. IFOs are 3.5 times more likely to employ global process ownership enterprisewide, resulting in more adopted process and data improvements. Global process ownership establishes accountability for the consistent design and deployment of processes.

• Simplify Delivery: Enterprisewide process and data standards provide opportunity to simplify enabling systems and organizational structures. While enterprise standards help simplify technology, delivery models such as shared services or outsourcing help maintain standards. Transactional activities, particularly those that are similar around the globe, require standardization, are routine and repeatable, and are prime candidates for consolidation so as to capitalize on economies of scale, specialized labor, and application of common best practices.

IFOs tap into the benefits of shared services at a rate 2.5 times higher than non-IFO counterparts and are three times more likely to use outsourcing than non-IFOs (20 percent versus 6 percent); but adoption is still in the early stages. As enterprises standardize processes and data, they can select who will execute the processes and where.

IFOs remove structural roadblocks to increase the speed of deployment and execution of finance activities. Moreover, enabling technologies and delivery models helps to maintain global standards while providing finance with greater flexibility to adjust to changing business models.

• Access to the “Truth”: Outperformance and risk management are about getting to a single set of facts that reflect the reality of the enterprise’s performance generated by hard data. Process and data commonality enable that truth to be told. Enterprise standardization opens new dimensions (e.g., customers, channels, suppliers) and ways to view volumes, revenues, and profits. Data standards let the organization define critical items consistently across the enterprise, such as the components of gross margin.

Enabling such consistency shifts the conversation from transactional to analytical. With data turned into information and insight, finance moves beyond reporting to a keener sense of the future direction of the enterprise. As “truth owner,” the CFO can help shape operational decisions and strategic direction. IFOs build flexibility and agility by being more disciplined, and improve speed by being organized and connected.

Step Up To Risk
Enterprises look to the CFO for leadership in risk management. Moreover, the simple risk/reward equation means all performance is intrinsically linked to risk. Two actions are key: the CFO’s orchestration of risk management and convergence with performance management.

• Orchestrating Risk Management: CFOs are uniquely positioned to determine and guide the enterprise risk profile. CFOs executing effective risk management are likely to have risk management reporting to them. Effective organizations provide greater top-down direction about the enterprise’s official position on risk appetite and tolerance.

• Converging Performance and Risk Management: Effective organizations manage risks to close performance gaps and engage in more risk-management activities than less effective firms; e.g., monitoring, reporting, historical comparisons, evaluation tools, predictive analytics, risk-adjusted forecasts, and process controls.

IFOs break with conventional wisdom and perform better in many ways. To read the entire study and use IBM’s online assessment tool, visit http://www.ibm.com/gbs/2008cfostudy