In particular, the role of the finance director and the finance department in companies across all sectors is on the brink of dramatic change, according to a report just published by the Economist Intelligence Unit and the accountancy firm Arthur Andersen. The biggest changes are expected in the areas of risk management, information systems and staff training and recruitment, says the study, entitled "The Evolving Role of Finance - Charting a Strategic Role for the Future".
More than 90 per cent of the senior finance executives from 200 multinational companies said they expected the role of the company finance department to be transformed over the next three to five years, while 75 per cent of more than 100 chief financial officers said that their departments would in future be far more involved in strategic activities, such as risk management, performance measurement and information.
However, the report's findings suggest that there is still some way to go before such aims can be achieved. For example, nearly two-thirds of respondents were dissatisfied with the frameworks used to measure the finance department's performance, with nearly as many unhappy with the way their departments are organised and the way they interact with other parts of the company. At the same time, three-quarters said that finance department information systems were not sufficiently integrated. Moreover, it is suggested that finance department staff still typically spend about 70 per cent of their time on routine, transaction-oriented rather than value-added work.
John Kerr, a partner with Andersen's business consulting unit, said: "No company today can afford to have a finance department that is isolated from strategy-setting, operations and competition. Finance directors worldwide are recognising the need to transform the finance function from one that is preoccupied with cost control, transaction processing and reporting, to one that provides more value and support to the organisation and its operating units."
The report, prepared with the help of participants in Arthur Andersen business forums, identifies several steps that finance executives can take to improve their departments. They are:
l Improving core business processes so that additional resources can be allocated to more strategic undertakings;
l Undertaking value-added business analyses that will help operating managers understand the financial consequences of their strategic decisions;
l Taking the reins on organisation-wide management of financial and non- financial risks; and
l Developing performance measurement systems that help managers across the organisation to ensure that their day-to-day decisions reflect long- term strategic goals.
It is also clear that - in striving to take these steps - finance departments will not necessarily be able to utilise existing staff. The report notes that staff competency needs significant improvement, particularly in the areas of product and market knowledge as well as facilitation, leadership and understanding of the relationships between business activities.
Nearly half of those surveyed said they had already replaced personnel in order to obtain the required skills within their departments and approximately the same proportion expect to do so over the next three years. They are apparently looking to hire people with diverse backgrounds and experience.