Delivering Value in a Complex World

The Next Opportunities for the Australian Finance Organisation

Executive Summary
The concept of high-performance finance has been subject to Accentures in-depth research for almost a decade. The High Performance Finance Research in all its permutations has always started with the simple question: Does finance really matter to an enterprises overall growth, competitiveness and ability to be a high performance business? Over the years, this research has clearly indicated that finance does matter. In fact, it matters a great deal. Accentures most recent High Performance Finance Research in Australia has been conducted against the backdrop of the European debt crisis, high exchange rate volatility, ongoing questions of the sustainability of the China boom, instability in the Government and the local recessionary fears, particularly in the non-mining sector of the Australian economy. As part of this survey, we have tried to find out what is top of mind for Australian Chief Financial Officers (CFOs), to better understand the issues they are facing and the plans they have for the future. Most Australian businesses are currently dealing with tough trading and increasingly complex market conditions, placing great strain and expectations on CFOs and their teams to proactively manage cashflow, conserve capital and provide key inputs in business decision making. Our ongoing research into High Performance, combined with our client experiences and local market knowledge, has led us to identify six key business issues facing most Australian businesses and government agencies that should be top of mind for Australian CFOs: Improving productivity and efficiency, to counter rising input costs and lack of pricing power; Managing for a structural shortage of skilled talent; Delivering on capital projects maximising the efficient use of available capital; Overcoming the growth plateau in consumer demand; Dealing with new risks in economic volatility; Handling imminent government reform and fundamental policy and regulatory changes.

Figure 1: % of Finance executives that are Very Satisfied/Satisfied

Finance Function Management Enterprise Performance Management Corporate Finance Finance & Accounting Operations Risk Management
Global Australia

65% 66% 69% 69% 68% 69% 77% 83% 60% 70%

So how are Australian CFOs approaching these challenges? To find out, Accenture recently surveyed Australian finance leaders, as part of our ongoing research into High Performance Finance. We surveyed and interviewed 30 Australian CFOs and senior finance professionals in late 2011 / early 2012 as an extension of our global High Performance Finance study, which surveyed more than 530 finance executives and approximately 300 C-level executives (CXOs including CEO, COO, CIO and CMO) at large, global organisations, and included in-depth interviews with finance executives at leading companies around the world. The demographic of the Australian respondents included 90% from the private sector (spread evenly across industry sectors) and the remaining from government organisations. The findings from our Australian research clearly show that Australian CFOs are grappling with similar issues to those of their overseas counterparts, but are directing more investment towards simplifying their finance operating model, addressing Australian legislation and reforms and implementing cost efficiency initiatives. Locally, more than 65% of Finance executives are satisfied with the ongoing performance and improvement of Finance (a 5% uplift from our previous Australian survey in 2008) as shown in figure 1, recognising the ongoing rise of Finances importance and influence at the c-level. Our research identified 5 key themes that ought to be top of mind for every Australian CFO:

Finding 1 Streamline Finance Operations

In such a volatile market, with many upcoming regulatory changes, the Finance function is becoming increasingly complex. Investment is needed to further simplify the operations, address regulatory gaps and improve the integration of risk, finance and treasury.

Finding 2 Continue to improve finance maturity and process excellence

Australian Finance functions have made improvements over the past three years, particularly in improving basic finance skills (such as purchase to pay, record to report and order to cash processes). But no longer is basic capability sufficient in the light of significant opportunities to further lift the overall maturity of the Finance function, such as:

Basic Capabilities
End-to-end process excellence (global process ownership); Fast close; Global ERP/platform integration; Working capital improvements; and Cost and profitability management;

Advanced Capabilities
Post Merger Integration; Capital planning and management; budgeting and Forecasting; value centred culture; and Tax and treasury optimisation

Finding 3 Transform Finance as part of Integrated Business Services

Many CFOs in Australia are investing in finance transformation initiatives and are increasingly seeing this as part of a broader integrated business services transformation, along with HR, Procurement, IT, Risk and other delivery and support capabilities. This drive for operational improvements provides further opportunity for end-to-end process standardisation, improved service levels, leverage of offshore processing hubs and access to talent.

Finding 4 Use Analytics and performance management as a competitive advantage

Another challenge being faced by Australian CFOs is the ability to turn the vast amounts of data generated by the enterprise, into analytics that generate meaningful insights to guide business decision making. The data explosion creates an opportunity, but if not managed carefully could make performance management processes unwieldy and difficult to see the wood for the trees. More than ever, Finance needs to drive structured and consistent performance management processes, cascaded down through the organisation, that are then supplemented with enhanced analytical capability (tools, processes and talent) to support optimisation. Most Australian companies limit their analytical capabilities to standard reporting and ad hoc reporting, but there are high performers that are investing in this area with a view to create competitive advantage, by translating their strategies into specific objectives, value drivers and key performance indicators.

Finding 5 Finance as a strategic business partner

There is an increased business expectation for Finance to partner, engage and consult with the business on their most pressing issues. While CFOs have made great progress towards creating this capability, they need to continue to build advanced capabilities so that finance is a true and indispensable business partner that proactively preserves and enhances value.

Finding 1: Streamline Finance Operations

We live in a world of constant economic turmoil. Globally, enterprises face different challenges and as a result they take up different initiatives to deal with the environmental changes. The impact of these environmental changes on talent, regulation, volatility and data explosion are making the Finance function in Australia more complex. In light of the increasing complexity of the finance operations, CFOs are looking to simplify their businesses by driving global process ownership and standardisation. They are looking to invest in programmes that simplify their operating models and operations, address regulatory gaps, improve the integration of risk, finance and treasury and further leverage their investments in ERP implementations. Our Australian research has found that sourcing, attracting and retaining finance talent (30%) is the single highest factor impacting the Finance function (see figure 2). This is no surprise, where locally finance professionals demand relatively high wage premiums and there is scarcity of the deep finance specialisation required to support the increasing complexity. As a result, many are looking to simplify their operating model and also leverage offshore workforces to execute day-today finance processing. The next highest impacting area is regulatory change (23%), which is increasing the cost of doing business in Australia. Some of the key legislation changes impacting Finance in Australia are: the Mining and Resources Rent Tax (MRRT), the clean energy bill (also known as Carbon tax), increased banking regulation such as the upcoming Foreign Account Tax Compliance Act (FATCA) and Basel III, and ongoing Finance Accounting Standards Board (FASB) changes, such as the requirement to include all leases on the balance sheet. The other environmental factors impacting the Finance function are data (13%) and volatility (10%).

Figure 2: Impact of environmental factors on the finance organisation

Australia
Talent Regulation Data Permanent Volatility 30% 23% 13% 10% 60% 43% 50% 50% 27% 27% 27% 40%

High Impact

Moderate Impact

No Impact or Low Impact

Australian CFOs highlighted in our survey (figure 3) that the 4 greatest challenges to their Finance function achieving operational excellence are:

3. Lack of integration between Strategy, Operating plans and Performance Management:

Lack of end-to-end process excellence Cottage industries performing bottomup planning that often does not align with the top-down strategic planning targets Limited alignment of organisational key performance indicators (KPIs) & target setting to individual performance

1. Overcoming complex legacy systems and environments:

Large ERP investments often regularly need to be upgraded/changed Too many systems & tools, that are typically supplemented by spreadsheets Process automation is costly

2. Finding and retaining a skilled workforce:

Retaining talent is difficult in a fullemployment market Existing talent needs to be augmented to support value-add and increased specialisation Leveraging of different sourcing strategies

4. Not enough time to focus on value-add activities:

Too much time spent on month-end and operational activities Focus on efficiency and getting the base capabilities right Value-add activities are not always seen as a fundamental finance service

Figure 3: Greatest challenges as a senior finance executive

Managing new and complex financial, business and operational risks Managing the complex needs of all stakeholders Complex legacy systems and environment Not enough time to focus on value-oriented finance capabilities Finding and retaining a skilled finance workforce Lack of integration between enterprise strategy, operating plans and performance management Complex outsourcing and shared services arrangements
Global Australia

39% 30% 30% 39% 38% 37% 33% 38% 37% 37% 33% 33% 23% 23%

FEATURE: FOCUS ON FINANCE TALENT MANAGEMENT

A crucial element for continuing to improve Finance maturity and process excellence is in realising the full potential and retention of finance talent. Roughly one third of all respondents indicate that they intend to implement new workforce programmes in the next two years, with the top 5 workforce management programmes being: Competitive salary and benefits; Innovation & idea generation programmes; Celebrating performance rewards; Training for finance specialisation and skill uplift; and Re-training staff to focus on value-add and analytics.

Figure 4: Which of the following practices do you employ for effective finance workforce management? Figure 4: Practices employed for effective workforce management in Australia
Competitive salaries and benefits are offered Finance leadership encourages innovation and provides employees with opportunities to share ideas Performance rewards tie to both individual success and enterprise profitability Individuals are encouraged to proactively seek training on new topics and technologies Training is used to keep the finance workforce current and re-training is used rather than hiring/firing Employee satisfaction surveys are conducted regularly and results are shared Full participation in coaching and mentoring activities Formal finance competency model is in place defining required skills, career levels and appropriate curriculum Real time critical feedback is provided and is an embedded part of the Finance function culture Well-defined talent sourcing and selection strategy is in place Global and local communities of practices, effective at sharing knowledge Career advancement includes rotations through various roles within Finance 50% 50% 50% 47% 47% 40% 40% 37% 37% 37% 60% 57%

Finding 2: Continue to improve finance maturity and process excellence

Back in 2008, Australian CFOs recognised the need to close the gap between current finance capabilities and the requirements of their organisations. Our recent research has found that since then significant improvements have been made in the maturity of Finance functions across Australia, with 83% of Australian CFOs satisfied or very satisfied with their basic finance and accounting operations, compared to 77% globally.
Figure 5 shows that when compared to their global counterparts, Australian CFOs more readily identify opportunities to improve and deliver advanced capabilities in:

Investor relations Strategic planning Capital planning Finance strategy

Figure 5: Finance executives reporting highly advanced finance capabilities (on a scale of 5)
Investor Relations Strategic planning Capital Planning & Management Finance function strategy and structure Internal controls Transaction processing Treasury Value-centered culture Target setting Workforce management Tax Performance reporting & analytics Budgeting and forecasting Financial risk (market & credit) management Business risk and operational risk 43% 50% 50% 49% 51% 53% 56% 33% 37% 40% 47% 49% 47% 57% 23% 43% 50% 55% 56% 62% 27% 49% 60% 30% 30% 54% 54% 60% Key Opportunity Areas

63% 73%

Global

Australia

In addition to these areas, there are emerging areas of focus that can drive significant value and improved business alignment, such as: liquidity management, transfer pricing, sustainability performance management, real estate/ asset optimisation, scenario modelling/ data mining and merger & acquisition integration. While many of these areas are not new, they are capability areas that are increasingly getting focus at the C-level.

It is encouraging to see that in an increasingly volatile business environment, both the global and Australian CFOs are reporting highly advanced finance capabilities in: Managing Business, Operational & Financial Risks Performance Reporting and Analytics Budgeting and Forecasting Without these capabilities, many might struggle to respond with speed and agility to the many environmental factors impacting the Australian economy.

Figure 6 shows that when compared to their Australian counterparts, Global CFOs are planning more initiatives over the next 2 years in the following areas: Driving standardisation for operational and process excellence (focusing on improving service levels, high quality/ zero defects, delivering at speed and lowest cost); Implementing or expanding ERP systems (focus on improving transaction processing and overall simplification; and Improving advanced performance management capabilities

Figure 6: Global vs Australian CFOs - Initiatives planned over the next 2 years
Complete standardization to ensure consistency across the enterprise Implement or expand ERP systems Implement advanced enterprise performance management capabilities Implement new workforce programs Conduct finance benchmarking study to assess quality & efficiency Implement or expand finance shared services environment Develop and implement Finance function strategy
Delta Global to Australian survey results

21% 20% 9% 6% 6% 5% 4%

Finding 3: Transform Finance as part of Integrated Business Services

There is an increasing trend to consider the transformation of the Finance function as part of a broader integrated and global business services transformation. This trend has been led globally by a number of leading food manufacturers and consumer goods and energy companies and is now providing a new platform for end to end service delivery, where Finance is only one of the service delivery capabilities provided. From our research over 60% of Australian CFOs indicated that they are looking to extract more value from their shared services and operational centres and expect to drive further changes to their operating model to support business execution in the next 2 years. While these types of transformations are largely a cost optimisation play, by extending service delivery globally, across the traditional shared services operations (such as: finance and accounting, human resources, master data management, procurement), there are also significant benefits in uplifting capability to include: research, analytics (customer, channel, distribution, manufacturing), customer order management, product innovation, business process management. These changes are reflective of the increased reputation of existing shared services and suggest that there are real demands to change operating models to enhance service delivery, at scale and at reduced cost.

So what is Integrated Business Services (IBS)?

IBS effectively involves elevating all of the non-customer facing services into a single support business, where the operating model leverages economies of scale and skill (by being both global and local), while still reducing cost to serve IBS provides globally, a wide range of fully integrated value add services or products that is no longer organised by functions. Typically, the scope of processes is extended into

new services, such as, research and planning, analytics, order management and logistics management. This provides a better platform for end to end service delivery across the enterprise, where typically there is a global transaction hub, in a low cost location, supported by regional support centres and in-country local and market support that are aligned close to the business. Key attributes and characteristics of an Integrated Business Service are:

Category
Business Processes

IBS Characteristic
Global end to end processes Clear global process ownership Business Process Management capability in place

Systems and Data

Common systems and standardised ERP Global data management Use of leading practice technology enablers

Corporate Structure

Run as independent entity, reporting to senior C-Level Independent P&L Global governance structure

Role and Mandate

Strategic business partner Retains strategic ownership and management Multi-function scope

Delivery Model

Hub and spoke delivery model Leverages low cost locations Captive and outsourced combination Makes use of Centres of Excellence

Service Management

Full chargeback based on service provided Single face for all customers Consistent service management across functions and service providers Optimised service and operating level agreements

People & Culture

Service-oriented culture Clear career paths and succession planning

Finding 4: Use Analytics & Performance Management as a competitive advantage

Many CFOs are looking to enhance their analytics capabilities to embed as part of the performance management processes and optimise decision processes within their organisation. Sophisticated analytics is a game changer capability that can help companies to outperform their competitors, by expanding insight from a past and present oriented view, to one that is more future oriented and predictive. Developing an analytics culture that looks for competitive advantage involves 4 key steps: 1. Strategy and Insight Generation to understand and focus on the key questions to manage business performance 2. Insight Validation - Embed analytical processes to generate hypothesis and validate key insights 3. Analytics Execution - Determine interventions to execute and resources to allocate 4. Value Realisation - Measures the quality of the decision and the root cause of a course correction Most Australian companies have solid descriptive analytical capabilities, such as alerts, query/drill down, standard and ad hoc reporting, but the opportunity with the explosion of data is to leverage this for increased predictive analytics. Predictive analytics includes higher order capabilities, such as statistical analysis, forecasting/extrapolation, predictive modelling and scenario optimisation. An increased and enhanced predictive analytics capability is the game changer where leaders are starting to differentiate themselves from the rest. Figure 7 outlines the steps involved to use analytics as a competitive advantage.

Figure 7: Analytics as a Competitive Advantage Analytics-Enabled Decision Making

Decision Process Optimization Improve the speed and quality of decision making to confirm that analytic-enabled insights are turned into both actions and measureable outcomes that drive higher performance

Insight Generation

Business Agility

Predictive Analytics Apply logic, business rules, algorithms, statistical models and analysis combined with industry-focused management consulting methods to develop insights

Business Intelligence

Improve business performance with appropriate, action able and timely data and information

Managing Information

Improve business process and insights with information strategy, architecture and governance to achieve a single source of the truth for all information

Analytical Competitive Strategy

Competitive Advantage

Figure 8: CFO Satisfaction with Performance Management Capability Global

Speed and accuracy of the monthly financial reporting Speed and accuracy of the forecasting 5% Reporting of non-financial measures Integrated technology systems to support collection and reporting of information Ability to produce business models and test impact of proposed changes Ability of business users to view and analyze performance reports at will
Below Average About Average

Australia
26% 1% 22% 1% 3% 20% 4% 13% 4% 7% 17% 30% 30% 20% 37% 43% 43% 46% 43% 18% 21% 19% 1% 19% 1% 27% 56% 57% 27% 17% 10% 3% 7%7% 7% 20% 7% 3%

28% 4% 31% 12% 10% 7% 9% 31% 27% 31% 32%

41% 41% 35% 38% 42% 39%

Above Average

Top of the Peer Group

Dont Know

Figure 8 highlights the CFO satisfaction with the current performance management capability. Finance plays a pivotal role in performance management as it is a critical capability for the creation and monitoring of shareholder value. By embedding performance management in the larger enterprise and making sure that financial thinking, metrics and analytics pervade the organisation, CFOs can participate directly in high-level decision making. With robust enterprise-wide performance management, Finance can help organisations make better, timelier decisions and guide improved resource allocation on a consistent basis to enhance sustainable shareholder value.

Leaders are building out their analytics capability to support enterprise-wide, leveraging best of breed technologies and a mix of onshore and offshore analytics capabilities. While some are building out their analytics service offering at scale, some Australian companies are choosing to selectively invest in specific analytics e.g. cross-sell, customer profitability, social media, fraud, etc. These smaller initiatives typically have a payback period of 1 year and can provide a platform for further enhancements in analytics capability.

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Finding 5: Finance as a Strategic Business Partner

Based on our client experience, Finance has played three core roles: protector & custodian (of assets and regulatory compliance); controller & commentator (of business and financial performance); and advisor & consultant (for business strategy and the operating model). These roles have not and will not change, but their requirements and what defines and contributes to success have undergone fundamental changeswith an ever increasing expectation for Finance to partner, engage and consult with other parts of the organisation on their most pressing issues. Nearly three quarters of CxOs (ie. customers of Finance) said they were satisfied or very satisfied that their finance organisation provides timely, responsive and accurate services and Australian CFOs recognise that they play a key role in supporting the business. Our research (figure 9) has found that the Australian CFOs are doing less than their overseas counterparts when it comes to partnering with the business, with further room for improvement by : Partnering with other corporate functions (delta global to Australia is 15%) Providing analytics to the company (delta global to Australia is 13%) Proactively responding to regulatory changes (delta global to Australia is 13%) Identifying growth opportunities (delta global to Australia is 9%) While CFOs have made great progress towards creating a business partner capability, they need to continue to build advanced capabilities, notably in the areas where the other internal business functions can be better supported and value for the organisation as a whole can be created pro-actively. Many will continue to focus on initiatives that can help Finance become a true and indispensable business partner, in areas such as strategic planning, analytics, value driver analysis and scenario modelling. Those CFOs that have the appropriate capabilities in place to support the corporate growth agenda while keeping an eye on costsare better positioned to contribute the most to their company's future performance.

Figure 9: Global vs Australian CFOs - Focus on partnering with the Business

The Finance function is partnering with other corporate functions The Finance function is proactively responding to regulatory changes The Finance function is providing analytics to the company/organization The Finance function is expanding its input into strategy and high-level decision making The Finance function is driving into the greater company/organization to deliver value The Finance function is identifying growth opportunities The Finance function is improving its capabilities 6% 9% 9% 8% 13% 13% 15%

17%

Delta Global to Australian survey results

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Conclusion
Since the global 2011 High Performance Finance Study was published, the world has continued to experience increased volatility and uncertainty, particularly driven by the events in Europe. Despite Australia having higher projected growth than most developed countries, we have a dual-paced economy with different growth between mining and non-mining sectorsmaking it hard for Australian organisations and businesses to execute their business strategies and prioritise investment plans to position for the eventual upturn. So what are Australian CFOs doing to transform Finance and support the business? The CFOs we surveyed intend to do it by focusing on streamlining their finance operations, while addressing regulatory changes and reducing costs; building out their analytics capability as a competitive advantage; and improving business partnership and consulting with the business. All of these actions require leadership and a willingness to drive and manage change. The lessons derived from the past few years, supported by our research are very clear. A high-performance Finance function is an essential ingredient in an organisation becoming a high performer now and in the future.

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About Accenture Management Consulting, Finance and Enterprise Performance

Accenture is a leading provider of management consulting services worldwide. Drawing on the extensive experience of its 16,000 management consultants globally, Accenture Management Consulting works with companies and governments to achieve high performance by combining broad and deep industry knowledge with functional capabilities to provide services in Strategy, Analytics, Customer Relationship Management, Finance and Enterprise Performance, Operations, Risk Management, Sustainability, and Talent and Organisation. Accenture Finance and Enterprise Performance consulting services help finance organisations maximise the value they create for their enterprises.

About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with more than 249,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, 2011. Its home page is www.accenture.com.

Contact Information:
Cara Morton Senior Executive Finance & Enterprise Performance Asia-Pacific +61 2 9005 5639 Jordan Griffiths Senior Executive Finance & Enterprise Performance Australia + 61 3 9838 7530 Contributors: Sander Vlasveld Karthik Karunanithi

Disclaimer
This report has been prepared by and is distributed by Accenture. This document is for information purposes. No part of this document may be reproduced in any manner without the written permission of Accenture. While we take precautions to ensure that the source and the information we base our judgments on is reliable, we do not represent that this information is accurate or complete and it should not be relied upon as such. It is provided with the understanding that Accenture is not acting in a fiduciary capacity. Opinions expressed herein are subject to change without notice.
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