27/09/2022

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3 Dynamic Finance Scenarios for CFOs

The need for agility in these uncertain times has led some CFOs to consider how their organizations can be more streamlined, more responsive, and faster to deliver change. The principles of Dynamic Finance can help with such transformations when quickly adapting to business disruption. But how do such concepts work in practice?

The principles of Dynamic Finance can help finance transform from business function to dynamic capability—while still performing its steward and operator duties—for adapting to external forces with speed, strength, stability, and flexibility.

Dynamic Finance is about having simplified and standardized processes, a foundation of enabling technologies, and a highly skilled workforce. Below is a summary of seven core principles of Dynamic Finance:

Transformation mindset. Accept that ambiguity and continuous evolution are here to stay. A strong, flexible foundation in core technologies, automated processes, structured data models, and talent, can allow finance teams to dynamically support the business.

Workforce of now. Invest in and foster employees across all levels. Skills development should span foundational finance skills as well as tech-savvy and problem-solving skills.

Reimagine and redesign processes to be performed by systems and automation. Leverage technology upgrade cycles and programs and make sure human interaction adds and drives value.

Rethink how information is made available today to fully align to business needs. Accept that the speed at which information is consumed has dramatically shifted.

Establish strong data governance internal and external consumption. Make sure the finance organization is well versed in how data is structured, created, maintained, secured, and consumed.

Leverage modern, compatible, and continuously updating platforms that can transform and scale with the business.

Develop the capability to sense and mitigate risks. Measure the most important risk and performance indicators for the business and know how to respond.

An organization with a foundation of agility, resilience, and automated processes is often better set up for success, no matter what comes its way. A finance function that can move fast and continuously evolve to deliver strategic insights is one that is ready for the future.

Consider three scenarios below that show Dynamic Finance at work.

Business Model Transformation Hypothetical

Imagine this: The board, CEO, and executive leadership team rapidly transform the organization’s strategy to adjust to shifting consumer preferences, pivoting from a traditional B2B sales model rooted in long-standing contracts to a direct-to-consumer subscription-based revenue model.

Finance must now adapt and support the new strategy with a new external reporting segment, new FP&A processes, and new processes for pricing and profitability analytics, order management, and revenue recognition, A new investor relations strategy will also be needed, as well as new governance and controls implementations for the new business line.

A Dynamic Finance capability is ready to support the launch of the new business segment, surpassing investor expectations for the timing of changes. This can be enabled by:

  • Core and edge technologies (ERP, billing, financial planning and forecasting systems for accounts payable and customer dunning) that are adaptable and modern, with minimal investment required to align to new processes and outcomes. [insert visual l that aligns to no-regrets tech]

Anticipated result: The modern billing application allows for quick changes to processes and is integrated with the latest generation ERP and general ledger. Organizations can easily set up new legal and management entities and hierarchies. The cloud-based, software as a service (SaaS) financial consolidations and external reporting tool are built for agility and are quickly configured to report on the new business segment.

  • Clearly defined data model that spans financial and operational domains with rigid governance enabled by agile technology. [insert visual that aligns to data for storytelling]

Anticipated result: Centralized access to standardized data via modern, cloud-based planning and reporting tools allows finance teams to quickly and efficiently design and implement new reporting. Updating planning processes for the new business segment is quickly done by the team managing the SaaS planning tool. 

  • Established organization-wide digital risk methodology with a focus on ethical automation to support risk mitigation efforts. [insert visual that aligns to sense and lear])

Anticipated result: Finance proactively senses, evaluates, and mitigates risks using a cross-functional governance program. Controls are no longer a finance challenge but a strategic advantage that helps to quickly launch the new business while limiting potential for costly and public missteps.

Divestiture Hypothetical

Imagine this: The leadership team has an opportunity to fund inorganic growth by carving out and selling one of its legacy businesses.

Finance must now strategically partner to drive this change and optimize the value of the deal, including creating a detailed evaluation of the business, separating existing technology and standing up new capabilities for the business being carved out, and developing updated planning and forecasting for the remaining business.

A Dynamic Finance capability is prepared for these challenges, enabled by:

  • Centralized and harmonized enterprise data strategy and tools that feed continuous, on-demand analytics.

Anticipated result: Finance can quickly access the data and is able to build pro forma financial statements to support an accurate valuation of the legacy business. 

  • Talent and delivery model that encourages multidisciplinary development across stable and growing skills and is designed around the needs of the business.

Anticipated result: The finance team has experience working across the organization—commercial, supply chain, business operations, IT—and is empowered to guide changes to finance activities that cross functions and domains to facilitate the separation, avoiding swirl and getting to an updated plan faster.

  • Established cloud-based financial tools—including FP&A, reconciliation and consolidation, and reporting tools—that are easily cloned and portable to the new entity.

Anticipated result: Finance saves significant resource investments—from people to capital—by being able to replicate and port needed data, processes, and technology to the separated business. High-quality data facilitates a smooth divestiture process and reduces the need for transition service agreements.

Market Shock Hypothetical

Imagine this: A market shock, in the form of volatile raw material availability and pricing, creates significant challenges in the supply chain. This affects the organization’s ability to source inputs and manage cost of goods sold as well as impacts margin and total company profitability.

Finance can help navigate this challenging environment by providing insight into the impact on sales and product profitability, developing strategies to manage cost, profitability, working capital, and cash flow, and advising on the impact to the company’s financial plan and earnings prospects.

A Dynamic Finance capability stands at the ready to test hypotheses and provide timely insights informing strategic direction, enabled by:

  • A touchless back office with enhanced end-to-end processes, streamlined controls, and cognitive insight generation.

Anticipated result: The finance function has increased transparency into transaction details via its modern ERP and general ledger and has confidence in the quality and accuracy of financial information. Artificial intelligence and machine learning identify patterns and opportunities that allow the team to proactively offset the impacts of vendor price increases. 

  • Prudent balance sheet and cash flow management through tech-enabled liquidity management and forecasting capabilities.

Anticipated result: The organization has increased visibility and control over cash, allowing for greater nimbleness in decision-making and optionality in sources of working capital and funding.

  • A finance capability—technology, process, talent, and data—that is hardwired for change.

Anticipated result: The finance team is ready—prepared and invested for this day when the information and strategic insight it can provide will allow the enterprise to quickly pivot. Finance has proactively identified opportunities to strategically control costs to offset cost increases from the market shock. This provides management multiple options for how to blunt the impact.

Any organization will face disruption at some point. By strengthening key parts of the finance function, an organization can use these disruptions to find new opportunity.

Click here to read the full report.

—by Mike DanitzJonathan Englert, and Kristin Kanter, all principals at Deloitte Consulting LLP; Liz Percy, partner, Consulting, Finance & Performance, Deloitte MCS Limited; Ryan Reiber, principal, Risk and Financial Advisory, Controllership, Deloitte & Touche LLP; and Philippe Podhorecki, senior manager, Consulting, Finance & Enterprise Performance, Deloitte Consulting LLP

Would you like to know what other CFOs are thinking and doing? Deloitte’s 3Q22 CFO Signals™ survey, designed for CFOs of North American companies with more than $1 billion in annual revenue, is open until 11:59 pm ET on August 15.

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