What to expect from 2013. Letter to the C-Suite

Happy New Year! Best wishes for 2013 and good luck with the resolutions, although mine typically die a nasty death in the second week of January when reality hits.

This year however I have resolved to get fit enough for some serious heli-skiing in northern Canada at the start of February. The thought of skiing 20,000 vertical feet or 6,000 vertical metres DAILY in the mountainous back country has stiffened my determination and so far, so good. Of course, if you never hear from me again, I am probably entombed on a snowy peak somewhere . . .

On a broader note, the business and finance community has entered 2013 on a more optimistic note than in previous years. The big economic fears of 2012 have largely been avoided, some at the last minute. Western governments remain heavily indebted, and will remain so until inflation starts to erode it. Big companies, where business models remain relevant, are sitting on large piles of cash. The BRICS continue to strengthen. China overtook Europe in the market for automobile sales. Investment and technology innovation seems to have re-started with Silicon Valley awash with new companies and office accommodation prices rising.

For 2013, CFOs report expectations of higher revenues and profits but still plan to keep the lid on capital expenditure. On the road to world class finance, CFOs continue to reduce the cost of finance and drive efficiency and effectiveness through simplification, standardisation and exploitation of the Third Wave in Shared Services. The attention on ‘business partnering’ and collaborating with business leaders to influence business decisions for better outcomes continues to increase and there is a growing need for better analytics to support business decisions. Management accountants are becoming business analysts... Deloitte reported in their Q4 2012 CFO Signals Survey that financial processes/controls improvement is a priority for CFOs in all sectors except Energy/Resources. There appears to be a declining CFO focus on supporting M&A and business expansion. CFOs are mostly satisfied with their capabilities in longstanding core areas like corporate finance, treasury, and audit, but they want to improve in areas that support finance’s increasingly strategic role.

Outside the Financial Services industry, which we know has some specific systemic challenges, Risk management and assurance is shifting from a focus on financial risk to more interest in operational risk and driving enhanced stability, efficiency and effectiveness in these areas. There has been a growing focus on payments, revenue leakage and T&E this year. This is driving a new awareness that risk management and performance optimisation are not necessarily in conflict and can be pleasant bedfellows. I had a conversation with Jurgen Muller of PWC on this very subject in December (watch recording here). That conversation had the highest attendance of any topic of 2012.

The Financial Control and Compliance stakeholders have had an interesting year and 2013 looks to maintain that trend. A growing focus on really driving a risk-based approach to control and compliance is paying dividends. In addition, finding ways to drive operational efficiency by targeting control issues as early in the cycle as possible is saving real money. On the flip side, there remain some 40% of organisations who admit they have not really addressed their financial control and compliance shortcomings, so 2013 may be an important year for them as more demands are coming. Financial control and compliance is no longer just SOX or Audit focused. There is an overriding concern in the boardroom on reputational risk. Consequently, fraud, anti-money laundering, bribery and corruption (think FCPA and UK Bribery Act) as well as operational concerns add to the list. In 2013, the European Commission also threaten to strengthen governance and risk oversight which may add further weight to the issue.

And we cannot discuss business, finance, risk or compliance without a few words about technology, the systems and devices that are driving massive behavioural and process change for us all. We are seeing 3-D printing reach economic adoption levels, we see physical tests of driverless cars and prosthetic limbs that are reaching full effectiveness (just look back to the Olympics!).  These may seem a long way from our daily business lives but they are the advance guard of further dramatic change down the road. Closer to our businesses, BYOD (bring your own device, not your own drink!) is going to be mainstream in 2013 and most of those devices are mobile. There is an increasing impact and opportunity for mobile (and social systems) to stimulate change in our processes and practices and how we engage with customers.

Cloud systems and Software as a Service (SaaS) continues to drive into the mainstream in core business applications, challenging the status quo. Big Data is the talk of the town although 2013 may see the start of a trough on disillusionment as the investment in technologies gives way to a realisation that the business value of Big Data is ‘Actionable Analytics’. Of course, the ‘Internet of Things’ (IoT), where more and more devices and instrumentation becomes web addressable will add to the sheer scale of data to be managed and analysed. Analytics are already main-stream in the customer & sales dimension and the approach will emerge as a major tactic in the drive to improve the efficiency and effectiveness of the finance function.  As ever, CFOs mention IT initiatives as one of their top career stresses!

The outlook across all three sets of stakeholders reflects a focus for 2013 that includes both driving performance improvement and better managing risk. We conducted a survey very recently, in December 2012 of 177 finance executives in the US & Europe.  79% of those surveyed echoed this paradox. The good news is that 54% of those surveyed are using transactional analytics to help drive better insight into risk and performance. 63% reported that the highest priority area for such analytics is the Purchase to Pay / Accounts Payable Cycle.

We asked three questions:

1. To what extent do you believe there is a conflict between efforts in risk management/ financial control and operational performance in your business? 

2. To what extent is the Finance function monitoring business exceptions at a transactional level to drive improvement in core processes?

3. In which financial process area do you see the biggest benefit of monitoring business exceptions?

I think we will see a growing focus in 2013 to drive such analytics to improve the finance processes on the road to world class finance as well as for broader risk assurance and compliance activities.

We look forward to another exciting year as we navigate these three streams of activity with our clients.

Thanks for reading.