Office of the CFO Blog

Trends & Challenges Facing Today’s Senior Financial Management–Part 3

January 18th, 2012

It’s time for our third and final installment of our Trends and Challenges Series.

Cautiously evaluating technology projects that will enhance productivity.
Capital spending remains constrained by efforts to conserve cash and comply with lender debt covenants. During the past two years, companies have been particularly careful when starting large-scale technology projects. As a result, some companies are now finding that their legacy systems need to be upgraded to avoid becoming unsupported by their software vendors. Some companies have systems with so many “band-aids” applied that they are simply falling apart. The recent trends show an uptick in required spending on IT projects, and that trend is expected to continue, although with caution.

CFOs are very involved in “Needs Analysis” so that the cost/benefit ratio can be thoroughly evaluated before making significant spending commitments. Non-biased third parties are being engaged to lead the IT charge, negotiating with software and implementation vendors to get the best possible service and pricing. Lenders are expecting CFOs to keep a close eye on key IT projects to justify their ROI, ensure projects are supported by the business, and ensure timing and costs are on track.

Posted in capital, capital expenditure, IT | No Comments »

Trends & Challenges Facing Today’s Senior Financial Management–Part 2

January 17th, 2012

A historically high focus on retaining top performers

Many accountants are privately planning to look for a new job when corporate hiring accelerates. While the “grass is greener” mentality is often flawed, accounting department personnel can be frustrated to see workloads rise when compensation stays the same. Testing the market will be quite common, and some prospective employers will seek to entice top performers with financial rewards. This will make it increasingly difficult to retain top employees.

When the accounting department gets too lean, the consequences of losing a top performer are significant. The loss of continuity and know-how will have a major negative effect on senior financial leadership, more now than ever before.

Forward-thinking CFOs are addressing this trend by having frequent informal performance reviews with top performers to better develop and mentor them, and to make the elite realize there’s room to progress within the organization. Limited funds available for merit increases are also being shared disproportionately with the “A” players to compensate them for recent performance and dissuade them from proactively seeking work elsewhere. Since merit increases are lower than top performers are used to, they are also receiving more impressive titles, which is a form of promotion without the added payroll cost to the company.

Come back tomorrow for our final installment of this series.

Posted in CFO, employment | No Comments »

Trends and Challenges Facing Today’s Senior Financial Management-A Three Part Series

January 16th, 2012

Welcome to guest blogger Chris Kearney, partner in Tatum’s Chicago practice.

As more companies tentatively feel “the worst is behind us,” three emerging trends are having a profound impact on chief financial officers and others in senior financial management positions. While these trends pose challenges many CFOs have never had to deal with before, there are clear similarities in the ways they are being managed.

The three trends in question are:

  • Limited capacity and capabilities
  • A historically high focus on retaining top performers 
  • Cautious evaluation of technology projects that will enhance productivity

 Why have these trends emerged? And what are executives doing about them?

Limited capacity and capabilities
Many accounting departments have become too lean. Some companies have reduced the size of their accounting departments 20% or more. However, 20% of the work hasn’t gone away. Monthly financial statements still have to be prepared in a timely and accurate manner. Lenders and CEOs still expect to see budgets and cash flow forecasts–and many want more (not less) information. Add a time-sensitive project to the mix (e.g., due diligence for a potential acquisition, integrating an acquired business, an accounting system upgrade, expanding customer/product profitability analyses) and the strain becomes even more profound.

Account reconciliations are being performed less consistently, short-cutting a key procedure used to validate the integrity of a company’s financial reporting. The separation of key duties within the accounting department is being overlooked (temporarily in theory until headcounts increase), which opens the door to financial statement errors and fraud. Accounting department service levels also may deteriorate since the CFO’s team doesn’t have enough time to complete essential day-to-day tasks.

CFOs are addressing the lack of capacity and capabilities in two primary ways. First, they are actively seeking to upgrade talent within their departments; for instance, restructuring the department to combine the roles of two average performers into one newly created position held by a person with higher-caliber skills–a person who can produce better results at a lower cost. Identifying permanent candidates without relying as much on search firms is another trend, since social media, networking and word of mouth have proved effective and timely tools in an era of high unemployment and low morale.

Second, some companies are understandably nervous about hiring permanent employees until there’s more certainty about an economic recovery. CFOs therefore are engaging short-term third-party resources to tackle projects that have to be completed despite capacity constraints.

Come back tomorrow for part two of this series.

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Business Conditions as of January 1, 2012–Cautious Optimism

January 9th, 2012

 

This result is a definite improvement over the negative outlook that we have seen recently. We are encouraged to see cautious optimism, despite continued international uncertainties: the issues surrounding the Euro-zone, tensions in the Middle East, and a possible global slowdown.

We enter 2012 with rising confidence in domestic business conditions, but our respondents are far from saying, “full speed ahead.” Our survey results continued the upward trend seen last month, yet are still at levels that can be characterized as cautious optimism.

Visit our website to view the Survey of Business Conditions report and to read our Executive Commentary.

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Financial Trends for 2012

January 3rd, 2012

According to a recent poll of financial executives conducted by professional services firm Tatum, the decline in overall business conditions experienced over the past months is waning, with the Tatum Index of Business Conditions showing a strong increase over the months of October and November.  The survey showed improvement in key economic indicators such as hiring, capital availability and capital expenditures. 

When asked which factors will significantly affect the economic landscape in 2012, CFOs cite several factors: 

  • Unpredictability surrounding the upcoming election   
  • Continuing uncertainty of the marketplace
  • Concerns over unemployment  

The survey also found that the European debt crisis and US debt levels will continue to cause concern and uncertainty in 2012.

In addition, some CFOs identified trends that they believe will help businesses in 2012:

  • Cloud computing is seen as a tool that can help free up capital typically spent on technology infrastructure—which could then be invested in other aspects of the business.
  • Companies are increasingly utilizing part-time hiring to retain flexibility while pursuing growth. This trend could be an indication that temporary employment might become the new norm.

“There are multiple domestic and global factors that will clearly impact the US economy next year,” said Karen Macleod, President of Tatum. “Even so, it’s encouraging to see trends like cloud computing and more flexible hiring tactics that should have a positive impact on the 2012 business climate.”

Posted in Cloud Computing, Survey of Business Conditions | No Comments »

Happy Holidays from Tatum

December 20th, 2011

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Get Off My Cloud!

December 15th, 2011

By: Ralph Presciutti, partner with Tatum.  Follow Ralph on Twitter at @RalphPresciutti.

Which Cloud computing model best suits the computing services you need?

Most end users of cloud computing services – think web-based CRM systems as an example – care only about service delivery, not focusing on the abstraction of where or by whom the service is provided. But for senior business leaders the nagging question of data security drives a need for a deeper understanding of  “ the cloud.”

At its most basic level three Cloud computing models have emerged: Public, Private and Hybrid.  Determining which model is best suited for a particular application is an important consideration.

So what are the differences? A Public Cloud is typically internet-based, operates at remote facilities,  hosts multiple tenants and uses a pay-as-you-go operational model.  As the name implies, Private Clouds are Intranet-based, utilize internal IT infrastructure and offer on-demand services with chargeback billing.  A Hybrid Cloud includes some components from the Public and Private models, providing corporate users with the ability to choose between them depending on workload requirements.

Where’s the Data?

When considering your options, the question of where applications and data reside is of primary importance.  For example, applications hosted in the Public Cloud may require that data be stored in close physical proximity, or in different application architectures, to avoid slow service that will frustrate users.

Many companies are concerned with data security when operating in a public cloud.  For this reason, the Private Cloud model may be a more attractive.  In the Private Cloud model, applications and data are stored in the corporate data center(s).  Latency, security, privacy, compliance and regulatory requirements are addressed in a similar fashion to the traditional computing model.  While this may quell security concerns, it may also significantly compromise the promised cost savings of Cloud computing.

When considering a public cloud option, there are some basic questions to explore to understand if the security, which may be more than adequate for your business needs. Ask questions like

  • How do they avoid providing unauthorized access to others?
  • How do they protect against a potential breech?
  • How stringent are their auditing procedures?
  • How will they help you meet your regulatory and compliance requirements (HIPPA, SOX, SAS 70, etc.)?

With some due diligence in the selection process, most businesses can reap the financial benefits of Cloud computing while avoiding the potential pitfalls.

Posted in CFO, CIO, Cloud Computing, CRM, Customer Resource Management, Executive Services, IT, Risk, Technology | No Comments »

Business Conditions as of December 1, 2011-Marked Improvement: Stay Tuned

December 14th, 2011

Last month our summary was that the declines had stopped but it was too soon to celebrate. This month we can celebrate, with some caution, as most indicators improved markedly. Only capital expenditures in the past 30 days were not up. One great month does not make a trend, but the outlook is so uniformly positive that, with another month of upward movement we will withdraw our concerns about a near-term recession. In the absence of an exogenous shock to the system, such as developments in the Euro-zone or global growth slowdowns, we appear to be moving in the right direction.

Visit our website to view the Survey of Business Conditions Report and to read our Executive Commentary.

Posted in CFO, Economy, Survey of Business Conditions | No Comments »

From Capex to Opex: How the Cloud Affects Cash Flow and Accounting.

December 13th, 2011

By: Ralph Presciutti, partner with Tatum.  Follow Ralph on Twitter at @RalphPresciutti.

When companies make the decision to move certain IT services to the Cloud, they are typically driven by operational advantages, user satisfaction considerations and the potential for reducing costs.  After all, Cloud computing offers service level improvements, better scalability, metering, automation and virtualization – all for less money than a traditional data center.  From an accounting point of view, however, it is important to consider that moving to the Cloud will almost certainly result in reduced capital expenses (fixed Capex costs) and increased operating expenses (variable Opex costs).

In a traditional data center, IT services are delivered using a “supply side” model.  When a project hits their doorstep, IT purchases the necessary infrastructure (severs, network, data storage, etc.) through their Capex budget. Services are covered by their Opex budget.  The infrastructure usually comes at a significant cost, is allocated to a particular project or application and is often underutilized.  The IT Capex budget is further inflated by the requirement to continually update the infrastructure on a 3-5 year refresh cycle. Additionally, even well planned Capex budgets can have significant impact on Cost of Capital and Cash Flow metrics.

In Cloud computing, IT services are delivered using a “demand side” model.  This is made possible by the use of pooled resources and virtualization technologies.  In this model, each business unit’s (user’s) demands for process automation are satisfied by the Cloud provider through the dynamic allocation of these existing, pooled resources. 

These services are provided on either a pay-as-you-go (Public Cloud) or chargeback (Private Cloud) model and are treated as operating expenses, which are typically more predictable, easier to plan for and offer improved tracking of business revenue cycles.  If well budgeted, they have less impact on cash flow and no impact on the cost of capital.  Since the Private Cloud model is internal to the enterprise, it is still necessary to purchase the infrastructure that makes up the resource pool.  But since resources are shared, their utilization is much higher than in the traditional computing model, reducing and smoothing Capex over time.

The move, from Capex to Opex will be an attractive prospect to many corporations and business units, allowing them to pay for only the IT services they consume.  To be most effective, an in-house Private Cloud will optionally require a chargeback system within the organization.  It will also require the transformation of the IT organization to a “service based” organization.  We’ll take a look at those considerations in a future blog.

 

Posted in Budget, capital, capital expenditure, CFO, CIO, Cloud Computing, Executive Services, Investments, IT, Technology | No Comments »

Creating Value Through Strategic Risk Management

December 6th, 2011

The depth and severity of the financial crisis has led to increased focus by rating agencies, the SEC, and Congress on how companies identify, assess and monitor risks. Financial disasters have resulted from dramatically increased scrutiny of financial practices and risk management. In addition, the roles and responsibilities of both boards of directors and management are rapidly evolving to address escalating expectations from shareholders, lenders, rating agencies and regulators. These are unprecedented times for everyone with a role in financial management and governance.

Tatum understands the challenges today’s companies face. Here are some tips for a pragmatic risk assessment process:

  • Actively engage senior management, the board of directors and other key stakeholders
  • Establish clear accountability for risk management and oversight
  • Accelerate identification and assessment of key strategic risks
  • Understand competitive vulnerabilities and industry dynamics
  • Create value by focusing on those risks critical to achieving business objectives
  • Promote transparency by moving beyond functional and organizational silos
  • Build increased awareness and a risk culture throughout the organization
  • Assess organizational capacity to manage risks
  • Leverage activities and processes in place
  • Identify gaps and remediation activities
  • Define reporting metrics and protocols
  • Reduce costs by improving ineffective processes
  • Institutionalize risk assessment as ongoing element of governance activities

Solid risk management practices such as these bring greater clarity and transparency regarding corporate governance structure and the risk management culture.

Click here for additional insight on Risk Management from CFO.com.

Posted in CFO, Executive Services, Management, Risk | 1 Comment »

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