Despite the signs of economic growth in 2015 – including the Federal Reserve’s recent decision to raise interest rates for the first time in almost a decade – U.S.-based companies are laying up stores against the potential of hard times, cutting costs and favoring healthy profit margins over increased market share.
We first reported the “margin over market share” finding here on The Protiviti View in November, as one of the key findings of the 2016 Finance Priorities Survey report from Protiviti and the Financial Executives Research Foundation. Now that folks have had a month or more to digest those findings, I wanted to take a deeper dive and offer insight into the undercurrents I see driving the corporate finance function in the year ahead.
As previously reported, margin and earnings performance was the highest-ranked priority in the entire survey, with an overall score of 7.3 on a 10-point scale. Finance executives gave it an even higher priority of 8.2. This increased focus on protecting organizational value suggests a growing wariness in the marketplace, a nesting behavior, similar to the way some animals lay up extra stores in expectation of a hard winter.
Surveys are great at showing us the “what”; it falls to readers and analysts, however, to deduce the “why.” In this case, it is important to note that the survey was conducted in the third quarter of 2015, on the heels of the Greek debt crisis and amid ongoing discussions of Greece withdrawing from the Eurozone. China’s slowing economy was top of the news, and the world was grappling with the rise of ISIL and the growing threat of terrorism. Finally, add to that the usual agitation that accompanies any presidential election. Against this backdrop of uncertainty, it makes sense that companies might favor building a financial fortress over conquering new territory.
Wariness permeated priorities, with planning, forecasting and budgeting rounding out the list. Cash forecasting, at 6.6, was the highest-ranked process priority in the study. Working capital management remains a high priority, as finance functions continue to develop this capability in a highly coordinated manner. Such capabilities will take on additional importance as global market volatility increases.
Underlying this need for better business performance and strategic planning is a growing desire for a single, real-time version of the truth. Finance functions want to develop better, more accurate and timelier data collection, data analysis, reporting, budgeting and forecasting capabilities. These corporate performance management processes are used to perform profitability analyses tied to customers, products, operating units and geographies.
The climate of concern extends beyond purely financial matters. Cybersecurity ranked as the second priority for finance executives at 8.1, only slightly below profit concerns. While IT functions often take the lead in addressing this risk, cybersecurity is now a top boardroom issue, and also draws considerable time and attention with finance. Effective cybersecurity requires strong board engagement, the right policies, and an understanding of the enterprise’s most valuable and sensitive data.
Regulatory matters weighed heavily among the emerging issues, particularly in the financial services sector, and included cybersecurity, partner relationships and new revenue recognition standards in the top five.
Wrapping up on a high note, we see in the survey responses evidence that finance executives are adapting, or at least trying to adapt, at the speed of change. Leadership skills and training ranked high on the list of priorities, suggesting that CFOs and finance teams are looking for opportunities to hone their analytical capabilities and communicate effectively with stakeholders.
That’s my take on things. I hope you will join the discussion by adding your comments in the comment field below. If you have not read the survey yet, I recommend it. I also highly recommend the additional insights and discussion from our archived November 11, 2015 webinar.