Published Paper

1. FUTURE OF FINANCE FUNCTION – FROM JUGGLER TO SCOREKEEPER,
ANALYST TO CATALYST
VIKRAM SINGH SANKHALA1
ARNAB SENGUPTA 2
Abstract
Increased Globalization and advances in technology coupled with market fluctuations and
uncertainties, have seen a dramatic transformation of the Finance function from a phase where
the emphasis was on creative accounting and scorekeeping to compliance, control and efficiency
and from there on to decision support and finally towards catalyzing into a business partner. This
paper discusses the changing role of the Finance function over the last few decades and how it is
shaping into the future along with the changing role of the CFO over the years.
INTRODUCTION
According to published studies, the average finance department today, spends a large portion of
time in transaction processing and reporting. The actual percentage varies from organization to
organization and could go up to 75% in some organizations. A significant amount of time is also
spent in managing controls and risk. This leaves very little time for adding value or business
partnering. Leading-edge finance departments are working toward a more equal distribution of
time and resources among these three activities. They are utilizing technology to reduce overall
costs and provide better support to make decisions; The Finance department is redesigning
processes to optimize work and costs by implementing new methods of doing work such as
shared services and outsourcing. These lead to significant optimization in transaction processing
1
Associate Director, Dr Reddy's Laboratories.
2
Assistant Manager at Dr Reddy's Laboratories.

2. costs and resources. These organizations are redefining how risk management, transaction
processing, financial reporting, and business partnering are implemented within their
organizations.
Finance is also moving toward a new definition of transaction processing and reporting. The new
definition is an evolution from historical to real-time indicators. It is continuously looking for
ways to spend less time and resources on transaction processing and reporting and reinvesting
the time dividends on partnering, counseling, and strategic thinking.
Alongside, Finance is also moving toward a new definition of business partnering. Rather than
focusing on historical internal monitoring and external reporting, it is redefining how value is
brought to the rest of the company by providing value-added services, with value being defined
by the customer.
In an 2005 IBM Global CFO Study — a survey of 889 CFOs and senior finance professionals in
large companies around the world, the results reports that the most successful finance
organizations have increased their responsibilities from just static reporting and data stewardship
to also providing dynamic business insight to decision-makers. By delivery of predictive
business insight, CFOs can become true business partners with their CEOs and business-unit
leaders.
A comparison of findings from the IBM 1999, 2003, and 2005 global CFO surveys indicates that
more and more finance organizations are pursuing plans to shift resources from transaction
processing to decision-support activities. In 1999, finance pros spent 65 percent of their time on
transactional activities and 15 percent on decision support/performance management activities.
In the 2005 survey, those numbers shifted to 47 percent and 26 percent. And in 2008, survey
respondents said, finance professionals can be expected to spend 40 percent of their time on
decision support and performance management and only 34 percent of their time on transactional
activities.

3. To minimize the number of people and the costs associated with transaction processing,
companies are standardizing and automating most of their core accounting and finance processes
(e.g., general ledger, A/P, billing, and A/R systems). Unfortunately, while the goal of this
automation has been to shift resources to higher-value decision- support activities, the reality
during the past few years has been that these resources have been redeployed into control
activities. Looking ahead, the expenditure of resources on control activities is expected to stay
pretty flat over the next few years, at 26 percent of finance’s time. During this same period, we
can expect to see a significant shift in the resources that finance departments are freeing up by
making transaction processing more efficient; finance staffs will increasingly move toward
decision-support and analytics activities.
Increasingly, finance departments will expand their role to include nonfinancial information and
analysis. Further, finance will be undertaking activities such as creating knowledge-management
repositories and developing Web-based information portals to improve the accessibility and
usefulness of corporate information. Finance teams will create metrics that reflect business
drivers and set up triggers and alerts which automatically notify the appropriate individuals as
relevant events and risks emerge. At the same time, finance departments will work to understand
and educate others about the cause and effect relationships among business drivers across the
company’s diverse business units and functions. And they will develop the business acumen and
analytical skills required to continuously transform business processes and data-management
capabilities to reflect changes in corporate strategy, customers, and suppliers.
Today leading finance teams are simultaneously pulling together information that helps business
leaders make decisions about M&A and growth opportunities, and continuing to mitigate risks as
the business and the external regulatory environments change at an unprecedented rate.
Allocating the appropriate level of resources between the two will be an ongoing balancing act.
But concepts like business performance management, referred to as “performance insight” within
the survey, provide a bridge that enables companies to start transitioning from an emphasis — an
overemphasis in some cases — on risk and compliance to providing more balance and
integration between their risk and growth initiatives. One way in which finance is building this

4. bridge is by using historical results, combined with corporate budgeting and planning
information, in order to become more predictive.
And finally, are what we consider to be the next generation of data initiatives, centered around
real-time “business event/activity monitoring.” These include putting in place an information
environment integrated with business processes so that anytime something of a material nature
happens within the organization or externally (e.g., to one of the company’s key customers or
suppliers), that event is immediately identified and the right people are made aware of it.
In order to drive risk insight, performance insight, and growth insight within their organization,
Finance departments will likely bring these three types of data-integration initiatives together
Through their BPM solutions. The software needs to be aligned with the organization’s strategy,
as well as linked to lower-level operational activities. It needs to support better decision-making
among all information consumers, especially individuals on the front lines, who heretofore have
not had access to such information. These might include the people in call centers who interact
with customers; the sales force; the people in HR who are coaching, training, and promoting
others; and the buyers who are negotiating with suppliers.
We are operating in an information-driven economy. The quality of decisions throughout
the organization depends on people’s timely access to the right business data. As more and
more companies realize the value of their information assets in creating a competitive advantage,
the ongoing ability of employees across the company to make more informed decisions will
hinge on finance’s ability to provide insights into the future risks, performance, and growth
opportunities that the business will encounter.
THE RECENT EVOLUTION OF THE FINANCE FUNCTION
The late sixties produced a crop of finance men who became known as gunslingers. They were
calling the shots in investment companies, principally the "performance funds." Their
counterparts in business firms were the financial managers who rose quickly to top executive
positions. They indulged in creative accounting to inflate profits and achieve their purposes.

5. The highly publicized merger activity utilized differential price earnings ratios, dirty pooling,
puffing purchases and other financial stratagems to inflate reported growth in earnings per share.
Leasing, land development, franchising, finance companies, among others, engaged in practices
of deferring expenses and/or accelerating income recorded to present favorable earnings reports.
Less widely recognized was how more traditional methods of financing could achieve the same
or even more exaggerated results than the various forms of accounting and merger machinations.
It can readily be demonstrated how increased use of leverage and the appropriate timing of
equity issues (or under different circumstances share repurchase) can do as much as or more than
merger practices to levitate earnings per share. The traditional financial methods, were further
enlarged by the imaginative use of warrants, converts, other option combinations, complex forms
of executive compensation schemes—all of which interacted with powerful wealth motivations
in the new financial managers and their associates.
Even in the dismal area of corporate bankruptcy it can also be demonstrated that there is
opportunity for "creative financial policies." A bankrupt firm can be transformed into a
flourishing growth company (at least temporarily) by financial devices. If fixed assets are written
down substantially or fixed debt claims can be converted into preferred stock or common stock
equity claims, profitability may be increased by the consequent reduction of depreciation and
interest charges. Even in firms that do not go through reorganization or bankruptcy, periodically
a write-off may be taken which will seek to "clean up everything" to achieve future operating
income increases. The opportunities for financial stratagems are indeed numerous. Thus, the self-
restraints on financial managers must again be equally strong
Fortunately, individuals constituting only a small segment of the business and financial
community were involved in the highly publicized gun slinging activities. To claim otherwise is
to argue by anecdote rather than by systematic empirical studies. The more general proposition,
exemplified by the vast majority of American enterprise, is that financial management does have
a fundamental contribution to make to growth in earnings per share and the effective
performance of business firms. By effective interaction with the basic planning, administrative

6. and operating activities of the firm, financial management can help enhance performance in
functional areas as well as discharge its own responsibilities with effectiveness.
Corporate America was rocked by a series of accounting scandals in the last two decades. This
period saw the enactment of stricter regulations and penalties and compliance and control
became increasingly important. This was Phase two where the focus was on improving
efficiency and compliance (2000-2005).
Phase three beginning from 2005 saw a distinct transformation in the role and structure of the
Finance Function. The Finance Function made a move to structure the duties and responsibilities
of the function into Front, Middle and Back Office, instead of the traditional structures of
accounting and controlling.
Back Office: The functions of the back office typically focus on transaction processing,
including the process cycles of order to cash; purchase to pay and record to report. These need to
be structured to deliver value for money through optimized processing.
Middle Office: These functions, which include Treasury, Risk Management, Planning &
Forecasting, Tax, etc. typically require specialized skills to support. The focus is on value
protection by delivering against the financial strategy of the organization.
Front Office: The function of the front office is to create value by turning data into information
and insights into action. This team, which is closely aligned to operating business units normally
has significant commercial experience, well developed negotiating skills and strong financial
analytical skills.
Another way of looking at this structural differentiation was to divide the functions into Process
oriented functions and Knowledge oriented functions. The process oriented functions were hived
off into shared Service Centers whereas the Knowledge oriented functions were organized into
Centers of Excellence.

7. Shared Services Center concepts and modern Business Service Center concepts play a key role in
the finance transformation. These act as a catalyst during the changeover from a traditional back
office function to a real service provider that relieves business partners from transactional
processes and administrative tasks, reduces costs, and also significantly improves process and
service quality
A KPMG paper on ‘outsourcing the finance function’ (2005) concluded that 52% of respondents
continue or strategy to outsource the finance function. At present, a lot of businesses contract
suppliers to method information, but outsourcing to add value is typically accepted as the ‘way
forward.’ The payroll function is presently the most well-liked to outsource, but A/R and A/P
management is increasingly viewed as suitable for outsourcing. According to the Survey, 27% of
respondents outsource the tax compliance and tax planning function and 31% plan to outsource
tax compliance. It is likely that the next few years will see a significant increase in the
outsourcing of these functions.
The most common destination for outsourcing the finance function is Britain, but India and
Eastern Europe are also favored destinations. Some suppliers have operations in both Britain and
India. Businesses look for suppliers that can deliver price savings, better top quality of
information, improved productivity and far better control.
Yet another emerging trend is multi-process outsourcing so firms can take advantages of
economies of scale. The only finance functions which seem likely to stay exempt from
outsourcing are budgeting and forecasting. It seems feasible that firms will retain and develop
these core functions. As conventional wisdom concerning standard organizational and
geographical boundaries changes, finance outsourcing looks set to be regarded as a standard
process employing added value abilities rather than a one-off choice.

8. Phase IV – The future
Dr. Werner Brandt, CFO of SAP AG says:
“It is no longer enough to be a wizard with the numbers. As an independent business partner, the
CFO must help the company and its businesses to develop their strategy by showing the financial
implications of various scenarios - and by driving the implementation of the strategy with the
heads of the divisions and managing directors of the subsidiaries in the different countries. So the
CFO drives the design of structures, systems, and processes."
The traditional notion that the finance function is simply the process of "managing cash and
capital" or "planning and controlling profits", fails to capture the style of modern finance.
Today's finance officer is engaged in such activities as constructing models that direct the search
for new information, setting performance standards, rationalizing operating rules, and
establishing operating controls.
A firm's cash budgeting procedure can be taken to illustrate the continuous sequence of the
process of model building, checking the results and then modifying the model. Let us assume
that the decision has been made that the cash balance is not to fall below a certain value and that
bank borrowings are not to exceed a stipulated sum. The finance officer can estimate both the
mean and standard deviation of each component part of the budget. The rate at which payables
are met and receivables collected can be structured so as not to violate the borrowing constraints.
By simulating the cash budget through a Monte-Carlo technique, the expected change in cash
and its standard deviation for several successive periods can then be estimated. By comparing the
actual results that are observed with the model, the financial officer can determine whether any
component part, such as the collection of receivables or the disbursement for wages, as well as
the final result, the change in the cash balance during the period, are "in control." Minor
deviations from the budget might be ignored. Deviations lying between, say, one and two
standard deviations of the expected value may initiate a programmed course of action, say
referral to the department head. Deviations greater than, say, two standard deviations may be
construed as meaning that the system is "out of control" and initiate an evaluation or review of
the entire activity. Meetings may then be held between the several interested parties to determine

9. the source of deviation and to plan a remedial tactic. The cash budgeting model can then be
revised in light of the new decision and be simulated once again.
The analytics capabilities that finance departments are pursuing as they become more effective in
control and compliance areas generally fall into three primary categories: performance, growth,
and risk.
All three of these areas of management insight fall under the umbrella of business performance
management. Among them, risk insight is far and away the area in which companies see
themselves as being most effective. Risk insight combines risk management and compliance, so
it encompasses many of the activities, like external reporting, for which finance has traditionally
been responsible. It also includes a lot of the efforts that companies have expended in the recent
past around new legislation and regulations.
The fact that compliance has been a focus of extensive corporate spending over the past few
years has undoubtedly contributed to the finance department’s opinion that it’s more effective at
ensuring appropriate controls and satisfying fiduciary and statutory requirements than it is at
providing insight into the company’s growth opportunities or even its overall performance.
The good news is that finance executives recognize that there is still room for improvement in
this area. To make the most of their Sarbanes-Oxley-related investments, organizations should
approach compliance and risk from a performance management perspective. Risk insight must
be broadened and incorporated into the everyday routine of running the business. A third of
companies that were deemed, based on the survey results, to have highly effective finance
organizations are involved in proactive enterprise risk management. Although they also manage
the traditional areas of risk (compliance, liquidity, and credit) as others do, these leading
organizations are twice as likely to address nontraditional areas such as operational, market,
strategic, and/or event risk.
Highly effective organizations are also employing performance dashboards and analytical tools
focused on risk/reward planning and decisions. Roughly 80 percent of those surveyed, indicated

10. they are actively participating in the identification, analysis, and assessment of risks associated
with new business opportunities. The top finance teams are developing risk-management
strategies that predict potential opportunities and missteps. They are articulating proactive risk
guidelines for new opportunities, thereby more fully exposing both downside and upside risk —
thus helping their organizations make better and more informed decisions. Dashboards and
analytical tools are being deployed to enhance the ability of end users to incorporate risk analysis
into their decision-making and help create a culture that is in control but not operating in an
overly risk-averse environment.
Finance personnel have traditionally acted as the stewards of the organization’s financial data
and reporting. Now finance managers see their role extending beyond purely financial data.
To optimize decision analytics and provide insight into risks and opportunities for the business,
finance is taking a leading role in integrating information about customers, suppliers, and
employees that is necessary to reflect overall performance across the entire value chain.
To enable better decisions, finance teams are launching three types of related, data-focused
initiatives. First are initiatives to improve management’s view of corporate performance
information.
These include creating executive dashboards and developing sets of measures to guide decision
making throughout the organization. Second are initiatives that improve insight into the business
processes themselves. Many organizations have invested in ERP and CRM, but accessing and
sharing information collected within these applications continues to be a challenge.
The Insight support that Finance functions give will help the organization move towards an
optimum combination of stability and agility. Stability is achieved by mitigating downside
hazards and maintaining an in control organization. This can be achieved by giving the risk
insight. Initiatives could include
1. Leading finance related compliance programs and strengthening the internal control
environment,
2. Meeting fiduciary and statutory requirements and
3. Managing enterprise risk.

11. The performance insight could include the following:
1. Measuring/monitoring business performance
2. Partnering with the organization to identify and execute growth strategies
3. Continuous process improvement/ business improvement
The Growth insight would involve identifying and capitalizing on opportunities while
understanding the calculated Risks. Initiatives could include:
1. Consolidating and integrating actuals, budgets, and forecasts
2. Coordinating planning activities
3. Providing “support” staffing for users needing financial and nonfinancial (e.g., customer,
product) information
4. Implementing sound costing and profitability methods that are frequently updated
5. Creating a governance structure to help ensure common information standards
6. Designing and maintaining a “collaborative” Web-based information portal
7. Conducting relationship management for sources/suppliers of external data
8. Creating and populating a knowledge management repository
9. Creating centers of excellence around customers, products, contracts, etc.
THE EVOLVING ROLES OF THE CFO
Based on extensive studies, Deloitte & Touché USA has concluded that the CFO position
comprises of four roles, or faces, each with its own unique responsibilities and demands:
steward, operator, strategist and catalyst.
The steward protects and preserves the assets of the company by effectively managing risk and
keeping the books accurate. The operator conducts basic financial operations efficiently and
effectively. The strategist influences the company's overall direction. And the catalyst instills a
financial mindset to execution and risk-taking throughout the company.

12. In some ways, the four roles are hierarchical — an individual must become proficient in one
before moving on to the next. For example, until you can produce rock-solid reports and
decision-support information, you shouldn't be worrying about operating efficiency or business
strategy. Your main focus at this point is "steward." A look at each of the four faces will discuss
what comprises each and how to move up to the next level.
1. Steward - Focus on reporting and compliance
• Standardize. Establish companywide standards for systems, data and processes to help
eliminate conflicts and provide a "single version of the truth."
• Own the data. Collaborate with the CIO and take responsibility for the collection and
governance of financial and management reporting information.
• Focus on critical controls. Understand the company's financial reporting risks, then focus on the
controls that are truly critical.
• Hire experienced, knowledgeable accountants. Help avoid restatements by hiring accountants
with competencies in technical accounting who can do the job correctly the first time.
• Establish clear authority. Strengthen Finance's authority to make decisions.
• Clarify responsibilities.
2. Operator – Focus on efficiency
• Centralize processes and services.
• Create centers of excellence and shared services centers that can drive efficiency and critical
mass without sacrificing control or quality.
• Build a strong poo! of internal talent.
• Develop people's skills. Deploy them on opportunities that fit their strengths and interests. And,
connect them with others to share knowledge and foster a sense of belonging.
• Improve performance management. Design effective programs to measure and evaluate the
finance staff's performance.
• Focus on critical workforce segments. Identify the workforce segments that make or break
finance's results — such as leaders and technical accountants — and then devote extra effort in
those areas.

13. 3. Strategist – Focus on enhancing business performance and shareholder value
• Work backward from decisions to data. Examine the decisions that need to be made, then
generate reports specifically designed to meet those requirements. Don't just churn out data for
its own sake.
• Translate daily activities into value. Deconstruct the company's operations to show how daily
decisions and actions can affect shareholder value.
• Manage initiatives as a balanced portfolio. Use value-based portfolio management to evaluate
and prioritize improvement projects.
• Establish a rigorous framework for strategic decisions. Relentlessly and continuously evaluate
investments. Be willing to make difficult decisions when necessary.
• Spread the value gospel. Promote "value" as the lens to view all business activities. Foster a
common language that makes the concept of value easy to understand and communicate.
4. Catalyst – Business Partner in Planning and Execution
• Build a framework for disciplined execution. Understand what it takes to get things done within
the company and apply that knowledge consistently to drive execution.
• Promote financial literacy and value discipline. Embed financial thinking and rigor throughout
the company.
• Export finance's talent. Hire qualified people and help them grow, and then let some of them
transfer within tbe company. This might seem counter-intuitive given the current labor crunch.
But, seeding the rest of tbe company with talent you've developed can expand your influence and
make it that much easier to do your job and be a catalyst.
• Lead by example. Drive accountability through personal leadership, measurement and
commitment.
In a Deloitte webcast, more than 700 finance and business executives were asked to identify the
role that offered tbe greatest benefits for their company. Nearly half chose "strategist" as the role
with tbe most potential. Nearly a quarter selected "catalyst," and "operator" and "steward" were a
distant third and fourth, respectively.

14. Participants were then asked which role would actually receive the most focus over the next 12
months. And though the rankings were tbe same, the percentages were markedly different. The
number of participants that chose "steward" more than doubled from 6.7 percent to 16.1 percent,
while "operator" rose from 12.9 percent to 16.9 percent. At tbe same time, "strategist" and
"catalyst" dropped significantly.
These results suggest that while CFOs and other executives have started to recognize the value of
finance's more advanced roles, they haven't forgotten about the basics. It's clear that CFOs who
excel at strategy are the ones most likely to reach the top of their profession. But before you can
play that strategist role, you must master the roles of steward and operator CFOs who get the
order wrong are likely to find themselves moving out rather than up. And, the most effective way
for a CFO to create value for the company is to act as a catalyst for improving execution and
performance.
BRIDGING THE GAPS
A 2010 study by PricewaterhouseCoopers (PwC) into the effectiveness of the finance functions
at over 100 top 200 FTSE and international companies highlighted a gap between the
expectations of business leaders for their finance functions and the role the functions actually
perform.
As operating models and competitive challenges continue to evolve, the findings from the study
clearly show that both CEOs and finance professionals have some significant hurdles to
overcome before the finance function truly becomes the effective strategic partner the business
requires. The results of the study found companies where the finance function is working more
effectively typically invest 30% more resource into analytical activities and pay those staff 25%
more than other organizations. In addition, the most effective finance functions have addressed
their efficiency agenda with over 65% of respondents having established Shared Service Centre's
(SSCs) or consolidated some element of their transaction processing. This move frees up finance
professionals' time spent on data gathering to concentrate on analysis.

15. A study conducted by global management consulting, technology services and outsourcing
company Accenture of more than 350 global finance executives found that while 58 percent of
surveyed finance executives said it's critical for a Finance department to document its business
processes and ensure those processes are understood, only 44 percent said their organizations
adhere to this practice.
Organizations facing this dilemma need to find ways to capture critical legacy knowledge and
operational insights from their aging workers. Only about two out of 10 companies surveyed
have implemented a formal approach to help them capture needed information to sustain smooth
operations into the future. But, nearly a third (32 percent) are considering investing in a
knowledge management tool that could help capture institutional knowledge and share
intellectual assets to prevent the Ioss of valuable knowledge.
CONCLUSION
Finance, as a function, is reinventing itself. It recognizes the need to evolve alongside a business
that has adapted to changing commercial and external pressures. 2020 finance leaders will need
more than functional finance experience. Their primary role will be to identify and drive value-
enhancing opportunities that have impact across the organization. They will understand the risk
implications of their decisions in a dynamic business environment and an investment market that
does not tolerate mistakes.
Finance professionals make the most of available data technology to mine nuggets of knowledge
and identify trends that indicate performance gaps and opportunities. Skilled finance
professionals analyze financial data from within and outside the organization, drawing insightful
conclusions, and helping executives make value-enhancing decisions.
Business partnering is not just about forging strong relationships with the business; it’s the
support that finance provides to the overall organization to allow for key decisions to be taken
and help everyone contribute effectively to the control of the business. Outsourcing, off-shoring,
and increased automation have limited the traditional training ground of finance. Too few junior

16. business partners are coming up through the finance ranks via a stint in general accounting or
general ledger work before they venture into the wider commercial field. The move to migrate
mid office systems to shared service centers has only exacerbated this problem.
Although some finance leaders may bemoan the loss of basic accounting skills, the result is staff
with a less blinkered view of finance—forward-looking professionals who have stepped outside
the box and can embrace new ways of doing things.
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