Financial models for a changing global economy

April 19, 2021 2 Comments

It’s an increasingly complex world. Economic growth rates vary widely from country to country, as do consumer preferences, competitive landscapes, regulatory regimes and infrastructure maturity.

Not only is the world complex, it’s unpredictable as well. As many businesses learned in the wake of Covid-19, supply chains and customer bases have never been more global, and more prone to be affected by events on the other side of the world.

As the function tasked with allocating funding for growth and driving expense management, finance is central to the task of successfully navigating the global business environment. Yet today’s finance functions may not meet the demands of this changing role. What is required is a new generation of finance: Chief Financial Officers (CFOs) must
transform their functions to support strong, flexible and scalable global operating models that allow organizations to find advantage and growth in the midst of volatility and uncertainty.

The next generation of finance; To help the larger organization win in a dynamic global marketplace, finance must embrace a new scope focused on growth and operational excellence, and it must generate value well beyond the walls of the finance department. At a minimum, finance must help provide assurance regarding the integrity and accuracy of accounting statements, while ensuring compliance with diverse global financial regulations, including statutory
reporting, tax rules, and risk management requirements. Of course, finance also must provide efficient management of cash and capital resources and deliver high-quality finance services at optimal cost.

True market leadership, however, will require a new generation of finance functions that will drive the development of a robust, flexible and scalable global operating model, which, in turn, can adapt to a volatile environment and changing global business patterns.

For starters, finance can empower the business to manage persistent revenue volatility across different lines of business and markets, and support a more flexible cost structure in which costs can vary with business activity levels.

For example, in IT, the use of outsourcing, the cloud and software-as-a-service can more directly align expenses with the level of business activity, supporting a pay-per-use model. For Human Resources, the right blend of full-time, part-time, temporary or contract labor and third-party sourcing can more closely align labor costs with activity levels.
In the supply chain, the combination of open-item purchasing and selective hedging can mitigate volatility in purchased costs.

Modelling the global financial crisis has several elements to it. monetary and fiscal policies that are deployed to offset the decline in activity and keep the financial sector afloat. The downturn in activity is also causing unemployment to rise sharply and, with it, a political response to protect domestic industries through various combinations of domestic subsidies and border protection.

Positioning finance to add such value demands excellence in four areas: a balanced focus on cost control and growth, a repeatable acquisition integration capability, performance management processes that adapt to changing market
conditions, and deploying finance talent for maximum value by liberating finance professionals from low value activities.

The new measures of success for finance;

Behaviors and capabilities needed for global excellence;

These entail new measures of success in finance;
1. Behaviors
• Market focused
• Analytic
• Tolerant of ambiguity
• Collaborative
• Questioning
• Decisive Capabilities


2. The Basics
• Transaction processing
• Consolidation
• Reconciliation
• Reporting
• Control
• Compliance


3. The Differentiators
• Insight
• Analytics
• Collaboration
• External focus
• Risk awareness and
• Agility

Attributes
1.Business Value
• High partner satisfaction
• Insightful analytics


2.Talent & Organization
• Leveraged professional staff
• Attracts/retains the best talent
• Flat organizations
• High associate satisfaction
• Effective communication

3.Operational Exelence

• Low finance operating costs
• Dynamic integrated planning
• Quality, accessible information
• Effective controls
• Efficient transaction processing
• Best in class technology

Measures of Success for Attributes;

Business Value
• Business partner satisfaction
• Opportunities/risks identified

Talent and Organisation
• High ratio of high to low value work
• Offers accepted rate/high potential retention
• Spans of control/layers of management
• Unplanned employee turnover
• Engaged and aligned staff

Operational Excellence
• Finance cost as a % of Revenue.
• Planning cycle time.
• Proportion of needs being met.
• Control failures by type.
• Productivity by Full Time Equivalent, cost per transaction and •Completeness of Technology Footprint.

CONCLUSION;

Any corporate leader
navigating stormy and
unpredictable global markets
would agree that the
demands on finance have
changed.

Today, finance must support flexibility, scalability, and responsiveness to a multiplicity of global opportunities and challenges. It must empower the
organization to deliver products and services that delight each market’s customers. And it must support an agile operating model that rapidly adjusts to unforeseen developments.

Finance can play this role, but to do so CFOs must drive excellence along several critical dimensions: The balance between cost control and growth, building repeatable integration capabilities that support effective M&A, implementing robust performance management, and unlocking the latent potential of finance talent. These are challenging goals that can help define new measures of success for finance.

However, by striving to build the next generation of finance, Finance Players can elevate the contribution their function makes towards growth, value addition, and high performance.

Published by John Michael Muyobo(Passionate about Finance and Economics) johnmuyobo44@gmail.com

2 thoughts on “Financial models for a changing global economy”

  1. This a very great compilation Mr. John and it does not only apply to corporate sector but even in the entrepreneurship arena as well as in the personal financials
    Thanks for the investment

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