Modern Finance: Driving Transformationfrom WithinBrought to you by Oracle, in collaboration with Intel®

May 2016

Modern Finance

Modern Finance: Driving Transformation from Within

Brought to you by Oracle, in collaboration with Intel®

4 Foreword

5 Aligning lines of business

7 Preparing for anything

9 The customization ceiling

9 Reconfiguring finance’s approach

12 Ready for Finance 4.0

Modern Finance: Driving Transformation from Within

Brought to you by Oracle, in collaboration with Intel®

CONTENTS

Foreword

The story of the past few years has been one of change and uncertainty. Major economic, geo- and socio-political, and even climactic upheavals are affecting companies’ fortunes like never before.

Increased competition, demand for more transparency among stakeholders, and a need to constantly work faster and smarter are driving a major rethink of business approaches. It might seem trite, but the only thing to be certain of in coming years is yet more uncertainty.

Companies are increasingly looking to the CFO and their finance team to help them navigate a volatile market. Never has there been as much pressure on the finance department to boost productivity and drive growth, all while keeping costs in check.

At the same time we have entered what many are calling the Fourth Industrial Revolution, or “Industry 4.0”, marked by a shift towards digitization and the growing importance of data in day to day activities.

In this age of data as capital, the finance department is moving out from under the cover of the back office and into the heart of the business. The unique overview CFOs have across the company’s operations makes them ideally placed to ensure the business continues uncovering new insights and opportunities from the data it collects.

We are also seeing closer alignment between the CFO and other members of the C-suite. This is particularly true of the relationship between finance and IT as the boardroom expects more from the company’s technology investment. More than half of major organizations are running some cloud applications in their back office, but there needs to be more collaboration between finance and IT leaders if the entire company is to truly modernize the way it operates.

The issue for many companies is that their approach to updating finance processes is no longer tenable. A longstanding culture of customization – adding features and capabilities to systems each time they need to perform new functions – and complex integrations has left many organizations with inflexible and convoluted legacy technologies that have reached their breaking point. That is why many are exploring a more scalable, standardized approach although some concerns remain with regards to the risk this presents to their business.

With this report, Modern Finance: Driving Transformation from Within, Oracle collaborated with Intel® to take a snapshot of the finance function in the midst of transformation. We teamed up with Loudhouse Research to survey 1,900 finance decision-makers in the UK, France, Germany, Italy, Netherlands, Spain, Sweden, and the UAE/Saudi Arabia and find out what challenges they face today and to lend our own insight on how they can continue excelling in a digital future.

Loïc Le Guisquet, President, Oracle

4

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THESE PRIORITIES FOR YOUR BUSINESS?TABLE 1

Macro-economic performance / growth

Rising costs of doing business

Greater demand from customers (service / expectations)

Increasing availability of new technology

36%

40%

40%

36%

TOTAL

WHAT FROM THE FOLLOWING ARE THE EXTERNAL DRIVERS OF CHANGE INFLUENCING

Regulations / legislation change

Industry / sector growth

Emerging market growth

37%

33%

32%

UK

31%

41%

43%

40%

40%

36%

36%

30%

20%

GERMANY

32%

47%

47%

39%

45%

39%

31%

21%

21%

35%

40%

47%

37%

FRANCE

35%

32%

35%

25%

20%Stakeholder Pressure / Requirements growth

Increasing competition

28%

18%

49%

19%

41%

24%

35%

34%

28%

27%

21%

SAUDI ARABIA

/ UAE

38%

52%

41%

43%

40%

43%

30%

39%

17%

ITALY SWEDEN

32%

35%

29%

30%

31%

22%

32%

30%

13%

41%

50%

38%

41%

38%

27%

40%

26%

17%

SPAINNETHERLANDS

22%

30%

34%

32%

31%

30%

26%

20%

12%

Aligning lines of business

Businesses must work harder to understand how external forces affect the way they work, and learn fast from their experiences to ensure they can meet future demands head-on. In response, chief executives are increasingly looking to the CFO and finance teams to help them address and manage these challenges.

The finance team has never been more involved in the organization’s strategic approach. Nearly 40% of finance leaders admit they are becoming more accountable for the business’ success. Meanwhile, 45 percent say they are under increasing pressure to raise productivity and 44 percent say their company is pushing harder for growth.

The cost of doing business continues to rise, however, and the pool of skilled finance professionals is shrinking, which makes delivering on the boardroom’s expectations increasingly difficult. Over 40 percent of finance leaders reveal they are being asked to reduce operational costs.

Chief executives expect CFOs to dive deeper into what is happening across the company and get the most out of the organization’s investment in technology and analytics. This requires finance to apply their knowledge and skills in more innovative but less familiar ways.

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5

The finance team doesn’t – and quite frankly cannot – deliver all the answers alone. Finance leaders have been trawling through and reporting on company data for years. They have vast expertise in audit trailing, ensuring compliance and maintaining data security but beyond this their ability to manipulate large volumes of data is limited.

The digital transformation of a business requires greater levels of collaboration between every department in the organization, from finance to marketing to HR. This begins with closer alignment among line-of-business leaders, whose approach to working will ultimately be reflected across the entire company. Finance teams are aware that a gap currently exists in this regard. Almost one third admit that a lack of alignment between finance and the wider business is standing in the way of change.

In particular, greater collaboration between finance and IT is essential if the business is to undergo a real transformation. Nearly three-quarters (73%) of finance leaders agree closer CIO / CFO alignment has become important to achieving the company’s finance transformation. In fact, in many organizations the task of getting business insight from data falls to the CIO, who has a great deal to add from an IT strategy standpoint.

The next step, and one that some organizations have already taken, is to bring a Chief Data Officer (CDO)1 into the fold. The CIO’s competencies are largely about maximizing technology’s impact on the business rather than understanding the importance of data itself. CDOs, on the other hand, often have a background in engineering or mathematics and are most inclined to take a strategic approach to their analysis. Importantly, they know which questions the business must ask of its data to get the answers it needs.

As the nerve center of the organization, the finance department lies at the junction of every line of business in the organization. Their unique oversight of the business has made CFOs and their teams instrumental in helping the boardroom achieve its vision for the future.

1. The Rise of Data Capital, MIT & Oracle 2016

TABLE 2

Strongly agree

Somewhat disagree

Strongly disagree

Don’t know

26%

47%

20%

5%

TOTAL

CIO / CFO ALIGNMENT IS BECOMING MORE IMPORTANT IN OUR BUSINESS TO

UK

28%

47%

16%

6%

3%

GERMANY

26%

53%

14%

3%

5%

28%

46%

18%

4%

FRANCE

2%3%

Somewhat agree

SWEDEN

30%

40%

22%

4%

3%

24%

47%

27%

2%

-

SAUDI ARABIA

/ UAE

28%

47%

16%

6%

3%

ITALY

24%

48%

18%

5%

5%

SPAINNETHERLANDS

15%

50%

26%

7%

3%

ENABLE US TO REALISE FINANCIAL TRANSFORMATION BY REGIONS

Brought to you by Oracle, in collaboration with Intel®

6

Overall, nearly 60 percent of finance leaders say they are more concerned about the impact of external factors on the business than of internal ones. The ratio varies of course from country to country, but this sentiment holds across Western Europe’s major markets including the UK, Germany, France, Italy and Spain.

FINANCE FUNCTION PERFORMANCE OVER THE NEXT TWO YEARS?TABLE 3

Legal / regulatory issues

Employee performance/attitude

Current infrastructure / technology performance

Macro-economic issues

28%

33%

39%

34%

TOTAL

WHICH OF THE FOLLOWING DO YOU SEE PRESENTING THE BIGGEST RISKS TO

44%

Lack of technology innovation

Organisational perception of finance function 20%

Shortage of skills 11%

Other 0.2%

Internal politics (i.e. organisational complexity and

UK

30%

41%

42%

36%

30%

17%

10%

0.4%

27%

GERMANY

30%

32%

45%

38%

40%

12%

18%

-

29%

31%

39%

46%

33%

FRANCE

33%

14%

7%

-

28%

38%

44%

37%

38%

42%

ITALY

19%

10%

0.8%

27%

29%

32%

34%

36%

42%

SPAIN

21%

12%

-

29%26%

SWEDEN

14%

27%

33%

34%

45%

24%

12%

-

28%

18%

24%

43%

25%

78%

SAUDI ARABIA

/ UAE

34%

9

-

19%

NETHERLANDS

33%

25%

32%

34%

38%

14%

4%

-

21%

Preparing for anything

A major challenge for the finance department is that much of the risk companies now face is out of their control. Stock-market turbulence, fears of another global recession and, as mentioned, rising levels of uncertainty are just some of the issues that are high on corporate radars.

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7

To add to this, an inability to manage risk effectively or meet customer expectations today has a much more profound impact on the organization’s financial performance than it used to. A company’s reputation, customer relationships, and the quality of its processes rank among the biggest determinants of its value, and a blow to any of these elements could have a dramatic effect indeed.

Managing risk is one of the trickiest tasks for a company because it often demands them to make judgment calls based on at least some level of speculation. While many large companies have a risk department run by the chief risk officer, it is the CFO who is usually responsible for identifying, measuring and dealing with risk given their “bigger picture” view of the organization. This requires them to prioritize each risk to keep the business on course.

Effective risk management helps businesses better prepare for whatever the market throws their way so they can avoid – or at least mitigate – the effects of any potential downturns. Research by EY revealed2 that companies that do manage risk well perform three times better on EBITDA (Earnings before interest, taxes, depreciation and amortization) than those that do not.

An integrated view of key risks and opportunities is vital. By introducing a standardized process to identify, monitor and respond to threats CFOs will put the business in a position to take action earlier.

It’s also important that potential risks are made transparent to business leaders, who may not have the analytics expertise to dive into the data itself. Being able to track and summarize risk audits in easy-to-read dashboards allows decision-makers to take swift, well-informed action for the good of the organization.

Risk management has long had a reputation for being a complex task, and occasionally a thankless one, but its importance cannot be overstated. A more rigorous approach is the key to managing the shape-shifting threats of the modern market, and it will fall to the CFO to make this happen.

GERMANY

48%Outside organisation (externally-driven change) 46%

FRANCE

58%

TOTAL

60%

ITALY NETHERLANDS

54%

ORIGINATE OUTSIDE OR WITHIN YOUR ORGANISATION? TABLE 4

UK

53%

33%

14%

31%

21%No difference

41%

13%

30%

12%

ON BALANCE, ARE YOU MORE CONCERNED ABOUT CHANGES THAT

Within organisation (internally-driven change)

87%

13%

-

SAUDI ARABIA

/ UAE

28%

12%

SWEDEN

66%

23%

11%

47%

43%

10%

SPAIN

32%

15%

2. Turning Risk into Results, EY 2016

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8

The customization ceiling

Crucial to the CFOs helping the company to better manage risk and collaborating more closely with the CIO is a more flexible and adaptable digital infrastructure.

The market has no consideration for a company’s size or status. Agility is the hallmark of virtually every successful modern business, and companies big and small must adapt to this reality. However, years of customization have left many large organizations in particular with inflexible and convoluted legacy systems nearing the limits of what they can handle.

This is a common path many companies have traditionally followed. They have been steadily building up their applications with new features on an ad hoc basis. With each year these additions have grown in number and complexity, on top of which they’ve been further muddled by one-off patches and workarounds built to address spontaneous needs. Sixty-one (61%) percent of finance leaders admit their current systems fit this description.

Also, as finance is a core business function, over the years it has been integrated to numerous systems either by IT or external implementers, each of which has added another layer of complexity. This has resulted in a facile ‘patchwork quilt’ infrastructure.

We have now hit a customization ceiling. Heavily patched finance systems have reached such a state of intricacy that they simply aren’t flexible enough to meet the challenges of the modern market. To add to these limitations, because these applications have become so convoluted finance teams spend a large part of their time managing processes rather than focusing on the external challenges affecting the wider business.

It’s hardly surprising that more than half (54%) of finance leaders say their current systems are unlikely to cope effectively with the near future demands of their organization. The sticking plaster approach to managing financial IT is no longer tenable.

Reconfiguring finance’s approach

Rather than adding complexity to already-overloaded systems, companies are beginning to see the advantage of running their finance applications in the cloud and simply configuring these to suit their needs. These configurable systems are recognized as being more flexible and easier to update, making them better suited to the needs and requirements of modern finance departments.

Finance leaders’ priorities vary from business to business, but developing a more complete view of financial performance ranks high for a large proportion. Nearly two in five respondents say gaining a better view of financial performance is a strategic priority over the next 12 months. At the same time, 44 percent will prioritize the control of finance’s operational costs.

Fifty-four (54%) of finance leaders say the need for greater productivity is a principle reason they support changing their systems. A need for greater innovation ranks among the biggest reasons for 43% of respondents, while the need to improve system scalability is a major driver for 38% of finance leaders.

Crucially, 70% of respondents to the survey from Oracle and Intel® say moving to a more standardized system will place less pressure on the finance function. On average, they believe they could increase their financial efficiency by 22% by upgrading their systems – based on their knowledge of the technologies currently available.

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9

For those companies already upgrading their finance IT, the areas currently undergoing the most technology change are traditional finance processes. Thirty-two (32%) percent of respondents are upgrading their budgeting and forecasting, 31% are focusing on profitability and cost management, 31% are improving financial consolidation, and 30% are modernizing risk management.

TABLE 5THE HIGHEST LEVELS OF TECHNOLOGY CHANGE?

Accounts payable

General ledger

19%

24%

27%

TOTAL

IN WHICH OF THE FOLLOWING AREAS ARE YOUR FINANCE SYSTEMS UNDERGOING

Accounts receivable

Asset management

Planning / budgeting / forecasting

Profitability and Cost Management

Financial Consolidation

Risk management

External Regulatory Reporting

Internal Management Reporting

Account Reconciliation

30%

32%

31%

22%

24%

31%

22%

UK

25%

28%

28%

29%

27%

24%

20%

22%

21%

23%

31%

GERMANY

27%

26%

33%

31%

27%

26%

29%

28%

24%

17%

26%

21%

30%

26%

FRANCE

32%

21%

26%

16%

21%

24%

18%

33%

27%

35%

41%

ITALY

34%

37%

32%

23%

24%

32%

17%

32%

19%

30%

26%

SPAIN

34%

34%

30%

21%

16%

37%

24%

37%30%

SWEDEN

9%

12%

20%

22%

39%

33%

21%

24%

38%

27%

22%

1.2%

8%

17%

SAUDI ARABIA

/ UAE

29%

41%

46%

28%

32%

50%

28%

30%

NETHERLANDS

21%

23%

25%

26%

27%

29%

13%

21%

13%

15%

24%

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10

The promise of a faster innovation cycle is also seen as a major advantage of standardized finance systems. Seventy-five (74%) percent of finance leaders say a standardized systems would allow them to innovate more quickly and effectively. The same proportion of respondents say the use of financial software in the cloud is critical for them to realize their broader digital transformation goals.

Ready for Finance 4.0

For the many businesses rethinking their strategies to stay ahead of growing competition, being able to speed up innovation and adapt quickly to change are at the top of the corporate agenda.

The finance department should not be the ball & chain holding the company back from progress. It should be the engine pushing it forward. CIMA stressed in its recent report3 that CFOs and finance teams are being asked to both define and implement new, digitally-enabled business models, and must expand their existing competencies with in-depth knowledge of technology and analytics.

Becoming more agile takes effort, and for large corporations this is often a difficult and daunting challenge. Meanwhile they must watch young, headline-hitting companies rise quickly while seeming to target trends spot-on every time and experience success after success.

TABLE 6DIGITAL TRANSFORMATION GOALS BY REGIONS

Strongly agree

Somewhat disagree

30%

44%

20%

TOTAL

FINANCIAL SYSTEM CHANGE IS CRITICAL FOR US TO REALISING BROADER

Somewhat agree

Strongly disagree

Don’t know 2%

UK

34%

38%

22%

2%

4%

GERMANY

26%

50%

17%

4%

3%

25%

49%

19%

FRANCE

2%

6%

27%

49%

20%

ITALY

0.4%

4%

25%

52%

15%

SPAIN

4%

4%4%

SWEDEN

39%

35%

20%

4%

3%

42%

35%

21%

SAUDI ARABIA

/ UAE

-

3%

NETHERLANDS

17%

41%

30%

4%

8%

3. The Digital Finance Imperative, CIMA & Oracle 2015

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11

Larger businesses obviously operate quite differently from start-ups, and it only makes sense that they approach agility in a way that suits their operating model. Forbes contributor Mike Maddock argued just this, likening companies to engines and saying that large organizations should focus on4 fine-tuning and incremental innovation rather than trying to invent new products, services or systems that risk being limited by their often antiquated processes.

Put another way, one can’t bolt an agile process onto a system that isn’t able to support it and expect to achieve the expected outcome. Established players will be better served by standardizing on a flexible platform that allows them to build strategic end-to-end processes and easily integrate these with existing systems. This enables them to work at their own pace as they move their processes to a more agile infrastructure until it is possible for them to move their finance core.

CFOs have always provided guidance on company strategy and been a sounding board for the CEO’s ideas, hopes and fears. This is why they are often first in line to succeed the chief executive. In fact, a recent report from Forbes and KPMG5 found that six in ten (63%) chief executives predict the CFO’s influence will increase more than that of other board directors in the next three years.

The Fourth Industrial Revolution will favor those businesses that are able to constantly fine-tune their way of working so they can quickly pursue new opportunities. The demands of the digital age will reveal just how much value finance professionals can add in this regard.

As the findings from Oracle and Intel® have shown, CFOs will be expected to deliver more strategic guidance to every member of the boardroom. They will need to be as confident in data analytics and financial reporting as they are in computer programming, managing teams, and collaborating on complex projects with IT experts. By unifying lines of business and modernizing the company’s approach to data, finance will be in an ideal position to fulfil these great expectations.

4. Does your Innovation 'Engine' Need a Tune-Up?, Forbes 2015

5. The View from the Top, KPMG & Forbes 2014

12

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Oracle understands that today’s finance organization requires access to more information across the enterprise, greater analytical acuity, and real-time reporting that results in betterbusiness decisions. For more on how Oracle's cloud applications are reshaping the finance department visit oracle.com/goto/finance-next-gen.

Not all clouds are created equal. Intel® Cloud Technology, a set of technologies built into the latest generation Intel Xeon® processors, provides the performance and protection you need through capabilities that enhance how well your cloud moves, processes and safeguards data.

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