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Finance chiefs are bolstering their strategic roles by hiring more FP&A help.
David McCann, CFO Magazine
February 1, 2012
It's not news that today's CFOs are more strategically oriented than many of their predecessors. But they are now trying to bring more of that analytical mind-set to their staffs, by adding more financial analysts than other types of finance positions.
Compared with just two or three years ago, new hires are more likely to be financial planning and analysis (FP&A) staffers than technical accountants dedicated to financial reporting. Companies have also stepped up the training of existing accounting and internal-audit staff for redeployment to FP&A and managerial accounting roles.
For many organizations, factors driving the shift include a now-well-oiled machinery for achieving
Sarbanes-Oxley compliance that needs less maintenance and three years of economic turmoil that make creative growth strategies more crucial than ever.
In the latest Duke University/CFO Global Business Outlook Survey, 48% of responding CFOs said that, given an opportunity to add head count, they would most likely bulk up FP&A staff. Only 31% said the same for accounting/financial reporting.
To be sure, firms are still adding accountants, and finance departments are growing overall. More survey participants (27%) said they've increased accounting staff over the past two years than decreased it (20%).
But there is clearly a growing preference for those with broader business training. More than 2.5 times as many survey respondents (16%) have added people with MBA degrees than subtracted them (6%).
Specifically, companies need finance people who not only bring analytical skills but also influencing skills. They also require staffers with the ability to work across functions and, most important, the confidence to be credible business advisers, says Jeff Thomson, president and CEO of the Institute of Management Accountants.
The most desirable finance staffer, says Donald Kilinski, CFO practice leader at recruiting firm DHR International, is a CPA who then gets an MBA. Such a person may be more able to advise on strategic matters, such as what projects should be funded, whether something should be acquired, built, or bought, and whether products or services should be eliminated.
At Sandoz Pharmaceuticals North America, a $3.2 billion unit of health-care giant Novartis, the number of people in the business planning and analysis department has grown 25% since 2008. That's good for the finance function overall, allowing it to be a bigger player in the firm's cross-functional development efforts. "We now have a better seat at the table that lets us do our jobs better," says CFO James Masta.
Masta's group now has dedicated FP&A staff to support both business development and research and development. The former allows finance to be at the forefront of negotiations with its suppliers, for example. "While business development might just want to go in and close a deal, we can tailor it to fit with our budget constraints and to what makes most sense in getting value from that agreement," Masta says.
The added financial-analysis muscle helped the company score a big win in licensing contracts with drug companies. Historically, Sandoz, which distributes generic drugs, profited in the earlier part of the contract periods but often got stuck near the end with inventory that it had to sell for a loss. Now the contracts carry stop-loss clauses designed to prevent that scenario.
No Longer Sarboxed In
At Worthington Industries, the internal-audit department spent about seven years focused heavily on perfecting internal controls for Sarbanes-Oxley compliance, says CFO Andy Rose. By late 2008 the company was in good shape on that front, so it shifted the group's efforts to working more with business units on process improvements. Some people had to be trained, and the company eliminated two positions from its internal-audit staff.
At the same time, Worthington has doubled the number of people dedicated to mergers and acquisitions. The publicly held, $2.5 billion metals manufacturer has made seven acquisitions, as well as three divestitures, in the past two years.
As a result, the M&A group expanded from 1.5 dedicated people to 3, including a new hire and 50% of a treasury staffer's time. The finance department also redeployed people temporarily according to the requirements of specific deals. For example, a regional controller was assigned for 10 months to one transaction, spending 6 months on due diligence and 4 on integrating the acquired firm into Worthington.
Smaller companies are experiencing similar changes. In 2009, Safeguard Self Storage shed two accounting positions after streamlining its transactional processes and has not refilled them. "We have only 11 people in accounting and finance, so cutting 2 was a big swipe at the staff," says Mark Rinder, a CFO with executive outsourcing firm Tatum who is currently Safeguard's finance chief. Rinder says he now spends most of his time with his head of FP&A. "It is with him that I am able to help our CEO and vice president of operations achieve their strategic objectives by mining data and finding opportunities," Rinder says.
The Global Imperative
Some argue that an emphasis on FP&A over accounting is misguided. Jonathan Schiff, an accounting professor at Fairleigh Dickinson University and an adviser to large corporations, points to new and pending regulation from the Dodd-Frank Act and international financial reporting standards, major changes in tax law, and the impact of globalization as areas where companies will need accounting expertise. In China alone, there are U.S. GAAP, IFRS, and Chinese accounting standards to understand and follow. "There is a raft of technical knowledge that's needed," Schiff says.
Still, says Peter McLean, who heads the global financial officers practice at recruiter Korn/Ferry, expanding into emerging markets requires close partnering between finance and operational management to allocate capital, "which translates into a need for greater FP&A expertise."
David McCann is senior editor for human capital & careers at CFO.