Although they are aware of their mandate to steer the business amid change, there continues to be considerable emphasis on a traditional component of the finance function: cost containment.
Their top challenge in executing their day- to-day activities, according to a survey by The Economist Intelligence Unit, sponsored by SAP, is meaningfully analysing data generated across the business to develop effective cost containment strategies.
This is reinforced by the strategy they use most frequently to manage expenditure—applying across-the-board cost reduction (selected by 41% of respondents compared with 21% elsewhere in EMEA and 19% elsewhere globally).
But an equal number of respondents also say that identifying how to align strategic, financial and operational plans towards common objectives is a challenge. Ninety percent believe that finance should facilitate collaborative enterprise planning across the company to ensure operational plans are aligned with financial and strategic plans, although the sentiment is weaker than in other parts of Europe and around the world (only 41% strongly agree with the statement, compared with 55% elsewhere in Europe and 57% elsewhere globally).
90% of senior finance executives believe that finance should facilitate collaborative enterprise planning to ensure that operational plans are aligned with financial and strategic plans.
Responding to regulation
There is an opportunity for finance executives in Germany to collaborate with other business functions to steer their businesses in an evolving regulatory environment. Along with other countries in the EU, Germany has recently experienced the introduction of the General Data Protection Regulation (GDPR). This appears to be top of mind for respondents in Germany—legal/risk/compliance costs are among the most challenging cost components to manage (cited by 47% of respondents compared with 26% globally), second only to technology investment.
There is an opportunity for finance executives in Germany to collaborate with other business functions to steer their businesses in an evolving regulatory environment.
A collaborative approach is suitable here—better risk management was cited as the top benefit of collaborating with other business functions. To manage this expenditure most effectively, finance executives think collaboration with the legal team, as well as management/strategy, will be valuable.
Concerns with data privacy—the cost of compliance as well as penalties for non-compliance—are a core focus of executives’ integrated risk management strategies too. Respondents believe managing cyber threats and data privacy is the most important activity to collaborate on to achieve integrated risk management, different from the global top choice of identifying emerging risks in the organisation. To support this, they want more involvement in customer data privacy management strategies and compliance with marketing and sales and vendor compliance analysis with procurement and supply chain (listed among the top three activities for greater involvement with each function).
Legal, risk and compliance costs are among the most challenging cost components to manage (cited by 47% of respondents compared with 26% globally)
The concern for compliance is evident in the skills they deem necessary for future finance executives too among the top three is a deep knowledge of law and compliance. This was significantly more important in Germany, with 49% placing the skill in their top three compared with 32% in other European countries and 33% elsewhere globally.
Rapid response
For executives in Germany, collaboration is also important for another element of integrated risk management—rapidly responding to unexpected disruptions. They aim to tackle this through greater involvement in customer conflict management strategies with marketing and sales; quality management of products along the supply chain with procurement and supply chain; and development of health and safety strategies with operations.
Respondents in Germany lag behind other countries in terms of the degree of automation they anticipate—only 24% believe that 40% of the role of the CFO will be automated in the next five to ten years, compared with 48% elsewhere globally.
But to enable finance executives in Germany to steer the business in this environment through collaboration, there are impediments to overcome. In Germany, technical challenges seem to supersede cultural ones. Incompatible processes and digital systems and no formal process for information sharing on a periodic basis are the biggest issues they face in trying to have more and better collaboration with other business functions outside of finance. These were ranked above limited understanding of common goals, differences in department culture, and resistance from department heads and employees.
Given the technical challenges, emerging technologies may offer a solution. They believe cloud computing and automation of day-to-day activities using artificial intelligence and digital voice assistants will most enhance collaboration across business functions in the near future. Automation could pave the way for German finance executives to free up time to spend on more strategic activities, collaborate with other functions and drive operational decisions across the business. But respondents in Germany lag behind other countries in terms of the degree of automation they anticipate—only 24% believe that 40% of the role of the CFO will be automated in the next five to ten years, compared with 48% elsewhere globally.
Despite a traditional approach to many aspects of the finance function, our research highlights a significant willingness from German CFOs and their direct reports to roll up their sleeves and immerse themselves in a variety of company departments and tasks. Responding to the regulatory climate especially GDPR with its significant impact across functions as well as overall cost of compliance—is a timely example of how collaborating to align strategy and execution can benefit the entire organisation.
