But the ability of European companies to capitalise on opportunities for growth may be limited by a conservative and siloed mindset among its finance leaders, a new study from The Economist Intelligence Unit suggests.
Based on a global survey of 800 CFOs and other senior finance executives, including 200 from Europe, the Middle East and Africa (EMEA), this SAP-sponsored study examines the way in which finance departments collaborate with other functions in order to manage costs, plan operations and steer company strategy. It reveals that, compared with their peers around the world, finance departments in EMEA are more siloed, less technologically ambitious and more focused on cost control than strategic guidance.
However, it is not fair to dismiss EMEA finance leaders as wholly conservative, and an increased tendency to collaborate with customers is a positive sign.
The focus of collaboration
The way in which the finance function collaborates with other departments in the business tells us much about its priorities and ambitions. In EMEA, finance executives tend to see collaboration as a means to a narrow end.
For example, when asked to identify the benefits of collaboration, only 17% of EMEA respondents pick strategic investment planning, compared with 25% of the global sample. Instead, they are more likely to cite more accurate financial forecasts as a chief benefit.
This suggests that EMEA finance leaders see their department’s role as more operational than strategic. That role may be imposed upon them: slightly fewer respondents in EMEA (81%) agree that they feel empowered to drive strategic decisions across business functions than globally (85%). It may also reflect a cost-conscious mindset that suited the recent economic climate in EMEA: the strategy applied most frequently to manage expenditure was apply across-the-board cost reduction.
This is mirrored again in the focus of EMEA finance teams’ collaboration efforts. When it comes to the procurement and supply-chain management function, for example, finance teams are today more often involved in contract negotiations with suppliers and distributors (59%) and reconciling contracts, purchase orders and invoices (58%) than in vendor selection strategies (55%) or supply-chain strategy development (56%).
They are also less inclined to engage with the management or strategy function on their thorniest cost management issues. While 44% rank technology investment costs among their hardest to manage, only 18% see a central strategy function as an important collaboration partner to manage them. This compares with 25% in Asia-Pacific and 38% in Latin America.
“It’s still complicated to deal with different departments because they all have different interests,” explains Raul Valtierra, CFO for operations in the United Arab Emirates at Tecnicas Reunidas, a Spanish engineering and construction company. “ Part of the job is to make them understand the implications of their decisions on the rest of the business, but another part of the job is to listen and understand their needs and interests, too.”
Technological conservatives
There are further signs of conservatism in EMEA finance functions’ approach to technology. For example, they are less likely to adopt emerging technologies to support collaboration such as predictive analytics for strategy development and decision support (27% v 31% globally) and automation of day-to-day work using artificial intelligence and predictive analytics (28% v 30%).
EMEA respondents are also the least likely to foresee that the role of the CFO will be automated. Only 36% believe that at least 40% of the role will be automated in five to ten years, versus 46% globally.
EMEA respondents are also the least likely to foresee that the role of the CFO will be automated. For example, only 36% believe that at least 40% of the role will be automated in five to ten years, versus 46% globally.
According to Alexander Lind, CFO at Germany-based allergy medications provider Allergopharma, there are more immediate opportunities for automation in finance than the executive function. “In the very standardised processes we have in finance, we started with a couple of pilots but we now have 15 to 20 processes that work, fully automated, in our shared-service centre,” he says. “And they work very well.”
They include, for example, the company’s daily sales report. “Sales need to be uploaded into a database and then calculations need to happen before that report is sent out to different people who are responsible for sales, so the report needs to be cut and split to give different views. That is all done by a robot,” he says.
Other automated tasks at Allergopharma include bank statement reconciliation and some of the company’s month-end reporting processes. “It’s those transactional, repetitive processes that are now quite easy to automate,” says Mr Lind. Indeed, EMEA finance departments are not complete luddites: 54% of respondents from the region say their team members are currently involved in facilitating the digitalisation of operational processes, significantly more than among their peers in Asia-Pacific (44%).
Outward perspective
A picture emerges from the survey of EMEA finance departments as being less inclined to see collaboration as a way to steer the company, compared to peers in other regions, focusing instead on matters of costs control and reporting. Finance leaders in the region also feel less empowered to direct strategy.
Does this matter? Correlation is not causation, but it is worth noting that EMEA respondents are significantly less likely not only to have experienced financial growth beyond that of their peers in recent years, but also to expect growth in the near future.
However, there is one area in which EMEA respondents are more progressive than their peers: 55% say they spend 10 hours or more a month collaborating with their customers, more than in any other region.
This is a positive sign for European firms. “External signals are increasingly important,” says Mr Lind. “I think, traditionally, CFOs have been very much internally focused, but understanding external market trends, and ideally, seeing them in advance is key. It’s about understanding what the future looks like and what that will mean for the company.”
