Finance Budgets Shrinking

CFOs see company revenue likely to increase in 2012, while finance budget, staff decline.

As CFOs anticipate stronger growth this year, they’re looking to deal with that pick-up with fewer resources. Finance chiefs who work with Hackett Group, the benchmarking organization, estimate their companies’ revenues will rise 7.9% this year, but say finance operating budgets will decline by 1.5% and the number of full-time finance employees will shrink 0.8%.

“We’re in yet another year of companies projecting that their revenue is going to grow—in fact projecting larger growth in 2012 than we’ve seen over the past couple of years,” says Lynne Schneider, senior research director at Hackett. “And yet finance is not getting any more in absolute terms, which means that in relative terms they have to get more productive.”

The disparity between the expected revenue growth and the decline in finance budgets suggests finance teams will have to realize productivity gains of almost 10%, Schneider says, far above the annual 2% productivity gain Hackett’s data suggest is the norm historically.

Michel Janssen, Hackett’s chief research officer, sees two implications in the disparity between corporate growth and finance department funding. “One, the jobless recovery is still in play,” he says, adding that to the extent finance departments do hire more workers, they’re likely to be in lower-cost locations offshore rather than North America. The gap also means “huge expectations and burdens on existing staff and existing budgets,” Janssen says.

Asked about their priorities, finance executives put maintaining a competitive cost structure at the top of the list for 2012, followed by improving finance’s analytical and modeling capabilities. While those goals match last year’s, “what’s a little different this year is that financial executives told us they were really looking to improve the return on their existing investments in technology, getting more automation or recognizing that there are parts of these large systems that they have installed that they’re not using,” Schneider says. She notes that the interest in wringing more value out of the company’s existing technology goes hand in hand with finance’s budget constraints.

Finance executives see continued volatility on several fronts, with 20% citing volatility in input prices, 27% in exchange rates and 46% output prices. But the biggest swing is in talent availability, which was cited by 94% of the CFOs. “What’s been critical for finance operations is matching the skills and abilities they need with the available talent pool and matching some of the geographic aspects,” Schneider says.

Janssen links the talent volatility with the increasing practice of offshoring lower-level finance positions, which he says is hindering the development of finance executives with advanced skills in North America.




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