Despite all the talk of finance'sevolution into a more strategic partner to the business, budgets and staffingremain quite tight. This dichotomy between expandingresponsibilities and shrinking budgets is one of the key challengesrevealed in this year's “Finance Key Issues” study from The HackettGroup. The two issues that survey respondents identified as mostimportant in 2015 are Achieving and maintaining a competitivecost structure and Improving decision-makingeffectiveness.

“Overall, when we talk to business leaders outside of finance,growth is at the top of the agenda,” says Jim O'Connor, globalpractice leader, global business services and finance advisoryprograms, for The Hackett Group. “Senior management is looking atgrowth through innovation, through new products and services, orthrough expanding into new regions. And so finance is focusing onbuilding the capabilities they need to support the company'sexpected growth.”

At the same time, O'Connor recognizes, finance managers continueto face pressure to cut costs. “It's a duality in objectives,” hesays. “As finance is finding ways to be a partner to the businessand bring more value, they are also expected to operate with less,to trim staff, and to maintain a competitive cost structure.”

Pain Points in Finance Budgets and Staffing

More than two in five respondents to the “Key Issues Study” (41percent) expect their finance function's budget to decline over thenext year. On average, respondents' finance budgets grew by 0.8percent in 2013 to 2014, but the typical respondent believesfinance's operating budget will shrink by 0.1 percent in 2014 to2015. Respondents also expect the finance function's staffing levelto shrink. The average company's finance staffing fell by 0.5percent in 2013-2014, and it's expected to fall by another 0.7percent in 2014-2015. (See Figure 1, below.)

“One of the interesting parallels between last year and thisyear is that the budget is doing better than the staffing numbers,”says Lynne Schneider, senior research director for The HackettGroup. “We found that around 20 percent of organizations are seeinga staffing increase, but 46 percent expect to see a decline intheir FTEs [full-time equivalent employees]. Many finance teams aregetting a dynamic of more resources per FTE as they shift toproviding more value-added services.”

It makes sense that a finance team which has become morestrategic by automating formerly manual processes may be able toaccomplish more with a smaller staff. But Hackett's findings makeclear that the transition is far from painless.

“Asa finance organization changes, and puts more and more of thetransactional activities into outsourcing or shared services,management needs to realign staff to meet the function's charter asa retained finance organization,” O'Connor says. “For example,consider what happens if you redesign processes and put in atreasury management system. Maybe before, you rewarded treasurystaff when they knew where to get the right data and how to modelit; data analysis was their world. But now you may be asking thesame people to go out and partner with the business, to see if theycan improve the short-term cash flow forecast. And that's acompletely different skill set.

“Helping your people evolve, or outright changing some of yourpeople, is a real challenge,” he adds. “I think most companies arenot where they'd want to be with that, particularly around some ofthe higher-end business partnering skills. It's an issue companiesneed to deal with.” In fact, when respondents rated theirconfidence in their company's ability to meet an assortment ofobjectives, they gave the second-lowest rating to Align talentand skills to achieve enterprise's goals.

Overcoming this challenge requires a lot more than a simpletraining program. “'Talent management systems' is a buzzword rightnow, but it's something companies need to be focusing on,” O'Connorsays. “Inaddition to training, there's leadership development, there'sdevelopment of career paths, and there's up-front recruiting andhiring. This has been one of the hottest areas in finance overthe past three years.”

Planning and Analytics Need Work

In addition to staffing issues, the Hackett report shows thatfinance organizations are having difficulty optimizing their ITsystems. The only objective that respondents said their company isless able to meet than aligning talent with corporate goals wasMaximize return on existing technology.

“Companies are unwilling to move away from the huge ERP systemsthey've implemented,” says Schneider. “They're not going to walkaway from those investments, so they're putting a lot of small,mobile-enabled layers on top of them, hoping to get a tool they canuse a lot.”

This approach maynot be adequate. Respondents are not confident in their company'sability to Integrate planning processes and data betweenfinance and other operational areas. Nor do they feel goodabout finance's ability to Improve analytical, modeling, andreporting capabilities. To put these findings into context,O'Connor says, consider this: “When you're looking to align yourplanning with the operational areas, do you have—for example—oneconsistent volume forecast? Is it aligned across marketing,finance, and the supply chain? What about your financial forecastsand your capital structure?” He thinks most companies are doingwell, or at least fine, on the mechanics of financial reporting.Where many need improvement is in modeling and financialanalytics.

The good news is that nearly two-thirds of respondents (60percent) expect their company's planning, performance management,and business analysis processes to undergo a major or moderatetransformation in 2015. (See Figure 2, at left.) This resultcontinues a trend, O'Connor says. “Improved planning, performancemanagement, and business analysis have consistently been thehighest priority over the past three to five years.” Why? “This isprobably the area that has the most constituents external tofinance,” he adds. “If I'm in retail, for example, the head ofmerchandising is demanding better information, and quick. And muchof that information comes from finance.”

The finance capability that Hackett found to besecond-most-likely to experience a major transformation in 2015 istime reporting and payroll—“another area with a lot of externalpressure,” Schneider points out. Fourteen percent of respondentsexpect their company to undergo a major transformation of timereporting and payroll this year, while only 5 percent hold the sameexpectation for treasury management processes.

“If treasury is doing an adequate job, the rest of the businessis unlikely to be clamoring to do a better job of treasurymanagement,” Schneider explains. “But business intelligence andperformance management are processes with a lot of constituentsoutside of finance, so they're areas where finance gets continuouspressure from other executives.”

Finance Transformation Built on a StrongFoundation

Although many finance teams are struggling to meet some of theexpectations of their firm's business leaders, those expectationscan themselves be seen as evidence of the expanded capabilities ofthe finance organization. “A few years ago, general accounting andexternal reporting were the areas in which companies wereundergoing the most transformation,” Schneider says. “People weretrying to get that base data right. Until they got that foundationstandardized across the company, they couldn't make anything out ofhigher-level data analysis.

“Timeand time again we come back to the phrase 'Strengthen yourfoundation,'” she adds. “For some companies that's technology. Forothers it's getting the organization right. And that's whatcompanies have been doing over the past few years.”

In the study's rankings of the importance of key finance issues,we've noted that first and second place went to building acompetitive cost structure and improving decision-making.Meanwhile, Improving cash flow and balance sheet got thirdplace. As O'Connor puts it: “When we talk about operationalfinance, we often want to talk about strategy and decision-making.But the fact is, managing cash flows, the balance sheet, and enterprise risk, and optimizing capital structure to support the business rankedpretty high.”

As finance teams evolve into business partners and transform theprocesses that other executives rely on most heavily, financeexecutives realize that treasury and other traditional financetasks remain crucial to success. “You have to strengthen thefoundation,” O'Connor says, “with an eye on how that can contributeto growth. Risk, governance, the capital structure, and making sureyou have good cash flow and a strong balance sheet—doing well inall these areas gives the CFO confidence that you know where you'regoing to be however things may turn in other areas of thebusiness.”