Access to Finance Insiders is by invite only and includes the following:

• Access to periodic executive roundtable events
• Thought Logic Finance Insiders Quarterly Roundup
• Social gatherings in a variety of cities including Atlanta, Richmond and Nashville
• Access to Thought Logic capability leaders’ advisory content

SPRING ROUNDUP

Welcome to Thought Logic’s Finance Insiders’ Spring Roundup for 2022. In December, we talked about labor and inflation as the two biggest challenges as we looked forward into 2022. While talent retention and inflation will continue to shape our economy in the next few quarters, geopolitical tensions are fueling greater inflation because of rising energy cost. In addition, we continue to see other risks to business operations including supply chain issues and rising interest rates that will likely soften certain business sectors.

This quarters’ roundup will focus on how these challenges in our business environment will impact your organization’s finance journey. It is understandable that CFO’s will likely be more risk averse than normal since the rise of other environmental risks, but what programs and priorities should CFO’s be focused on for the remainder of the year?

INFLATION

According to the Department of Labor reports from April 12, inflation soared over the last year at its fastest pace in more than 40 years. The rising costs for food, gasoline, housing, and other essentials are squeezing American consumers and wiping out the pay raises that many people have received. Even with gradual interest rate hikes, inflation won’t slow that fast and most likely will continue to outpace the Federal Reserve’s target of 2-3 percent.

In order to enact the right levers to optimize key cash indicators, CFO’s should be doing these three things now and where possible:

1. Deep analysis of key working capital metrics (Receivables and Payables)
   
   With the easy money policies evaporating, evaluating process gaps in receivables and payables can help free up cash for long-term debt reduction, investment activities and potential product enhancements. It is not uncommon to find revenue leakage in services billing or unfavorable or outdated payment terms.
2. Transfer Pricing and Intercompany Analysis to free up cash
   
   Global manufacturers with outdated or cumbersome transfer pricing processes often leave cash on the table that can be hard to access. In addition, policies around global cash management may make it difficult to have a full transparent view of certain cash risks. Doing a thorough balance sheet review can often lead to pockets of unrestricted cash.
3. Balance Sheet and Asset Deep Dive
   
   Financial executives should be working with operations leaders to do a thorough review of assets to determine optimization opportunities. Ways to look at manufacturing plants or certain properties to determine if there are opportunities for more value-added activities may result in freeing up cash or the ability to reprioritize capital spending. In addition, performing a balance sheet review could identify opportunities to reduce long-term debt and liabilities.

TALENT

We still have not returned to a normal labor market, but as organizations determine that a competitive salary is just table stakes to vie for talent, cost pressures should ease over in the next few quarters. The challenge now, will be balancing inflation with pay rates. In Finance, there are other transformative factors that include re-shaping what is required in Finance and what the Future of Finance talent profile looks like. CFO’s should be taking note and stepping up as a leader in talent procurement and competency requirements.

1. Identify the “Right” competencies to support digital transformation
   
   It is important to outline the finance organization appropriately to help determine where the true competency gaps may lie. Trying to force-fit yesterday’s finance analyst or accounting clerk in today’s digital mold, where data science and a basic set of SQL skills can help speed to insight enable Finance to be more flexible and adaptive.
2. Work with HR on a true Benefits Review
   
   Employee benefits often account for 30% to 35% of an employees’ total compensation. The CFO has the data and ability to influence and enact change, but may not understand employee preferences like today’s Talent leaders. Therefore, it is imperative that the CHRO and CFO’s work together to optimize the benefits plan. In a Mercer study, a company wastes up to $5,000 per year, per employee on benefits that aren’t utilized or may contain no value. Finding the right balance can not only free-up cash, but may also strike the right balance to retain today’s talent and attract tomorrow’s brightest.
3. Drive a balanced Finance organization culture
   
   As we strive to a more normalized labor market, it is important to strike a healthy work-life balance in the work place. As today’s talent aims to align with their organization’s values, culture and brand, it is imperative for the CFO’s to model those behaviors for their own organization. All leaders want to win the war on talent, especially during “The Great Resignation”, so it is important that Finance leaders provide “career” care for their employees. It’s about work-life balance, career growth and having a seat at the table.

GEO-POLITICAL TENSIONS

As Covid-19 risks have slowly declined, CFO’s are still dealing with the disruption it has caused. Some affects include the increase of office vacancy rates, enabling a hybrid workforce and in addition, privacy concerns over vaccinations. Furthermore, Russia’s invasion of Ukraine has not only caused significant pressures in Europe, but oil price spikes are fueling inflation at a time where we didn’t need any other causality factors. To face the myriad political risks arising today and awaiting tomorrow, organizations need to assign responsibility for political risk management and use the right set of tools to manage and integrate it into the core of how they operate.

1. Enact and implement the right Hedging strategies
   Today it’s oil prices, tomorrow could be corn prices. It is imperative that from a geopolitical point of view and with regard to any type of crisis, it becomes about commodities and often times, foreign exchange volatility. The kind of risk you need to hedge against depends on the industry you’re in. Manufacturers are seeing increases in oil, metal and commodity prices, so they need to devise a plan for insuring against future increases in these areas if they don’t already have one. Enacting the right hedging strategy to cover that is critical to sustained business operations.
2. Use data and analytics teams to support scenario modeling
   
   With enhancements in financial planning and analysis tools, companies have a much better view of fragmented data than they have before. Finance leaders need to add political risk elements to the data sets to provide for more robust scenario modeling. Companies can highly improve their political risk management through scenario analysis, collecting data on sources of political risk, and obtaining political risk insight from external sources.
3. Update your Enterprise Risk Map
   
   Finance executives must map the impact of political risks across their company’s activities so that they can better anticipate and prepare for potential disruptions in the new reality — and mitigate their impact. The most common is integrating political risk into enterprise risk management (ERM) frameworks and processes. The other most common risk management actions taken by the global C-suite today are performing assessments of political risk exposure and recruiting individuals with political experience onto the board or senior leadership.

OVERALL

The longer-term view for Finance continues to remain intact. As stated earlier, Finance should continue to invest in more advanced analytics capabilities as scenario modeling and forecasting; utilizing more sophisticated techniques will support the business partner role so eagerly sought. Capabilities combined with external factors such as the pandemic, talent disruption and war on Ukraine will contribute to shifting the role of Finance. Intelligent Automation will continue to dominate the headlines for the foreseeable future. Organizations that have global, standardized processes will reap the benefits faster. Transaction processing will continue to be the target for automation, while other specialized areas within accounting are on the horizon. Finance investment in ERP cloud will continue to drive capital agendas in 2022 and beyond. Besides providing a backbone and foundation for digital transformation and automation growth, ERP cloud investments have increased data security and continue to enhance AI and ML capabilities.

Be on the lookout in September of 2022, as we do another pulse check on how 2022 is going.