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Senior finance executives in India say recruiting, managing and retaining finance talent is the most important factor for their success. Balancing financial risks and rewards are also critical. But in a key finding from KPMG International's latest global survey of over 440 CFOs and other senior finance executives in 15 countries, including India, respondents name talent management and risk management as the two difficult finance processes to improve.
The survey, conducted biannually since 2006, sees senior finance executives striving to create intelligent finance functions by taking more proactive roles as business partners who support decision-making and contribute tangible value to the business. They need to optimise their traditional role in financial reporting and control.
KPMG's research shows that intelligent finance functions are built on a strong foundation of lean finance principles and deployment of shared service centres, enabling them to focus on pro-active finance talent management, alignment of key finance and risk activities and development of reliable reporting and forecasting capabilities. Here, we focus on talent management and finance/risk alignment, given the challenges these areas clearly present for Indian CFOs.
Changing role, new challenges
On the talent management front, the finance function's rapidly evolving role creates new challenges due to changing internal and external demands (such as new financial and regulatory reporting requirements), more diverse skill requirements (driven by new technologies and analytical needs) and more complex organisational structures. The survey reveals a sharp divide among Indian finance executives in their confidence over their finance talent management processes. Almost half of them (48 per cent) believe they are already 'very skilled' in this area. However, just under one-third (30 per cent) say they are either 'very weak' or 'somewhat unskilled' in this area.
On the risk management front, rising pressure from stakeholders and regulators since the 2008 global financial crisis has challenged companies to find new ways to balance risks and rewards. Companies need to align the diverse activities of their finance and risk departments. For example, among survey respondents in India, only 17 per cent say their financial risk management processes are fully integrated across market risks.
Given these results, improving talent and risk management should be high on the agenda for Indian finance executives - and they are. Just under half of the Indian respondents (48 per cent) have seen dramatic changes in their operating model related to risk management activities in the past two years. Most respondents (57 per cent) rank talent management as their top priority.
Owning the talent agenda
So how should Indian finance executives direct their investments in talent and risk management to build top-flight finance teams that are fit for current and future demands?
Where the talent management challenge is concerned, finance executives need to take ownership of the HR agenda and create a strategy that attracts and retains skilled finance employees.
In most organisations, finance activities are now spread among separate functions and locations: corporate reporting, finance centres of excellence, shared service centres and/or outsourcing delivery centres, and some retained local finance functions with country-specific skills to serve local reporting requirements. In these complex environments, finance executives are challenged to attract, train, manage and share employees with diverse skill sets for each finance division.
Indeed, retention has emerged as perhaps the most critical talent management area for finance teams, whether to reduce turnover among lower-skilled employees in shared service centres or to ensure leadership development among higher skilled employees.
To enable an effective talent management strategy, CFOs should take a broader view of their finance talent. Employees should be treated as one diverse pool of talent. Responsibilities and career opportunities should be clear for all people at all levels. Further, the company's approach to career paths should be broadened to create prospects for mobility across finance teams and to encourage knowledge transfer between embedded and offshore teams.
CFOs should aim to differentiate their brand by articulating the benefits of working for the finance function within the company. To keep up motivation, finance executives should recognise that the finance function itself needs to evolve and improve, by taking on additional services, outsourcing standard, low value-add finance activities and by elevating the value of its current services. This requires constant monitoring and adjusting your talent strategy to anticipate future needs and identify opportunities for employees to develop new skills so they can contribute more value, as they pursue their career aspirations.
Dealing with complexity
Finance executives have always recognised the importance of managing risk in today's complex environment. Previous KPMG surveys of CFOs clearly showed the rising importance of the risk management agenda for the finance function. Most organisations have yet to realise the benefits of closer finance/risk alignment. Successfully aligning and even integrating the two functions' objectives, activities and processes can produce:
* Better quality decisions based on balancing returns received with risks taken within pre-set risk appetite limits defined by the senior management, rather than solely based on (financial) growth, revenue, cost and margin targets
* Better, risk-weighted capital allocation methods that are aligned with the organisational strategy and commercial opportunities
* Better understanding about profitability across the business in terms of capital used and risks taken
* Cost savings for regulatory reporting, management reporting and capital management by integrating similar processes and activities (e.g. data quality management, assumption setting, modelling and data reconciliation) and by optimising technology used for these processes
* Better awareness of different stakeholder needs, paving the way for more integrated reporting (which may extend to other functions such as HR, IT, marketing and compliance).
Aligning the two functions does not necessarily require a large transformation programme. Taking small, practical and coordinated steps toward a common goal can be just as effective. In this way, each step can tackle a specific and definable issue that delivers tangible results. A good starting point is the creation of integrated management dashboards that require both finance and risk management data, forcing these departments to work together in search for the 'single version of the truth'.
Companies that succeed in aligning their finance and risk functions enjoy a sustainable reporting environment that contributes to improved business performance. The difference between those who do and those who don't will be telling in the years to come.
The views and opinions herein are those of the authors and do not necessarily represent the views and opinions of KPMG in India. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity.
Martyn van Wensveen
Global Head of Financial Mgmt, KPMG International
Rajiv Gupta
Partner, Financial Management Advisory Services, KPMG India
