1. Preparing for Growth The Accenture 2013 CFO Survey

2. A cautious optimism is appearing among CFOs and other senior finance executives. 1 New survey research1 from Accenture shows 61 percent of senior finance executives projecting annual revenue growth of five percent or more by 2015, and one-quarter of respondents project growth of at least 10 percent (see Figure 1). This optimism, however, is tempered by frustration, as finance executives seemingly find their ability to make confident investment decisions hindered by their inability to accurately forecast their business performance in a continuously uncertain business environment. The Accenture study2 included 1,250 senior finance executives (of whom 24 percent were Chief Financial Officers). They were headquartered in nine countries and represented 12 industry sectors. Among respondents, 45 percent reported that they are more optimistic about prospects for their companys growth this year compared to last, and 79 percent said they would, in part, reinvest in their businesses and/or fund acquisitions using their cash holdings. Finance executives in Brazil (73 percent) and India (67 percent) demonstrated the most optimism, while those in the United Kingdom were the most inclined to say they were less optimistic this year than last. This optimism is far from uniform. While 45 percent of respondents are more optimistic about their companys growth prospects this year, 27 percent are less optimistic, as seen in Figure 2, and 28 percent expect growth to remain stable. There were also significant variations from region to region and country to country; Brazil, for instance, was significantly more certain about growth prospects for 2013 than it was for 2012. From an industry standpoint, pharmaceutical and energy companies are the most optimistic about their growth prospects for this year compared to last. 3. 2 Figure 1: Longer-term growth expectations What is your company's expected revenue growth rate for 2015? Base = All Respondents; n=1,250 Source: Accenture, 2013 5% decline or more 1-4% decline No growth 1-4% growth 5-9% growth 10% growth or more 26% 35% 27% 7% 3% 2% 0% 5% 10% 15% 20% 25% 30% 35% 40% Thinking about your companys growth prospects for 2013, would you say you are: Much more optimistic compared to last year More optimistic compared to last year Less optimistic compared to last year Much less optimistic compared to last year Same 8% 19% 28% 35% 10% 0% 5% 10% 15% 20% 25% 30% 35% 40% Base = All Respondents; n=1,250 Source: Accenture, 2013 45% are more optimistic 27% are less optimistic Figure 2: Optimism about growth prospects for 2013 4. 3 Country N=1,250 Brazil 8% China 8% France 8% Germany 12% India 8% Italy 8% Spain 8% United Kingdom 20% United States 20% Job Title N=1,250 Chief Financial Officer 24% Finance Director 22% Head of Finance 16% EVP Finance 4% VP Finance 9% Finance Executive 12% Managing Director of Finance 9% Deputy Managing of Finance 3% Industry N=1,250 Automotive 5% Banking 11% Communications 9% Consumer Goods 10% Electronics & High Tech 8% Energy 9% Industrial Equipment 6% Insurance 6% Health Providers 9% Pharma & Biotech 9% Retail 10% Utilities 8% Revenue N=1,250 $100 - $249.9 million 1% $250 - $499.9 million 10% $500 - $999.9 million 17% $1 - $4.9 billion 18% $5 - $9.9 billion 19% $10 - $19.9 billion 16% $20 - $49.9 billion 12% $50+ billion 7% *Unweighted Source: Accenture, 2013 Survey sample structure* 5. 4 Figure 3: Assessment of visibility into business performance While CFOs and senior finance executives seek to strike a balancemanaging spending and cutting costs while recognizing the pressure to return cash to shareholdersthey report facing barriers that may prevent them from managing business performance as effectively as possible. A major concern is that more than one in four respondents (28 percent) said they had little or no information to predict the performance of their business in 2013, and a further 54 percent said they had only about half of the information needed to provide visibility into performance (see Figure 3). Economic uncertainty remains one of the CFOs greatest barriers to forecasting business performance, but finance executives also point to commodity prices, volatility and shifting consumer expectations as leading factors affecting their ability to forecast, as seen in Figure 4. How would you rate the visibility and, therefore, predictability of your companys business performance in 2013? 18% 54% 4% 0% 10% 20% 30% 40% 50% Base = All Respondents; n=1,250 Source: Accenture, 2013 24% 60% High visibility: Nearly all data visible that would indicate performance Medium visibility: About half of the information that could give us an indication of overall performance is visible Low visibility: Too little information available to monitor performance No visibility: Lack information to have visibility needed to predict performance Figure 4: Factors affecting ability to forecast future business performance Please rank the following in terms of their impact on your ability to forecast future business performance. Base = All Respondents; n=1,250 Source: Accenture, 2013 Weak tools and processes Inadequate management information Volatility Commodity prices Shifting customer expectations 5% 10% 17% 19% 13% 35%Economic uncertainty 0% 5% 10% 15% 20% 25% 30% 35% 40% 6. 5 7. 6 Investing in the finance function Among respondents, there is broad support for investing in the finance function over the next two to three years, although priorities differ as to where and how investments should be directed (see Figure 5). Nearly two-thirds (64 percent) of respondents said they would invest in upgrading the skills of their finance professionals and/or systems to support planning, budgeting and forecasting. Other top investment priorities in finance included systems to support transaction processing, and providing increased visibility to revenues and expenses. On a country basis, 65 percent of respondents of German companies indicate investing in upgrading the skills of finance professional staff is a priority for the finance function, while 59 percent of respondents of Chinese companies indicate investing in systems to support planning, budgeting and forecasting is a priority. Among industries, 63 percent of respondents from pharmaceutical companies say that upgrading the skills of finance professional staff is a priority for the finance function. When asked what they would do with cash reserves within the next year, fewer than one in four finance executives (23 percent) said they would retain cash. Rather, the majority of companies (79 percent) plan to use their cash mainly to reinvest in the business and/or fund acquisitions (see Figure 6). China-based companies are most likely to use cash to reinvest in the business (67 percent), while Germany-based companies are most likely to fund acquisitions (72 percent), as seen in Figure 7. Executives, however, are also under pressure to divert cash from growth generation initiatives, with 58 percent saying they will return some of their cash to shareholders through stock repurchases and/or dividends, and 32 percent said they will use some cash to repay debt (see Figure 6). Although some companies may hold their cash, respondents acknowledge some of the risks inherent in holding large cash reserves (see Figure 8). These risks include limiting innovation and new product development (cited by 52 percent) and restraining growth opportunities (49 percent). Other risks include limiting market share expansion (46 percent), geographic expansion (42 percent) and new market entry (40 percent). Figure 5: Investing in the finance function 64% said invest in finance skills and/or systems to support planning, budgeting and forecasting Which of the following are priorities for the finance function over the next two to three years? Multiple responses. 0% 5% 10% 15% 20% 25% 30% 40% Base = All Respondents; n=1,250 Source: Accenture, 2013 Outsource finance activities to enable business strategy and reduce costs Broaden our shared services footprint Adopt cloud capabilities Develop a truly globally integrated finance function supporting all businesses and geographies Upgrade our treasury management capabilities Reduce the amount of time finance staff spend on low-value activities Invest in systems to support business analytics Reduce the overall cost of finance Provide increased visibility to revenue and expenses to support business growth and profitability Invest in systems to support transaction processing Invest in systems to support planning, budgeting and forecasting Invest in upgrading the skills of finance professional staff 35% 36% 37% 38% 40% 44% 31% 33% 34% 35% 15% 24% 45% 50% None of the above 1% 8% 8. 7 Figure 6: How finance expects companies to use their cash Which of the following do you plan to do with your companys cash within the next year? Multiple responses. 32%Repay debt 58% Increase cash returned to shareholders through stock repurchases or dividends 79%Re-invest in the business and/or fund acquisitions Hold it 23% 0% 10% 20% 30% 40% 50% 60% 70% Base = All Respondents; n=1,250 Source: Accenture, 2013 80% Figure 7: Finances use of cash to reinvest in the business or fund acquisitions, by country Which of the following do you plan to do with your companys cash within the next year? Multiple responses. Reinvest in the business Fund acquisitions Base = All Respondents; n=1,250 Source: Accenture, 2013 0% 10% 20% 30% 40% 50% 60% 70% 80% 33% 55% 55% 55% 46% 41% 41% 51% 60% 59% 72% 41% 65% 61% 49% 67% 32% 52% Brazil China France Germany India Italy Spain UK USA 9. 8 Figure 8: Risks of holding cash Exposes company as a takeover or acquisition target Weakens brand and reputation Limits talent acquisition Limits value creation for shareholders Limits new market entry Limits geographic expansion Limits market share expansion Limits growth opportunities Limits innovation and new product development What do you see as the greatest risks to your company in holding cash? 0% 10% 20% 30% 40% 50% 60% #1 risk #3 #4 #5 Base = All Respondents; n=1,250 Source: Accenture, 2013 5% 4% 5% 13% 9% 12% 13% 23% 15% 2% 5% 7% 12% 12% 14% 14% 11% 18% 4% 8% 13% 9% 13% 11% 15% 9% 12% 1% 2% 3% 2% 5% 3% 3% 3% 3% 2% 3% 4% 3% 1% 2% 1% 3% 4% 52% 49% 46% 42% 40% 39% 32% 22% 14% #2 10. 9 A major concern for many companies appears to be whether to pursue organic growththrough launching new products, entering new markets and other measuresor inorganic growth, through the acquisition of other companies or lines of business. Companies do not expect growth to come from one line of business, from one region or from a single acquisition. Rather, they seem to view growth coming from a combination of organic and inorganic initiatives, with 41 percent of respondents identifying both organic and inorganic developments as the primary drivers of growth for their companies this year. As seen in Figure 9, however, 36 percent of respondents see organic activities as the primary driver of growth for their company through 2013, while only 19 percent say that inorganic activities will be the primary driver of growth. Germany has by far the highest percentage of respondents (58 percent) who report both organic and inorganic growth as the primary driver of growth for their company in 2013. Among industries, pharmaceutical companies have the highest percentage of respondents (55 percent) who report both organic and inorganic growth as the primary driver of growth for their company this year. Whether the executives surveyed are pursuing organic or inorganic growthor a combination of the tworespondents believe their companies are ready and willing to pursue growth opportunities. Fully 95 percent said they believe their company is at least somewhat well- positioned to pursue an effective organic growth strategy (see Figure 10), and 94 percent believe their company can pursue an effective inorganic growth strategy (see Figure 11). Businesses are demonstrating a notable desire to expand both their product offerings and their global footprint. Forty-seven percent say that entering a new product or service market is a priority for inorganic growth, and 54 percent indicate that entering new markets or geographies is a priority for organic growth. Respondents, however, identified a number of potential obstacles to executing on these growth strategies. The primary obstacles to inorganic growth, as seen in Figure 12, are the availability of financing for deals (55 percent) and the paucity of attractive acquisition targets (52 percent). Other barriers cited in the pursuit of inorganic growth are the high prices of potential acquisitions (49 percent) and concerns about the companys ability to successfully integrate new acquisitions (39 percent). Respondents from Brazil and India report being very well positioned to pursue an effective inorganic growth strategy, the highest among all countries. Finance executives seeking organic growth appear to face a different set of hurdles (see Figure 13). The biggest barriers to organic growth, as cited by survey respondents, are pricing and cost competitiveness (49 percent), competitive dynamics (42 percent) and general economic uncertainty (41 percent). France is the only country where 100 percent of respondents believe their company is at least somewhat well positioned to pursue an effective organic growth strategy; in Brazil 58 percent report being very well positioned, the highest among all countries. Pharmaceutical companies are the most confident in their positioning to pursue an effective organic growth strategy, with 52 percent of respondents from that industry describing themselves as very well positioned. Sources of growth 11. 10 95% believe their company is at least somewhat well positioned How well positioned is your company to pursue an effective organic growth strategy? 1% 5% 58% 37% 0% 10% 20% 30% 40% 50% 60% Very poorly positioned Somewhat poorly positioned Somewhat well positioned Very well positioned 70% Base = All Respondents; n=1,250 Source: Accenture, 2013 Figure 10: Organic growth positioning How well positioned is your company to pursue an effective inorganic growth strategy? 1% 6% 60% 34% 0% 10% 20% 30% 40% 50% 60% Very poorly positioned Somewhat poorly positioned Somewhat well positioned Very well positioned 70% Base = Pursuing Inorganic Growth; n=1,227 Source: Accenture, 2013 94% believe their company is at least somewhat well positioned Figure 11: Inorganic growth positioning Figure 9: Primary drivers of growth What do you expect will be the primary driver of growth for your company through 2013? 4% 19% 36% 41% 0% 5% 10% 15% 20% 25% 30% 35% 40% N/A, no growth Inorganic Organic Both organic & inorganic 45% Base = All Respondents; n=1,250 Source: Accenture, 2013 12. 11 Figure 13: Barriers to organic growth Which of the following are significant barriers to achieving your organic growth strategy in 2013? Multiple responses. 35% 41% 49% 0% 10% 20% 30% 40% 50% 60% Base = All Respondents; n=1,250 Source: Accenture, 2013 30% 34% 42% 34% Other Lack of experience or capability in target markets Operational efficiency Skills shortages Identification of appropriate markets Product innovation Input costs General economic uncertainty Competitive dynamics Pricing/cost competitiveness 23% 5% 1% 31% Figure 12: Barriers to inorganic growth Which of the following are significant barriers to achieving your inorganic growth strategy in 2013? Multiple responses. 1% 39% 49% 55% 0% 10% 20% 30% 40% 50% 60% Ability to successfully integrate new acquisitions Pricing levels for acquisitions Ability to find attractive targets Availability of financing for deals Base = Pursuing Inorganic Growth; n=1,227 Source: : Accenture, 2013 30% Lack of capability to effectively integrate acquisitions Ability to fund acquisitions with cash Other 30% 52% 11% 13. 12 14. 13 Conclusion Although Chief Financial Officers and other senior finance executives who participated in the study are seemingly more optimistic about the future, their optimism is tempered by ongoing economic uncertainty. We see three characteristics that tend to distinguish organizations well positioned to prosper: 1.Execution against a clearly defined strategy for the use of cash that can balance the need to invest in growth opportunities, return funds to shareholders, pay down debt and maintain adequate reserves as one means of protection towards future economic uncertainty 2.Investment in tools and technologies that can help them to more accurately forecast performance, identify risk and opportunities and then adjust their investment decision-making accordingly, positioning them to potentially take advantage as the global economy slowly improves 3.Adoption of a very disciplined performance management process for tracking growth investments which includes, among other elements, clear definition of the criteria for abandonment of investments under different economic scenarios to facilitate disciplined management of the growth investment portfolio One of the keys to success for many CFOs may be their ability to balance competing priorities for investment, cost reduction and debt repayment, as well as the continuing pressure to return cash to shareholders. Organizations with good visibility, supported by strong analytics capabilities, may be better positioned to support profitable growth; however many lack the visibility they need to support their performance management. The ability to deliver timely, actionable data that can improve decision-making in an uncertain environment will be among the more critical challenges for CFOs going forward. 15. 14 References 1Senior Finance Executives Cautiously Optimistic about Business Prospects, Accenture, July 2013 2Ibid About the authors Donniel Schulman is managing director- Accenture Management Consulting, Finance & Enterprise Performance, leading the practice globally. With more than 20 years of industry and consulting experience, he has a passion for working with CFOs and senior finance executives to help them achieve high performance by increasing the shareholder value they deliver. He teams with them to forge a connection between their strategic intent and the positive outcomes they seek by delivering solutions that enable their organizations finance vision. David Axson is managing director- Accenture Management Consulting, Finance & Enterprise Performance. He has more than 28 years of experience in finance, industry and entrepreneurial pursuits working with clients in more than 40 countries, and leads the thought leadership efforts for Finance & Enterprise Performance worldwide. Disclaimer This document is intended for general informational purposes only and does not take into account the readers specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this document and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals. 16. Copyright 2013 Accenture All rights reserved. Accenture, its Signature, and High Performance Delivered are trademarks of Accenture. 13-1731 / 02-6575 About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 266,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Its home page is www.accenture.com. About Accenture Management Consulting, Finance & Enterprise Performance Accenture is a leading provider of management consulting services worldwide. Drawing on the extensive experience of its 17,000 management consultants globally, Accenture Management Consulting works with companies and governments to identify and deliver value by combining broad and deep industry knowledge with functional capabilities to provide services in Strategy, Analytics, Finance & Enterprise Performance, Marketing, Operations, Risk Management, Sales & Customer Services, Sustainability, and Talent & Organization. Accenture Finance & Enterprise Performance consulting services help finance organizations maximize the value they create for their enterprises. For more information, please visit us at www.accenture.com/fep. 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