CFO SENTIMENT STUDY - DHJJ...LET THE NUMBERS SPEAK: BRINGING FP&A COMPETENCIES TO SALES & MARKETING 9 ... Technology is changing the way business is conducted across the enterprise,

CFO SENTIMENT STUDYOperational Excellence: The CFO’s Mandate in 2019

PUBLISHED JANUARY, 2019

IN COLLABORATION WITH:

© 2019. The CFO Alliance. All Rights Reserved.

2019 CFO SENTIMENT STUDY REPORT2

2019 CFO SENTIMENT STUDY REPORT 3

TABLE OF CONTENTS

ABOUT THE STUDY 4

OPERATIONAL EXCELLENCE: THE CFO’S MANDATE IN 2019 5

SURVEY PARTICIPANT DEMOGRAPHICS 5, 6

THE CFO FOCUS: EXECUTING STRATEGY & MEASURING SUCCESS 6

THE HUMAN CAPITAL EQUATION: CONNECTING WITH TODAY’S WORKFORCE 7

THE CFO: LEADING THE CHARGE TOWARD DIGITIZATION & AUTOMATION IN OPERATIONS 8

FINANCE’S MANDATE FOR OPERATIONAL EXCELLENCE 8

LET THE NUMBERS SPEAK: BRINGING FP&A COMPETENCIES TO SALES & MARKETING 9

GROWTH THROUGH STRATEGIC PARTNERSHIPS, JOINT VENTURES & ALLIANCES BRINGS NEW ENTERPRISE RISKS TO LIGHT 10

AIMING FOR IMPACT: FINANCING INNOVATION & MEASURING RESULTS 11

INCREASING DEMAND FOR ANALYTICAL SKILLS MAKES THE CASE FOR INVESTMENTS IN LEARNING & DEVELOPMENT 11

WHERE ARE THE WINDFALLS FOR THE CFO IN 2019? 12

THE MODERN CFO: COMPETING IN 2019 AND BEYOND... 13

ABOUT THE CFO ALLIANCE 14

ABOUT INSPERITY 14

ABOUT WORKDAY 14


ABOUT THE STUDYThe CFO Alliance, a leading network of more than 7,000 CFOs and qualified finance executives representing Middle Market and emerging enterprises from all industries, geographies, sizes, and structures, conducted its 9th annual CFO Sentiment Study to provide insights into the strategic planning and financial outlook of CFOs for 2019.

Our Study is unique in that it is designed to offer insights into how today’s CFOs plan to best position their enterprise to address challenges and capitalize on opportunities in 2019. Over five-hundred-eighty (580) senior financial executives across North America participated in this year’s Study, offering in-depth perspectives on how they plan to drive growth and performance for their enterprises in the face of decreasing confidence in the global economy, increasing talent shortages, and disruptions to industry and business model norms in 2019.


OPERATIONAL EXCELLENCE: THE CFO’SMANDATE IN 2019 The role of the CFO continues to expand beyond the numbers with increasing influence and responsibility into Operations through the use of technology, data and analytics.

CFOs believe enterprise success in 2019 will be defined in part by their ability to tackle these eight (8) critical areas of opportunity and issue:

WHAT GETS MEASURED GETS DONE: EXECUTING THE STRATEGY & MEASURING SUCCESS

THE HUMAN CAPITAL EQUATION: CONNECTING WITH TODAY’S WORKFORCE

TECHNOLOGY & THE CFO: LEADING THE CHARGE TOWARDS DIGITIZATION & AUTOMATION ACROSS OPERATIONS

FINANCE’S MANDATE FOR OPERATIONAL EXCELLENCE

LET THE NUMBERS SPEAK: BRINGING FP&A COMPETENCIES TO SALES & MARKETING

GROWTH THROUGH STRATEGIC PARTNERSHIPS, JOINT VENTURES & ALLIANCES BRINGS NEW ENTERPRISE RISKS TO LIGHT

AIMING FOR IMPACT: FINANCING INNOVATION & MEASURING THE RESULTS

INCREASING DEMAND FOR ANALYTICAL SKILLS MAKES THE CASE FOR INVESTMENTS IN LEARNING & DEVELOPMENT

If the Middle Market is any indicator of how larger enterprises will perform, Wall Street and Main Street should brace themselves for a roller coaster ride in 2019. While nearly ⅔ of Study participants feel that the U.S. economy will remain strong or extremely strong in 2019, there is a dramatic decline in confidence in the global economy. Last year, more than 75% of survey respondents characterized their confidence in the global economy as strong or extremely strong, over ⅔ of this year’s respondents did a complete reversal on this topic and characterized their confidence in the global economy as weak or extremely weak. In addition, this year’s results also showed a marked decrease in commitment to increasing enterprise margins and earnings, with only about 50% committing to increased margins and about 60% increased earnings, a fifteen (15) percentage point drop from last year’s positive sentiment in both. At the same time, CFO respondents remain bullish on the overall performance of their

STUDY PARTICIPANT DEMOGRAPHICS-Enterprise Size and IndustryOur 9th annual CFO Sentiment Study identifies opportunities and issues faced by our 7,000+ CFO Alliance Members throughout the year. The CFO Alliance Operating Team and Global Advisory Board put a great deal of thought to the questions asked in our Annual CFO Sentiment Study. Our questions are meant to be thought-provoking and have a sense of predictability. Our Members are forward thinkers and embody the Modern CFO.www.thecfoalliance.com/becomeamember

The data collected represents a large cross-section of respondents representing 580 enterprises. Those surveyed are from all geographical areas of the United States and Canada with the largest concentration, (nearly 1/3) from the northeast region of the U.S. 20% of the participants in the 2019 Study hold finance leadership positions at enterprises with annual revenues of greater than $250 million.

GEOGRAPHIC DISTRIBUTION OF SURVEY RESPONSES

RANGE OF REVENUE

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respective industries, with almost 75% believing that their industry remains extremely strong or strong, and are equally confident in their enterprise’s ability to access capital and/or credit, if needed.

1 EXECUTING STRATEGY & MEASURING SUCCESS

Continued advancement and evolution of the role of the CFO means increasing impact across the enterprise. Similar to last year’s sentiment, over 75% of the respondents reported that their roles will become more strategic in 2019, with an emphasis on driving operations: talent, technology and performance across the enterprise. The CFO position has now moved well beyond the domain of pure financial oversight and the numbers. The Modern CFO will be expected to be heavily involved not only in Finance, but also in Operations, Sales, Marketing, HR, and Risk Management. This current Study confirms that most finance executives now view themselves comfortably in this broader role, and in particular consider operational improvement as part of the finance mandate. Their mission, as one finance executive tells us, is to “build relationships with operations and to provide them the data they need—not what we think they need.”

“The CFO role continues its evolution as one of the most visible and impactful C-level positions, making aspiration for the role of CFO a potential career ambition for a broader population of young professionals.”

As finance professionals take on more operational understanding, they are able to develop a career path that helps them move across the enterprise. It is clear that the key to CFO success in 2019 is to embody a combination of financial skills, strong leadership and communication skills, and business and operational acumen.

The trend continues of Finance working to find efficient ways to bring and communicate finance data to the rest of the enterprise with better, more timely data and user-friendly dashboards. Staying on top of trends and making sure that they, their finance team members, and colleagues across the enterprise (Sales, Marketing, HR, IT, Ops) have the right investment in technology are a key focus for our Survey participants in 2019. Nearly half of the Survey respondents have committed to regularly meeting face-to-face or

SURVEY PARTICIPANT DEMOGRAPHICS-Enterprise Type and Industry

Those surveyed were Members and prospective Members of The CFO Alliance, with primary operations or headquarters in the United States. The Survey answers were collected from November 23, 2018through January 4, 2019.

Most of the participants’ enterprises employ between 50 and 5000 full-time employees. and nearly 60% of the participating enterprises in this Study are privately held enterprises that have neither venture capital nor private equity investors.

The CFO respondents to this Survey view themselves as operational leaders. In fact, more than 40% said that their duties not only include finance and operations but also oversee technology, risk management, legal ,and human resources. Further, over 75% of the participants say that they expect their role to become even more strategic during 2019.

Survey respondents mostly represent the following industries:

I N D U S T R I E S R E P R E S E N T E D Professional ServicesSoftware/SaaSBanking/Investment Banking/InvestingManufacturing- IndustrialNonprofitConstruction, Engineering and ArchitectureInformation Technology and ServicesDistribution, Logistics and WarehousingManufacturing- ConsumerBiotechnology and PharmaceuticalFood & BeverageHospital & Health CareHospital & Health Care - (Non-profit)InsuranceMarketing, Public Relations & Communications

TYPE OF BUSINESS


via video conference call (if remote/multi-location) in order to align technology initiatives with all enterprise, department and team goals.

2 THE HUMAN CAPITAL EQUATION: CONNECTING WITH TODAY’S WORKFORCE

One of the main areas of expansion for the role of the CFO is broader and more visible operational leadership, while playing a critical role in the war for talent across the enterprise. CFOs embrace that, in 2019, change remains the only constant. Work requirements will continue to be redefined in 2019, and technology and automation will continue to change the face of the workforce of the future. In the face of rapidly shifting customer expectations, technological disruption, and regulatory developments, the question is no longer whether the workforce is being transformed, but how quickly, how to keep pace, and how to deliver strong enterprise results in this new environment.

Most CFOs believe that their employees need to have both relational agility and versatility as core competencies in order to effectively navigate both the internal hallways and the clients/customers their enterprises serve. With this in mind, CFOs will continue to work with their leadership counterparts to define the enterprise’s purpose, embed it into talent processes and measure progress in how effectively it is instilled into day-to-day operations. More than 60% of the CFOs surveyed intend to invest additional time and capital to overcome organizational barriers that have traditionally prevented finance and HR teams from collecting and sharing the data required to evaluate their workforce, and over ⅔ intend to bring better dashboards to HR that will bring them the types of data that finance and HR teams rely on to identify key performance indicators for employees across the enterprise. A majority of the CFOs now know that seeking to attract, motivate, and retain people through an employee value proposition built solely around financial rewards is no longer sustainable. CFOs are working tirelessly to inspire trust and to instill their values, with more than ⅔ of the CFO respondents believing that their businesses will get out in front in the war for talent by aligning what they stand for as an organization with changing stakeholder expectations in key areas including diversity, agility, ways of working and delivering value to their fellow employees and the customers they serve.


3 THE CFO: LEADING THE CHARGE TOWARD DIGITIZATION & AUTOMATION IN OPERATIONS

Finance and Operations continue to converge. Automation and efficiency are the key focus areas for CFOs in 2019. Technology is changing the way business is conducted across the enterprise, and our CFOs are leading this effort in 2019. More than 60% of the Survey participants intend to bring data and ‘the numbers’ to the rest of the business with better dashboards, a significant increase over the 20% who currently use this technology. The focus for CFOs in 2019 is no longer solely on helping develop enterprise strategy, but on overall Operations, and ensuring that everyone is executing in sync with the agreed upon financial data and KPIs in view each day. By automating finance and leveraging the power of data, CFOs are confident that they can help their enterprises more quickly and effectively unlock competitive advantages while building a culture of continuous improvement.

One of the biggest trends demonstrated in this year’s Study is that of the initiation of finance automation. Over 60% of respondents are currently using cloud technologies in a variety of ways to facilitate work (+10% over 2018), but the same percentage is planning to bring additional finance data and analytics to the rest of the enterprise via more robust and timely dashboards in 2019. In today’s environment, waiting to improve technology and the accuracy, timeliness, and utilization of data to drive decision-making and performance has become a costly hindrance when modern technology tools are generating benefits for competitors. It is especially an issue when performance, internal communication, and financial reporting deteriorate due to inadequate technological support. More than ⅓ of this year’s Study participants would allocate more than ½ of an additional $1 million investment in replacing outdated software and platforms that are putting their enterprises, its employees, and its shareholders at a competitive disadvantage – and a sustainable one at that. Overall focus in IT is on possessing the right technology as a key driver in 2019. Over 55% state that they meet regularly with their functional department leaders to align technology initiatives with specific enterprise, department, and team goals. This represents a fifteen (15) percentage point increase over last year’s results, and certainly positions the CFOs and his/her team as a ‘Champion of Change’ throughout the enterprise. While seeking the right technology, our Survey respondents continue to be taking a ‘wait-and-see’ approach to artificial intelligence and use and adoption of newer technologies, with 84% of respondent enterprises not planning to implement artificial intelligence and these related emerging technologies in the year ahead - reflecting zero change in results over last year’s Study.

4 FINANCE’S MANDATE FOR OPERATIONAL EXCELLENCE

This year’s Survey respondents stated the top area to which their enterprises would be adding talent is Operations. Unlike last year when over 50% of those surveyed felt that the performance, lack of competency,


and ‘thin’ bench strength of their existing sales talent would be the top barrier that they would overcome in order to meet or exceed enterprise revenue growth objectives in 2018, the emphasis is clearly now on Operations. Over 40% of the CFO respondents said that they expected to work more closely with Operations over any other department in 2019. Over 35% of the respondents expected broader operational responsibility than last year and almost ⅓ will lead a major business transformational project in 2019. While continuing to implement a culture of automation throughout Operations remains a key objective in 2019, most Survey respondents believe the pendulum will continue to swing back toward more human interactions based on relevant insights and value. More CFOs and their finance teams are working directly in Operations in 2019 with over ⅓ of the respondents directly overseeing and managing Operations across the enterprise. This year’s Study confirms that most finance executives now view themselves comfortably in this broader role, and in particular, consider operational improvement as part of the finance mandate.

5 LET THE NUMBERS SPEAK: BRINGING FP&A COMPETENCIES TO SALES & MARKETING

While nearly 3/4 of the CFO participants say they will commit to increasing top line revenues in 2019, more than 45% of the respondents also note that this will be the biggest challenge to their enterprises in the year ahead. Sales and Marketing remain center stage in 2019 as CFOs continue to seek, train, develop, and deploy Financial Planning and Analysis (FP&A) capabilities to measure both Return on Investment (ROI) and Return on Objective (ROO) in sales and marketing. CFOs believe that driving growth and profitability will hinge greatly upon companies’ sales and marketing efforts and nurturing the customer experience, with over 43% of financial executives indicating that their direct

“I try to walk the hallways in our HQ every morning at 7:30 AM, having impromptu conversations with employees from all functional areas of our Company. This is the best way to start my day. I have no agenda. We are people. We spend more time together each day than with our own families. Relationships matter. At the end of the day, our relationships with each other and our customers are the driving force behind our performance and our competitive advantage.” - CFO Alliance Member, CFO of a privately-held real estate development, property management and design-build company


involvement in developing and managing customer relationships will increase in 2019. CFOs and their sales and marketing colleagues continue a shift from storytelling to “story-doing”. Almost ⅓ of the CFO respondents said that meeting changing customer needs will be the top operational challenge that their enterprises would face in 2019. While more than half of the Study respondents believe that their enterprises align their customer experience with their employee experience, a majority of the survey respondents intend to upgrade their people and technology in Marketing in order to better understand their addressable markets. While many CFOs continue to shift to measuring their marketing efforts with a Return on Objective (ROO) formula rather than the more conventional Return on Investment (ROI) formula, the need for identifying and deploying talent in marketing and sales who have financial planning and analysis competency will only increase in 2019 and beyond.

6 GROWTH THROUGH STRATEGIC PARTNERSHIPS, JOINT VENTURES & ALLIANCES BRINGS NEW ENTERPRISE RISKS TO LIGHT

With over 60% of CFOs intending to drive enterprise growth through strategic partnerships, joint ventures and alliances, new realms of risk management will come to light in 2019. With this in mind, CFOs will focus their efforts to mitigate the risk of conflicts between and within the partnering enterprises to avoid clash of corporate cultures and management styles, to ensure that they understand any increased risk, liability, and exposure for all parties, to avoid mismanagement of capital and resources due to lack of understanding of each enterprise’s role in tactical execution of the agreement, and to avoid any unclear/non-specified objectives that could lead to an uneven division of labor, profits, and losses between partners.

While the top risks identified by our Study respondents are, once again this year, operational and financial in nature, CFOs do not intend to rest on any perceived laurels or past successes. Our CFOs believe that keeping up with change is something that concerns everyone throughout the enterprise. It is clear that education and communication remain the cornerstones of quality Risk Management within an enterprise. Over 85% of Survey respondents feel that they and their management teams are not prepared, or only somewhat prepared, to respond to an unexpected disruption to their enterprise. As a result, CFOs will continue to look externally in 2019 to get the guidance, support, and resources they need to achieve and maintain a successful Enterprise Risk Management Program.

When asked to name the top inhibitor to executing enterprise growth strategy in 2019, about 40% said that not having the right people in place to execute would be at the top of the list, which can certainly make or break an enterprise’s ability to leverage the strategic partnership, joint ventures, and alliances that they will depend on for growth in 2019.


7 AIMING FOR IMPACT: FINANCING INNOVATION & MEASURING RESULTS

Innovation will fuel revenue growth in 2019, with over 75% of Study respondents reporting that they will focus enterprise growth efforts on building new capabilities and products to bring to market in 2019. Given this commitment to innovation as the driving force behind revenue growth in 2019, the CFO and supporting teams remain in a critical position to ensure that they capture and utilize real-time and accurate data to track the results.

Innovation and accelerated advancements in technology are disrupting business and industry norms at a rapid pace. Finance executives have emerged as powerful digital stewards and are using data to foster new, digitally-driven business models that help the enterprise evolve and compete in an increasingly complex and noisy environment. Empowered by a unique bird’s-eye-view of their enterprises, CFOs are now looking beyond the traditional boundaries of the finance function and collaborating across the C-Suite to develop data- and insight-driven strategies—creating sustainable growth, long-term shareholder value, and profound change.

8 INCREASING DEMAND FOR ANALYTICAL SKILLS MAKES THE CASE FOR INVESTMENTS IN LEARNING & DEVELOPMENT

Over 75% of the Study participants stated that the lack of a single unified system integrating financial and non-financial data and resulting inefficiencies on the time spent aggregating and reconciling the data with little time left for analysis would be the greatest challenge the CFO and his/her accounting and finance team would face in executing their responsibilities in the year ahead. CFOs intend to overcome this challenge by investing in technology and people.

Over 60% of the Study participants plan to add talent to their teams in 2019, with almost 50% of the CFOs actively seeking talent with critical FP&A skills and competencies. While demand for technical skills in the areas of FP&A continues to outweigh the supply of such talent, technical skills alone will not be enough. The enhancement of critical soft skills remains the key driver for investments in learning and development for accounting and finance professionals. Over ½ of the Study respondents are investing at least 1/3 of their training budgets to enhance the leadership and communication skills of their teams and professionals. Being able to capture, analyze, and utilize data and the numbers is not enough, finance leaders and their supporting teams must continue to develop their communication skills and build relationships across the enterprise.

Continuous advancements in technology certainly enhance the flow, the accuracy, and the use of data to drive decision-making across the enterprise. While finance and ‘the numbers’ represent a distinct area of ‘comfort’ for today’s accounting and finance professionals, their colleagues across the enterprise – in HR, Sales, Marketing, IT, and Ops, may be less comfortable using the data and the numbers to drive decision making. This offers the CFO and supporting accounting and finance professionals the opportunity to increase their visibility, credibility, relationships, and measurable impact across the enterprise by working directly with their colleagues in these other areas to accelerate their understanding and comfort with the numbers.


WHERE ARE THE WINDFALLS FOR THE CFO IN 2019?The role of the CFO has evolved with modern business requirements driven by ever-changing economic, business, and marketplace conditions. In order to best position their enterprises to drive top line, bottom line, and shareholder value performance in 2019, today’s CFO must play a critical role in developing the strategy while steering the operations and performance across the enterprise.

Strategy:While the CEO still plays the most critical and visible role in setting strategy, the CFO not only has a seat at the table, but also has one of the most active and impactful voices. Rather than simply collecting and processing data and handing it off to the CEO or board, the CFO now plays a critical part of an enterprise’s strategy development and implementation by prioritizing the strategy and growth targets within the financing and capital boundaries of the enterprise. This ability to set financial boundaries for decisions on strategy actually provides them significant power to assist with creating a future-forward direction for their enterprise.

Operations:The CFO role and responsibility does not end with setting the strategy. The CFO has clear operational responsibilities that impact the enterprise’s ability to win the war for talent and new customers. Through the development, implementation, and acceptance of key data metrics, the CFO can bring not only the numbers, but the analyses of what the numbers are saying to influence and drive operational decisions.


No longer is the CFO stuck behind the desk. CFOs intend to be more integrated with key customers and employees. When asked to name the top operational challenge that they intended to address in 2019, more than 30% of the Study respondents stated meeting changing customer needs would take top priority. The CFO’s visibility in the customer experience is not a short-term phenomenon. Given that more than 50% of Study respondents said that their top objective for new growth opportunities was adding new customers and increasing market share, the CFO will certainly be seen and heard by the customers and in the markets they serve.

In addition, the CFO certainly understands the value of human capital and intends to play a material role in attempting to align their enterprise customer experience (their brand) with their enterprise employee experience (their culture). Given that more than half of the Study respondents stated that their top human capital concern for 2019 was the acquisition and retention of their best talent, it should be no surprise that the CFO will play a critical role in this effort. No longer a one-sided cost equation, CFOs now more than ever will drive investments of time and dollars into human capital, with the opportunity side of the equation driving these decisions. The biggest investment they will make in 2019 will be in hiring new full-time employees, with almost 60% of the Study respondents steering time and capital to that effort in the year ahead.

THE MODERN CFO: COMPETING IN 2019 AND BEYOND...2019 will be a year where relationships matter most to the CFO: relationships with their C-Suite colleagues and employees, as well as with key customers and influencers in the markets where winning is the goal. Clearly, the drive for operational excellence will be the highest priority for the majority of our CFO Alliance Members in the year ahead. However, most, if not all CFOs realize that their ability to drive enterprise performance will be dependent upon the relational capital they have amassed with their colleagues, employees, and key customers. For CFOs, relational capital is no longer a concept or KPI that can’t be measured; rather, it will be recognized in their top line, bottom line, and shareholder performance in 2019 and beyond.


ABOUT THE CFO ALLIANCE

The CFO Alliance is the leading network of more than 7,000 CFOs and qualified finance executives representing Middle Market and emerging enterprises from all industries, geographies, sizes, and structures. Membership to The

CFO Alliance is for forward-thinking, innovative finance executives who are committed to a path of constant learning, self-improvement, knowledge, experience, and insight sharing.

CFO Alliance Members are poised, sophisticated and professional. CFO Alliance Members share their knowledge, insights, advice, and counsel virtually and in-person to ‘Make Connections That Count.’ Our Members demonstrate an understanding and empathy to the challenges and opportunities of the Modern CFO. For Membership or Sponsorship information, contact us:

ABOUT INSPERITY

Insperity, a trusted advisor to America’s best businesses for more than 32 years, provides an array of human resources and business solutions designed to help improve business performance. Insperity® Business Performance Advisors offer the most

comprehensive suite of products and services available in the marketplace. Insperity delivers administrative relief, better benefits, reduced liabilities and a systematic way to improve productivity through its premier Workforce Optimization® solution. Additional company offerings include Human Capital Management, Payroll Services, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Expense Management, Retirement Services and Insurance Services. Insperity business performance solutions support more than 100,000 businesses with over 2 million employees. With 2017 revenues of $3.3 billion, Insperity operates in 73 offices throughout the United States.For more information, visit http://www.insperity.com.

ABOUT WORKDAY

Workday is a leading provider of enterprise cloud applications for finance and human resources. Founded in 2005, Workday delivers financial management, human capital management, and analytics applications designed for the world’s largest companies,

educational institutions, and government agencies. Organizations ranging from medium-sized businesses to Fortune 50 enterprises have selected Workday. For more information, visit www.workday.com

The CFO Alliance 1265 Drummers LaneSuite 106 Wayne, Pa 19087

o: 215.433.1800e: [email protected]: www.thecfoalliance.com

CFO SENTIMENT STUDY - DHJJ...LET THE NUMBERS SPEAK: BRINGING FP&A COMPETENCIES TO SALES & MARKETING 9 ... Technology is changing the way business is conducted across the enterprise,

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