NAIROBI, Kenya, Oct 19 – Local companies will need to re-evaluate the role of their finance teams in order to remain relevant and competitive in the rapidly changing business environment, according to a new survey report.
PricewaterhouseCoopers (PwC) on Wednesday launched its 2011 Finance Benchmarking Survey that compared Kenyan companies’ finance functions and their ability to provide business insight, efficient service, compliance and control.
“Looking at our current economy with the drastic decline of the shilling, rise in inflation among other macroeconomic currents, the finance functions have much more to think about. It is a call for a new order for them in terms of the demands from leadership,” said PwC Country Senior Partner Kuria Muchiru.
The survey showed that just 39 percent of finance teams in Kenya are perceived to play a key role in the strategic planning process, while 48 percent are seen primarily as a reporting function.
PwC Advisory Director Jeff Aludo noted that communication gaps between finance departments and company leadership have greatly hindered finance functions.
“When we talked to the CEO’s they said ‘we’re looking for more insight,’ then when we go to the CFO’s they say ‘we’re heavily transactional-laden right now.’ There’s got to be a balance, the two offices need to be talking,” he noted.
With over 30 percent of finance staff in Kenya, on average, lacking formal finance qualifications, Aludo said, retaining the right talent was a major challenge for local firms that incur unnecessary costs as a result.
The analysis revealed a significant gap between the capabilities and cost-efficiency of the top quartile and typical finance teams.
Typical finance functions in Kenya operate at 0.7 percent of revenue, whereas leading companies are able to bring down their finance costs to 0.2 percent of revenue.
“Globally, it is slightly higher because they are at 78 percent in providing strategic planning advice, meaning that they are investing more in technology and people skills,” Aludo said.
Some finance teams in Kenya take up to 20 days to close and report, whereas leading organizations are able to do this in 8 days, the survey revealed.
With CEOs having to make real-time decisions on a daily basis, working with slow financial departments, Muchiru said, makes it extremely difficult for the organizations to monitor and react to any changes in their operating environment let alone forecast upcoming trends.
Aludo stressed the need for stricter regulations and controls, due to the current macroeconomic trends and entry of multinational companies that will require good corporate governance and best practice in the local business environment.
“Our regulators are now realizing the vulnerability of some of the similar circumstances that affected the West and therefore now want to make sure that we cushion ourselves. We now have companies that are coming into this market space that are already Sarbanes-Oxley-driven,” he said.
Ultimately, Aludo said, local CFOs and their teams will need to find a balance the increasingly competing demands to provide business insight, transactional efficiency and compliance and control processes, by assessing their strengths and weaknesses.