CSC AND CEGID PUBLISH THE 3RD ANNUAL PHI SURVEY. "2010: CYCLICAL RECOVERY OR SEA CHANGE" THE FINANCIAL FUNCTION AFTER THE RECESSION

2009 was a tumultuous year if ever there was one, with little or no visibility. Against this background, the Phi survey highlighted the need for the finance function to reinvent itself, to make a clean break with the cyclical recovery strategies of the past. Faced with an unfamiliar situation, CFOs are seeking to define and implement their strategy for dealing with the next part of the business cycle.

Until 2008, the watchwords were "grow" and "increase valuation". In 2009 urgent measures took priority. With limited tools available, CFOs had to face tumbling share prices, rarified capital resources, a debt crisis and a credit crunch, all of which dragged the world into an economic maelstrom whose end is not yet in full view. None of the standard measuring instruments worked properly in such a storm. 

A new book from I.D.E.A.S. by CSC: “Voir après la crise” ("Seeing beyond the recession")
CSC has now finalized its research on corporate strategic planning and has published "Voir après la crise" ("Seeing beyond the recession"), a work that synthesizes its various surveys. A consulting company and partner to the corporate strategy function, CSC publishes several studies a year as part of the IDEAS program (Inspiration, Debate, Executive, Annual Surveys). They analyze the trends and outlook for key corporate functions such as human resources, finance, IT systems and procurement. For each edition, our specialists interview a hundred or so executives of large companies and public institutions in Europe. The quantitative part of these surveys is then analyzed through more in-depth interviews focused on the most easily-discernible results.

A faithful representation of the enterprise's strategic functions and a tool for the post-recession period, the book anticipates the sea changes the recovery will unleash on the enterprise.

In 2010, cyclical recovery vs. sea change

Companies that think in terms of "recovery" rely on their fundamentals to relaunch their business. In this paradigm, the chief financial officer is the keeper of the "smooth recovery" strategy. Operating with little financial maneuvering room, he must optimize the efficiency of production processes so as to preserve the soundness of the company's financial structure. In most sectors, however, the "recovery" approach is insufficient. Rather, a clean break is needed, accompanied by a strengthened role for the CFO.

• The financial indicators that measure a company's performance based on the short-term criteria of the financial markets do not enable the company to protect its medium-term cash flow, and they often underestimate risk. They must therefore evolve. They must integrate, right from the moment the company sells its products and services, realistic measures of profitability, refinancing costs and risk of loss. This is the price of visibility.
• When economic conditions are favorable and competition robust, market and competitive pressures encourage emphasis on short-tem profitability. Conversely, in recessionary times, the priority shifts to managing medium- to long-term solvency so as to ensure the company's survival. 85% of the CFOs surveyed integrate the time factor into their projections. In addition, 38% of CFOs plan to revisit the time horizon so as to improve the strategic management of the company.

A paradigm shift
Surveyed CFOs were unanimous. Starting from a given threshold, an increase in short-term profitability automatically brings with it an increase in structural, medium- to long-term balance-sheet risk. To make things worse, this risk is not visible at the outset. By the time it is visible, it is too late to restore balance to the financial statements.
Amid heterogeneous signs of recovery, the choice between "cyclical recovery" and "sea change" is not mutually exclusive. Companies that manage both medium- to long-term balance sheet equilibria and short-term profitability will be able to bounce back by drawing on their fundamental strengths. Others, meanwhile, will have to adopt a new financial orientation so as to introduce the time factor into their growth strategy in a more systematic fashion. 
 

To increase visibility, the finance function must reinvent itself.

To help them define their strategic vision in an uncertain economic context, corporate executives rely on their CFOs for visibility. As a result, the finance function must adopt a new approach if it is to have an impact and anticipate post-recessionary conditions:
- 86% of CFOs are putting priority on improving data relevance;
- 84% want to be more agile in responding to the questions from their senior management.

The finance function must rise to a dual challenge: be more "useful" to its internal clients (senior management, operational managers, risk management) and ensure the company maintains the necessary medium- to long-term equilibrium in its balance sheet.

• The finance department must reposition itself on three key functions:
  - Reporting/strategy support for senior management;
  - collaboration with/monitoring of operating departments;
  - coordination with risk management.

• At the same time, CFOs must redefine their mission:
  - Maintain balance between profitability (income statement) and solvency (balance sheet);
  - Maintain balance in the internal relationship between the head office and local offices.
  - Maintain balance between the company's finances and its business development.

This transformation is evident in the figures and in the areas in which CFOs say they play an increased role. Of those surveyed, 67% said they are more active in risk management and 63% in communication and crisis management. Conversely, they are less involved in financing decisions.

Their original mission has become secondary, with only 56% and 39% of CFOs surveyed citing cash management and financing, respectively. For 95% of CFOs surveyed, financial communication in 2010 will be oriented internally, to build up visibility on the company's strategy, whereas in 2008 and 2009 it served first and foremost to support management's credibility.

Two sectors exemplify this inexorable shift: the public sector and renewable energy.

The study concluded that two sectors in particular have moved away from the traditional economic model: the public sector and the renewable energy industry.

• Government agencies, departments and ministries are undergoing a transformation as a result of the recent economic "modernization" laws, and the financial function, increasingly involved in day-to-day administration and decision-making, is feeling the impact. Its role now goes well beyond traditional budget preparation, from improving visibility on costs to mastering the details of its properties and other assets.
•  Renewable energy companies must rise to a formidable challenge. Several uncertainties make it difficult to evaluate the impact and soundness of new investments on corporate financial equilibria. The industry is young, its business model has not yet matured, and the technologies are still being developed. In such situations, CFOs play a key role. They are the guardians of the company's ratios not only vis-à-vis the outside world but also internally. They must bring to bear all of their expertise in managing the financial and economic parameters of the company. They must put the company on track for sustainable development and for a level of profitability satisfactory for all stakeholders.

Methodology
The third annual "Phi survey" was carried out in collaboration with TNS Sofres using the CATI (Computer Assisted Telephone Interview) method, between November and December 2009. Participants included 80 CFOs, finance directors and accounting managers of European companies with more than 1,000 employees. They were asked about the position, concerns, performance and responsibilities of CFOs and about their financial and accounting IT systems. 

About CSC

CSC is one of the world leaders in enterprise solutions and technology-enabled business services. The company is organized around several major lines of business, including business solutions & services and global outsourcing services, and is present in all of the principal sectors of the economy. CSC’s advanced capabilities include systems design and integration, information technology and business process outsourcing, applications software development, Web and application hosting, mission support and management consulting. With nearly 92,000 employees, CSC posted sales of €17.1 billion in the 12 months to January 2, 2009. Its head office is located in Falls Church, Va., USA. For more information, visit the company’s web site at www.csc.com.

Cegid in brief - www.cegid.fr

The leading developer of management software in France with annual sales of €248 million in 2008, Cegid counts more than 2,000 employees and 350,000 users in France and abroad. With branch offices in Paris, New York, Barcelona, Madrid, Milan, London, Casablanca, Shenzhen, Tokyo and Singapore, Cegid also relies on distribution agreements throughout the world in order to support its customers in their international growth.

Creator of solutions dedicated to enterprise performance and growth, Cegid has built its know-how on "business-specific" (retail, manufacturing, hospitality, services, wholesale, CPAs, public sector) and "functional" expertise (accounting and fixed asset management, taxes, financial management and reporting, and HR/payroll management). Cegid's products are tailored to businesses and public institutions of all sizes and are also available in "On Demand" (SaaS) mode.

With technologies that integrate naturally and meet users' industry-specific requirements, Cegid opens a new dimension in information technology: the creation of value for enterprises and those contributing to their growth.

Listed since 1986 - Euronext Paris Compartment C
ISIN stock code: FR0000124703 - Reuters : CEGI.PA - Bloomberg : CGD FP - ICB : 9537 Software
Indices : Small 90, Mid and Small 190, ITCAC and SBF 250

Press Contacts

CSC Press contacts – Anaïs Lannes – +33 (0)1 58 47 88 71 –  anais.lannes@eurorscg.fr
i&e CONSULTANTS – Cegid Press Group– +33 (0)1 56 03 13 39  – cegid.presse@i-e.fr
Cegid : Isabelle EMERARD – +33 (0)4 26 29 52 39 – i.emerard@cegid.fr