By Mauro Machiaro, senior MD Accenture Italy, and Riccardo Volpati, MD Accenture Italy. From IAFEI Quarterly June 2020.
As European societies and businesses are reopening and start navigating the “new normal” (or shall we say... “never normal”), all of us are dealing with the aftermath of the lockdown and the learnings that can be drawn from it. The crisis is pervasive, deeply impacting all areas of the enterprise with no exception. A recent study from Gartner shows that only about 12% of organisations were highly prepared for the impact of coronavirus. Business continuity and disaster recovery plans have been tested by rapidly evolving challenges such as travel restrictions, and large-scale remote working suddenly became reality. Business process functions including finance, supply chain, procurement, human resources, marketing, sales and customer operations are being severely disrupted. During the lockdown days many of us directly experienced how valuable it is to count on shared values and corporate culture, trusted and compassionate leadership, flexible and digitally equipped work environments, robust and resilient business processes and effective cyber security protocols. These factors have proven very important for us to preserve our safety and well-being while trying to minimise adverse impact on the performance and value of our businesses. As we emerge from pure crisis management how can we leverage this experience to build more resilient organisations going forward? And to what extent will this apply to the role and mandate of finance leaders?
There is no single answer to such questions, as needs and priorities vary substantially across different organisations based on factors such as industry and geography, pre-Covid financial health, competitive positioning and degree of digital maturity, amongst other things. But one thing is for sure: finance is one of the predominant topics to be dealt with as part of the Covid response.
According to Accenture research on CEO sentiment, finance issues represent approximately 25% of the discussion topics they need to address as they face the crisis. in these times decisions and actions taken by CFO’s can have an immediate effect on the survival of the company, its time to recovery karma and longer-term sustainability.
In this short article, we will provide some selected highlights regarding priorities for CFO’s as they would stand in packs from downturn and accelerate recovery.
Manage total liquidity
since early March 2020 risk of financial distress became the primary concern for many finance leaders. The following table shows an analysis of the Altman Z-Score (a formula used to analyse bankruptcy risk) of the S&P 500 companies conducted by Accenture. 210 companies were in the distress zone in late March 2020.
In the short term CFO’s are given the task to secure and strengthen existing financing sources and look to create financial breathing space. As part of this endeavour they should ensure they have two capabilities supporting the core of finance and liquidity management activities:
A liquidity “control tower”: a single view of all aspects of liquidity, linking information related to receivables, payables, inventory, risk, taxes and cash flow, through a 360-degree governance framework. This helps establish targets and develop action plans, communicate and coordinate with operations, drive needed change and allocate resources. The liquidity control tower also helps the CFO manage risk and communicate effectively with banks, the investment community and other business stakeholders on measures taken and their impact.
Data and analytics capabilities: The finance function should develop programmatic ways to manage liquidity by leveraging data and analytics. Actions and impact assessments should be enabled in days as opposed to weeks or months, through dynamic scenario-based forecasting models. These models should be agile, adjusting forecast and outcomes to rapidly changing scenario inputs. Bias to action should be the fundamental underlying principle.
Pursue resilience through M&A
In phases like the current one the M&A market contracts. Deal volume in the first quarter of 2020 dropped to a seven-year low, down 33% from the year before. The sharp drop looks consistent with other economic shocks, where the decrease in deal value approached 50%. Crises often triggered consolidation in sectors that bear the hardest impact, such as the banking and travel sectors during the 2008 financial crisis.
However, companies that have strength to make M&A moves in the downturn typically outperform those who do not. In any crisis, there are selected opportunities to acquire high-quality talent, intellectual property and capabilities, often in distressed situations. For those in a position to acquire, these investments can be critical to long-term resilience while also helping distressed companies preserve capabilities and talent vs facing potential bankruptcy.
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