The Future of Finance

What will the corporate finance department look like in the twenty-first century? Will it be staffed by CPAs, MBAs, computer information specialists? Will it even exist--absorbed instead by other departments? These were some of the tough questions 40 senior financial executives (from companies such as General Motors and Control Data), accounting educators (from schools such as Vanderbilt University, New York University and Senshu University in Japan) and CPAs (from accounting and consulting firms such as KPMG Peat Marwick, Price Waterhouse and Arthur Andersen & Co.) wrestled with for two days last April at a workshop in New York sponsored by the American Institute of CPAs management accounting executive committee. The goal of the workshop, mapping the future of financial management, was to help the committee envision the future of the finance function in businesses and thus help the Institute prepare its members for that future. As an opener, participants shared their views on the future of finance management by voting on various business management scenarios. Those with similar views were grouped in panels that constituted the management of a fictitious company; each panel member assumed a leading management role in the organization. Then each panel was asked to focus on its unique scenario, or "endstate," and to develop a business plan for that endstate: the economic and business conditions that created and support it, the problems and opportunities it faces as it strives to survive, the tools it needs to prosper and the role of the finance department in this enterprise. Each panel then had to rationalize its end-state to the others in the workshop, defend its positions from challenges and report the weaknesses uncovered by working through the exercise. The five endstates were 1. Shareholder advocate--a back-to-basics focus on costs designed to boost shareholder wealth in the short run--even at the expense of future growth. The major role of the finance department is to root out activities that fail to produce immediate returns. 2. Business team--the management style is team oriented and the corporate goal is gaining market leadership by responding to market demand and customer needs. The role of finance is to dismantle excessive controls that paralyze meaningful analysis. 3. Managing risk--management recognizes it must confront multiple risks, including swiftly changing technology and severe business cycle and financial market swings. The principal role of finance is to act as a combination of internal hedge- and venture-fund managers. 4. Outsourcing--many of the corporation's finance functions--from payroll to general ledger and tax--are handled by outside organizations. The role of the finance department is no longer routine processing; it now is focused on control and standard-setting. 5. Decentralization--core business units are run relatively independently. Finance provides high-level analytical support. When the exercise was over, some of the participants came away with more than their original vision. In developing strategies and then being forced to defend them, some participants found their finance management views had changed somewhat. Some recognized advantages in endstates they had dismissed before. Others felt their original views were bolstered. And still others said they were considering shifting their allegiances or seeking to combine some endstate features with others. The bottom line: For some participants, the two-day exercise forced them to lay down some long-held views, recognizing that the future often is not a straight-line extension of the past. COMING TO CONSENSUS As a final exercise, participants were reassigned to different panels so they had to work with new colleagues--most of whom supported different endstates. Their new assignment was to search for common ground and create accommodations for their divergent views so they could agree on a new endstate. …